Ladies and gentlemen, thank you for standing by, and welcome to Alpha and Omega Semiconductor Financial Results for the Fiscal First Quarter of 2021 Conference Call. Please be advised that today's conference is being recorded. I will now turn the call over to Mr. Gary Dvorchak. Sir, the floor is yours.

Good afternoon, everyone, and welcome to Alpha and Omega Semiconductor's conference call to discuss fiscal 2021 quarter financial results. I'm Gary Dvorchak, Investor Relations representative for AOS. With me today are Dr. Mike Chang, our CEO; Yifan Liang, our CFO; and Stephen Chang, our Executive Vice President. This call is being recorded and broadcast live over the web. A replay will be available for 7 days following the call via the link in the Investor Relations section of our website. Our call will proceed as follows: Mike will begin with a review of business; then Stephen will provide a detailed segment report; after that, Yifan will review the financial results and provide guidance. Finally, we will have the question-and-answer session. The earnings release was distributed over wire services today, November 5, 2020, after the close of the market. The release is also posted on the company's website. Our earnings release and this presentation includes certain 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 that we provide. A 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 about 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 from such expectations. For a more detailed description of these risks and uncertainties, please refer to our recent and subsequent filings with the SEC. We assume no obligation to update the information provided in today's call. Now I will turn the call over to our CEO, Mike, to provide an overview of the business.

Thank you, Gary. Welcome, everyone, to today's call. We are off to a great start to fiscal year 2021. Business momentum accelerated in the September quarter despite the ongoing global uncertainty with COVID-19. We delivered solid revenue growth and excellent profitability. Shipments were strong across most of our product categories, particularly computing and consumer applications. Revenue was up 29% year-over-year and at the high end of the updated guidance range we issued in early October. Better utilization and effective expense control drove non-GAAP gross margin of 29%. On the bottom line, we posted non-GAAP EPS of $0.55, which more than doubled year-over-year. First fiscal quarter results continue to demonstrate the competitive strengths of our business strategy, technical expertise, diversified product portfolio, and expanded customer base. While we started our business in the computing market, we successfully diversified into other segments including consumer, communications, power supply, and industrial. Our mission is to become the leading designer, developer, and global supplier of a broad portfolio of power semiconductors. Our technical expertise enables us to develop a broader variety of power discrete and Power IC technology platforms, allowing us to expand our offerings and deliver complete power solutions for more target applications. Over the years, we have evolved from a component supplier to a solution provider. We have engaged more deeply with our customers, strengthening those relationships and have become their trusted strategic partner. Our modern design wins, with the recently launched gaming system and new PC graphics card platforms, as well as our continuing high growth in home appliance applications, are some examples of how we have deepened these partnerships with Tier 1 OEM customers. We will continue to drive growth by winning new ODM and OEM customer engagements with an expanding pipeline of new products. Our renewed business growth was made possible by our multiyear effort to strengthen our supply chain, specifically our joint venture fab in Chongqing, which helped capture the surging demand in the September quarter. Because of this, the Chongqing fab achieved positive EBITDA for the second consecutive quarter, and we expect to approach its Phase 1 target run rate next year. The joint venture fab provides us with flexible capacity management and geographic diversification of our supply chain, and will support our business growth for many years to come. I am pleased with our direction and our solid execution, even though I wish it could be a little faster. I want to thank our customers, business partners, and shareholders for their support and confidence in the company. I also want to acknowledge our employees for an outstanding job and for staying focused and engaged with our customers while we navigated this challenging macro environment. We are excited about our growth trajectory and believe we can achieve our current year 2021 target of $600 million in annual revenue. With a healthy pipeline of new products, new design wins, and new customers, we are focused on executing our growth strategy and building on the strong momentum we see now. While our optimism is justified, we caution investors that the environment is still highly uncertain. We will be working diligently to drive growth but are prepared to respond quickly should conditions change due to COVID-19, the economy, trade tensions, or other issues. With that, now I will turn the call over to Stephen for a detailed segment report.

Thank you, Mike, and good afternoon. Let me start with computing. It represented 44.1% of our total revenue in the September quarter. Revenue was up 35.9% sequentially and up 44.7% year-over-year. Demand was stronger than expected, which we fulfilled with the ramping supply from our JV fab. The work-from-home trend drove high demand for PC-related products. Our graphics card business was exceptionally strong, driven by demand in the gaming application. We remain excited about ramping sales of high-performance driver MOS and digital power solutions in the launch of key customers' graphic card platforms. We expect this to continue in the December quarter. Looking ahead, we expect overall computing revenue to be down mid-single digits in the next quarter, as the sequential growth in the graphics card business is expected to be offset by the usual seasonal declines in PCs. Now turning to the consumer segment. It represented 24.2% of total revenue in the September quarter. Revenue increased 33% sequentially and was up 70.8% year-over-year. Similar to PCs, the pandemic-driven stay-at-home effect boosted sales of gaming, TVs, and home appliances, propelling the strong growth. Gaming grew significantly as a major game console win started to ramp. Preproduction for the new gaming console started in the June quarter and ramped further in the September quarter. We are thrilled to have multiple sockets across several of our product lines, including Power IC and MOSFET, designed into this gaming console system. Home appliances continued to expand in the September quarter, primarily driven by sales of intelligent power modules. Our co-packaged IGBT and MOSFET-based motor drive modules with built-in safety features offer our customers a co-packaged solution for ease of design and robust performance. We have been expanding our module product offering, and we are pleased to see business ramping with a new series of IPM modules designed for room air conditioners at a Japanese customer. Looking to the December quarter, we anticipate a mid-single-digit decline in the consumer segment. Growth in home appliances is likely to be offset by a seasonal decline in TVs, coupled with the production ramp pushout of gaming console systems caused by a shortage of other system components. Now let's discuss the Power Supply and Industrial segment, which accounted for 16.5% of total revenue, up 5.7% sequentially and down 8.5% year-over-year. Going into the September quarter, we expected this segment to be down somewhat due to softer demand for quick chargers and PC bands. The upside surprise was due to a couple of factors. First, quick chargers were flat quarter-over-quarter, better than expected. This year's peak season for global smartphone OEMs was delayed due to COVID. As our smartphone customers began shipping again in the September quarter, quick chargers started to come back. Second, the demand for AC/DC power supply was stronger than expected, closely tracking the surge in PC sales, which offset the decline in DC band demand. Furthermore, the industrial drone application started to ramp as our high-performance MOSFETs are designed to power the drones for use in applications such as agriculture, delivery, and emergency response. Looking ahead, we expect the overall segment to be flat in the December quarter as quick charger growth will be offset by a decline in AC/DC power supply. Finally, let's move to the Communications segment, which was 13.4% of total revenue in the quarter, up 2.4% sequentially and down 4.5% year-over-year. This segment played out largely as expected, given the delay in the smartphone peak season. Looking ahead, our battery protection business is expected to be strong in the December quarter, tracking the peak season of our global major smartphone customers. We expect Communications segment revenue to be up double digits sequentially in the December quarter. With that, I will now turn the call over to Yifan for a discussion of our fiscal first quarter financial results and our outlook.

Thank you, Stephen. Good afternoon, everyone, and thank you for joining us. Revenue for the December quarter was $151.6 million, up 23.8% from the prior quarter and up 28.6% from the same quarter last year. In terms of product mix, MOSFET revenue was $119.4 million, up 19.4% sequentially and up 18.7% year-over-year. Our IC revenue was $29.5 million, up 45.2% from the prior quarter and up 87.3% from a year ago. Assembly service revenue was $2.7 million as compared to $2.1 million last quarter and $1.5 million for the same quarter last year. Non-GAAP gross margin for the September quarter was 29%, up from 27.5% in the prior quarter and up from 28.3% in the same quarter last year. The increase in non-GAAP gross margin was mainly driven by favorable product mix and higher factory utilization. Non-GAAP gross margin excluded $0.8 million of amortization of purchased IP related to digital power for the quarter. In addition, non-GAAP gross margin excluded $0.4 million of share-based compensation charges for the September quarter as compared to $0.3 million and $0.4 million for the prior quarter and for the same quarter last year, respectively. Non-GAAP gross margin also excluded $0.3 million of production runoff costs related to the JV Company for the quarter as compared to $4.4 million for the prior quarter and $6 million for the same quarter last year. Non-GAAP operating expenses for the September quarter were $28.6 million compared to $25.3 million for the prior quarter and $25.6 million for the same quarter last year. The quarter-over-quarter increase primarily related to higher R&D engineering expenses and variable compensation accruals. Non-GAAP operating expenses for the quarter excluded $2.5 million of share-based compensation charges and $1.1 million of legal expenses related to the government investigation. This compares to $2.4 million of share-based compensation charges and $2.6 million of legal expenses related to the investigation for the prior quarter, as well as $1.9 million of share-based compensation charges for the same quarter last year. Both GAAP and non-GAAP operating expenses included $3.2 million of digital power team expenses for the quarter as compared to $3 million for the prior quarter and $2.8 million for the same quarter last year. In the September quarter, we started shipment of digital power products. Digital power is complementary to our Power IC operation and makes it more complete and compelling. As our internal integration is now behind us, we will no longer break out digital power team expenses going forward. Income tax expense for the quarter was $1 million compared to $0.4 million for the prior quarter and $0.4 million for the same quarter last year. Non-GAAP EPS attributable to AOS for the quarter was $0.55 per share as compared to $0.29 for the prior quarter and $0.26 for the same quarter last year. AOS continued to generate positive operating cash flow. AOS on a stand-alone basis generated $12.7 million of operating cash flow in the September quarter as compared to $20.2 million of operating cash flow generated in the prior quarter and $4.2 million used in operating cash flow in the same quarter last year. Operating cash flow used by the JV Company in the September quarter was $2.9 million compared to $20.1 million of cash flow provided by the JV Company in the prior quarter and $3 million of cash flow provided by the JV Company in the same quarter last year. Consolidated EBITDAs for the September quarter was $27.6 million compared to $14.9 million for the prior quarter and $14.3 million for the same quarter last year. EBITDAs attributable to AOS for the quarter were $22.2 million as compared to $12 million for the prior quarter and $13.8 million for the same quarter last year. EBITDAs for the JV Company was $4.6 million in the September quarter as compared to $1.1 million for the prior quarter and negative $2.4 million for the same quarter last year. Now let's look at the balance sheet. We completed the September quarter with a cash balance of $154.7 million, including $112.7 million at AOS and $42 million at the JV Company. This compares to $158.5 million at the end of last quarter, which included $110.3 million at AOS and $48.2 million at the JV Company. Our cash balance a year ago was $103.1 million, including $88 million at AOS and $15.1 million at the JV Company. The bank borrowing balance at the end of September was $173.8 million, including $30.6 million at AOS and $143.1 million at the JV Company. During the quarter, AOS and the JV Company repaid $2.1 million and $4 million of existing loans, respectively. Net trade receivables were $26.3 million at the end of the September quarter as compared to $13.3 million at the end of the prior quarter and $39.3 million for the same quarter last year. Days sales outstanding for the September quarter and for the prior quarter were both 18 days. Net inventory was $137.7 million at the quarter end, up from $135.5 million last quarter and up from $118.6 million in the prior year. Average days in inventory were 113 days for the quarter compared to 127 days in the prior quarter. Net property, plant, and equipment was $421.6 million, up from $412.3 million last quarter and up from $404 million from last year. Capital expenditures were $11.3 million for the quarter, including $7.9 million at AOS and $3.4 million at the JV Company. With that, now I would like to discuss the guidance for the next quarter. We expect revenue to be approximately $153 million, plus or minus $3 million; net gross margin to be 28% plus or minus 1%. We anticipate non-GAAP gross margin to be 29% plus or minus 1%. Note that non-GAAP gross margin excludes $0.8 million of amortization of acquired IP, $0.4 million of estimated share-based compensation charges, and $0.4 million of estimated production and ramp-up costs relating to the JV Company; GAAP operating expenses to be in the range of $32.6 million, plus or minus $1 million. Non-GAAP operating expenses are expected to be in the range of $28.6 million, plus or minus $1 million. Non-GAAP operating expenses exclude $2.5 million of estimated share-based compensation charges and $1.5 million of estimated legal expenses relating to the government investigation. Income tax expense to be approximately $0.8 million to $1.2 million. Loss attributable to noncontrolling interest to be approximately $1.4 million. On a non-GAAP basis, excluding estimated production ramp-up costs relating to the JV Company, this item is expected to be approximately $1 million. As part of our normal practice, we are not obligated to update this information.

Your first question comes from the line of David Williams.

Congrats on the solid quarter and the guidance. As we kind of look out and think about the revenue stream, obviously, it sounds like you're targeting $600 million this year, so a very nice run rate. So it feels like most of this is fairly sticky. But can you talk maybe a little bit about where you're seeing the demand coming from in terms of design wins and new products versus just backfilling demand that you previously couldn't fulfill due to a lack of capacity?

Sure. Let me take that. And we're definitely excited to see the growth this year. And this year started off a bit unpredictable and uncertain, but we are pleased to see the results in the past couple of quarters. In terms of the traction that we're getting in the market, the current growth that we've seen in the past has further grown, especially in the PC area. We continue to expand our bond content. And as we talked about, we've also broken into the graphics card business with the major launch that happened this quarter. Additionally, our home appliance business continues to expand. We've started with our IGBT business, our discrete business, and we've expanded with our module business and we're starting to see results, especially the module business, this September quarter and going into the December quarter. Smartphones overall have been a bit of a rocky start, just like in many of the markets. We saw a push out of the peak season spreading into the next couple of quarters. But our position there is still strong, and we have good placements at the key global smartphone makers. Layering on top of that, we've also opened the market for gaming for AOS, particularly for one of the gaming consoles that's launching this quarter. So we're happy to see the growth of our existing applications as well as some of the new growth areas that we've just recently expanded into.

Great. And then just kind of thinking about the digital controller and the digital power solution. How much did that contribute to the quarter? And then as you consider next year, what do you think that contribution could be? What are the expected ramps or targets for the year?

Sure. Our digital power is part of our multiphase initiative. The initial revenue came from graphic cards, and we are now moving into a high-end card where our digital power solutions are beginning to ramp up in the September quarter. This ramp is smaller compared to the other graphics card ramp we are currently pursuing. It’s focused on a very high-end card for that vendor. We anticipate some small business this quarter, with a slight increase expected going into the December quarter. However, our primary focus is on the core server and telecom market, which we expect to grow significantly in 2021 and 2022. In the meantime, we expect the graphics card business to gradually increase as their production rolls out and our part becomes more widespread in additional models from that card maker.

Okay. And one more, if you don't mind. But you talked even a little bit about the factory loadings and that's helping the gross margin a bit. But can you maybe give us a little bit of color around what your utilization rates are looking like really particularly in JV? And then maybe where your capacity stands there. You talk about getting to that run rate in the next year. Can you maybe qualify that in terms of when you expect that and just kind of in terms of gross margin, maybe what contribution you expect to see from all of the moving pieces that are trending in the right direction here? If you could provide any color, it would be helpful.

Okay. Sure, David. In terms of gross margin, yes, September quarter's gross margin increased by 150 basis points compared to the June quarter. That increase was primarily due to the combination of better product mix and our factory utilization. I would say product mix and factory utilization contributed about half and half, maybe slightly more to factory utilization. Product mix definitely improved, for example, you can see as a Power IC product line grew by over 45% quarter-over-quarter and 87% year-over-year; this product line carries higher margins for us. In terms of factory utilization, our own factories, like our organ fab and the Shanghai back-end facilities, are pretty much operating at full capacity right now. We can squeeze out some extra outputs here and there, while the JV Company will continue to ramp during the September quarter, contributing to our revenue growth. This JV fab has not yet fully ramped up to its Phase 1 run rate; as Mike mentioned, we are targeting for next year to fully establish that. However, I view this as a positive factor as additional capacity at the $130 million quarterly revenue level is expected.

Your next question comes from the line of Craig Ellis from B. Riley FBR.

Congratulations on the strong execution, team. Great to see the strong revenues and margins and earnings in the quarter. So I'll start with that as a follow-up to David's question. Yifan, thanks for the color on utilization and mix in the significant increase in gross margin in fiscal 1Q. But in fiscal 2Q, you’re guiding for revenues a little bit higher, but it looks like the gross margin midpoint is lower. What accounts for the lower gross margin on higher volume?

We guided towards a flattish gross margin for the December quarter, with slightly increased revenue. I would expect a similar gross margin profile as our factories are utilizing at a pretty full level. The product mix should also remain about the same with a similar product margin profile. I expect similar gross margins in this December quarter.

Okay, got it. And then moving on to some product trends and seasonal dynamics in the business. It’s great to see the execution on the gaming system program and all the design wins there and the gaming card digital power strength. For investors, how should they think about the seasonal dynamics of those applications? Are they seasonally stronger in your fiscal 1Q and 2Q and then weaker in 3Q and 4Q? What’s the seasonal profile of those two businesses?

Sure. All of these businesses are great new avenues for us, and they each have different product life cycles. On the graphics card front, typically a new platform is released every two years, and we are in another refresh year for the two major companies. The gaming system’s life cycle is typically around 7 years, with refreshed models introduced throughout that period. Seasonality is tricky to predict since we are right at launch, and while the reception has been good, production has been unpredictable. Right now, the December quarter appears strong. Going into the calendar Q1 next year, it’s a little hard to estimate, but overall, we see a surge in production during the initial quarters followed by inventory corrections once customer reception is evaluated, making accurate predictions challenging at this moment.

That’s really helpful. I appreciate it, Stephen. Moving on to the broader supply landscape. It seems there was very good manufacturing execution between the Oregon fab and the JV fab in the quarter, and it seems like you’re set to achieve that again in the outlook. Can you confirm if you’re able to meet all orders? Given some of the supply constraints we've seen, Yifan, can you discuss your comfort level regarding potential double-ordering issues inflating activity versus end demand?

Sure. Our backlog has been healthy and steady throughout the quarter, which reflects in our guidance for the December quarter. Overall market supply is tight, so I would not rule out double orders. But internally, we monitor backlogs, orders, and triangulate with our design wins at each customer. We believe our December quarter guidance is achievable, even off a high base from the September quarter. We’re happy to see the December quarter continue to increase instead of dropping.

Yes. Indeed, it's nice to see the strength there. The next question is maybe for Mike or Yifan. Looking ahead a couple of quarters at the seasonally strong period typically occurring in June and September quarters. Given the exit velocity of the business out of calendar '21, $153 million, it seems if you anticipate seasonal growth in the June and September quarter, the revenue profile could potentially move well into the $165 million to $175 million range, which might necessitate external supply increases or accelerating Phase 2 of the JV fab. Can you discuss your strategy for moving into fab Phase 2 versus external supply, given that demand is strong and design wins are performing well?

I'll take it first, and then Mike can add. Overall, next year, as Mike mentioned, we are targeting $600 million for the calendar year 2021 in annual revenue. Right now, the COVID situation has altered typical seasonality this year, leading to some fluctuations between quarters that are hard to predict. However, we have some company-specific growth areas that are promising for us. Regarding supply, we are ramping the joint venture fab and making plans for the next phase, looking at business growth opportunities. It’s on our agenda right now to consider in the next year. The market and business development momentum is relatively strong.

Thank you, Yifan. You covered quite a bit on the business side. Of course, as with all analysts, the macro economy is unpredictable, so we must prepare for that. As for the price dynamics in our capacity, I have to be honest, the planning for capacity was done a few years ago without clear visibility into future demand. Right now, we’re managing our loading rate closely to meet current demand. There is still some room to fulfill our first phase next year but we'll be evaluating plans for the future.

Your next question comes from Jeremy Kwan from Stifel Nicholas.

And let me add my congratulations on the strong results and outlook and hitting that $150 million quarterly revenue ahead of plan. I had a question regarding the end markets. I don't think I caught the consumer guidance. Do you have formal expectations for that side of the business?

Yes. So consumer was very strong for us in the September quarter due to a variety of factors linked to stay-at-home orders. TVs showed seasonal increases, and the new gaming console's preproduction ramped up, coupled with continued growth in home appliances. Looking to Q4, we expect a slight drop in outlook mainly because of seasonality returning to the TV market, which typically sees declines in December after holiday shipments. However, we do expect ongoing growth in home appliances as this is an area where we've been growing, specifically with our IPM modules being utilized in refrigerators and washing machines. Although gaming may see a little pushout due to production issues, we expect it to resume in the following quarter. Overall, we predict a slight decline heading into the December quarter.

Great. So it appears the Communications segment is what's driving the better-than-seasonal outlook for December, particularly off strong momentum from September. Can you share confidence factors behind this? Is it mainly due to delays in smartphone ramp that will carry on into December, or are there other factors contributing?

Yes, exactly. The key driver here is the smartphone side. Typically, we would see a large jump in the September quarter due to several phone makers launching products. However, this year saw some pushouts, even though launches still occurred. Therefore, our December quarter is anticipated to be the peak for us regarding sell-in for battery protection assets. So, our guidance for the December quarter reflects strong customer demand is driven mainly by the battery PCM peak occurring in that quarter.

Sure. Right now, our quarterly revenue is at the $150 million level. While the JV 12-inch fab is not yet fully ramped, it has contributed significantly to our revenue growth. Factors such as the improved product mix have increased our revenue per wafer. Therefore, although we do expect to continue to leverage our JV Company for further growth, the level of support we can provide is yet to be determined based on market demand. We are planning for the next phase of development and may install additional equipment for incremental capacity. As Mike mentioned, our Phase 1 clean room has room for optimization; thus, we can enhance output through planning and adjustments before firming up Phase 2 plans. Given stronger demand and growth forecasts, we’re preparing for both immediate expansions and future scaling.

This planning is crucial, and we aren't in a rush. As mentioned earlier, we should still be comfortable next year, so we’ll take our time to ensure careful and thoughtful planning based on predicted demand levels. Our priority is to establish reliable forecasting to avoid overextending or missing out on opportunities.

I show no further questions at this time. I will now turn the call back to management for any closing remarks.

This concludes our earnings call today. Thank you for your interest in AOS, and we look forward to talking to you again.

Thank you.

Thank you.

God bless you. Bye.

Ladies and gentlemen, this does conclude today's conference. We thank you for your participation. You may now all disconnect.