Earnings Call Transcript - AOSL Q4 2025

Operator, Operator

Good afternoon, and thank you for joining the Alpha and Omega Semiconductor Fiscal Q4 2025 Earnings Call. My name is Shawn, and I will be your moderator today. I will now hand over the conference to your host, Stephen Pelayo.

Stephen Pelayo, Investor Relations Representative

Good afternoon, everyone, and welcome to Alpha and Omega Semiconductor's conference call to discuss fiscal 2025 fourth quarter. I am Stephen Pelayo, Investor Relations representative for AOS. With me today are Stephen Chang, our CEO; and Yifan Liang, our CFO. This call is being recorded and broadcast live over the web. A replay will be available for 7 days following the call via the link in the Investor Relations section of our website. Our call will proceed as follows today. Stephen will begin business updates, including strategic highlights and a detailed segment report. After that, Yifan will review the financial results and provide guidance for the September quarter. Finally, we will have a Q&A session. The earnings release was distributed over the Wire today, August 6, 2025, after the market close. The release is also posted on the company's website. Our earnings release and this presentation include non-GAAP financial measures. We use non-GAAP measures because we believe they provide useful information about our operating performance that should be considered by investors in conjunction with the GAAP measures. 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. 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'll turn the call over to our CEO, Stephen Chang. Stephen?

Stephen Chang, CEO

Thank you, Steven. Welcome to Alpha and Omega's Fiscal Q4 Earnings Call. I will begin with a high-level overview of our results and then jump into segment details. We delivered fiscal Q4 revenue results at the high end of our guidance due to better-than-expected demand in computing, mostly driven by tariff-related customer pull-ins for PCs and strong sequential growth in AI and graphics chips. Our Consumer segment also saw strong sequential growth related to wearables and gaming. Overall, total June quarter revenue was $176.5 million, non-GAAP gross margin was 24.4%, non-GAAP EPS was $0.02. Total revenue increased 9.4% year-over-year and 7.2% sequentially. As previously noted, licensing revenue wound down in the March quarter. Excluding licensing and other revenue, our product revenue was up 13.7% year-over-year and 9% sequentially. Power IC revenue increased 25.8% sequentially and 30.2% year-over-year to a record quarterly high and now represents nearly 40% of total product revenue. The richer mix of power IC benefits gross margins and comes from graphics, AI, gaming and PC markets. On July 14, we announced an equity transfer agreement with a strategic investor to sell approximately 20.3% of outstanding equity interest of AOS' joint venture in Chongqing, China for an aggregate cash consideration of $150 million. The sale is expected to provide AOS with significant additional capital to continue investing in technology, equipment and acquisition of assets complementary to our business operations to support key growth areas. In summary, uncertainties regarding macro economy and geopolitics continue. Nonetheless, we are delivering on our commitments and advancing our transformation from a component supplier to a total solutions provider. Our goal is to leverage premier customer relationships to expand market share and increase BOM content with a broader portfolio. With that, let me now cover our segment results and provide some guidance by segment for the next quarter. Starting with Computing. June quarter revenue was up 29.7% year-over-year and up 17.9% sequentially and represented the majority or 52.6% of total revenue. These results were solidly ahead of our original expectation for mid-single-digit sequential growth and more than 15% year-over-year. As mentioned earlier, the upside was fueled by tariff-related pull-ins from our PC customers and robust sequential and year-over-year growth in power solutions for AI and graphics applications. Revenue from AI and graphics reached a record high in the June quarter, driven by strong initial shipments for a new AI program. However, we expect a digestion period in the September quarter as that initial demand is absorbed. Meanwhile, design-in activities for additional AI programs remains active and ongoing. In summary, we expect the Computing segment to grow low single digits sequentially and mid-teens year-over-year in the September quarter. Sequential growth will be driven by PCs with graphics and AI demand remaining relatively strong, though down from June's record levels. Tablet demand is expected to decline. Overall, visibility remains limited given the uncertain macroeconomic backdrop and evolving trade policies. Turning to the Consumer segment. June quarter revenue was down 5.8% year-over-year and up 23.9% sequentially and represented 15.1% of total revenue. The results were in line with our forecast, driven by strong promotional activity in gaming as well as sequential growth from home appliances. Wearables were also better than expected. For the September quarter, we forecast a mid-single-digit sequential decline in the consumer segment, driven by gaming and home appliances but offset by continued growth in wearables. Next, let's discuss the Communications segment. Revenue in the June quarter was down 1.7% year-over-year, down 5.2% sequentially and represented 15.2% of total revenue. The June quarter results were below our guidance for flat sequential growth as a falloff from smartphones in China more than offset growth from Korea and our Tier 1 U.S. smartphone customer. Smartphone battery PCM revenue continues to outpace the overall market due to a combination of market share gains, a mix shift to higher-end phones and generally higher charging terms driving increased BOM content. Looking ahead to the September quarter, we anticipate more than 10% sequential growth for the Communications segment, primarily driven by our Tier 1 U.S. smartphone customer as they prepare for their next phone launch. Demand from China smartphone is also expected to grow sequentially, while Korea sustains the high level achieved in the June quarter. Now let's talk about our last segment, Power Supply and Industrial, which accounted for 16.8% of total revenue and was up 7.3% year-over-year and down 9.8% sequentially. The results were below our flat to slightly down sequential forecast, primarily due to weaker-than-expected demand from power tools and e-mobility. AC/DC power supplies and quick chargers for smartphones did increase sequentially but were not enough to offset the weakness elsewhere. As stated before, we are now seeing increases in quick chargers due to increased BOM content driven by higher charging terms. For the September quarter, we expect revenue to grow mid-single digits sequentially for the Power Supply and Industrial segment, primarily driven by a slight pickup in e-mobility, offset by lower AC/DC power supplies. In closing, we are pleased to report that June quarter results landed at the high end of our guidance, fueled by strong demand across AI and graphics, gaming, wearables and tariff-related PC pull-ins. These results highlight the strength of our diversified portfolio and our ability to execute amid dynamic market conditions. Looking ahead to the September quarter, we expect further growth driven by PCs, smartphones and wearables as we continue to be excited by the expanding opportunities in AI and graphics. The geopolitical and macroeconomic environment remains fluid as we actively monitor evolving trade policies, capture pull-in-related opportunities and collaborate with customers to minimize disruptions. Our business fundamentals remain strong, anchored by differentiated technology, a broadening product portfolio and deep relationships with leading global customers. We believe calendar 2025 will be a year of growth, supported by expanding end market exposure, share gains and rising BOM content. While near-term uncertainties persist, we remain focused on execution, innovation and delivering sustainable value for our stakeholders. With that, I will now turn the call over to 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 $176.5 million, up 7.2% sequentially and up 9.4% year-over-year. In terms of product mix, DMOS revenue was $107.3 million, up 0.4% sequentially and 5.1% over last year. Power IC revenue was $68.7 million, up 25.8% from the prior quarter and 30.2% from a year ago. Assembly service and other revenue was $0.5 million as compared to $0.4 million last quarter and $1.4 million for the same quarter last year. We did not have any license and engineering services revenue this quarter as the related contract was completed in mid-February. This compares to $2.8 million in the prior quarter and $5.1 million in the same quarter last year. Non-GAAP gross margin was 24.4% compared to 22.5% last quarter and 26.4% a year ago. The quarter-over-quarter increase was primarily impacted by the mix improvement. Non-GAAP operating expenses were $40.9 million compared to $39.7 million for the prior quarter and $39.3 million last year. The quarter-over-quarter increase was primarily due to higher R&D engineering expenses. Non-GAAP quarterly EPS was $0.02 compared to negative $0.10 per share last quarter and $0.09 per share a year ago. Moving on to cash flow. Operating cash flow was negative $2.8 million, including $2.7 million of repayment of customer deposits. By comparison, operating cash flow was $7.4 million in the prior quarter and $7.1 million last year. We expect to refund $5 million of customer deposits in the September quarter. EBITDAS, excluding impairment of equity investment for the quarter was $10.5 million compared to $15.2 million last quarter and $16 million for the same quarter a year ago. Now let me turn to our balance sheet. We completed the June quarter with a cash balance of $153.1 million compared to $169.4 million at the end of last quarter. Net trade receivables increased by $6.3 million sequentially. Days sales outstanding were 15 days for the quarter compared to 11 days for the prior quarter. Net inventory increased by $1.6 million quarter-over-quarter. Average days in inventory were 126 days for the quarter compared to 129 days for the prior quarter. CapEx for the quarter was $14.3 million compared to $8.1 million for the prior quarter. We expect CapEx for the September quarter to range from $11 million to $13 million. A few words about our joint venture in Chongqing, China. On July 14, we signed an equity transfer agreement to sell 20.3% of the outstanding shares of CQ JV for $150 million in cash, and we expect this deal to be completed in the next few months. This transaction demonstrated our commitment to the ongoing value creation for our shareholders. With this sale, our ownership in CQ JV will reduce to 18.9% from 39.2%. CQ JV will remain as an important wafer and packaging supplier for AOS. After this transaction, the new investor plans to inject a significant amount of capital into CQ JV to further expand its capacity. Based on the valuation of this sale, we recorded an impairment charge of $76.8 million in the June quarter on a U.S. GAAP basis. This impairment charge partially reversed the $358.7 million net gain that we recorded back to December 2021 after we sold 3.2% equity interest in CQ JV for $26.3 million cash. With that, now I would like to discuss September quarter guidance. We expect revenue to be approximately $183 million, plus or minus $10 million. GAAP gross margin to be 23.8%, plus or minus 1%. We anticipate non-GAAP gross margin to be 24.4%, plus or minus 1%. GAAP operating expenses to be $47.5 million, plus or minus $1 million. Non-GAAP operating expense is expected to be $41 million, plus or minus $1 million. Interest income to be $0.5 million higher than interest expense and income tax expense to be in the range of $1 million to $1.3 million. With that, we will now open the call for questions. Operator, please start the Q&A session.

Operator, Operator

Our first question is from David Williams with Benchmark. The next question is from Jeremy Kwan with Stifel.

Jeremy Kwan, Analyst

Maybe if you could provide a little bit more color on the computing segment. It looks like that was very nice to see and it was quite strong, especially on the AI and graphics. Can you help us understand the digestion that you mentioned? Is that related to the tariff pull-ins more generally? Or is that related to the strong initial shipments of the new AI program? And any color you can provide in terms of the AI contribution this quarter and how you see that going forward over the next couple of quarters would be very helpful.

Stephen Chang, CEO

We are very excited about our AI and graphics business, which we have been building and expanding in the advanced computing area. The digestion aspect refers to one of the AI programs we started shipping last quarter. While we anticipate that it may take a bit longer for the initial shipment to be fully digested, we are encouraged by the additional programs we are designing that will aid in this process. We are also seeing fresh orders, along with forecasts and backlog for these new programs. We're pursuing a variety of AI projects alongside our graphics initiatives. On the graphics side, we report that performance has been quite strong, exceeding our original expectations, with solid market share among add-in card makers for graphics cards. We are enthusiastic about both our AI and graphics business.

Jeremy Kwan, Analyst

Great. That's very helpful. And can you help us quantify this maybe in qualitative terms, like how much your total AI is as a part of the consumer segment or maybe how much drove growth in the current quarter? And maybe how you see that shaping out over the next, maybe call it, 12 to 18 months?

Stephen Chang, CEO

Yes. We tend to consider graphics and AI together because the products are quite similar in terms of both the controller and the driver MOS that we offer as a complete solution. Combined, they represent roughly 25% of computing these days.

Jeremy Kwan, Analyst

That's very helpful. I have a question about the gross margin. I understand that the richer mix of the Power IC contributed positively to gross margins this quarter. However, it seems that gross margins might be flat next quarter, even with slightly higher revenues. Does that suggest a potential shift in the power IC mix? Can you explain the near-term dynamics and your outlook for the next 12 to 18 months, particularly as newer, higher-value products continue to ramp up?

Yifan Liang, CFO

Sure, Jeremy. In the June quarter, our gross margin showed a solid improvement compared to the previous quarter, returning to the levels seen in December 2024. This was mainly due to an improved product mix. It's important to note that in the June quarter, we did not have any license and engineering service revenue, as that 24-month contract ended in mid-February. For the September quarter, we are guiding flat gross margins in comparison to June, reflecting a similar product mix and production levels. While revenue was slightly higher than in the June quarter, we still have revenue inventory and additional inventory sourced from third-party foundries and subcontractors to support our needs. Overall, we anticipate a steady gross margin in the September quarter.

Jeremy Kwan, Analyst

And beyond the September quarter, how should we think about gross margins? Are you expecting the mix to continue increasing or to be more favorable? Any insights you can provide on that would be helpful.

Yifan Liang, CFO

Sure. We don't provide guidance for the long term, only for one quarter at a time. However, as our revenue continues to grow, I would expect to see an improved product mix in the growth area.

Jeremy Kwan, Analyst

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

Yifan Liang, CFO

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

Operator, Operator

Our next question is from David Williams with Benchmark.

David Williams, Analyst

I apologize for the initial issue. Following up on the last question about the joint venture, considering your balance sheet, it seems you're utilizing third-party foundries well, which has given you flexibility in the past. I'm curious about how you view the possibility of increasing internal capacity to enhance your margin profile as you grow the business. Is that a direction you want to pursue, or would you prefer to maintain a balanced approach between third-party resources and internal capacity, along with the joint venture?

Yifan Liang, CFO

This $150 million transaction will certainly enhance our capital position and provide additional flexibility for our supply setup. We will continue to assess both internal production and third-party foundries based on our needs. Following this transaction, our balance sheet is considerably stronger, providing us with significant liquidity and delivering substantial value to our investors. Historically, we have recorded $300 million on our balance sheet from this equity investment. Over the years, including this deal, we have realized approximately $176 million in cash, and we still retain an 18.9% stake even after this transaction. Overall, this deal has indeed created significant value for our investors.

David Williams, Analyst

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

Yifan Liang, CFO

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

David Williams, Analyst

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

Yifan Liang, CFO

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

David Williams, Analyst

Great. Stephen, as you reflect on your customers' reactions, do you notice more caution regarding demand, or do you believe people are generally feeling more optimistic about the second half in terms of underlying demand?

Stephen Chang, CEO

The answer varies depending on the specific market being discussed. We’re witnessing a more notable impact from tariffs on the demand side within the computing sector, particularly for notebooks and desktops. Our customers are focused on ramping up production and getting their products shipped before any potential tariff changes take effect. This urgency is particularly evident in the PC market, while we don't see a significant tariff impact in other areas. Other sectors are influenced by different factors. The AI sector remains robust, and graphics continue to perform well, especially since the graphics cards were released at the beginning of this year. AI initiatives are also just beginning, presenting fresh opportunities. In the smartphone sector, we are approaching peak season, with manufacturers in the U.S. and Korea gearing up for high production levels, reflecting seasonal trends we are currently observing.

Operator, Operator

It looks like there are no more questions. So I'll pass the call back over to the management team for closing remarks.

Stephen Chang, CEO

Great. Before we conclude, I'd like to highlight a few upcoming investor events. The management team will be participating in the Sixth Annual Needham Virtual Semiconductor and SemiCap One-on-One Conference on August 21, the 2025 Evercore Semiconductor IT Hardware and Networking Conference on August 26; and the Jefferies Semiconductor IT Hardware and Communications Technology Conference on August 27. Both of those are in Chicago, Illinois, as well as the Benchmark 2025 Tech, Media and Telecom Conference on September 3 and TD Securities Technology Growth Cap Summit on September 4. Both of those are in New York City. If you wish to request a meeting, please contact the institutional sales representative at each sponsoring bank. This concludes our earnings call today. Thank you for your interest in AOS, and we look forward to talking to you again next quarter.

Yifan Liang, CFO

Thank you.

Stephen Chang, CEO

Thank you.

Operator, Operator

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