Good afternoon, and thank you for attending today's Alpha and Omega Semiconductor Fiscal First Quarter 2023 Earnings Call. My name is Amber, and I will be your moderator for today's call. It is now my pleasure to hand the conference over to our host, Yujia Zhai with Alpha and Omega. Yujia, please proceed.

Good afternoon, everyone, and welcome to Alpha and Omega Semiconductor's conference call to discuss fiscal 2023 first quarter financial results. I am Yujia Zhai, Investor Relations representative for AOS. 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 proceed as follows today: Mike will begin with strategic highlights; then, Stephen will provide business updates and a detailed segment report. After that, Yifan will review the financial results and provide guidance for the December quarter. Finally, we will have the Q&A session. The earnings release was distributed over the wire today, November 3, 2022, after the market closed. The release is also posted on the company's website. Our earnings release and this presentation will include non-GAAP financial measures. We use non-GAAP measures because we believe they provide useful information for 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 the 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 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 obligations 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, Yujia. I would like to welcome everyone to today's call. It is good to be speaking with all of you again. Our fiscal Q1 results were in line with our expectations. Revenue grew 11.5% year-over-year to a record high of $208.5 million. Non-GAAP gross margin was 35.4% and non-GAAP EPS was $1.20. We are pleased with these results. Looking forward, we expect to be impacted by industry inventory correction, particularly in PCs and smartphones. As a result, we anticipate our calendar Q4 2022 results to be somewhat weaker than the historical seasonality that we typically experience during this period. Our data suggests that this process will occur over the next couple of quarters before orders begin to normalize and be more in balance with the end consumer demand. While our near-term results will be impacted somewhat, I think it is important to highlight that our total PC revenue for calendar 2022, including our December quarter outlook, will actually grow slightly year-over-year against a 20% decline in PC units according to DIGITIMES. Our calendar 2022 smartphone revenue is also expected to be up 15% year-over-year, despite that global smartphone shipments are forecasted to decline 6.5% in 2022. This is due to our success in gaining share, increasing BOM content, and deliberately improving our product mix toward more premium tier products. This also demonstrates the strength of our business' underlying fundamentals and the traction we have gained in these two important markets. Even though PC and smartphone demand is slowing in the near-term, these two markets will continue to be major components of consumer spending for a very long time. Another example of our solid fundamentals is that our partnerships with Tier 1 customers and our share with them are the highest it has ever been in our history. We believe this will make us more resilient in recessionary periods since premium tier products are typically less sensitive to slowdowns in the economy. Moreover, these relationships with our Tier 1 customers make us more attractive to prospective customers. Seeing our chip in a Tier 1 flagship device is the best marketing and advertising for AOS because it provides the strongest testimony of the quality and capabilities of our products and services. Over the last year, this has been a noticeable trend for us as more new customers approached us proactively and initiated requests for product samples and meetings, instead of just our salespeople going to them. Another example is that we have a much more diversified product portfolio that is serving a broader set of end markets, across consumer, commercial, and industrial use cases with different business cycles. For example, one of our biggest growth areas over the past year has been gaming, where we have leading share with the number one gaming console manufacturer. This business for us more than doubled year-over-year and is now a major revenue contributor for AOS and is expected to continue to grow even in a weakening consumer demand environment. We are seeing similar growth trends in multiple other new applications that Stephen will go into more detail in his section. Finally, our business is a lot more diversified in terms of geographies that we serve. In the beginning, when we were still small, the majority of our business was in Asia. Today, our customers are much more globally distributed, including Tier 1 customers in Europe and North America. Diversification and proliferation of total solutions has been our strategy from day one and our execution has been paying off. Today, our business is more balanced with a stronger and more solid foundation. With that said, while these qualities enhance our resiliency, we recognize that we are not immune to global slowdowns in demand. To help derisk some of the top line slowdown, we have already paused hiring of previously planned headcount growth and are taking active steps to reduce discretionary spending. In closing, the current market environment doesn't come to us as a surprise. Over our 22 years of history, we have navigated many boom and bust cycles, surviving and thriving even when we were far smaller than we are now. Today, our market position is stronger than ever, supported by our leading technology, more diversified product portfolio, Tier 1 customer base in all of our business segments, expanding manufacturing capability and supply chain, dedicated and experienced management team, and a strong balance sheet. More importantly, the underlying trends for more power that are providing a tailwind to our business are here to stay. The electrification of everything is just getting started and our power products sit at the forefront of that trend. We are confident that we can navigate the current economic environment and achieve our $1 billion annual revenue target in the next couple of years and are actively investing to position ourselves to achieve even more after that. Thank you. I will now turn the call over to Stephen for an update on our business and a detailed segment report.

Thank you, Mike, and good afternoon, everyone. Before I give a detailed overview of our segments, I want to expand on what Mike discussed around our new growth areas. As Mike already mentioned, gaming has been a major success story for us and we continue to expect very strong demand over the next year as our number one gaming console manufacturer ramps up production. Looking under the hood a bit, over the last year, we built a strong partnership with this customer through our great service and support on shipments during challenging times. Further, our products are significantly more differentiated at the higher-end performance bands, and since gaming consoles are essentially high-end performance PCs, our solutions provide significant competitive advantages against alternative products. Because of these factors, we have won multiple sockets across multiple products, including high-performance MOSFETs, as well as advanced power ICs, such as DrMOS and smart load switch products. Another growth area that I want to highlight has been the success of our MOSFETs for quick chargers. AOS has a long history of providing high-performance medium-voltage MOSFETs to address secondary side rectification in this fast-charging application, particularly as charging power has increased over time. As a result of our focus on product performance and customer support, we have become a leading supplier in the number one U.S. smartphone OEM. Recently, we expanded our BOM footprint at this key customer to now also supplying the high-voltage MOSFET for primary side rectification, thereby effectively tripling our BOM content with this customer application. All of this has been made possible by our investment in R&D and new product programs that focus on the ability to offer our customers a total solutions portfolio that enables cross-selling and leverage the relationship and success of our existing customers. I will now cover our segment results and provide some guidance for the next quarter. Starting with Computing. Revenue was up 13.6% year-over-year, flat sequentially, and represented 42.8% of total revenue. The year-over-year growth was driven by strong demand across several different applications but particularly data centers as this area showed significant growth year-over-year with the adoption of our high-performance low- and medium-voltage MOSFETs by leading cloud providers. In addition, graphics cards, tablets, and notebooks continued to show strength. Looking ahead, in the December quarter, we expect Computing segment revenue to be down over 20% sequentially driven largely by the inventory correction in PCs, and to a smaller degree, seasonality. However, our total 2022 PC revenue is actually still expected to be up slightly year-over-year against a 20% annual decline in global PC volumes as a result of share gains and higher device BOM content. I think our investors should keep this in mind when analyzing these results as the fundamentals of our PC business have never been stronger. Data centers and tablets are expected to remain strong next quarter, which helps dampen some of the softness in PCs. AOS offers performance MOSFETs with an elevated safe operating area designed to deliver high reliability for data center infrastructure. Turning to the Consumer segment, revenue was up 11% year-over-year and 23% sequentially, and represented 21.7% of total revenue. These results were in line with our expectations driven by record gaming volumes which grew 122.7% year-over-year and 70.2% sequentially. Looking ahead, we anticipate our consumer segment to remain strong with low double-digit growth sequentially driven by continued record gaming shipments, particularly from the number one gaming console manufacturer, where we have leading share. Next, let's discuss the Communications segment, which was up 21.8% year-over-year and 5.1% sequentially and represented 15.1% of total revenue. This segment delivered strong growth as the September quarter is typically our peak season for smartphone shipments, especially as our number one U.S. smartphone customer normally refreshes their devices during this quarter. Our growth was also driven by share gains at this customer in the premium tier. In fact, we have strong share in high-end models in all three of our markets in the U.S., Korea, and China. This is due to our ability to serve the high-end market with our high-performance battery protection products, as well as strong partnerships with our customers. In the December quarter, we expect this segment to decrease high single digits as a result of the industry smartphone inventory correction, particularly in China. Our business in the U.S. market is still expected to be strong, with Korea about flat. Offsetting lower smartphone demand somewhat is growth in telecom 5G infrastructure. Now, let's talk about our last segment, Power Supply and Industrial, which accounted for 19.6% of total revenue. This segment was up 8% year-over-year and 14.3% sequentially. The increase was mainly due to share gains in quick chargers at the leading U.S. phone maker and growth in power tools. For the December quarter, we anticipate this segment to grow high single digits sequentially, mostly from continued growth of quick chargers as we expand our designs in multiple devices with the leading U.S. phone maker. In closing, we are not immune to the overall market and inventory correction. However, we believe our business is a lot more resilient than the old AOS as we have a much more diversified product portfolio servicing multiple end markets and a record number of Tier 1 customers and market share. Further, we continue to execute our product and technology roadmaps, enhancing our diversified manufacturing capability and deepening strategic customer relationships, which should result in growth as the market recovers. With that, I will now turn the call over to Yifan for a discussion of our fiscal first quarter financial results and our outlook for the next quarter.

Thank you, Stephen. Good afternoon, everyone, and thank you for joining us. Revenue for the quarter was $208.5 million, up 7.5% sequentially and up 11.5% year-over-year. In terms of product mix, both product lines continued to grow. DMOS revenue was $145.1 million, up 4.5% sequentially and up 11.1% over last year. Power IC revenue was $61.8 million, up 16.3% from the prior quarter and up 18% from a year ago. Assembly service revenue was $1.6 million, as compared to $2 million last quarter and $4 million for the same quarter last year. As Mike mentioned, non-GAAP gross margin was 35.4%, compared to 33.8% in the prior quarter and 35.3% a year ago. The quarter-over-quarter increase in non-GAAP gross margin was mainly driven by better production absorption at our assembly and test facility in Shanghai. In the June quarter, our Shanghai factory was partially shut down due to the citywide COVID lockdown. Since July, our Shanghai facility has been operating at normal capacity. Non-GAAP operating expenses were $36.6 million, compared to $36.7 million for the prior quarter and $35.1 million last year. Holding our non-GAAP operating expenses flat reflects our measures to control discretionary expenses and costs. As such, non-GAAP quarterly EPS was $1.20 per share, compared to $0.95 last quarter and $1.06 a year ago. Moving on to cash flow, we continue to generate healthy cash flow. GAAP operating cash flow was $36.7 million, which included $3.3 million net refund of customer deposits. By comparison, operating cash flow in the prior quarter was $25.7 million, which included $3.4 million net customer deposits. Operating cash flow on a standalone basis for AOS a year ago was $84.4 million, which included $40.2 million customer deposits. Consolidated EBITDAS was $45.5 million, compared to $36.9 million last quarter and $45.3 million last year. Let me turn to our balance sheet. We completed the September quarter with a cash balance of $316.1 million, compared to $314.4 million at the end of last quarter. The cash balance a year ago was $231.5 million, excluding $20.9 million at the JV company. Net trade receivables were reduced to $55.8 million from $65.7 million at the end of the prior quarter. The quarter-over-quarter decrease was due to the higher balance in the prior quarter caused by uneven shipments toward the second half of the June quarter as our Shanghai facility was partially shut down due to COVID. Days sales outstanding for the September quarter were 30 days, compared to 26 days last quarter. Net inventory was up slightly to $164.9 million at quarter-end versus $158 million last quarter and $163.4 million last year. The quarter-over-quarter increase was mainly in raw materials. Average days in inventory were 106 days, compared to 104 days in the prior quarter. Finally, property, plant and equipment was $339.5 million, up from $318.7 million last quarter. The fixed assets balance a year ago was $175.1 million, excluding $266.2 million at the JV company. CapEx for the quarter was $40.3 million. We expect CapEx to drop to a $30 million level in the December quarter. To update you, our Oregon fab expansion project continued to make progress in equipment installation and qualification, and we anticipate additional capacity to come online in the March quarter of 2023. Now, I would like to discuss December quarter guidance. We expect revenue to be approximately $195 million, plus or minus $3 million. GAAP gross margin to be 30%, plus or minus 1%. We anticipate non-GAAP gross margin to be 31%, plus or minus 1%. The quarter-over-quarter decrease mainly reflects the impact of the expected product mix changes and lower factory production absorption due to the inventory correction. In addition, this guidance also reflects normal seasonality for the December quarter. GAAP operating expenses to be in the range of $43.5 million, plus or minus $1 million. Non-GAAP operating expenses are expected to be in the range of $34.5 million, plus or minus $1 million. Interest expense to be approximately $1 million, and income tax expense to be in the range of $1.2 million to $1.4 million. With that, we will now open the call for questions. Operator, please start the Q&A session.

Our first question comes from David Williams with Benchmark.

Congratulations on the strong performance this quarter. Yifan, my first question is about the margin profile. I understand that there will be some utilization charges in the next quarter. When I look back at your fiscal fourth quarter, the revenue levels were similar, and I know the mix played a significant role as well. However, there seems to be about a $5.5 million difference in the margin. I'm curious about what your utilization charges are expected to be and how those may affect the margin profile, especially if we experience lower demand in the March quarter.

Sure, David. I mean, the December quarter's margin guidance mainly reflects the effect of current inventory correction. I mean, particularly in PC and smartphone areas. This inventory correction, we expect to result in less favorable product mix for us, which basically means we are expecting to ship less higher-margin products in the December quarter and relatively speaking, shipping more lower-margin products. The product mix resultant from this inventory correction is having a significant impact. So that's the major influence for the December quarter's guidance.

Okay. So most of this is just product mix and less on the utilization charges? You have kind of a baseline of what those charges are expected to be?

Well, yes, I mean, the mix impact is a larger effect than the less effect extended is the utilization, I mean, factory absorptions.

Okay. Very good. And then maybe just touching on the script, you noted that there was about a $3.5 million customer deposit refund. Just kind of curious how you're seeing customer behavior and maybe talk about your order cancellations and backlog, just how that's kind of trending, especially as we kind of gotten into October and November here?

Okay. Sure. Yes, I mean, we incurred about $3.3 million in net refund of customer deposits. As you recall, we first received some customer deposits probably back a year ago or so. Those customer deposits normally require - each year, we refund one-third or one-fourth of the deposits after they ordered a certain amount from us. So this September quarter expected we started refunding. And at the same time, actually, in the September quarter, we also received some customer deposits. I mean, net-net, the net effect was $3.3 million. In terms of backlog, yes, I mean, recently, customers have been adjusting orders in backlog. I mean, these orders for some products decreased and some increased. Overall, the total backlog has been adjusted downwards. I mean, also the mix dynamics changed quite a bit, which in turn caused us to shift our production schedule quite a bit. So our December quarter's guidance reflects those mix dynamic changes.

Okay. Very helpful. And then just one last one for me, if you don't mind. I guess, on the visibility into the channel, as you think about just kind of across the board, you got a lot to go to disty. How comfortable are you kind of with the level of inventory out there? And how confident are you in your visibility there?

For ourselves, I mean, our disty inventory is still at kind of a lean position. So actually, our disty inventory is still below our targeted range of two to three months. So this inventory correction is mainly occurring at an ODM, OEM, or even at the retail level. So for our own disty inventory, it's still at a relatively comfortable level.

Our next question comes from the line of Craig Ellis with B. Riley Securities.

Nice job navigating a tough environment in that fiscal first quarter. I wanted to get into a little bit more detail on that last question regarding inventory and maybe take a look at it on a segment basis. Can you just characterize how you see inventory downstream, whether it's in the channel or maybe at some of your direct ship customers and not asking for customer names with the question, but just trying to get a sense for what the gives and takes are and where inventory might be relatively higher or lower across Compute, Consumer, Communications, and Industrial and Power Supply?

Sure, Craig, and good to talk to you. So we see inventory correction, particularly affecting kind of consumer-facing applications, specifically PCs. This is where the bigger inventory correction we see taking place, at least for the current outlook. So, it's throughout the supply chain, and we are also controlling the disty inventory, but there's also inventory at the ODM and at the OEM that they are working through. So over there, it's probably a little more pronounced. On the smartphone side, there is also some impact there. But in general, we're doing fairly well at the U.S. phone makers, especially in their premium models. So in those areas, we're still supporting and shifting our support to grow with them. So I think PC is probably the bigger area of inventory correction, some smaller degree in the smartphones and especially the low- to mid-tier are more affected. Those have been the main ones.

Got it. And as we look ahead beyond the fiscal second quarter to the fiscal third quarter, one of the dynamics that always impacts things is the timing of Lunar New Year and some of the product builds around that, and it's a pretty early occurrence this year, in the third week of February. So the question is this, to what extent are your customers saying that some of the build demand related to that would be pulled into fiscal 2Q? And to the extent that it is, how does that impact the way you're starting to think about fiscal 3Q? Do you think that fiscal 3Q would behave seasonally? Or where would the timing on some of that component pull give it more of a sub-seasonal bias?

I think at this point, first of all, the seasonality is back, we haven't seen that term too much in the past couple of years. We are expecting the third fiscal quarter to start to be a lower season in general, just as it normally is, whether there's a pull in, I think we'll see more towards the end of this current quarter in terms of whether there will be a pull in for there. But normally, that's the third fiscal quarter is a shorter quarter, not only for our customers, but also for us, too. We also plan to do maintenance and February is the shorter month, typically, that is a lower season for us. But in terms of the actual dynamics with whether our customers have pulled in, we'll see closer to the end of this quarter.

Yes. And you typically will do fab shutdowns or maintenance activity during Lunar New Year. Is that correct, Stephen?

Yes. We usually try to time in around then. It makes sense, too.

Yes. And then lastly, and I don't know if this is one more for you or for Yifan. Can you just characterize the pricing environment that you're seeing out there and that's starting to come into backlog? Is it holding up as firmly as what we saw in mid- to late-2021 and early 2022? Or are we starting to see some of the Tier 2 players out there get more price competitive? And to what extent may or may not that be impacting the pricing that AOSL is realizing in its portfolio?

Well, yes, I mean, September is in the same situation. But having said that, given the current inventory correction and the slowdown of the overall demand, and I mean, some other factors like stronger dollars. I mean, all of those could expect the environment to turn more competitive, I would expect.

Got it. That's helpful, Yifan. And then lastly, I appreciate that having invested $100 million in the Oregon fab expansion that the company and customers were going to light things up, but given that we are in a pretty meaningful inventory correction, I am a little bit surprised that the company plans to start production in the fiscal third quarter. So can you just walk through some of the considerations around firing up that capacity, given the demand backdrop that we have and the extent to which the output that you're considering now has changed up or down versus what you might have been thinking about three or six months ago?

Sure. We are still going full steam ahead with our expansion of our 8-inch fab. And just remember that our 8-inch fab is our internal fab, and we actually develop most of our new technologies that originate in that fab. And so, even as of today, that fab is still fully utilized. Some of our foundries, we aren't running to full capacity. But our current fab is still running at full capacity. When we can and we will be using the additional fab capacity once it comes online. So it can directly help and immediately enhance our output in the short term. So I think this capacity is very much needed. It is geared towards our higher-performance products in general. The products that are hot now are coming from that fab.

Our next question comes from Jeremy Kwan with Stifel.

Can you provide more details about the pricing trends you're observing in discrete components compared to power integrated circuits? I understand that power ICs tend to be relatively stable. I'm interested not only in the average selling prices of new products but also in a like-for-like comparison. Additionally, last quarter you mentioned some emerging local competitors. Can you update us on how much impact they are having on pricing?

Pricing is influenced by the product's uniqueness. More differentiated products give us greater leverage in negotiations. For higher performance products, like many of the power ICs, we experience less pressure, although that doesn't mean there's no pressure at all. Power ICs are still prominently used in our PC business, which is undergoing inventory adjustments. Therefore, we must remain competitive, but generally, the competition is less intense compared to standardized products. Discrete products also vary in performance; at the higher end, we can differentiate better and face less competition. However, at the lower end, we see local competitors becoming more aggressive, leading to increased pressure. Ultimately, it all depends on the product.

Great. On the gross margin side, it seems that the product mix is impacting results more than utilization. Is this related to your past experiences with customers on allocation, where you focused on optimizing mix margin? Are you currently reallocating for better utilization?

Yes. I mean, right now, in the past, when we had supply constraints in the short, we allocated more towards the higher-margin products. In the December quarter, because of the inventory correction, we are seeing some product mix changes. So the change is unfavorable at this point. So right now, it is more impacted our margin, it is more impacted by the product mix.

Can you help us understand the utilization question? It seems like you're still maintaining a relatively high level. With the new capacity additions, does this affect your longer-term gross margin outlook? I'm curious about the trends we might expect over the next couple of quarters as you balance utilization with mix.

Okay. Sure. I mean, as Stephen just mentioned, our Oregon fab's expansion is more for those high-performance products. So those products are still in high demand. So we're confident that we can fill up the additional capacity quite well. In terms of margin impact, at this point, we would expect similar margins in those products would produce. Overall margin impact probably more towards neutral at this point.

Got it. And one last question before I jump back. Can you provide an update on the Chongqing joint venture? How much flexibility do you have in reallocating from the joint venture to Oregon if necessary? Is that an option you can consider regarding margin and utilization as you assess the effects of the inventory correction?

Yes, the Chongqing joint venture is still supplying us with the same wafers and providing assembly and test services. They are currently working on raising additional capital from external investors. As for reallocating production back to our Oregon facility, our Oregon fab is currently at full capacity, so we do not have the space to increase production at this time. Therefore, the joint venture continues to produce at their previous level.

Thank you. There are currently no further questions in queue. As there are currently no further questions in queue, I will pass the conference back over to the management team for any additional or closing remarks.

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.

Thank you.

This concludes today's Alpha and Omega Semiconductor fiscal first quarter 2023 earnings call. Thank you for your participation. You may now disconnect your lines.