Earnings Call Transcript - AOSL Q2 2026

Operator, Operator

Good afternoon. Thank you for attending today's Alpha and Omega Semiconductor Fiscal Second Quarter 2026 Earnings Call. My name is Victoria, and I'll be your moderator for today. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. I would now like to pass the conference over to Steven Pelayo. Thank you. You may proceed, Steven.

Steven Pelayo, Investor Relations

Good afternoon, everyone, and welcome to Alpha and Omega Semiconductor's conference call to discuss fiscal 2026 second quarter financial results. I'm Steven 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 seven 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 with business updates, including strategic highlights and a detailed segment report. After that, Yifan will review the financial results and provide guidance for March. Finally, we will have a Q&A session. The earnings release was distributed over the wire today, 02/05/2026, after the market closed. 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 obligations to update the information provided in today's call. Now I'll turn the call over to our CEO, Stephen Chang.

Stephen Chang, CEO

Thank you, Steven. Welcome to Alpha and Omega fiscal 2026 Q2 earnings call. I will begin with a high-level overview of our results and then jump into segment details. We delivered fiscal Q2 revenue results slightly higher than the midpoint of our guidance, primarily reflecting seasonality across several end markets, including PCs, wearables, tablets, and gaming. Inventory digestion in AI further impacted by shifts in GPU allocation to prioritize data centers over graphic card markets. Strength from our tier-one US smartphone customer and sequential growth in e-mobility power tools, and home appliances. Overall, total December revenue was $162,300,000, down 6.3% year over year and down 11.1% sequentially. Non-GAAP gross margin was 22.2%. Non-GAAP EPS was a loss of 16¢ per share. In addition, we repurchased approximately $13,900,000 of AOS shares during December, representing 728,000 shares as part of our recently announced $30,000,000 share repurchase program approved by the board. Following these purchases, approximately $16,000,000 remains available. This balanced approach to capital allocation reflects the board and management's confidence in our strategy and execution while maintaining the financial strength needed to invest for long-term growth and deliver shareholder value. Several years ago, we launched a deliberate strategy to transform AOS from a component supplier into a provider of application-specific total solutions. From the start, our focus has been on higher performance markets where system-level differentiation matters. Barriers to entry are higher, and we can meaningfully expand BOM content. We believe this strategy is working. We have seen tangible results in AI and graphics in smartphones through a mix shift towards premium platforms and higher charging terms. And more recently, this momentum has extended into our high-performance medium voltage MOSFETs used in applications such as hot swap and intermediate bus converters for AI data centers. Just as important, this focus helps offset competitive pressure at the lower end of the market and reinforces our confidence in the direction we are taking. We have remained disciplined in how we execute this strategy, making targeted long-term investments rather than reacting to short-term noise. As applications continue to evolve towards higher performance and greater system complexity, we believe the right response is to accelerate investment in the technologies, products, and engineering resources required to win. Consequently, we are increasing critical R&D investments. These are not broad-based investments. They are highly focused where we hold clear differentiation, strong customer engagement, and a clear roadmap to higher BOM content and sustainable margins. To support this strategy, we strategically optimized our balance sheet. As part of a planned capital allocation approach, we monetized a portion of our equity interest in the Chongqing joint venture, retaining a meaningful ongoing stake. As previously announced, we sold approximately 20% of our equity interest in the joint venture for an aggregate purchase price of $150,000,000 payable in installments, and we continue to hold an 18.9% equity interest in the joint venture. We received $94,000,000 in September followed by an additional $11,000,000 in December, and subsequent to the quarter end, received $30,000,000. There is an additional $15,000,000 remaining that will be received later this calendar year. This financial strength allows us to invest decisively and strategically in technology development, manufacturing capability, and engineering talent as we continue to shift the business towards higher value, higher margin opportunities. We are already realizing the impact of our strategy on revenue. For example, while overall PC unit demand in calendar 2026 is expected to be constrained by tightening memory supply, our total solution strategy is gaining traction, and we are seeing increased BOM content on new platforms such as Intel's Camberlake. In communication, we are witnessing the fruits of our earlier investment in silicon and packaging technology in smartphone battery protection. Our technology differentiation coupled with the industry move towards higher charging currents enabled us to secure increased BOM content and deepen our relationship with top-tier customers. Factors that are expected to contribute to our growth in 2026. In advanced computing, including AI data centers, server, and graphics, we are encouraged by an expansion in demand across a broader array of AI data center applications and a broader set of customers. We are seeing near-term demand for high-performance medium voltage solutions used in applications such as hot swap and intermediate bus converters for leading ODMs for major hyperscale customers. Advanced computing is becoming a core growing element within the computing segment. The key takeaway is that we are continuing to see the benefits of our structural transformation. We will see tangible results this calendar year, and we expect more meaningful acceleration in 2027 and beyond as new platforms and programs ramp. With that, let me now cover our segment results and provide some guidance by segment for the next quarter. Starting with computing. December revenue was up 5.9% year over year and down 17.1% sequentially, and represented 49.6% of total revenue. The sequential revenue decline was in line with our expectations. Within computing, we saw softness following an unusually strong September that benefited from tariff-related PC pull-ins, as well as earlier AI and graphic shipments. Seasonality also affected sales of tablets. As we mentioned before, during September, AI and graphics customers entered a digestion phase that extended into December, which was further influenced by increasing prioritization of production by our customers towards GPUs for AI data centers over traditional graphics card platforms. Looking ahead to calendar 2026, visibility into the PC market remains limited, driven primarily by uncertainty around memory shortages. While memory availability may impact end PC demand, center investment continues to provide an important offset. As mentioned before, we are shipping our high-performance medium voltage MOSFET products into infrastructure programs, including hot swap power solutions, and are now moving into the build phase asset leading ODM, for major hyperscale customers. We are also expanding our presence in AI platforms through medium voltage solution supporting 48 volts to 12 volts intermediate bus conversion. Looking ahead to March, we expect computing segment revenue to decline in the low single digits sequentially. This reflects softness in the PC market mostly offset by strength in AI data center applications as well as growth in graphics cards and tablets. Importantly, we have clear visibility into demand for our new VDN voltage MOSFET across an expanding list of applications and customer base that includes power supply providers, module makers, cloud service providers, and major hyperscalers. Turning to the consumer segment. December revenue was down 14.9% year over year and down 18.3% sequentially and represented 11.8% of total revenue. The results were in line with our original expectations for a high teen sequential decline. While wearables experienced a normal seasonal decline, the overall year-over-year revenue decrease in consumer was primarily driven by gaming, with a smaller impact also from home appliances. In wearables, we continue to see underlying momentum supported by share gains, new customer engagement, higher BOM content, and a broader mix of end applications. In gaming, we remain closely aligned with our key customer as they progress through their next product cycle for our existing relationship, and strength in high-performance power solutions positions us to participate in the next generation platform. Home appliance demand was modestly lower year over year, though new design activity in 2025 supports longer-term opportunities, particularly in emerging markets. For March, we forecast mid-single-digit sequential growth in the consumer segment, primarily driven by a recovery in gaming after a sharp inventory correction in December. Next, let's discuss the communication segment. December revenue increased 1.1% sequentially and was flat year over year, representing 20.4% of total revenue. The results were supported by strong year-over-year growth from our tier-one US smartphone customer, driven by continued expansion of BOM content. While demand from China smartphone customers remains uneven as we prioritize US customers, we are sustaining high market share in the premium phone segment. We see additional growth coming in calendar 2026, as new models launch with higher charging currents, and our investments in differentiated silicon and packaging technologies for battery protection further enable BOM content expansion. Looking ahead to March, the communication segment will likely decline mid-single digits sequentially. This is due to typical seasonality from our tier-one US smartphone customer, partially offset by sequential growth from China smartphone, while Korea is expected to remain relatively flat. Now let's talk about our last segment, power supply and industrial, which accounted for 16.7% of total revenue and was down 22.5% year over year and down 3% sequentially. Overall, the results were below our expectations for mid to high single-digit sequential growth, as quick charger demand came in weaker than expected. But were partially offset by a rebound in power tools and e-mobility. Looking ahead to March, we expect power supply revenue to increase mid-single digits sequentially driven primarily by quick chargers and DC fans, offset by softer power tools and e-mobility. In closing, we are guiding March to be down slightly sequentially. We expect March to mark a near-term low point for revenue and margin, with the business returning to growth beginning in June and into the peak season, supported by improving mix and a more favorable contribution from higher value applications. Consistent with the strategy we have outlined, we are accelerating targeted investments in performance-driven applications where we have strong positions, clear differentiation, and expanding customer engagement. While calendar 2026 may reflect modest growth, as markets work through near-term constraints, our application-specific total solution strategy is yielding results. And we are already seeing a positive impact. Today. As we continue to move higher value programs towards production, we expect these benefits to become increasingly visible through the course of calendar 2026 which we expect to support stronger growth as we move into 2027 and beyond. With that, I will now turn the call over to Yifan for a discussion of our fiscal second quarter financial results and our outlook for the next quarter.

Yifan Liang, CFO

Thank you, Steven. Afternoon, everyone, and thank you for joining us. Revenue for December was $162,300,000, down 11.1% sequentially and down 6.3% year over year. In terms of product mix, DMOS revenue was $101,000,000, down 6.9% sequentially and down 10.6% over last year. ROIC revenue was $58,800,000, down 19.1% from the prior quarter and up 9.5% from a year ago. Assembly service and other revenue was $2,500,000, as compared to $1,300,000 last quarter and $1,100,000 for the same quarter last year. Non-GAAP gross margin was 22.2%, compared to 24.1% last quarter and 24.2% a year ago. The quarter-over-quarter decrease was mainly impacted by higher input and operation costs. Non-GAAP operating expenses were $41,300,000, compared to $41,400,000 for the prior quarter and $39,000,000 last year. Non-GAAP quarterly EPS was a 16¢ loss compared to $0.13 earnings per share last quarter and $0.09 per share a year ago. Moving on to cash flow. Operating cash flow was negative $8,100,000 including $4,000,000 of repayment of customer deposits, and $8,700,000 income tax paid by one of our entities on the gain from the sale of CQ JV equity interest. By comparison, operating cash flow was positive with $10,200,000 in the prior quarter and positive $14,100,000 last year. We expect to refund $1,000,000 of customer deposits in the quarter. EBITDAS excluding equity method investment loss was $9,700,000 for the quarter, compared to $19,400,000 last quarter and $16,800,000 for the same quarter a year ago. Now let me turn to our balance sheet. We completed December with a cash balance of $196,300,000 compared to $223,500,000 at the end of last quarter. Net trade receivables decreased by $8,100,000 sequentially. Day sales outstanding were twenty-five days for the quarter, compared to twenty-one days for the prior quarter. Net inventory increased by $3,900,000 quarter over quarter. Average days in inventory were one hundred and forty days for the quarter, compared to one hundred and twenty-four days for the prior quarter. CapEx for the quarter was $15,000,000 compared to $9,800,000 for the prior quarter. We expect CapEx for March to range from $15,000,000 to $18,000,000. With that, now I would like to discuss March guidance. We expect that revenue to be approximately $160,000,000 plus or minus $10,000,000. Yep. Gross margin to be 20.2% plus or minus 1%. We anticipate the non-GAAP gross margin to be 21% plus or minus 1%. GAAP operating expenses to be $52,000,000 plus or minus $1,000,000. Non-GAAP operating expenses are expected to be $45,000,000 plus or minus $1,000,000. The sequential growth in the operating expenses is mostly the result of increased spending for R&D. Interest income to be $1,000,000 higher than interest expense, and income tax expense to be in the range of $1,100,000 to $1,300,000. With that, we will now open the call for questions. Operator? Please start the Q&A session.

Operator, Operator

Of course. We will now begin the question and answer session. If you would like to ask a question, please press star followed by one on your telephone keypad. If for any reason you'd like to remove that question, please press star followed by two. Again, to ask a question, press star one. As a reminder, if you are using a speakerphone, please remember to pick up your handset before asking a question. Our first question comes from the line of David Williams with Benchmark. David, your line is now open.

David Williams, Analyst

Hey, good afternoon, everyone, and thanks for taking my question. I guess maybe first, Stephen, you talked a lot about the strategy and that's really starting to show here. But I wanted to first maybe about the AI opportunities and on the GPU track. In those design wins. Can you maybe talk about how that tracking? Is it to your expectations? I know there's been some push and pull between the segments there, but just kind of curious how you're seeing your how that AI opportunity is tracking and what your expectations are.

Stephen Chang, CEO

Hi, David. Yes. Good to hear from you. Yes. The AI opportunity that we've been pushing for is less than what our original expectations were for regarding creating selling solutions for going into the VRM powering the GPUs directly. However, actually, we've been talking about, in this earnings as well as in the previous season is that our AI opportunity is actually expanding. The breadth of our offerings into this AI opportunity is going beyond even just the, you know, the total solutions that we're offering for the VRM solutions. We are excited to see that we can already start to address the medium voltage MOSFETs that are being used in the power conversion that happened even before that stage. And we can see that already in our results for this quarter, which is encouraging for us.

David Williams, Analyst

Thanks. Certainly appreciate that. And then maybe from the OpEx perspective, when should we think that kind of normalizes? Is this a good base rate to kind of consider going forward? Or are there some expenses maybe in this next quarter that won't flow into the following quarters?

Yifan Liang, CFO

Well, sure, Dave. Yes. For the March quarter, we guided about $4,000,000 up in, you know, in operating expenses compared to December. Three out of that $4,000,000 increase for the R&D. So, yes. And, like, Steven said that we are increasing our investment in R&D. Some critical areas. This year. So those new products are focused on where we have strong foothold in that and strong customer engagement and where we have big potential. So we're going to double down and step up the R&D investment. So our divestiture of the CQ JV equity share provides some means for us. So we'll plan to spend around $20,000,000 or so from these proceeds on some new R&D projects this calendar year, which will translate to about a 25% R&D expense increase this calendar year. So March reflects in a little bit lower, gradually, in June and September it will interrupt. On an annual basis, we expect about a 25% increase compared to the prior calendar year.

David Williams, Analyst

Okay. Great. Thank you. And then just one last bit, if I can sneak it in here. Just on the capacity side, just kind of given the balance sheet, are there areas within maybe your existing footprint that you could add capacity? Or areas that you might be able to do something there in terms of helping maybe on the gross margin front or any other just maybe uses of that cash as we look forward? Thank you.

Yifan Liang, CFO

Yes. And, I mean, if you noticed that our CapEx investment in December was about $5,000,000 higher than the prior quarter, and March also inched up compared to December. So we are investing in CapEx to prepare for the calendar year 2026 and growth for new products and to start rolling out. So we are building up some capacity right now.

Operator, Operator

Thank you for your questions, David. Thank you. Oh, apologies, David. Give me one moment. Let me open your line back up.

Stephen Chang, CEO

There you go, David. Sorry about that. That's all for me. Yeah. No problem. That was all for Sorry.

Operator, Operator

Alright. Our next question comes from the line of Tore Svanberg with Stifel. Your line is now open.

Solomon Wang, Analyst

Hey. This is Solomon Wang on for Tore Svanberg. Thanks for taking my question. Looking ahead to the March revenue guide implies a pretty healthy top line momentum, gross margin comes in a little bit lower than what we're expecting. Could you share a little additional color regarding what's causing that and where do you kind of see gross margin longer term as you try to reach that 30% target?

Yifan Liang, CFO

Sure. Yes. March guidance is about 10.2% lower than the December margin. It's mainly reflecting the lower utilization in March, especially during the lunar New Year timeframe. So, typically, each year, that's a time when some operators go back to their hometowns and we also reduce our production. So it’s impacted by the utilization. I would expect that, for June, we expect to see the margins rebound and would expect to probably get back up to the December 2025 or September 2025 margin level. So somewhere in that neighborhood. Our midterm target is still $1,000,000,000 in revenue and 30% non-GAAP gross margin and 20% operating expenses. That's still our midterm target. So from where we are now to get back to the 30% gross margin level, we expect new products to contribute to margin growth and better product mix would also help.

Stephen Chang, CEO

Great. Very helpful. Thank you. And kind of following up on R&D. As you're utilizing the proceeds from the JV stake monetization to help accelerate and fund R&D, could you share a little bit more regarding what specific programs the increased R&D is going to? And what revenue scale does this increased R&D really begin to offer some operating leverage? We want to invest in the areas where we have strength, where we have competitive leverage, and we want those areas to be even stronger. We chose those areas because we've already seen success, whether it's in PCs with total solutions for that, and expanding into AI applications going into graphics and AI. We're also expanding the breadth of that to cover not only the ICs but also high-performance MOSFETs. In the AI space, we see the expansion of customer base, and our solutions can also be sold into servers and data centers going to cloud service providers. This will increase that customer base and allow us to go after a bigger total addressable market.

Craig Ellis, Analyst

Thanks for taking the question, guys. I wanted to go further on what's been topical on the call, which is the investment in advanced compute product. The first one guys, I appreciate the clarification that 25% year on year in calendar '26. I was hoping to ask kind of a higher level theoretical question or maybe a business strategy question, Steven. As you look at investing in new opportunities, what are the gating factors that determine where you will invest and what would be too far away from your low voltage and mid voltage core competencies so that we have a better understanding of where the targets set on a range of things you might be looking at?

Stephen Chang, CEO

Regarding our investment into AI, it started with our total solutions for PCs. With those total solution controllers, paired together with the driver MOS, that's what helped us to get into the graphics space as well as going into various AI platforms. Our investments there will continue. We are not limited to just specific applications; we're expanding into medium voltage power conversion where we can use our solutions now. We are also preparing solutions for wide band gap to go after high voltage aspects. There are also other solutions we are developing to cover that space, including medium voltage.

Yifan Liang, CFO

We are closely monitoring the market, analyzing pricing trends, and adjusting our strategies accordingly. The December pricing was better than expected based on historical trends, and we expect March to follow a similar pattern, with potential normalization in the pricing environment that helps our gross margins.

Stephen Chang, CEO

For us, we do see that the impact of the memory shortage and memory supply will be a headwind for those markets, but we believe our increase in BOM content in the PC side and our total solutions will help penetrate the market.

Operator, Operator

Thank you for your questions. There are currently no questions registered, so I'd like to pass the call back over to Steven for any closing remarks.

Steven Pelayo, Investor Relations

Okay. It's Steven Pelayo here. Before we conclude, I want to highlight a few upcoming investor events. Management team is going to be participating in the fifteenth Annual Technology Conference on February 26 in New York City. We have the Loop Capital Seventh Annual Investor Conference on March 9. This is virtual, and we have the Jefferies Semi's IT hardware and Comtech Summit on August 26 in Chicago. If you wish to request a meeting, please contact the institutional sales representatives at sponsoring banks. This concludes our earnings call today. Thank you for your interest in AOS. We look forward to speaking with you again next quarter.

Yifan Liang, CFO

Thank you.

Operator, Operator

That concludes today's call. Thank you for your participation. Have a wonderful rest of your day.