Earnings Call Transcript - AOSL Q4 2021

Operator, Operator

Good day and thank you for standing by. Welcome to the Alpha and Omega Semiconductor Fiscal Quarter Four 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ remarks, there will be a question-and-answer session. Please be advised that today’s conference is being recorded. I would now like to turn the conference over to your first speaker today, Mr. Gary Dvorchak. Please go ahead.

Gary Dvorchak, Investor Relations

Good afternoon, everyone. And welcome to Alpha and Omega Semiconductor’s conference call to discuss fiscal 2021 fourth quarter and year-end financial results. I am Gary Dvorchak, 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 seven 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 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 September quarter. Finally, we will have the question-and-answer session. The earnings release was distributed over wire services today, August 11, 2021, after the close of 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 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, Mike, to provide strategic highlights. Mike?

Mike Chang, CEO

Thanks, Gary. I would like to welcome everyone to today’s call. I am excited to be speaking with all of you again today. We have been dealing with the COVID-19 pandemic for over one and a half years, and we continue to take strict precautions to ensure the safety and well-being of all our employees and their families. Our fourth fiscal quarter continued the strength and momentum we saw throughout the year. We once again delivered strong year-over-year performance in each of our market segments, with record revenue and excellent profitability. We benefited from strong end market demand enabling us to optimize our product mix. Fourth quarter results demonstrate the strength of our market diversification strategy, broadening product portfolio, deepening customer relationships, and the growing production scale. Total revenue for the fourth quarter grew 40% year-over-year to $177 million, as we continue to see profit strength across our business. Non-GAAP gross margin was 34.9%, up 300 basis points from last quarter and 740 basis points higher than the same quarter year ago. Non-GAAP EPS for the fourth quarter was $0.95, which more than tripled year-over-year. Yifan will go into more detail on our financial performance later. The strong fourth quarter capped an outstanding fiscal year 2021. Revenue grew 41% year-over-year to $657 million. On the bottom line, we achieved non-GAAP EPS of $2.93, up from $0.88 last year. Previously, we set a target of $600 million in annual revenue for calendar year 2021, and I am pleased that we successfully surpassed that target ahead of plan. While we are not immune to some of the supply chain constraints in the broader semiconductor industry, we are doing a good job managing them to mitigate any interruptions to all customers. First, we are making investments to expand capacity and further extend our technological capability at our Oregon site. We believe the investment will strengthen our competitive advantage in our target market and is part of our long-term strategic plan for sustainable growth and continuous technology improvement. In the current business conditions and the shortage of capacity, it is increasingly important to have the ability to own and control our supply chain. Second, we continue to ramp up our capacity at our JV fab in Chongqing according to plan. I am pleased with the progress we are making, and we are on track to approach the Phase 1 target run rate in the September quarter. Third, we continue to maintain close relationships with multiple foundry partners and are working with them for additional wafer supplies. Overall, although all supply is tight, I am thankful to be able to have both internal and external capacity to support our business and minimize the stress on our customers during this time of shortage. In summary, I am very proud and appreciative of our team’s execution in fiscal year 2021. In addition to the traction we gained from the successful implementation of our strategy, we saw strong industrial tailwind during this challenging time, and as we enter fiscal year 2022, there are plenty of opportunities and much work to be done to continue to grow and scale our business. I am confident that we have the right leadership and the right products in place to ensure we are successful in capitalizing on this opportunity. Our mission to be a trusted technology partner and a global supplier of a broad portfolio of power semiconductors remains on track. Looking ahead, we’re aiming to grow our annual revenue to $1 billion in the next few years. Now, I would turn the call over to Stephen for updates on our business and a detailed segment report. Stephen?

Stephen Chang, President

Thank you, Mike, and good afternoon, everyone. I will start with an update on our business and then provide detailed segment highlights for the June quarter. As we have stated all along, the core of our business strategy is technology and volume. Technology and innovation in our business derives from repetitive volume manufacturing, which often inspires opportunities for improvement. This is the origin of technology development. We invest in core competencies of silicon, packaging, and ICS, as the foundation of our product technology. Best-in-class technology leads to competitive advantage in our products, as assessed in the market to be addressed. Our product strategy is to create advanced total solution products in close partnership with our customers. These products demonstrate our expertise in power and move beyond commodity parts into multi-socket optimized solutions that make our customers' products more reliable and efficient. We continue to accelerate growth by winning new customer engagements with an expanding pipeline of new products and increasing BOM content with our application-specific solutions. An example of this is our Intelligent Power Modules designed specifically to address motor drives used in home appliance applications. The module combines the function of up to 17 discrete devices into a single solution to provide performance and ease-of-use to our customers. Another example is a series of driver MOS products, where we optimize the IC to bring the best out of the co-packaged MOSFET to deliver high efficiency in Vcore and graphics applications. Even our advanced discrete MOSFETs are built on specialized platforms that address the performance needs of target applications such as battery protection and graphics. Supply remains tight in the marketplace, while demand continues to be strong across all our core market segments. In times like these, supporting customers through uninterrupted supply of our products is more important than ever. As such, we’re sharpening our focus on customer engagement. Our continued focus on our strategic customers enables us to take advantage of the current environment to stay closer to Tier 1 customers, optimize product mix and capacity allocation, and deliver strategic value to those customers. While we are managing the longer lead time and component availability, our competitive market position, strong customer relationships, and supply chain responsiveness enable us to deliver on our commitments. Our backlog in the June quarter continued to far exceed our capacity; we have been actively allocating capacity to avoid interruptions to our customers’ production lines, optimize our factory utilization, and support our strategic initiatives. At the same time, demand has been dynamic while not always following normal seasonality. Fortunately, the majority of our production is in-house, which allows us to better serve our customers during such a severe shortage period. As a result, we are able to focus on our core market growth that follows our strategic business direction. Now, let me drill down into each of the business segments. Let’s start with Computing. Revenue was up 57.3% year-over-year and up 10.2% sequentially, outpacing the industry. This segment represented 43.7% of our total revenue. End demand for our products remained strong with record revenue in the June quarter as our major customers were still facing component shortages. While we were on allocation, we elected to allocate more capacity and resources to support the Computing segment, including notebook, tablet, and motherboard applications. Conversely, the graphic card business was down double digits sequentially due to a customer pulling orders from the June quarter to the March quarter. Looking ahead, we expect Computing revenue to be flat to modestly down sequentially in the September quarter due to allocation, but up double digits on a year-over-year basis. We expect solid demand from our ODM customers for motherboards and our graphic card business to rebound following a customer’s production trending upward to a more normal level. This will be offset by a temporary decline in notebook as we allocate our production capacity to support growth in our motherboard and graphic cards. Turning to the Consumer segment, which was 21.1% of total revenue in the June quarter, up 36% year-over-year and up 4.4% sequentially. This segment performed better than expected. Gaming remained strong as we continued to gain share from a major customer with both our MOSFET and Power IC products in multiple sockets. Our overall home appliances business was slightly down due to temporary allocation. That said, compared to the March quarter, we shipped higher volumes of module solutions to key home appliance customers in Asia in the June quarter, and we intend to further increase shipments of module solutions in the next couple of quarters. Looking to the September quarter, we expect the Consumer segment to increase by a high single-digit percentage, with strength in gaming and home appliances. Next, let’s discuss the Communications segment, which was 12.8% of total revenue in the quarter, up 14% year-over-year and down 17.4% sequentially. This segment performed as expected, as smartphone business performed in line with normal seasonality. Having said that, demand for battery protection resumed at one of our global smartphone customers to support the upcoming launch of a new model. We expect our Communications segment to increase by mid-double digits in the September quarter as all major smartphone players in China, Korea, and the U.S. are entering peak production. With that, we believe we are in an excellent position to resume battery protection growth in the September quarter with designs secured at our key global customers. Finally, let’s talk about the Power Supply and Industrial segment, which accounted for 20.4% of total revenue. This segment was up 53.1% year-over-year and up 11.5% sequentially. The solid growth was due to several factors. First, the demand for AC-DC power supplies for laptop adapters was extremely robust, with incremental design activity with major power supply customers in Taiwan. Second, the momentum of our quick-charger business remained solid, driven by demand for travel adapters used for tablets, as well as quick-charger solutions for smartphones. Third, demand for DC fans from our major fan manufacturers in Japan was strong. We expect this segment to grow by a high-single digit percentage in the September quarter driven largely by our AC-DC power supply and power tool businesses. Overall, business momentum accelerated in the June quarter, and we are making solid progress towards our mission to position AOS as a leading global supplier of a broad portfolio of power semiconductors. With that, I will now turn the call over to Yifan for a discussion of our fiscal fourth quarter financial results and our outlook for the next quarter.

Yifan Liang, CFO

Thank you, Stephen. Good afternoon, everyone, and thank you for joining us. Revenue for the June quarter was $177.3 million, up 4.8% from the prior quarter and up 44.9% from the same quarter last year. In terms of product mix, DMOS revenue was $127.2 million, up 3.8% sequentially and up 31.2% year-over-year. Power IC revenue was $46.5 million, up 7.2% from the prior quarter and up 99.7% from a year ago. Assembly service revenue was $3.6 million, compared to $3.2 million last quarter and $2.1 million for the same quarter last year. For the fiscal year 2021, revenue was $656.9 million, up 41.3% from last year. Non-GAAP gross margin for the June quarter was 34.9%, up from 31.9% in the prior quarter and up from 27.5% in the same quarter last year. The quarter-over-quarter increase in non-GAAP gross margin was mainly driven by a better product mix. Non-GAAP gross margin excluded $0.8 million of amortization of purchased IP for both the June quarter and the prior quarter, and $4.4 million of production ramp-up costs related to the JV Company for the same quarter last year. Additionally, non-GAAP gross margin excluded $0.6 million of share-based compensation charges for the June quarter, compared to $0.4 million for the prior quarter and $0.3 million for the same quarter last year. For the fiscal year 2021, non-GAAP gross margin was 31.9%, compared to 27.9% for the prior year. Non-GAAP operating expenses for the June quarter were $32.8 million, compared to $30.9 million for the prior quarter and $25.3 million for the same quarter last year. The quarter-over-quarter increase was primarily due to higher variable compensation accruals this quarter. Non-GAAP operating expenses for the quarter excluded $4.8 million of share-based compensation charges and $0.6 million of legal expenses related to the government investigation. This compares to $3.4 million of share-based compensation charges and $0.6 million of legal expenses for the prior quarter, as well as $2.4 million of share-based compensation charges and $2.6 million of legal expenses for the same quarter last year. Non-GAAP operating expenses for the fiscal year 2021 was $123.8 million, compared to $102.5 million for the prior year. Non-GAAP operating expenses excluded $13.6 million of share-based compensation charges and $3.1 million of legal expenses related to the investigation in the current fiscal year, compared to $8.9 million of share-based compensation charges, $4.7 million of legal expenses related to the investigation, and $0.6 million for an impairment charge in the prior fiscal year. Income tax expense for the quarter was $1.2 million, compared to $1.0 million for the prior quarter and $0.4 million for the same quarter last year. Income tax expense for the fiscal year was $3.9 million, compared to $0.4 million for the prior fiscal year. Non-GAAP EPS attributable to AOS for the quarter was $0.95 per share, compared to $0.77 for the prior quarter and $0.29 for the same quarter last year. Non-GAAP EPS attributable to AOS for the fiscal year was $2.93, compared to $0.88 for the prior fiscal year. AOS continued to generate positive operating cash flow. AOS, on a standalone basis, generated $32.6 million of operating cash flow in the June quarter, compared to $33.3 million in the prior quarter and $20.2 million in the same quarter last year. In the June and March quarters, we received $10 million and $20 million customer deposits for securing supply, respectively. The JV Company generated positive operating cash flow of $11.6 million in the June quarter, compared to $5.3 million in the prior quarter and $20.1 million in the same quarter last year. Cash flow from operations attributable to AOS for the fiscal year was $114.3 million, compared to $58.0 million for the prior year. Cash flow provided by operations attributable to the JV Company was $14.4 million for the year, compared to $4.4 million in the prior year. Consolidated EBITDAS for the June quarter was $40.9 million, compared to $36.2 million for the prior quarter and $14.9 million for the same quarter last year. EBITDAS attributable to AOS for the quarter was $33.6 million compared to $30.6 million for the prior quarter and $12 million for the same quarter last year. EBITDAS for the JV Company was $7.8 million in the June quarter, compared to $4.5 million for the prior quarter and negative $1.1 million for the same quarter last year. Consolidated EBITDAS for the fiscal year was $136.4 million, compared to $52.0 million in the fiscal year 2020. EBITDAS attributable to AOS for the year was $111.7 million, compared to $44.8 million a year ago. Now let’s look at the balance sheet. We completed the June quarter with a cash balance of $202.4 million, including $164.9 million at AOS and $37.5 million at the JV Company. This compares to $192.1 million at the end of the last quarter, which included $158.3 million at AOS and $33.8 million at the JV Company. Our cash balance a year ago was $158.5 million, including $110.3 million at AOS and $48.2 million at the JV Company. The bank borrowing balance at the end of June was $165.4 million, including $24.3 million at AOS and $141.1 million at the JV Company. During the quarter, AOS and the JV Company repaid $2.1 million and $4.2 million of existing term loans, respectively. Net trade receivables were $35.8 million at the end of the June quarter, compared to $33.7 million at the end of the prior quarter and $13.3 million for the same quarter last year. Days sales outstanding for the June quarter were 26 days, compared to 22 days in the prior quarter. Net inventory was $154.3 million at quarter end, up from $145.1 million last quarter and up from $135.5 million in the prior year. Average days in inventory were 115 days for the quarter, compared to 112 days in the prior quarter. Net property, plant and equipment was $437.0 million, slightly up from $432.6 million last quarter and up from $412.3 million last year. Capital expenditures were $32.2 million for the quarter, including $25.1 million at AOS and $7.1 million at the JV Company. In the June quarter, AOS commenced a plan to expand our Oregon fab with an investment of approximately $100 million, including $20 million to advance our capability and $80 million to expand capacity. We believe this expansion, when fully completed, will enable us to generate an additional $70 million in annual revenue. We expect the capacity to come online in the December quarter of 2022. During the June quarter, the JV Company continued to ramp its 12-inch fab. It’s on track to achieve the Phase 1 target run rate in the September quarter. As discussed, the JV Company is in the process of pursuing additional financing for its Phase 2 capacity expansion. We will provide more details when available. With that, now I would like to discuss the guidance for the September quarter. We expect revenue to be approximately $180 million, plus or minus $3 million. GAAP gross margin to be 33.7%, plus or minus 1%. We anticipate non-GAAP gross margin to be 34.5%, plus or minus 1%. Non-GAAP gross margin excludes $0.8 million of amortization of acquired IP and $0.6 million of estimated share-based compensation charges. GAAP operating expenses to be in the range of $37.7 million, plus or minus $1 million. Non-GAAP operating expenses are expected to be in the range of $33.5 million, plus or minus $1 million. Non-GAAP operating expenses exclude $3.9 million of estimated share-based compensation charges and $0.5 million of estimated legal expenses relating to the government investigation. Income tax expense to be approximately $1.0 million to $1.4 million. Loss attributable to non-controlling interests to be approximately $0.5 million. As part of our normal practice, we are not obligated to update this information. With that, we will open the call for questions. Operator, please start the Q&A session.

Operator, Operator

Thank you. Your first question comes from the line of Craig Ellis from B. Riley Securities. Sir, your lines are open.

Craig Ellis, Analyst

Yeah. Thanks for taking the question and congratulations on the very robust results and outlook. I want to ask a two-part question. In part based on a comment that you made, Mike Chang, and so if I look at the first quarter’s guidance, annualizes to $720 million in revenues and down the line items would imply EPS would annualize $3.88. So you had indicated, Mike, that you were shooting for $1 billion in sales in the next few years. I know that’s historically been the calendar 2024 target, but just Mike, decoder ring mean that a few years is really two years or three years, because it seems like you’ve been on a very aggressive growth trajectory and maybe we are pulling in that $1 billion target? And then the second half of the question, given the profitability levels that were achieving this far below the $1 billion target, if we’ve got, call it, 40% upside to target revenues, is it fair to think there is another 40% upside in earnings coming if we can grow revenues from $720 million to $1 billion over the next few years?

Mike Chang, CEO

Well, thank you for the question. Thank you for your kind words. $1 billion is for sure. We are pursuing it within three years, or perhaps it will be there sooner. I think the earnings are there. I would rather have Yifan give you the answer. Yifan, can you do it?

Yifan Liang, CFO

Yeah. Sure. Sure. Our target, Craig, right now for $1 billion remains at around the 2024, 2025 timeframe at this point. In terms of profitability, yeah, we have been pleased with our gross margin improvement and the bottom line showing even more significant improvement. Yeah, and that’s our overall business model is to grow our business and grow the top line with reasonable margins; we leverage our scales to grow bottom line EPS even faster. So, I mean, yes, I would expect and as we grow our top line toward $1 billion, our bottom line would continue to improve. This is our business model for the near-term, mid-term, and long-term. I think we can continue to grow our profitability. Our two quarters of results have already demonstrated this business model.

Craig Ellis, Analyst

Yeah. That’s very helpful. My next question is regarding gross margins. So great to see the surge in gross margins in the quarter, and in the outlook, you guided down, I believe, by 50 basis points sequentially. So the question is this: given that there’s been a very strong new product contribution to gross margins over the last few quarters, is that still expected or is there something about the mix that’s changing sequentially that would press margins a little bit lower? Or is it more just the mix of the end markets and some of the things that are happening there that are causing the change in gross margin? If we look at gross margin just beyond the current quarter, can you talk about some of the things that are happening with gross margins and the degree to which current levels are sustainable or can even be expanded upon? Can we now think about 35% gross margins or even higher given that we’re so close to that level?

Yifan Liang, CFO

Sure, we are pleased with our gross margin improvement, which was mainly driven by the better mix. A couple of factors contributed to the mix improvement. One is, since we are on allocation right now, we are optimizing the mix, both product and customer mix. Another contributing factor was the growth from our new products. For example, you saw our power IC products grew quite a bit, almost 100% year-over-year in the June quarter. Those new products generally carry a higher margin for us. So fundamentally, we are selling more and more higher margin products. I would expect that our margins will stay around this level for the near-term. Of course, it may fluctuate, but I would expect that at this point it will be fluctuating probably around that level.

Craig Ellis, Analyst

That’s helpful, Yifan. And then last one to Stephen, just before I jump back into the queue. I just wanted to follow up on the company’s decision to add capacity at the Oregon fab. The $70 million seems like that might give you an incremental 10% to 15% of incremental output there. But the question is really about why you’re adding capacity in Oregon versus doing something more at a quicker pace in Chongqing? Are the drivers related to some of the deposits that you’ve taken in, which I think now total $30 million over the last two quarters? Is it a mix issue, I think, Oregon does more of the power ICs versus MOSFET. So what are the reasons you are moving ahead with an expansion of that fab versus being more reliant on Chongqing?

Stephen Chang, President

Sure. For us, we’ve been growing fairly quickly in the last year and a half, and it’s pretty obvious that we are out of capacity in the shortest time. I want to make sure that our supply can keep up with our demand. So that includes expanding in-house at the Oregon fab. It also includes working with our joint venture as well as other avenues for us to extend capacity. Our decision to expand in Oregon is not just a decision for Oregon; we are expanding on all those fronts to ensure that we can keep up with demand. It’s not necessarily due to mix, and we have demand that’s growing in several of our segments. So it doesn’t make sense for us to continue to expand at one location only.

Craig Ellis, Analyst

Okay. That’s helpful, Stephen. Just a clarification related to capacity and capacity planning. I know you set the expectation that automotive should be an end market that doesn’t have a material ramp for a couple of years; it’s just the nature of that application area. But can you talk a little bit about the three sources that you mentioned, where you’d expect to be sourcing supply for that initiative?

Stephen Chang, President

Right now, we’re not restricting automotive to any particular facility yet, and I think we will be using whatever outlet we have that we can count on in the long-term. That, of course, automotive companies are looking for suppliers that will not change in the next 10 years, right? And that will not change the materials on that, they can count on that they have to go through requalification. For us, we’re not fixed that automotive can only come from certain areas. Yes, for each of those, we’ll plan specifically; some may be in-house, some might be outside, but it’s not fixed that it’s only sourced from a specific place.

Craig Ellis, Analyst

Got it. Great results, guys. I’ll get back in the queue.

Stephen Chang, President

Thank you, Craig.

Mike Chang, CEO

Thank you.

Operator, Operator

Thank you. Your next question comes from the line of David Williams from Benchmark. Sir, your line is open.

David Williams, Analyst

Hey. Good afternoon. Thanks for taking my questions and congrats on the solid quarter.

Mike Chang, CEO

Thank you.

Stephen Chang, President

Thank you.

David Williams, Analyst

I guess first I wanted to ask around the gross margin, and some of this has already been asked, but I wanted to ask it maybe a little bit different way. And just kind of thinking about the higher IC business, that’s clearly been a part of the business that has been expanding, and it’s been a nice contributor. But how do you think about that mix over time? And what do you think is the right percentage of IC business versus your other business? And how do you think maybe about the margin differential between those two different segments there?

Stephen Chang, President

Sure. For us, we’re happy to see, as Yifan was mentioning just now, that our IC business is definitely growing along with our module solutions. Our module solutions are the ones that we’re selling into the home appliance market. So this is a great way for us to sell more and achieve better profit that addresses the customer needs and aligns with demand more tightly. We will continue to expand in those areas. At the same time, our discrete business isn’t at a standstill either. Just a reminder that many of our Power IC products and our module solutions are based on combined technologies. We use co-packaging, and it’s built on top of our silicon technology platforms. So we will continue to see growth in our discrete business simply because we need high-quality discretes in order to innovate with our Power IC and module solutions. In terms of mix, I would say the percentage of IC and module will certainly grow over time. A rough target we’re looking at is about one-third from IC and modules, and two-thirds still coming from discrete business.

David Williams, Analyst

Okay. Great color there. Thanks so much. Steve, maybe another one for you, but on the $20 million of OpEx that you talked about and expanding the technology in Oregon, how much of that, I guess, is there any process expansion? Or maybe if you could give us any color about what that is. But I also just want to say it speaks to the confidence that you have in the demand sustainability. So I guess if you look out in the next year, when the capacity comes online, how, I guess, to what level is your confidence that your demand that you’re seeing today is not necessarily being pulled in by the macro but more sustainable and can continue long-term, so that we’re not building here capacity that could fall off in the next year?

Stephen Chang, President

Sure. Of course. Certainly, we do need capacity now, and that’s not just due to work-from-home benefits and the shortage situation, but our fundamental growth areas are continuing to move forward. What’s driving demand today includes PCs, smartphones, and home appliances. Our business remains solid, and this is company-specific growth that seems to be moving forward. Addressing the expanded capacity, we are doing this for both capacity and capability as well. It is going to provide us with more advanced equipment that enhances our technology further. Much of our technology, for example, our low-voltage offerings, is probably on the fifth or sixth generation of technology platforms, and we need newer equipment to maintain that competitive edge and continue to release leading platforms for our Discrete and IC products.

David Williams, Analyst

Okay. Okay. And then maybe just one last before moving here. Anything unusual in the inventory build you saw this quarter, obviously, up a bit? How much of that was just inventory build, and how much of that, are you seeing anything in any particular market slowdowns, or maybe nothing unusual there?

Mike Chang, CEO

David, inventory increased a little bit compared to last quarter, but partially it was because of the joint venture continuing to ramp up and thus having some inventory materials there. Another thing for AOS is that we increased the amount of key materials, raw materials, for example, substrates. Given the uncertainty of call and the fact that some countries started lockdown again, we kind of intentionally increased some purchases. Actually, our finished goods inventory did go down.

David Williams, Analyst

Okay. Very good. And Yifan, now that I have you online. Let me ask one more there. Just in terms of the OpEx, it’s kind of bumped up a little more than we would have expected in the June quarter, anything unusual there that we should be thinking about? And does that come carry forward? Is this a good base that you kind of grow from?

Yifan Liang, CFO

Go ahead.

Mike Chang, CEO

I mean, if you don’t mind, I’d like to add some color on it. Now, this year, everybody knows it’s a shortage year; anything you produce, it will be hard to sell due to sparse supply. Yifan mentioned to you clearly that we can take advantage of a favorable product mix. However, we all know this condition will not last forever. So eventually, we spend on your competitive advantages. This year, we are investing in capital equipment to further enhance our advance capability so that we will remain competitive just in case the market returns to normal.

David Williams, Analyst

Okay. Okay.

Yifan Liang, CFO

All right, David. Regarding the OpEx, yes, in the June quarter, the increase was primarily due to increased variable compensation accruals because of the better-than-expected financial results. So I would expect, again, going forward, it will probably stay around that level.

Craig Ellis, Analyst

Great. Thanks so much, and appreciate the time and best of luck on the quarter.

Mike Chang, CEO

Thank you.

Operator, Operator

Thank you. Your next question comes from the line of Jeremy Kwan from Stifel. Your line is open.

Jeremy Kwan, Analyst

Yes. Good afternoon. And let me add my congratulations on the higher gross margins and it seems the JV turned free cash flow positive. And I guess, the first question on the backlog: you mentioned it was very strong. Can you give us an idea of where lead times have gone and where they were maybe 12 months ago and where they are today?

Mike Chang, CEO

Lead time. I mean, right now, it is a bit longer than 12 months ago. Yes, I mean, our backlog is significantly stronger than 12 months ago as well, and for us, we saw some customers placing more purchase orders for the longer-range. So we are closely monitoring activities and communicating with our customers, so we understand their true demand. If we cannot fulfill customer orders, then we will tell them upfront. So we don’t want to drag them out.

Jeremy Kwan, Analyst

Got it. So you’re not engaging in strategies like other semiconductor companies, where you're encouraging customers to make longer lead-time orders or enter into non-cancelable or non-refundable agreements?

Mike Chang, CEO

No, that’s pretty much consistent throughout the years.

Jeremy Kwan, Analyst

Okay. Great. And then I guess can you give us any indication of where you see pricing, both in terms of your own products? Given the tightness in the whole supply chain, it seems like, I know you’ve been pretty judicious about raising prices on your customers, but I was wondering what competitors are doing and what you’re seeing in terms of the input prices; those are going up? And if you’re planning to pass those increases along to your customers?

Mike Chang, CEO

Sure. I mean, yes, we do see some input cost increases. In terms of our own pricing, there is no formula in this area. There are several factors we consider: the relationship with customers, strategic initiatives we wish to pursue, and the product mix. Overall, we’ve selectively increased some ASPs. We don’t want to gauge customers, and we want to use this opportunity to deepen our relationships with key customers and promote our new products.

Jeremy Kwan, Analyst

Got it. Okay. Stephen mentioned the graphics market, where it appears that large customers are moving some orders from the June quarter to the March quarter. Can you help clarify this in light of the current shortages, especially with graphics cards selling rapidly? What’s the situation? Thanks.

Stephen Chang, President

Sure. It’s also to do with allocation and finding ways to support our customers in their time of need. For graphics, we’re talking about something that powers ICs for most products. Yes, we had a need in the March quarter for more support, so we helped the customer out, but that was pulling in from the June quarter. We expect this to rebound as we go into the September quarter. Overall, we’re on allocation for similar types of products; driver MOS products are also being sold into gaming and computing applications. It’s been a challenge for us to choose and to figure out who to support, what is in our best interest, and what’s in the best interest for the customer. Overall, you see that the overall power IC business has grown tremendously year-over-year, but we do have to move things around from quarter to quarter to support the customers and our strategic initiatives.

Jeremy Kwan, Analyst

Great. Thanks, Stephen. And just last question regards, and jump back in. We find in terms of the $100 million spend: is the $25 million that you spent this quarter part of the $100 million or is that in addition to the $25 million? And also, if you can give us a rough timeframe for when we expect that $100 million to be phased in?

Mike Chang, CEO

Okay. Sure. On the $25 million CapEx spent in the June quarter, that included some down payments for this $100 million project; we have already placed some orders, and some of them required down payments. However, the majority of it was not related to this $100 million project. The $100 million project will probably spread out throughout this fiscal year 2022, so from now on, pretty much through the first half of calendar year 2022, in order to get machines in and facilities up.

Jeremy Kwan, Analyst

Great. Thank you.

Mike Chang, CEO

Thank you.

Operator, Operator

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.

Mike Chang, CEO

Thank you.

Operator, Operator

This concludes today’s conference call. Thank you for participating. You may now disconnect.