Alpha and Omega Semiconductor Limited

Good afternoon and thank you for attending the Alpha and Omega Semiconductor Fiscal Q4 2025 Earnings Call. My name is Jason and I'll be the moderator today. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. Now I'd like to pass the conference over to your host, Stephen Caleo.

Good afternoon, everyone, and welcome to Alpha and Omega Semiconductor's conference call to discuss fiscal Stephen Peleo, Investor Relations Representative for AOS. With me today are Stephen Chang, our CEO, and Yifan Liang, our CFO. This call is being recorded and broadcast live over the web. A replay will be available for seven days following the call via the link in the Investor Relations section of our website. Our call will proceed as follows today. Stephen will begin business updates, including strategic highlights and a detailed segment report. After that, Yifan will review the financial results and provide guidance for the September quarter. Finally, we will have a Q&A session. The earnings release was distributed over the wire today, August 6, 2025, after the market closed. The release is also posted on the company's website. Our earnings release in this presentation include non-GAAP financial measures. We use non-GAAP measures because we believe they provide useful information about our operating performance that should be considered by investors in conjunction with the GAAP measures. Reconciliation of these non-GAAP measures to comparable GAAP measures is included in the earnings release. We remind you that during this conference call, we will make certain forward-looking statements, including discussions of the business outlook and financial projections. These forward-looking statements are based on management's current expectations and involve risks and uncertainties that could cause our actual results to differ materially. For a more detailed description of these risks and uncertainties, please refer to our recent and subsequent filings with the SEC. We've seen no obligation to update the information provided in today's call. Now, I'll turn the call over to our CEO, Stephen Chang. Stephen?

Thank you, Stephen. Welcome to Alpha and Omega's fiscal Q4 earnings call. I will begin with a high-level overview of our results and then jump into segment details. We delivered fiscal Q4 revenue results at the high end of our guidance due to better than expected demand in computing, mostly driven by tariff-related customer pull-ins for PCs and strong sequential growth in AI and graphics chips. Our consumer segment also saw strong sequential growth related to wearables and gaming. Overall, total June quarter revenue was $176.5 million. Non-GAAP growth margin was 24.4%. Non-GAAP EPS was 2 cents. Total revenue increased 9.4% year-over-year and 7.2% sequentially. As previously noted, licensing revenue wound down in the March quarter. Excluding licensing and other revenue, our product revenue was up 13.7% year-over-year and 9% sequentially. PowerIC revenue increased 25.8% sequentially and 30.2% year-over-year to a record quarterly high and now represents nearly 40% of total product revenue. The richer mix of PowerIC benefits growth margins and comes from graphics, AI, gaming, and PC markets. On July 14th, we announced an equity transfer agreement with a strategic investor to sell approximately 20.3% of outstanding equity interest of AOS's joint venture in Chongqing, China for an aggregate cash consideration of $150 million. The sale is expected to provide AOS with significant additional capital to continue investing in technology, equipment, and acquisition of assets complementary to our business operations to support key growth areas. In summary, Uncertainties regarding macroeconomy and geopolitics continue. Nonetheless, we are delivering on our commitments and advancing our transformation from a component supplier to a total solutions provider. Our goal is to leverage premier customer relationships to expand market share and increase BOM content with a broader portfolio. With that, let me now cover our segment results and provide some guidance by segment for the next quarter, starting with computing. June quarter revenue was up 29.7% year-over-year and up 17.9% sequentially and represented the majority, or 52.6%, of total revenue. These results were solidly ahead of our original expectation for mid-single-digit sequential growth and more than 15% year-over-year. As mentioned earlier, the upside was fueled by tier-related pull-ins from our PC customers and robust sequential and year-over-year growth in power solutions for AI and graphics applications. Revenue from AI and graphics reached a record high in the June quarter, driven by strong initial shipments for a new AI program. However, we can expect a digestion period in the September quarter as that initial demand is absorbed. Meanwhile, design and activities for additional AI programs remain active and ongoing. In summary, we expect the competing segment to grow low single-digit sequentially and mid-teens year-over-year in the September quarter. Sequential growth will be driven by PCs, with graphics and AI demand remaining relatively strong, though down from June's record levels. Tablet demand is expected to decline. Overall visibility remains limited given the uncertain macroeconomic backdrop and evolving trade policies. Turning to the consumer segment, June quarter revenue was down 5.8% year-over-year and up 23.9% sequentially and represented 15.1% of total revenue. The results were in line with our forecast driven by strong promotional activity in gaming as well as sequential growth from home appliances. Wearables were also better than expected. For the September quarter, we forecast a mid-single-digit sequential decline in the consumer segment driven by gaming and home appliances. but offset by continued growth in wearables. Next, let's discuss the communication segment. Revenue in the June quarter was down 1.7% year-over-year, down 5.2% sequentially, and represented 15.2% of total revenue. The June quarter results were below our guidance for flat sequential growth as a fall-off from smartphones in China more than offset growth from Korea and our Tier 1 U.S. smartphone customers. Smartphone battery PCM revenue continues to outpace the overall market, due to a combination of market share gains, a mid-shift to higher-end phones, and generally higher charging currents, driving increased bond content. Looking ahead to the September quarter, we anticipate more than 10% sequential growth for the communications segment, primarily driven by our Tier 1 US smartphone customer as they prepare for their next phone launch. Demand for China's smartphone is also expected to grow sequentially, while Korea sustains the high level achieved in the June quarter. Now let's talk about our last segment, power supply and industrial, which accounted for 16.8% of total revenue and was up 7.3% year over year and down 9.8% sequentially. The results were below our flags to slightly down sequential forecasts, primarily due to weaker than expected demand from power tools and e-mobility. ACDC power supplies and quick chargers for smartphones did increase sequentially, but it was not enough to offset the weakness elsewhere. As stated before, we are now seeing increases in quick chargers due to increased BOM content driven by higher charging currents. For the September quarter, we expect revenue to grow mid-single digits sequentially for the power supply and industrial segment, primarily driven by a slight pickup in e-mobility offset by lower ACDC power supplies. In closing, we are pleased to report that June quarter results landed at the high end of our guidance, fueled by strong demand across AI and graphics, gaming, wearables, and tariffs-related PC pull-ins. These results highlight the strength of our diversified portfolio and our ability to execute amid dynamic market conditions. Looking ahead to the September quarter, we expect further growth driven by PCs, smartphones, and wearables, as we continue to be excited by the expanding opportunities in AI and graphics. The geopolitical and macroeconomic environment remains fluid as we actively monitor evolving trade policies, capture pull-in related opportunities, and collaborate with customers to minimize disruptions. Our business fundamentals remain strong, anchored by differentiated technology, a broadening product portfolio, and deep relationships with leading global customers. We believe calendar 2025 will be a year of growth, supported by expanding end market exposure, share gains, and rising bond content. While near-term uncertainties persist, we remain focused on execution, innovation, and delivering sustainable value for our stakeholders. With that, I will now turn the call over to Yvonne for a discussion of our fiscal fourth quarter financial results and our outlook for the next quarter. Yvonne?

Thank you, Stephen. Good afternoon, everyone, and thank you for joining us. Revenue for the June quarter was $176.5 million, up 7.2% sequentially, and up 9.4% year over year. In terms of product mix, DMOS revenue was $107.3 million, up 0.4% sequentially, and 5.1% over last year. RIC revenue was $68.7 million, up 25.8% from the prior quarter and 30.2% from a year ago. Assembly service and other revenue was $0.5 million as compared to $0.4 million last quarter and $1.4 million for the same quarter last year. We did not have any license and engineering services revenue this quarter as did related contract was completed in mid-February. This compares to $2.8 million in the prior quarter and $5.1 million in the same quarter last year. Non-GAAP growth margin was 24.4% compared to 22.5% last quarter and 26.4% a year ago. The quarter-over-quarter increase was primarily impacted by the mixed improvement. Non-GAAP operating expenses were $40.9 million compared to $39.7 million for the prior quarter and $39.3 million last year. The quarter-over-quarter increase was primarily due to higher R&D engineering expenses. Non-GAAP quarterly EPS was 2 cents compared to negative 10 cents per share last quarter and 9 cents per share a year ago. Moving on to cash flow. Operating cash flow was negative $2.8 million, including $2.7 million of repayment of customer deposits. By comparison, operating cash flow was $7.4 million in the prior quarter and $7.1 million last year. We expect to refund $5 million of customer deposits in the September quarter. EBITDA excluding impairment of equity in investment for the quarter was $10.5 million compared to $15.2 million last quarter and $16 million for the same quarter a year ago. Now let me turn to our balance sheet. We completed June quarter with a cash balance of $153.1 million compared to $169.4 million at the end of last quarter. Net trade receivables increased by $6.3 million sequentially. Day sales outstanding were 15 days for the quarter compared to 11 days for the par quarter. Net inventory increased by $1.6 million quarter over quarter. Average days in inventory were 126 days for the quarter compared to 129 days for the par quarter. CapEx for the quarter was $14.3 million compared to $8.1 million for the prior quarter. We expect CapEx for the September quarter to range from $11 million to $13 million. A few words about our joint venture in Chongqing, China. On July 14th, we signed an equity transfer agreement to sell 20.3% of the outstanding shares of CQ JV for $150 million in cash, and we expect this deal to be completed in the next few months. This transaction demonstrated our commitment to the ongoing value creation for our shareholders. With this sale, our ownership in CQJV will reduce to 18.9% from 39.2%. CQJV will remain as an important wafer and packaging supplier for AOS. After this transaction, the new investor plans to inject significant amount of capital into CQJV to further expand its capacity. Based on evaluation of this sale, we recorded an impairment charge of $76.8 million in the June quarter on the U.S. GAAP basis. This impairment charge partially reversed the $358.7 million net gain that we recorded back to December 2021 after we sold 3.2% equity interest in CQJV for $26.3 million cash. With that, now I would like to discuss September quarter guidance. We expect revenue to be approximately $183 million, plus or minus $10 million. Gap gross margin to be 23.8%, plus or minus 1%. We anticipate the non-gap gross margin to be 24.4%, plus or minus 1%. Gap operating expenses to be $47.5 million, plus or minus $1 million. Non-GAAP operating expenses expected to be $41 million plus or minus $1 million. Interest income to be $0.5 million higher than interest expense, and income tax expense to be in the range of $1 million to $1.3 million. With that, we'll now open the call for questions. Operator, please start the Q&A session.

If you would like to ask a question, please press star followed by one on your telephone. For any reason you'd like to remove that question, please press star followed by two. Again, to ask a question, it is star one. Our first question is from David Williams with Ventura. Our line is open. David Williams, your line is open. Our next question is from Jeremy Kwan with Stiefel. Your line is now open.

Yes, good afternoon, maybe, if you could provide a little bit more color on the computing segment looks like you know that was very nice to see it was quite strong, especially on the Ai and graphics. Can you help us understand. The digestion that you mentioned is that related to the terror pull ins more generally or is that related to the strong initial shipment of the new Ai program and any you know. colleague can provide in terms of the AI contribution this quarter and how you see that going for the next couple of quarters would be very helpful.

Jeremy, so certainly we're excited about our AI and graphics business. This is something that's been, you know, we've been building upon and expanding in our advanced computing area. And in terms of the digestion portion, and this is a reflection of one of the AI programs that we started shipping into in the last quarter. We ship into it for a certain program and we expect to take a little bit longer for that initial shipment to be digested. But at the same time, we're also, and we commented in the column that we are excited that there are additional programs that we continue to be designed into that will help with that digestion. And at the same time, we already are seeing fresh orders as well, forecasts and backlog coming in for some of those new programs. So, again, we are going after multiple types of projects here when it comes to AI. And this is in addition to what we're doing on the graphics side. on the graphic side actually you know we you know we report also that you know we that is also fairly strong and i would say better than our original expectations with good share at the add-in card makers for the graphics cards so we're excited about both of our ai as well as graphics business great and that's very helpful and can you help us quantify this maybe in qualitative terms like how much

your total AI is as a part of the consumer segment, or maybe how much you drove growth in the current quarter, and maybe how you see that shaping out over the next, you know, maybe call it 12 to 18 months.

Yeah, we tend to look at both graphics and AI together when it comes to, because they're, those products are pretty similar when it comes to both the controller

as well as the uh the driver moss that we're selling as a total solution so those two together is somewhere on the neighborhood maybe around 25 of computing these days great that's very helpful um and maybe if i can ask a question on um the uh gross margin i i understand that you know the richer mix kind of helped with um the richer mix of the power ic helps with gross margins this quarter um it's it's kind of maybe flat next quarter, you know, revenues are a little bit higher. Can you infer from that that maybe the power IC mix, you know, shifts down a little bit here? Can you just help us understand kind of the dynamics near term and how you see this looking out, again, 12 to the 18 months, especially as, you know, some of these newer, richer, higher value products continue to ramp? Thank you.

Sure, Jeremy. Yes, in the June quarter, our gross margin improved quarter over quarter pretty nicely. So it was back up to the December 2024 quarter level. So primarily because of the better mix. Keep in mind, in the June quarter, we did not have any license and engineering service revenue compared to the March quarter, because that contract, 24-month contract, expired in mid-February. So in terms of September quarter guidance, flat compared to the June quarter on a close market. basically reflected similar mix, product mix, and similar production level. And I mean, that's the revenue. Yes, it was a little bit higher compared to the June quarter. So we still have an inventory and also other inventory we purchased from Third party foundries and subcontractors to support so so overall. We see at this point, we see a flattish. force margin in the September quarter.

and beyond the September quarter, how should we think about gross margins, especially you know. Are you expecting the mix to continue increasing or to be more increasingly favorable? Just any kind of color you can provide on that would be helpful.

Sure. I mean, we don't give a longer-term guidance. I mean, we only guide one quarter at a time. But overall, yeah, I mean, as our revenue continues to grow, then I would expect in the growth area, I would expect that we can, we expect to see a better product mix.

Got it. And one last question, if I could. Just thinking about, you know, the sale or the transfer of, you know, portion of your JV holdings, that $150 million, you know, can you, maybe rank order your priorities in terms of how you're thinking about CapEx, OpEx, maybe some M&A? Is there any thought as to shareholder returns? Yeah, just any kind of indication about how you're thinking about that cash inflow?

Sure. First of all, I mean, this $150 million cash deal, We expect to be completed in the next few months, probably by the end of this calendar year. The first payment we can expect is probably in the September quarter, and then the rest of the money is expected to come in in the December quarter. In terms of use of cash, we definitely will invest in our business growth, and we do see quite a bit of growth opportunities ahead of us. So yes, we'll invest in our technology, in our talents, and then expanding our capacity. on the plan, but that one depends on the opportunity. I'm sure our board will evaluate in terms of return capital to investors. That's all on the plan.

Great, thank you very much.

Thank you. Our next question is David Williams with Benchmark.

Your line is now open. Hey, take my questions and apologize for the first issue there. Kind of following up on the last question on the JV, if you kind of think about your balance sheet now, it feels like, and you talked about some of your utilization and third-party foundries, and that's provided some nice flexibility in the past, but I wonder how you think about adding or bringing in additional capacity internal to help you drive the margin profile

um as you as you kind of scale the business is that the place you want to be or would you prefer to have this kind of even split between third party and internal uh and and the jv sure i mean this uh definitely i mean this 150 million dollars uh transaction definitely will bring in uh you know more capital to us and then and also increases some flexibility uh in terms of uh where we want to set up our supply. Yeah, we'll continue to evaluate both internal production and purchasing from third-party boundaries. It depends on our needs, sure. I mean, after this transaction, I mean, our balance sheet definitely got strengthened. You know, we would have quite a bit liquidity and also, I mean, we created quite a bit of value for our investors. I mean, if you look at this deal, and then in the past, we recorded 300 some million dollars on our balance sheet in this equity investment. Throughout the years, including this deal, we already realized about $176 million also cash. And then we still own 18.9% even after this transaction. So I mean, I would say that, yeah, this deal definitely created a heck of valuable for our investors.

Yeah, no doubt. If my memory is certainly correct, you were $30 to $35 million total, including equipment and some cash. Is that right?

We invested $35 million cash, plus some used assembly equipment.

Yeah, that is a heck of a return. So congrats on that. Good. Thanks for the color. And I guess maybe as you think about your internal capacity and tariffs and the shipping, just kind of given how much of your customer base ends up in Asia, how do you think the tariffs are impacting your local manufacturing capacity? Is it a bigger challenge for you than maybe being outside of the country and moving outside largely? And just maybe what's your exposure, do you think, to tariffs on that side of the house?

So far, I mean, the direct impact from tariffs on us is not that significant since we don't ship a whole lot of products to the U.S. So, you know, from that front, yeah, Right now, okay, but this geopolitical and trade tension do play some uncertainties here. We'll adjust our supply chain along with our customers. Basically, we want to support our customers. our customers located and we want to support them.

Great. And maybe Steven, how do you or maybe if you think about how your customers have been reacting? Are you do you sense that there's more cautiousness out there in terms of the demand side and kind of where things lead? Or do you feel like people are generally feeling better about the second half in from the underlying demand side?

I think the answer is different depending on which market you're looking at. In terms of the tariff impact, we see that on the demand side more prominently in the computing side when it comes to notebooks and desktops. Over there, we are still dealing with how to support the pull-in efforts and with demand being pulled in by our customers in advance of any kind of policy change when it comes to tariffs. So as of right now, our customers are still wanting to produce as much as they can and get things produced and onto a boat before the tariffs change. So that's more prominently so in the PC market. We don't really see the tariff impact in other areas. Others have more other impacts. Of course, anything with AI is definitely still very hot. Graphics still continues to be strong as well, too, since the graphics cards just launched at the beginning of this year. The AI programs are just starting up also, so those are still fresh new projects. Smartphones, we're heading into the peak season with the U.S. and the Korea smartphone maker also going into peak production. So those are seasonal effects that we're seeing now.

Great. Thanks so much for your help. Certainly appreciate it, and best of luck on the quarter.

Thank you, David.

it looks like there are no more questions so i'll pass the call back over to the management team for closing remarks great before we conclude i'd like to highlight a few upcoming investor events the management team will be participating in the sixth annual needham virtual semiconductor and semi-cap one-on-one conference on august 21st the 2025 evercore semiconductor i.t hardware and networking conference on august 26th and the jeffries semiconductor i.t hardware and communications technology conference on August 27th. Both of those are in Chicago, Illinois, as well as the Benchmark 2025 Tech, Media, and Telecom Conference on September 3rd, and PD Security's Technology Growth Cap Summit on September 4th. Both of those are in New York City. If you wish to request a meeting, please contact the Institutional Sales Representative at each sponsoring bank. This concludes our earnings call today. Thank you for your interest in AOS, and we look forward to talking to you again next quarter. Thank you. Thank you.

That concludes the conference. Thank you for your participation. Enjoy the rest of your day.