ALPHA & OMEGA SEMICONDUCTOR Ltd Q3 FY2022 Earnings Call

Welcome to Alpha and Omega Semiconductor Fiscal Third Quarter 2022 Earnings Call. My name is Bailey, and I will be your moderator for today's call. I would now like to pass the call over to Gary Dvorchak. Gary, please go ahead.

Good afternoon, everyone, and welcome to Alpha and Omega Semiconductor's conference call to discuss fiscal 2022 3rd quarter financial results. I'm Gary Dvorchak, Investor Relations representative. With me today are Dr. Mike Chang, our CEO; Stephen Chang, our President; and Yifan Liang, our CFO. 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 be as follows: Mike will begin with strategic highlights. Then, Stephen will provide business updates in a detailed segment report. After that, Yifan will review the financial results and provide guidance for the June quarter. Finally, we'll have a question-and-answer session. The earnings release was distributed over wire services today, May 5, 2022, after the close of the market. The release is also posted on the company's website. Our earnings release and this presentation include 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 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 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, Dr. Mike Chang, to provide strategic highlights. Mike?

Thank you, Gary. I would like to welcome everyone to today's call. It is good to be speaking with all of you again. Q3 was another great quarter. And once again, we succeeded in outperforming our guidance. Revenue was a record $203 million, which represented 20% growth year-over-year and was the first time in our history to cross the $200 million threshold. This was achieved by obtaining additional wafer capacity from our existing foundry partners and continuing to optimize product mix. This resulted in non-GAAP gross margin of 36.7% and a record non-GAAP operating profit margin of 19.9%. Non-GAAP EPS was $1.34, representing a 74% growth year-over-year. I am extremely proud of this result and continue to be amazed at our team's efforts and ability to execute quarter after quarter in such uncertain and challenging times. However, I am very saddened today by the evolving situation in China, particularly the lockdowns in Shanghai. As you know, our in-house packaging and testing facilities are in Shanghai, which handles a good portion of our final packaging and testing requirements prior to shipping. After the initial lockdowns were imposed in late March, our Shanghai strategic and testing facilities remained operational because our dedicated employees made extraordinary sacrifices to stay inside the facility to keep operations going. However, continuing operations required daily testing and negative COVID results. In early April, a few of our employees tested positive for COVID-19, and our operations were forced to shut down by the Shanghai government. Therefore, our ability to complete the assembly of our products and ship to customers was severely limited. Fortunately, at the end of April, the Shanghai government classified AOS as an essential business and cleared us to restart operations. We are quickly getting production started again. However, the pace at which we can resume full operations still remains challenging due to difficulties in bringing back the labor workforce, procuring certain raw materials, and resolving logistics bottlenecks. At this time, the timing of when the lockdown will be lifted is still unknown. Even after the lockdown is lifted, we expect it will take some time before all the supply chain issues are fully resolved and the business there returns to normal. As a result, we expect our revenue in the June quarter will be impacted based on the latest estimate, which includes 3 weeks of limited operations during April and ongoing logistics and supply chain challenges. We expect the lockdown will impact June quarter revenue by approximately $20 million to $25 million. However, we still anticipate June quarter revenue to be around $190 million. This represents a 7% growth year-over-year. Excluding the Shanghai lockdown impact, we estimate growth would have been 20% year-over-year for the June quarter. As our operations return to full capacity and the surrounding supply chains normalize, we do anticipate recovering a portion of the lost revenue in the second half of the calendar year as our wafer production was not impacted by the lockdown. As a result, we have built a stock of pre-assembly stage wafer inventory. Given the global wafer shortage over the past years, we expect this buildup of wafers will help fully utilize our packaging assembly lines once things return to normal. I will provide more details on our guidance during his portion of this call, but please understand gross margin is currently difficult to focus on as our allocation mix for each business line is still moving around while we ramp up our assembly lines. On a positive note, we have strategically diversified our packaging and testing operations and have begun to accelerate the pace of these initiatives. Our joint venture internship team already handles a good portion of our back-end requirements. We have also begun the process of outsourcing some of these steps to other contract manufacturers, although that will take some time. Also, I think it goes without saying, we are very thankful to have our Oregon production facility, which is not exposed to this kind of risk. The impact of the Shanghai lockdown on our operations highlights the benefit of our capacity diversification strategy. We believe this impact will only be temporary and make us even stronger in the long run. The global trend of electrification of everything is just getting started, and our power products sit at the forefront of that trend. We are building a very resilient and diverse global business and remain well on track towards our goal of achieving $1 billion in annual revenue and beyond. Before I turn the call over to Stephen, I want to say our hearts go out to everyone in Shanghai that has been affected by this situation, and we hope for a quick resolution. I also want to give a very special thanks to our employees for their extreme sacrifice and dedication during these very challenging times. Their dedication to us has truly been inspiring and made me realize once again how special our team is, and I'm very grateful to have their support. Thank you, and I will now turn the call over to Stephen for an update on our business and a detailed segment report. Stephen?

Thank you, Mike, and good afternoon, everyone. I will start with an update on our business and then provide color on our segment results. In the March quarter, we once again set new records for revenue and profitability driven by strong demand across all our business segments, particularly among our Tier 1 customers. The current favorable supply and demand environment has given us more ability to optimize our shipment allocations to higher-margin and strategic accounts. Moreover, we can quickly adjust to changes in customer orders by strategically redistributing parts to other parts of the business. Looking forward, in addition to the challenges of the ongoing lockdown situation in Shanghai, we are beginning to see early signs of a market demand slowdown in certain of our end markets, such as PC, smartphones, and home appliances. However, our total backlog is still much higher than our current capacity to meet it, even after accounting for macro softness. While the Shanghai situation has been unfortunate, it serves as a tangible reminder that our strategy to diversify our supply chain is the right one and it further strengthens our commitment in that direction. In the March quarter, we accelerated our Oregon fab's R&D facility upgrade and capacity expansion. We purchased more advanced lithography and related production equipment and continued with the clean room construction. The project remains on track to be completed at the end of the calendar year and will contribute approximately $70 million of additional annual revenue once in full production. Further, we also received additional wafer capacity support from our third-party foundry partners as well as our Tenshin joint venture. Now let me drill down into each of our business segments. Unless otherwise noted, the following figures refer to the March quarter of 2022. Starting with computing, revenue was up 28% year-over-year, up 2% sequentially, and represented 44% of our total revenue. These results were somewhat stronger than our prior expectations as the March quarter is typically our seasonally weakest quarter following strong holiday shipments. The main driver of this outperformance was continued strength in notebooks, particularly from OEM customers that have a higher concentration of their business serving commercial laptop applications. We believe this was driven by return-to-office trends and companies refreshing employee work laptops. We deliberately targeted a higher mix of commercial projects during the past few years since our power ICs and power MOSFETs have higher performance specifications and higher prices that better suit commercial markets. This benefited us as the consumer market is beginning to see weakening demand. Finally, in computing, we also saw continued strong demand for our products in high-end and gaming desktop PC applications. Looking ahead, we do see early signs that the PC market is beginning to soften. However, overall demand for our products remains much higher than what our capacity can fulfill. In the June quarter, we expect the computing segment to be lower due to temporary operational limitations and lockdown in Shanghai. We are optimistic that we can recover a portion of lost sales in the second half of the year once Shanghai returns to normal and as we ramp for our seasonally strong September quarter ahead of holiday sales. Turning to the consumer segment, revenue grew 24% year-over-year and 14% sequentially, representing 22% of total revenue. The year-over-year growth was driven by share gains in gaming with a Tier 1 OEM. The sequential results were largely in line with our prior guidance, as the timing of some game shipments near the end of the quarter were delayed, but we could anticipate catching up in the June quarter. Looking ahead, home appliances are slowing, which is one of the larger revenue contributors to our consumer segment. We expect the June quarter to decrease in high single digits sequentially, but due to overall capacity constraints, we can shift production to other segments to offset revenue impacts. Next, we'll discuss the communications segment, which was up 6% year-over-year and up 14% sequentially, representing 14% of total revenue. This segment performed slightly better than expected due to stronger demand for our battery protection products from a leading U.S. smartphone maker and share gains with Chinese OEMs. Looking forward, we expect June quarter shipments to remain flat at these levels sequentially. Finally, let's talk about the power supply and industrial segments, which accounted for 19% of total revenue. This segment was up 16% year-over-year and down 0.3% sequentially, which was slightly better than our expectations. In the March quarter, we strategically reduced allocations to our AC-DC power supply and quick charger business following strong consecutive quarters of shipments and anticipated China smartphone weakness. Our performance was due to strong demand from our power tool customers. This is an emerging application for us with great synergy, given our product strength in low- and medium-voltage products targeting battery management and brushless DC motors. Looking forward to the June quarter, we expect to maintain about the same level of allocations for our power supply and industrial segments and, therefore, anticipate revenues to remain about flat. To wrap up, the Shanghai lockdown has temporarily stalled our momentum and really stress tested our entire organization. However, the situation also brought to light aspects of our business that we didn't appreciate enough before, like the extreme resilience and dedication of our employees and the level of support from our business partners and customers. We are immensely grateful for this and are even more driven to keep working hard towards our goals of $1 billion in revenue. With that, I will now turn the call over to Yifan for a discussion of our fiscal third quarter financial results and our outlook for the next quarter.

Thank you, Stephen. Good afternoon, everyone, and thank you for joining us. Once again, March quarter was a record quarter for us from the top line to the bottom line. Revenue was $203.2 million, up 5.1% sequentially and up 20.1% year-over-year. In terms of product mix, DMOS revenue was $140.6 million, up 4.1% over last quarter and up 14.6% year-over-year. Power IC revenue was $60.4 million, up 9.6% from the prior quarter and up 39.1% from a year ago, which puts our Power IC revenue over $200 million annual run rate. This reflects our strategic actions to drive the Power IC business to enhance our product mix. Assembly service revenue was $2.2 million as compared to $3.2 million last quarter and last year. Non-GAAP gross margin was 36.7%, flat quarter-over-quarter and up from 31.9% a year ago. Non-GAAP gross margin excluded $1.3 million of share-based compensation charges as compared to $1.7 million for the prior quarter and $0.4 million last year. In addition, non-GAAP gross margin excluded $0.8 million of amortization of purchased IP, the same amount as last quarter and a year ago. Non-GAAP operating expenses were $34 million compared to $33.5 million for the prior quarter and $30.9 million last year. Non-GAAP income tax expense was $2.3 million compared to $1.3 million for last quarter and $1 million a year ago. The quarter-over-quarter increase in tax expense was primarily due to higher profit as well as increased stock-based compensation for employees from the higher price of our stock in the March quarter. In sum, non-GAAP EPS was $1.34 per share as compared to $1.20 for last quarter and $0.77 a year ago. Moving on to cash flow, GAAP operating cash flow was $61.8 million, which included $6.4 million in net customer deposits. By comparison, operating cash flow in the prior quarter was $50.8 million, which included $11.2 million in customer deposits. Operating cash flow a year ago was $33.3 million, which included $20 million in customer deposits. EBITDA was $48.4 million compared to $46.7 million last quarter and $36.2 million a year ago. Let's move on to the balance sheet. We completed the March quarter with a cash balance of $323.1 million compared to $269.3 million at the end of last quarter. The cash balance a year ago was $192.1 million, which included $33.8 million at the joint venture company. During the March quarter, we drew down a $45 million equipment loan at our Oregon fab and repaid $2.3 million on our existing term loans. Therefore, at the quarter end, our bank borrowing balance was $65.2 million compared to $22.7 million a quarter ago. In terms of trade receivables and inventory, day sales outstanding for the quarter were 28 days, flat quarter-over-quarter. Given the uncertainty of the global supply chain, we increased our inventory balance by $14.5 million, primarily in raw materials. Average days in inventory were 94 days, reduced by 11 days versus last quarter, primarily due to the impact of the deconsolidation of the joint venture company. Finally, property, plant, and equipment was $245.8 million, an increase of $49 million quarter-over-quarter. Our capital expenditures for the March quarter were $43.4 million. We expect a similar level of capital expenditures for the June quarter. Our Oregon fab expansion project is on track. The clean room expansion was over 80% done at the quarter end, and a small portion of the equipment has been moved in. We expect the clean room construction to be completed and the majority of the equipment to be moved in during the June quarter. We anticipate additional capacity to come online in the December quarter. Now I would like to discuss the June quarter guidance. We expect revenue to be approximately $190 million, plus or minus $10 million, primarily reflecting the production lost at our Shanghai factory due to the impact of the Shanghai COVID lockdown. Our Shanghai factory has resumed partial production at the end of April. This guidance is based on the assumptions that our Shanghai factory can remain COVID-free and continue to gradually ramp up its production in May and return to normal production in June. GAAP gross margin is expected to be 31.9%, plus or minus 2%. We anticipate non-GAAP gross margin to be 33%, plus or minus 2%, reflecting the estimated impact of lost production and incremental expenses needed to cope with the Shanghai COVID shutdown and the production recovery. Non-GAAP gross margin guidance excludes $0.8 million in amortization of acquired IP and $1.3 million of estimated share-based compensation charges. GAAP operating expenses are expected to be in the range of $44.3 million, plus or minus $1 million. Non-GAAP operating expenses are expected to be in the range of $36 million, plus or minus $1 million. Non-GAAP operating expenses exclude $8.1 million of estimated share-based compensation charges and $0.2 million of estimated legal expenses relating to the government investigation. Interest expense is expected to be approximately $0.8 million, with income tax expense in the range of $1.3 million to $1.5 million. With that, we will open the call for questions. Operator, please start the Q&A session.

Our first question today comes from David Williams from Benchmark.

Congrats on the spectacular results. Yes, and we certainly see and understand the lockdowns in China. I know it's a very challenging situation for you and your employees, but I wanted to see maybe if we could spend a minute and talk about the appliance market. You said you're seeing some slowdown there. Do you see that maybe from a geographic perspective? Is it more broad-based? And do you get a sense that maybe it's a demand-side issue? Or is it simply more kitting issues where others are being affected with component shortages as well?

This is Stephen. We're seeing a little more from the demand side. The ongoing trend towards variable speed motors is still ongoing. The overall trend is moving. But in terms of the shipment growth, it has appeared to be slowing down a little bit. And I don't think it's necessarily geographically concentrated.

Okay. Fantastic. And then maybe if we kind of think about the OpEx side, it looks like in June, you're expecting about a $2 million sequential increase there. Is there any component of that or maybe to what magnitude is the lockdowns in China contributing to some of that step-up in spending?

David, yes, this is Yifan. The guidance in our OpEx, yes, primarily, we are anticipating some additional investment in our R&D and sales and marketing areas, increased headcount, and increased hiring activities there to support our business growth, so our goal is to achieve $1 billion in revenue and beyond. So we are investing. Yes, some expenses are also baked in for the related recovery. But by and large, it's the investment in our R&D and sales marketing area.

Okay. Great. And maybe one more just on the gross margin side. Obviously, some impact there, understandable. How quickly do you think that can recover? Can we see a return back to the pre-lockdown levels? And maybe what pace can you continue to see some expansion there on the mix shifts?

Well, for the September quarter and ongoing, we have to wait until next quarter's guidance. I mean, right now, the situation over there is quite challenging, and then we have to wait next quarter to give a more accurate estimate.

Okay. And that's fair. But I guess, do you get a sense that you can recover the margin profile as you move forward and more normalized notwithstanding further shutdowns? Do you think that's because it seems like those changes for the margins have at least been very structural in nature, and it seems like those would rebound once you get there. Do you think that's the case? Or is it a similar level for market...

Well, yes, at this point, yes, I would expect our business is still intact, and we are confident that we can continue to grow, and the business is still there. And so it's just temporarily right now got impacted by the Shanghai production loss.

Thank you, David. The next question today comes from Craig Ellis from B. Riley Securities.

Congratulations on annualizing revenues at over $800 million in the quarter, guys, nice accomplishment. I wanted to follow up on the China packaging facility issue in Shanghai. So clearly, we have a shift in revenue from the fiscal fourth quarter out in fiscal '23. The question is this, do you think, based on your interaction with customers that you can recapture 65%, 75%? How much of the $22.5 million at the midpoint gets recaptured? And then what's your sense based on the product programs that you're involved in? And when that happens, would it be 75% in the first half of the fiscal year and the balance in the second half? Or how do those dynamics play out based on how your salespeople and other folks interacting with customers?

Okay. I mean, we would expect yet a portion of the production loss we can catch up as our overall wafer production was not impacted. Our organic and our foundries and joint ventures continue to produce wafers. So right now, we're actually accumulating some wafer inventory on hand in the time of April. So I mean, we would expect once our back end can catch up, some things go back to normal, then in terms of percentage, it's hard to tell. I mean it depends on the production dynamics in the second half of the year. But we would expect a good portion of it we can recover.

Okay. So it sounds like it's at least half and maybe more than that to either recover timing a bit TBD. One of the things you mentioned in response to what was happening in Shanghai is that the company is looking at moving some of the work to Chongqing and looking at moving some of the work to external back-end partners. And so that might imply a product requalification. But the question is this, for the changes that are being made, what's the incremental cost of packaging, whether it's moved to Chongqing or externalized? And to what extent is that in the 33% gross margin guidance? And the question David asked earlier to what extent does that linger in the back half of the year?

I mean this right now, the production planning and the customer coordination, all those things are still ongoing. And I mean, right now, it's kind of fluid at this point. The 33% estimate for the June quarter's gross margin, non-GAAP gross margin is primarily based on the loss of production in our Shanghai facility and some incremental expenses we have to deal with the Shanghai lockdowns and logistic challenges and transportation costs. I would expect a good portion of it that we can return back to normal in the second half of the year, yes. That's my current estimate. But we have to wait until next quarter to give more clear guidance.

Yes, that's totally understandable. It's been a fluid issue over the last two-plus years, right? So moving on to some product-related questions. I wanted, Stephen, to ask you a few things. One, given the real heightened focus on the mix of the PC market for investors, can you just give us some sense of what you think your enterprise mix would be versus consumer mix in compute? And then relating to compute, I think it's generally well understood that there's some very significant gaming card product refreshes coming, some of which, based on a lot of the information that's out there, could be significantly higher power. Can you just talk about how you're looking at content in the gaming card business as you move into the back half of the year and we move into what is typically a period of product refresh activity for your customers?

Sure. So you're asking about the graph quite specifically, not computing. Is that right?

So well, the first part of the question. The first is just computing mix on the PC side between consumer and enterprise. And then the second one was the gaming card question.

Sure. Let me address both. So on the PC side, in general, AOS over the past few years has been gravitating more towards addressing commercial applications within PC. And this is kind of the nature of our product mix as we develop more higher performance MOSFETs as well as higher performance power ICs, we naturally gravitate toward the higher performance pockets. And those tend to be used in commercial platforms at our notebook as well as our PC customers. In general, content can be significantly higher. It depends on what you're comparing against consumer and also can vary from home books to even higher-performance consumer laptops. But in general, I would say that the BOM content for commercial type platforms is generally 30% to 50% higher bond content potentially, depending on how demanding the platforms are. It also depends on what kind of processes you have that needs to be powered and that determines the bond content within PC.

Okay. And then on the gaming card side?

Yes. On the gaming card, yes, we're in the process of designing and getting design into the next platform at our big graphics card customer. We are expecting content to increase. There are more phases. The account is increasing in general, so that basically means more driver losses will be used there. We still are in that design mode right now, so it's a little early to comment on the portion of the business that we'll be getting. But right now, we're expecting at least the BOM content to be increasing in the next platform.

Yes, great to hear. And then lastly, Yifan, turning it back to you. There was mention made of the $45 million fab equipment loan associated with the expansion that's been well known there. The question is just given how high the cash balance is, why finance the equipment through that loan rather than just cash on hand?

Sure. I mean, yes, we do have a good cash balance right now. And right now, the fact terms along like 5 years long became available to us, and the rate is pretty attractive, especially compared to the inflation right now. I'd like to strengthen our balance sheet. And then, yes, we do need some cash to support our continued growth and then capital expenditure expansion. So yes, that's how we decided to draw down the $45 million equipment loan.

So is that a mid-single-digit rate? Or is that more low single-digit rate?

It has the low single digit and so on.

The next question today comes from Jeremy Kwan from Stifel.

Yes, I want to extend my congratulations on reaching the $200 million quarterly milestone. I would like to follow up on the early signs of softness that you're observing. I understand it's mainly coming from the consumer side, particularly in the PC and consumer appliance segments. Can you provide more detail on the signs you are seeing? Are there order cancellations or changes in customer behavior regarding the backlog? Could you offer us better insight on this?

Sure. You find a comment on the overall backlog, but in terms of the PC customers, we are seeing a drop in demand for the consumer portion. We're not 100% commercial. We still serve the consumer segment of the market, just that we are much heavier in the commercial side. So we do see some impact there from demand softening. Well, that just means we just serve the commercial area more. So it is coinciding with what we're hearing in market reports that the Chromebook has already started to drop even in the past couple of quarters. So now and assuming the standard consumer laptop demand also starting to drop a little bit. It's just continuing that trend.

Okay, backlog right now, we have still very strong and steady, much higher than what we can ship. I guess this reflects our customer base changes in the past few years, we are having a lot more Tier 1 OEM customers and ODM customers. So then we are forming strategic partnerships with those Tier 1 customers. Those customer deposits indicate the mix changes in our customer base. So while we're facing a downturn currently, those deposits provide another way to mitigate our downside risk.

Great. And maybe just going back to the Shanghai facility challenges there. Can you remind us again what percent of your revenues is handled by this facility? I understand you've got some more standard equipment located in other areas, and then Shanghai has proprietary packaging and testing. Just to get a sense of what that is right now and what the utilization rate was prior to the lockdown.

Sure. I mean, the Shanghai back end handles a good portion of our overall capacity. I mean, I would say more around half of the overall assembly and test over there. In the past, yes, some packages were fully utilized, and some we still had some additional capacity. So that's why we said with more wafers accumulated on hand in the second half of the year, we expect to catch up a good portion of the production lost in April, partially in May. So that's the overall situation.

I guess my question was if it was fully utilized prior to the lockdown. Have you been able to kind of add incremental capacity to do the catch-up?

Yes. I mean before the lockdown, some packages were fully utilized, and some were not. And then, yes, also during the lockdown time, we rearranged some production to subcontractors to utilize their production capacity. So there are some redirecting and shuffling around. Yes, we are doing the operation planning management.

Got it. Great. And then maybe if we could turn to the Chongqing side of things. Can you give us a sense of what maybe the potential lockdown risk is there? Does your designation as an essential business by the Shanghai government help you get something similar in Chongqing?

Right now, Chongqing is not locked down. I mean, this in China just city by city right now. So Shanghai is in lockdown, the situation is not the same in Chongqing.

Okay. And I guess last question for now is on the inventory side. It sounds like you've built some nice supply of preassembly wafers. But then you saw most of your increase is due to raw materials. Is that considered raw materials for you? Or is the way preassembly wafers considered more work in process? Just wondering where kind of the buildup is and what are kind of the main drivers, if it is substrate costs, and things like that, and what kind of things you're seeing on the cost side from the inflationary pressure standpoint?

Okay, sure. The increase in our inventory, primarily in raw materials in my comments, was mainly referring to our quarter-end, March quarter-end balance increased compared to the December quarter-end. During the March quarter, we intentionally increased some raw materials inventory in anticipation of the global supply chain challenges. The wafer stockpile up, and Mike was referring to the April timeframe when the Shanghai assembly house was shut down. But on our Oregon fab, we were continuing to produce, so that other foundries and our joint venture could ramp up supplies. I mean, that's why in the month of April, we had some additional wafers piled up. So that's where we expect we can catch up in the production loss at our Shanghai factory in April and partially in May.

Got it. That's very helpful. Sorry, could I ask one more question regarding the situation in Chongqing? Could you provide an update on their capacity expansion plans? Are they still on track to receive and install equipment and ramp up production? How much additional capacity do you anticipate from them this year?

Yes. As you know, CJV, they raised $80 million in January. They have already placed the order for the capacity expansion. But that lead time for the equipment is quite lengthy nowadays, so we do not expect to have additional capacity come online this year.

Got it. So the growth you're anticipating for the rest of the year, is it dependent on the ramp-up, and is that where you're seeing all the incremental gains?

Incremental gain would come from both the Oregon capacity expansion and ramp-up as well as from our foundry and supply partners. We have been working with foundry partners since last year. So we should be able to see some additional capacity supply during the course of this year, the remainder of the calendar year.

The next question today is a follow-up question from David Williams of Benchmark.

Just wanted to maybe touch on this quarter and the revenue upside. Was that driven more by volume or pricing or maybe even more so from a mix shift? Just any color around what drove the upside would be helpful.

Sure. Primarily, in the March quarter, we received additional wafer supplies from our foundries as well as our joint ventures.

Okay. Great. Any thoughts on what the unit volume growth would have been perhaps sequentially?

I mean, the mix definitely changed during the quarter. And I mean, the total unit may not be higher than the December quarter, but the mix definitely favored higher ASP type products. For example, Power IC products continued to have strong growth in the March quarter. So I mean, the product mix during the quarter can impact revenue significantly.

Okay. And maybe just the last one for me real quick. Any commentary around the design win activity or any traction you're seeing, how the design win has been anything in particular that you're seeing either slowing down or picking up pace?

Design wins, I think, are still steady. We continue to work in our business both for this year as well as for next year. We've been focusing not only on our core markets—PC, smartphone, and home appliances. I know we talked about that a lot. We're also working on building up some of our newer markets. We talk about power tools this time as an emerging area that, as we continue to diversify the breadth of our products and their applications, we're also getting closer to our big customers or Tier 1 customers. So it's in good shape.

Thank you, David. There are no additional questions waiting at this time. So I'd like to pass the conference back over to the management team for closing remarks.

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

This concludes today's conference call. Thank you for your participation. You may now disconnect your lines.