Earnings Call Transcript - AOSL Q2 2020

Operator, Operator

Ladies and gentlemen, thank you for standing by, and welcome to Alpha and Omega Semiconductor Reports Financial Results for the Fiscal Second Quarter 2020 Conference Call. At this time, all participants are in listen-only mode. After the speaker’s presentation, there will be a question-and-answer session. Please be advised that today's conference is being recorded. I'd now like to hand the conference over to your speaker today, So-Yeon Jeong. You may begin.

So-Yeon Jeong, Investor Relations Representative

Thank you, good afternoon, everyone, and welcome to Alpha and Omega Semiconductor's conference call to discuss fiscal 2020 second quarter financial results. I'm So-Yeon Jeong, Investor Relations representative for the company. With me today are Dr. Mike Chang, our CEO; Yifan Liang, our CFO; and Stephen Chang, our Executive Vice President. This call is being recorded and broadcasted live over the web and can be accessed for seven days following the call via the link in the Investor Relations section of the website at www.aosmd.com. Yifan will begin with a review of financial results for the quarter. Then Mike will review the business highlights, followed by Stephen, who will provide a detailed segment report. After that, Yifan will conclude with guidance for the next quarter. Then, we'll have the question-and-answer session. The earnings release was distributed today, February 5, 2020, 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 our earnings release. We remind you that during the course of 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'll turn the call over to our CFO, Yifan, to provide an overview of the second fiscal quarter financial results. Yifan?

Yifan Liang, CFO

Thank you, So-Yeon. Good afternoon, everyone, and thank you for joining us. Revenue for the December quarter was $117.9 million, flat when compared to the prior quarter and up 2.6% from the same quarter last year. In terms of product mix, MOSFET revenue was $101.5 million, up 0.9% sequentially and up 8.8% year-over-year. Power IC revenue was $14.7 million, down 6.8% from the prior quarter and down 24.4% from a year ago. Assembly service revenue was $1.7 million as compared to $1.6 million for the prior quarter and $2.2 million for the same quarter last year. Regarding the segment mix, Computing represented 41.3% of the total revenue, Consumer 18.0%, Power Supply and Industrial 21.3%, Communications 17.9%, and Service 1.5%. Non-GAAP gross margin for the December quarter was 28.3%, unchanged from the prior quarter and down from 29.2% for the same quarter last year. Non-GAAP gross margin excluded $0.4 million of share-based compensation charge for the December quarter, as compared to $0.4 million for the prior quarter and $0.5 million for the same quarter last year. Non-GAAP gross margin also excluded $8.5 million of production ramp-up costs related to the Chongqing Joint Venture for the December quarter, as compared to $6 million for the prior quarter and $3.5 million for the same quarter last year. Non-GAAP operating expenses for the December quarter were $25.7 million, compared to $25.6 million for the prior quarter and $25.1 million for the same quarter last year. Non-GAAP operating expenses excluded $2.1 million of share-based compensation charge, as compared to $1.9 million for the prior quarter and $3.9 million for the same quarter last year. Both GAAP and Non-GAAP operating expenses included $3 million of digital power team expenses for the quarter, as compared to $2.8 million for the prior quarter and $3.1 million for the same quarter last year. Our digital power controller team continues to engage with customers in product designs and is making steady progress toward our product roadmap. Non-GAAP EPS attributable to AOS for the quarter was $0.23 per share as compared to $0.26 for the prior quarter and $0.30 for the same quarter last year. AOS generated $12.5 million operating cash flow in the December quarter, as compared to $4.2 million net cash used in operating activities and $22.1 million operating cash flow generated in the same quarter last year. Cash flow used in operations, attributable to the JV Company was $3.5 million for the December quarter, compared to $3 million provided by operating activities for the prior quarter and $9.1 million used in operating activities for the same quarter last year. Consolidated EBITDAS for the December quarter was $13.9 million, compared to $14.5 million for the prior quarter and $13.5 million for the same quarter last year. EBITDAS attributable to AOS for the quarter was $12.5 million as compared to $13.8 million for the prior quarter and $15.7 million for the same quarter last year. Now, let’s look at the balance sheet. We completed the December quarter with cash and cash equivalents of $107.2 million, including $86.1 million at AOS and $21.1 million at the JV Company. This compares to $103.1 million at the end of last quarter, which included $88 million at AOS and $15.1 million at the JV Company. Our cash balance a year ago was $146.6 million, including $93.6 million at AOS and $53 million at the JV Company. Bank borrowing balance at the end of the December quarter was $148.5 million, including $36.9 million at AOS and $111.6 million at the JV Company. In the December quarter, AOS and the JV Company repaid $4.1 million and $16.4 million of the existing loans, respectively. The JV Company also borrowed $30.9 million working capital. Net trade receivables were $33.9 million, as compared to $39.3 million at the end of last quarter and $33.9 million for the same quarter last year. Day Sales Outstanding for the quarter was 28 days, compared to 25 days in the prior quarter. Net inventory was $117.6 million at the quarter-end, down from $118.6 million last quarter and up from $103 million in the prior year. Average days in inventory was 114 days for the quarter, flat as compared to the prior quarter. Net Property, Plant and Equipment was $416.1 million, as compared to $404 million last quarter and $380.8 million last year. Capital expenditures were $15.4 million for the quarter, including $12.1 million at AOS and $3.3 million at the JV Company. We estimate that the capital expenditure for AOS core business to stay at 6% to 8% of the total revenue for the fiscal year 2020. Before I turn the call over to Mike, I would like to update you on the progress of our JV Company. During the December quarter, the 12-inch fab and assembly and test production continued to make progress as expected. Our goal remains the same, that is, to ramp up the Phase 1 of the 12-inch fab to approach the target run rate by the September quarter of this calendar year, subject to general and overall market conditions. With that, now I would like to turn the call over to our CEO, Dr. Mike Chang, who will provide the business highlights for the quarter. Mike?

Mike Chang, CEO

Thank you, Yifan. Despite the challenging conditions, we remained focused and continued to execute well during the December quarter. Our revenue came in within the guidance range, achieving both year-over-year and sequential revenue growth. Meanwhile, our gross margin benefited from improved operational efficiency. Most importantly, AOS reported healthy non-GAAP earnings, and our core business generated strong operating cash flow. Looking ahead to the March quarter, we expect weaker than normal seasonality in our business. I’ll speak to one factor that is creating a headwind and Yifan will provide more details on the total outlook in his comments. There has been wide coverage of the coronavirus outbreak in China. Our employees’ well-being is our top priority. I’m grateful that all our employees are safe. In addition to the mandatory extended Chinese New Year holiday, we have implemented additional travel bans, screening procedures, as well as self-quarantine measures. While we maintained partial production throughout the holiday, we anticipate that it will take longer for our factory to return to full production during the March quarter. We have factored the impact of this disruption into the guidance we are providing today. As you can imagine, this is a developing situation and so is its potential effect on the global supply chain. We will continue to evaluate the impact on our business as further developments warrant. We have been consistently pushing forward with our plan to create demand with differentiated products across key market segments, and at the same time, we have been accelerating the penetration and diversification into multiple global brand customers. For computing, our customers increasingly value high-performance products as underlying trends such as artificial intelligence, big data, and the Internet of Things are reshaping the computing industry. With our highly efficient products, we were able to penetrate every single key PC OEM, maintaining a strong position at all of them. Coming to the IGBT business, we demonstrated solid traction by posting 40% year-over-year growth once again in calendar 2019. We continued to expand our footprint at a broad base of home appliance customers with both discrete and module solutions. Our mobile business, including smartphone battery pack and quick charger applications, was the fastest growing business in percentage terms last year, as we ramped the high-volume productions for multiple global OEMs. As we secure additional layers of business at multiple OEMs and ODMs, we remain confident about the strength of our mobile business. In order to address this growing demand from global brand-name customers, we carefully planned the supply chain expansion, which centers on the 12-inch fab and assembly and test facility in Chongqing. Our customers appreciate our commitment to enabling their growth and support our goals. Looking beyond the March quarter, we think that we are well-positioned to capitalize on the demand we have created. Last year, although we garnered meaningful design wins, we were not able to fully satisfy peak season demand due to supply constraints at our Oregon fab. As a result, we had to make difficult allocation decisions regarding which customers and applications to support, and this hindered our growth last year. This year, with added capacity at Chongqing JV, we are in a much better position to support our customers as they ramp up their production volumes, especially since both smartphone and PC applications are expected to hit their usual seasonal peak in the September quarter. Therefore, we still expect to approach the Phase 1 target run rate by the September quarter this year. This expanded capacity will allow us to better capture potential growth opportunities and fuel our diversification efforts as we benefit from the momentum seen across a broader array of growing applications. We have the right strategy in place and an outstanding team to execute it. We have demonstrated remarkable progress, especially in three key areas: creating demand, penetrating top-tier global OEMs with value-added solutions, and expanding production capacity to fulfill demand. This, in return, is building great momentum with ever-increasing design wins in the pipeline and share gains at multiple customers across key market segments, which validates our confidence in driving sustainable growth. We remain encouraged by the opportunities ahead of us and are fully committed to moving forward with our growth plans and navigating the headwinds and volatility we are facing in the short term. Now, I will turn the call over to Stephen for a detailed segment report. Stephen.

Stephen Chang, Executive Vice President

Thank you, Mike, and good afternoon. Let me start with Computing. It represented 41.3% of our total revenue in the December quarter. Revenue was up 5.4% sequentially and down 12.8% year-over-year. During the quarter, the CPU supply eased a bit, but it was still not enough to fully satisfy the market demand. However, the ramp of high-end tablet application and the continued migration into high-value products such as Vcore and graphics cards enabled modest growth in this segment business. The CPU shortage is anticipated to persist at least through the first half of calendar 2020, especially with small core. This has been compounded by the impact of coronavirus on our PC customers. As a result, we are estimating a mid-single-digit sequential decrease in the Computing segment. Now turning to the Consumer segment, which represented 18% of total revenue in the December quarter. Revenue decreased 1.3% sequentially and was up 13.8% year-over-year. We had originally expected to see a double-digit sequential decrease due to TV seasonality. However, we saw healthy demand for various consumer applications during the quarter. As Mike mentioned earlier, strong customer momentum with our leading portfolio of IGBT solutions continued especially with home appliance applications. Bolstered by high performance and reliability required by these applications, our IGBT product line posted a 40% annual increase in calendar year 2019 after growing 40% in calendar 2018 year-over-year. As we expand our customer base in home appliances and accelerate production ramp at global OEMs, we expect the IGBT business to increase another 40% in calendar year 2020. Looking into the March quarter, we expect a moderate seasonal decline in the Consumer segment. Next, let's discuss the Power Supply and Industrial Segment. This segment accounted for 21.3% of total revenue, down 7.6% sequentially and up 13.5% year-over-year. While we grew in applications such as solar power and industrial fans, the seasonal decrease in other AC/DC power supply applications was sharper than anticipated. As one of the key suppliers of quick charging solutions, we believe that we are well-positioned to benefit from the introduction of 5G phones with larger batteries paired with higher wattage power supply. However, entering into what is typically the seasonal low point for our quick charger business, we expect to see a double-digit revenue decline in this segment during the March quarter. Finally, let's move on to the Communications segment, which was 17.9% of revenue in the quarter, down 1.1% and up 32.5% year-over-year. Our highly efficient battery protection business continues to be strong during the December quarter, and we maintained this segment’s revenue similar to the peak level. Since each global smartphone OEM launches new models at different times throughout the year, serving multiple global OEMs helps us offset some seasonality. For the March quarter, we expect the recovery in 5G telecom to drive growth on top of continued strength in the battery pack protection products. Therefore, we anticipate a modest increase in the Communication segment in the March quarter. With that, I will now turn the call over to Yifan for additional comments and guidance.

Yifan Liang, CFO

Thank you, Stephen. As disclosed in our press release, we are cooperating with federal authorities in their recent investigation of our export control practices with Huawei and its affiliates. We have maintained an export control compliance program and have been committed to fully complying with all applicable laws and regulations. In connection with this investigation, we have suspended shipment of our products to Huawei based on the order issued by the Department of Commerce. This suspension is expected to reduce our revenue for the March quarter by approximately $4 million to $5 million. We are working with DOC to resolve this issue, although currently, we do not know when we will be able to resume shipment to Huawei, if at all. In addition, we expect to incur $1 million to $2 million of professional fees during the March quarter in connection with the ongoing government investigation. Please note that the DOC order applies to only our shipments to Huawei. Our sales to other customers are expected to continue and grow beyond the March quarter, unaffected by the order. Since this is a pending and confidential matter, we will not be making additional comments beyond the facts that we have shared with you on this call, in our press release, and the related financial impact that we can assess at this time, except as required by law. Future inquiries will be directed to these statements. Based on this development and the estimated production loss in China due to the coronavirus outbreak and extended Chinese New Year holiday, our expectations for the third quarter of fiscal year 2020 are as follows. We expect revenue to be between $106 million and $110 million. In addition to the impact of suspended shipment to Huawei, this guidance also reflects an estimate of $6 million to $7 million reduction in revenue due to the production loss resulted from the coronavirus outbreak and extended Chinese New Year holiday based on the information we have as of today. We expect GAAP gross margin to be 17.3%, plus or minus 1%. We anticipate non-GAAP gross margin to be 26%, plus or minus 1%. Gross margin guidance reflects the inefficiency caused by production disruptions due to the coronavirus as well as suspended shipment to Huawei. Note that, non-GAAP gross margin excludes $0.4 million of estimated share-based compensation and $8.5 million of estimated production ramp-up costs relating to the JV Company. We expect GAAP operating expenses to be in the range of $29 million, plus or minus $1 million. Non-GAAP operating expenses are expected to be in the range of $25.5 million, plus or minus $1 million. Both GAAP and non-GAAP operating expenses include $3 million to $3.3 million of estimated expenses relating to the development of our digital power business. Non-GAAP operating expenses exclude $1 million to $2 million of estimated professional fees related to the investigation and $2 million of estimated share-based compensation. Tax expense should be approximately $0.4 million to $0.6 million. We anticipate a loss attributable to non-controlling interests to be around $4.7 million. On a non-GAAP basis, excluding estimated production ramp-up costs relating to the JV company, this item is expected to be approximately $0.3 million. As part of our normal practice, we are not assuming any obligations to update this information. With that, we will open up the floor for questions. Operator?

Operator, Operator

We will now take a question from David Williams.

David Williams, Analyst

Good afternoon. And thanks for taking my question, I certainly appreciated. Quickly, I guess, if we're kind of thinking about the different moving pieces here, obviously, Huawei is a drag. And if I can recall correctly, previously, that was a fairly negligible part of the business. Can you kind of talk about how that has trended, I guess, since we've started the process of demand until now? And kind of has that – the revenue change much in that time? Has it come down? Or are you shipping about the same as you were previously? Just kind of how those revenues have trended, I guess, over the last several quarters?

Yifan Liang, CFO

Sure, David. As we mentioned, we have maintained an export control compliance program. We have been committed to fully complying with all applicable laws and regulations. So right now, we are cooperating with the government agencies in their investigations. So, this is a pending and a confidential matter. We said and we do not intend to make additional comments beyond the facts that we have shared on this call and our earnings release except as required by law. So that's – we'll stop there. Our March quarter guidance factors in those impacts, and we have already said about $4 million to $5 million revenue impact for our March quarter. And then some expense impact that we also disclosed there. So – this is near-term, short-term headwinds so we'll get through it. And we'll press on with our growth plan longer-term, so that we'll continue to grow and diversify our customer base and applications we serve. So then, our models in the solar. Those models are still there, they're within the shooting range, even now with some additional challenges. So, that we'll face it and march on.

Stephen Chang, Executive Vice President

Yeah. And this is Stephen. I just want to speak on behalf of the overall our push towards diversification. Our biggest markets right now are PC and smartphones. And in the past few years, there has been a big push by the company to actually diversify our customer base within those core segments and we've been pretty successful at expanding that customer base, and geographically, also, in order to reach all the major customers in each of those spaces. So we are encouraged by that progress and that helps us also as we move forward because that base is wide.

David Williams, Analyst

Okay. Fantastic. Thank you. And then if I'm thinking about the segment that is the largest contributor, where should I be thinking about that $4 million coming from? Is it dispersed amongst the different units? Or is it more heavily related to one or the other?

Stephen Chang, Executive Vice President

We can't comment specifically about all this specifically, but our guidance overall, as well as in each of the segments is reflecting the impact of that.

David Williams, Analyst

Okay. With regard to operating expenses, considering the current fluctuations, it appears that the $25 million projection for the upcoming quarter is a reduction from the previous quarter. Can you provide insights into your operating expense strategies, any trends you are seeing, and cost containment measures that could give us a clearer understanding of operating expenses in the long term?

Yifan Liang, CFO

Sure. Listen, March quarter's OpEx guidance, non-GAAP guidance of $25.5 million is pretty much flattish compared to the December quarter's actual numbers. So that's our current view that we will maintain our OpEx at this level, and then we'll continue to invest in certain strategic initiatives, such as the Digital Power product line. We will continue to do that. And so right now, we are at full speed to pursue our growth plan.

David Williams, Analyst

Okay. If I do the math here and consider the numbers being accounted for regarding Huawei and the impact of the coronavirus, that would add about $10 million to $10.5 million to your guidance total. Looking at that $110 million, it brings us to approximately $120 million to $121 million. Is it reasonable to say that you are experiencing that same level of demand across the business, or is there something I might be overlooking? Considering the growth trajectory, it seems to be a significant step.

Yifan Liang, CFO

Yeah. I mean, that's in the ballpark number. I mean, seasonally in the March quarter, is our lowest quarter normally. We are seeing some good design wins and gains at various customers. And so our March quarter guidance reflects despite the near-term headwinds. And so that substrates it out. And yes, well, right now, that's not where we are.

David Williams, Analyst

Okay. And then one more, if I can. Stephen, maybe you can answer this. But if we're kind of thinking about the allocation and where you're still on allocation amongst your customers? Can you kind of parse that out for us, where I guess the greatest demand? And I know at one point, the PC had been kind of taken out of the drive and slipping in other higher-margin products in. Are you still doing the same type of strategies? Or is there anything in terms of the different allocation mix that you could point to?

Stephen Chang, Executive Vice President

Sure. I can talk about that. So last year, it was a calendar year, it was a bit of a struggle for us because we were on allocation. And as I mentioned before, we're ramping in all these major customers in PC and smartphone specialty. Both of these usually peak at the same time during the September quarter, so last year, we had to be very optimal or optimized in our loading in our preparation for that to make sure that we could keep all the key customers happy and match our priority. This year, we're actually encouraged because we have been working on expanding our supply chain. We've been talking about our Chongqing 12-inch expansion with the joint venture. This is already beginning to ramp. And we believe that this is going to help us to provide a lot more flexibility in the way that we support our customers. So yes, I believe that we'll still have some allocation issues to deal with, but we have a lot more options now with Chongqing in order to address not only the peak demand that's coming during the peak season, but also to support all the new business that we've been working to expand and get into.

David Williams, Analyst

Thanks so much and best of luck on the quarter and the investigation. I'll jump back in the queue.

Yifan Liang, CFO

Thank you.

Stephen Chang, Executive Vice President

Thank you.

Mike Chang, CEO

Thank you.

Operator, Operator

And we have a question from Carlin Lynch.

Carlin Lynch, Analyst

Carlin Lynch stepping in for Craig. Thank you for taking my question. I wanted to start with the joint venture and its ramp-up. The coronavirus is certainly a significant challenge, but last quarter, you mentioned expectations of about $7 million in revenue for this past quarter. Looking ahead to the September quarter, with a target of $150 million run rate, that translates to $37.5 million in revenue per quarter. As we consider the dynamics beyond this March quarter, which end markets do you anticipate will drive that significant increase at the joint venture? Will it primarily come from smartphones? I'm interested in how we can reach that $150 million run rate post-March quarter, given that the March quarter might yield lower results than initially projected.

Yifan Liang, CFO

Okay. I'll address your first part of your question, and Stephen can talk about the product mix. What we have been saying is we're targeting to ramp up the 12-inch fab joint venture to approach the target run rate, quarterly run rate in the September quarter. It doesn't mean it's a linear progression. So from last year's September quarter to this year's September quarter, we anticipate around a year, 12 months or so ramp-up time for the new fab, but it is not linear. So right now, given the near-term headwinds, we will still remain to target the September run rate to get to that run rate. So, I mean, that's our overall goal at this point. I'll let Stephen talk about what type of products we will run over there.

Stephen Chang, Executive Vice President

Sure. So regarding the applications that we're serving for Chongqing, we're actually moving several of our technology platforms over there in order to help support the growth, especially in PC and smartphones. Those will probably come first. We have a lot of high runners that we're planning to move over there in order to help balance the loading wind in our whole supply chain. So, we'll be targeting those first, but we also are going after other applications as well too. So this fab has several platforms, again, being that will be supported from the 12-inch Chongqing Joint Venture. So again, we have a lot more flexibility to support that. So not only for our existing business to help balance the load, but also to support new business.

Carlin Lynch, Analyst

Got it. And just kind of put a fine point on it. That means that we could expect maybe in the June and September quarters, we could see above seasonal growth or growth above what we've seen historically, just given how much more capacity you guys have to fill demand versus, say, last year or two years ago where you were still incredibly supply constrained. Is that fair?

Stephen Chang, Executive Vice President

That's correct. And to be fair, we will still be on allocation for certain areas, but with Chongqing, we have a lot more ability to support that peak season.

Carlin Lynch, Analyst

Yeah. Got it. And then – so turning to the Digital Power side. Obviously, OpEx has kind of bounced around between – it looks like $2.8 million and $3.1 million per quarter. Two questions there. One is that kind of – are we now at a steady $3 million per quarter in operating expense, so $12 million a year? And then on second, can you touch on just what the demand has looked like in terms of breadth of customers? Are – where are we in terms of – is it one big customer? A few big customers? Just where are we with that rollout? Any color there would be great.

Yifan Liang, CFO

Okay. I'll comment on the OpEx portion first, and then I'll let Stephen to comment on the progress. In terms of OpEx and related to our digital power team, yes, and right now, it's running around $3 million or so per quarter. And the expenses could fluctuate from quarter-to-quarter, depending on the engineering activities. And then I mean, I would think it probably in the range of $3 million to $3.5 million per quarter, that type of range. I'll let Stephen comment on the progress.

Stephen Chang, Executive Vice President

Sure. So we're pretty pleased with the progress so far in Digital Power. Last year was definitely mainly a product development and early engagement with customers as we kind of reach into the end of last year, and this has set up going quite a bit. And we are getting deeper into customer engagement at several customers. And where it would have – happy with what we see. But we expect to start to turn some of these opportunities into design-ins and design wins and convert them into revenue soon. We will be providing some more guidance on this in coming quarters, but we are happy with what we see so far.

Carlin Lynch, Analyst

Got it. And then just two more for me, quick ones, and then I'll jump back in the queue. On inventory dynamics, it was good to kind of see inventory – day of inventory rise a little bit quarter-over-quarter? Because I know you guys had said before that it was – you guys are running a bit lean. Can you touch on some of the channel inventory dynamics, both for you guys, and kind of any color about industry broadly? I know you had said that Intel CPU supply remains tight, but any kind of color what you're seeing in terms of inventory destocking? Obviously, we just had this long period where things kind of destocked pretty rapidly.

Yifan Liang, CFO

For our own channel inventory, it is currently at the low end of our target range, which is two to three months. This means we are still operating at a fairly tight inventory level. Regarding the overall channel inventory and market conditions, we need to reassess after Chinese New Year due to the coronavirus outbreak, which could potentially impact the global supply chain. The situation with the virus is still very fluid and evolving, so we must closely monitor its effects on the global supply chain and overall market conditions.

Carlin Lynch, Analyst

Could you clarify how the recent coronavirus situation in China has affected supply and demand dynamics in the past couple of weeks? How has it changed the situation?

Yifan Liang, CFO

Well, the last couple of weeks has been Chinese New Year. So I mean, a lot of the China, Taiwan, a lot of Asian countries, they are on holidays. So right now, it is hard to say. This is still pretty dynamic and need time to closely monitor and evaluate because there are some productions from our customer side and whether or not they can resume their production to full capacity, how soon they can get to that point? And also on our supplier side, and we also need to evaluate how soon they can start their productions and for our own factories in China, pretty much our entire assembly, test, and back-end productions are in China. So we also need to evaluate and once those workers come back on February 10, that's when workers are supposed to come back. But given the current coronavirus situation, we also implemented a self-quarantine policy. Even though they come back, they may have another 14 days in a self-quarantine time. So all those things are still evolving and developing. We need to keep close eyes on those situations.

Carlin Lynch, Analyst

Got it. All right. Thanks, guys. I’ll hop back in the queue.

Operator, Operator

And we have a question from the line of Craig Ellis.

Craig Ellis, Analyst

Yeah, thanks for taking the question. And I appreciate all the transparency on the things that are going on in the business. I wanted to really follow-up on some of the things related to guidance. And some of this may have been covered earlier; I was on a different call. And Carlin was doing a great job following up on some of the specifics. But as I look at guidance, it looks like there's an $11 million revenue impact for two reasons, and I want to understand them much better. First, with respect to the China coronavirus allowance that you're making of $6 million to $7 million, how much of that is simply on the supply side? And some of the things you just mentioned in Chongqing, Yifan, versus any of the demand-side disruption that you may be seeing? And maybe to put that first question in context, you can tell us how much Chongqing related revenue you had in the December quarter. And with the $6 million to $7 million adjustment, how much is embedded now in guidance? Or if all of the Chongqing's fabs revenues are excluded from guidance?

Yifan Liang, CFO

Right now, our estimate is between $6 million and $7 million, mainly based on our production situation. Due to the extended Chinese New Year holiday, we lost an additional seven days, and there is also a 14-day quarantine along with the policies we introduced that could cause other disruptions in production. Therefore, that $6 million to $7 million estimate reflects these factors. Overall, our backlog and bookings are currently in a healthy state. Once our customers return after the Chinese New Year, we anticipate gradually obtaining more information from them. So, that $6 million to $7 million estimate is based on our production situation.

Craig Ellis, Analyst

Okay. That's helpful.

Stephen Chang, Executive Vice President

Yeah. This is Stephen. So on the demand side, the end demand side; we haven't seen any major impact yet. However, we do see that our direct customers, they also have operations running in China as well too. So they're seeing the same issues and that we are as well. So we do see some impact there. But right now, it's also overlapping with our production delays, because of the labor force and taking a little longer to come back. So, we are reflecting that in our guidance. Where we have confidence that the current demand actually is still looking very healthy. We hope to work temporarily through this challenging time for China as we deal with the situation.

Craig Ellis, Analyst

Okay. The two follow-ups are one, Steven, it sounds like then you're saying that share loss risk is mitigated given that this is a headwind that your customers are accounting, but can you speak to any share loss risk that might be out there if you're unable to fill existing demand with products your customers that counted on? And then Yifan, what gives you confidence that the fab will be up and running and delivering output so that it could in the calendar second quarter, your fiscal fourth quarter be able to get back to a revenue level that would meet the Phase 1 ramp target you have for the September quarter? So that's more of an operational question.

Stephen Chang, Executive Vice President

So, regarding the demand question. Right now, we're not anticipating any share loss as a result of that right now. We believe that it's mostly affecting this return to work certainly, if things change, it could be a different story, but it probably won't be just as that's affected as well. So, on the demand side, that's what we see right now.

Yifan Liang, CFO

Right now, based on our current information, we cannot estimate how long the coronavirus will last, but it could extend into the quarter. We will provide updates as necessary. Our assessment suggests that this virus may diminish with warmer weather, similar to how SARS decreased in late spring and early summer 15 years ago. Regarding the September run rate, it is contingent on overall market conditions. Given our design wins and the ramp-up schedules of our customers, we anticipate that PC customers will peak during the September quarter, which is when we will need the most capacity. We are progressing with our long-term growth plans.

Mike Chang, CEO

This is Mike Chang. Let's discuss our long-term vision, which is just a few years away. This company has a clear plan to become a billion-dollar enterprise, as we have mentioned over the past year. Our determination to develop the company and expand our technology and applications is key to this goal. We are also moving into higher application areas to become more application-specific. The momentum, strength, and capability are present. While we are encountering some short-term challenges, these will pass, and our costs will remain stable. Therefore, this company is well-positioned to pursue our original goal.

Craig Ellis, Analyst

That's helpful, Mike. I appreciate the color. And then I wanted to switch gears and just make sure I understood the Huawei situation. Can you please identify when you were notified by the DoJ about the inquiry? Is there any revenue that's included in the fiscal third quarter guidance associated with Huawei? And can you just put the $4 million to $5 million allowance you called out in your press release, as a headwind to the quarter in the context of what you would have shipped to Huawei, say, in the December quarter and the September quarter for us? Thank you guys.

Yifan Liang, CFO

Sure. Craig, this DOC order – first of all, this DOC order applies only to our shipments to Huawei. So our sales to other non-Huawei customers are expected to continue and grow beyond the March quarter. So – and then given that, I mean, since this is pending a confidential matter that we do not plan to make additional comments beyond what we shared with you on this call and in our press release, unless it's required by law. So any future inquiries about this case will be directed to those statements.

Craig Ellis, Analyst

All right. Well, wanted to give it a try. Thanks, Yifan.

Yifan Liang, CFO

All right. Thank you.

Operator, Operator

And we have no further questions. And I'll turn the call back over to your speakers.

Mike Chang, CEO

Sure. 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.

Yifan Liang, CFO

Thank you.

Stephen Chang, Executive Vice President

Thank you.

Operator, Operator

Thank you. And this does conclude today's conference call. You may now disconnect your lines.