Alpha and Omega Semiconductor Q3 2023 Earnings Call Transcript

Quartr
Provided by Quartr
May 4, 2023

There are 9 speakers on the call.

Operator

Ladies and gentlemen, hello, and welcome to the Alpha and Omega Semiconductor Fiscal Q3 2023 Earnings Call. My name is Maxine, and I'll be coordinating today's call. I will now hand you over to Yujia Tsai of The Blueshirt Group to begin. Yujia, please go ahead when you're ready.

Speaker 1

Good afternoon, everyone, and welcome to Alpha and Omega Semiconductor's conference call to discuss fiscal 2023 Q3 financial results. With me today are Sidney Chang, our CEO and Yifang 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 and can be found in the Investor Relations section of our website. Today's call will proceed as follow.

Speaker 1

Dylan will begin with business updates, provide strategic highlights and a detailed segment report. After that, Yifan will review the financial results And provide guidance for the same quarter. Finally, we'll have the Q and A session. The earnings release was distributed over the wire today, May 4, 2023, after the market closed. The release is also posted on the company's website.

Speaker 1

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 the comparable GAAP measures is included in the earnings release. We remind you that during this conference call, we will make certain forward looking statements, including discussions of the business outlook and financial projections. These forward looking statements are based on management's current expectations and involve risks and uncertainties that could cause our actual results to differ materially. For a more detailed description of these risks and uncertainties, please refer to our recent and subsequent filings with the SEC.

Speaker 1

We assume no obligation to update the information provided in today's call. With that, I will now turn the call over to our CEO, Stephen Jang. Steven?

Speaker 2

Thank you, Eunjia, and good afternoon, everyone. I will begin today with a high level overview of our results And then jump into segment detail. Our fiscal Q3 results were near the high end of our revenue and gross margin guidance. Revenue was $132,600,000 non GAAP gross margin was 25.1 percent And non GAAP EPS was negative $0.21 As we indicated last quarter, our performance this quarter reflects Our effort to bring customer inventory levels back into balance as quickly as possible in response to the sharp industry wide inventory correction, Particularly in PC and smartphones. As for the broader market environment, end consumer demand continues to be weak.

Speaker 2

However, we are optimistic that the worst is behind us given the intensity of the inventory correction coupled with our proactive measures. Looking into the rest of the year, we expect to recover a good portion of this revenue decline in the upcoming June quarter With further improvement expected in our seasonally strongest September quarter. In terms of our operations, Our near term focus is continuing to work with our customers through the inventory correction and preparing for peak season. We are looking forward to the upcoming fall flagship phone launches and the holidays, all of which are big opportunities for us given our leading share with the leading OEMs in each of these end markets. As I look to the long term, as a newly appointed CEO of AOS, I am positioning the company towards growth beyond our near term $1,000,000,000 revenue target.

Speaker 2

Over the years, AOS has grown to be a major global power semiconductor supplier to Tier 1 players across PCs, Graphics, gaming, smartphones, appliances and power tools to name a few. However, we are just Scratching the surface of potential opportunities in front of us. In the coming decade, the electrification of everything trend is set to accelerate And it will shape our lives in profound ways. Growing concerns over climate change and the need to reduce dependence on fossil fuels We'll continue to drive the transition towards electric vehicles and clean energy. Advancement in generative AI We'll drive exponentially higher demand for high performance computing data centers and spur advancements in robotics.

Speaker 2

Rapid progress in battery technology will likely usher in a growing array of higher voltage portable electronics Similar to recent developments in power tools. Moreover, continued advancements in IoT and high performance computing will pave the way for widespread adoption of new cutting edge products such as smart devices for the home and work. All of these new use cases will drive more demand for power management solutions and significantly expand the market opportunity On the $50,000,000,000 TAM today, power semiconductors have become an essential part of our daily lives in our homes, In our workplaces and in our communities, ALS's comprehensive range of products, which covers a wide voltage spectrum, Position us at the epicenter of this monumental trend that is set to transform every facet of our lives and the industries that we know today. I am determined to drive AOS towards even greater success and capitalize on this exciting future and have my sights Set on AOS becoming a multibillion dollar business by the end of this decade. We plan to take our products deeper into our existing core markets like PCs and smartphones with more integrated solutions And drive higher BOM content.

Speaker 2

We will leverage our core technology IP and strength in advanced computing, Battery, motor and power supply and continue to invest R and D in new adjacent markets like data centers for AI, Automotive and Energy Generation. Our supply chain strategy is another key piece of that puzzle That is critical to us reaching new heights over the coming decade. As we look towards our future, we remain committed Optimizing our supply chain strategy. We understand that diversification is key to maintaining reliability of supply And that's why we are exploring additional foundry partnerships in new geographical locations to expand our production capabilities. Further, we will continue to balance between internal manufacturing and third party foundries to ensure a more robust supply chain that delivers top notch products to our customers.

Speaker 2

Our success in attaining a record number of Tier 1 customers is no coincidence. It is a direct result of our unwavering focus on providing products that are both compelling and reliable, Backed by unparalleled customer service and engineering support, we strive to solve our customers' power problems with a user friendly system approach by providing a total solution. As CEO, I will continue to make sure this commitment to excellence Remains one of our core values and constantly strives to exceed our customers' expectations with every product and service that we deliver. Lastly, our talented and dedicated employees are who make this success possible. As we build upon our strong foundation and momentum, I will continue to foster a work environment and culture in which our employees can Fully unleashed their talents with respect and care.

Speaker 2

With that, let me now cover our segment results and provide some guidance by segment for the next quarter. Starting with Computing. March quarter revenue was down 57.7% year over year and 40.4 percent sequentially and represented 28.7% of total revenue. These results were driven by lower shipments across all computing applications, magnified by March quarter being our seasonally weakest quarter. However, we believe inventory at some of our customers has been depleting and we are seeing a resumption of orders for the June quarter.

Speaker 2

Our current visibility sees encouraging demand recovery in some applications. For the June quarter, We expect total Computing segment revenue to be up about 40% sequentially. Turning to the Consumer segment. March quarter revenue was up slightly year over year and decreased 5.5% sequentially and represented 33.6% of total revenue. These results were in line with our expectations driven by strong gaming volumes, which grew 68.2% year over year And decreased 11.3% sequentially.

Speaker 2

In addition, we saw a 30% sequential recovery from both home appliances and e mobility, Which includes e bikes and e scooters, another application that AOS is addressing with our medium voltage solutions for motor and battery management. Looking ahead, we anticipate our Consumer segment revenue to be flattish or slightly dropped sequentially. Next, let's discuss the Communications segment. Revenue in the March quarter experienced a considerable decline of 33.7% year over year And 45.4 percent sequentially, making up only 14.5 percent of total revenue. The drop in revenue was primarily attributable to weak consumer demand and the ongoing inventory correction in smartphones across all regions.

Speaker 2

The correction seems to be taking longer than we Initially expected, which will cause this segment to remain weak and we currently expect single digit percentage decline in the June quarter. Despite these challenges, we remain optimistic about a rebound in the second half of the year in our seasonally strongest quarters for the fall launches And ahead of holiday sales. Now let's talk about our last segments, Power Supply and Industrial, which accounted for 20% of total revenue. March quarter revenue decreased 29.6 percent year over year and 35.7% sequentially. The performance by applications in this segment was mixed.

Speaker 2

PC power supplies and quick chargers for smartphones were weak, Consistent with the declining trend in PC and smartphone sales, but power tools exhibited positive signs of recovery, Growing 65% sequentially. For the June quarter, we anticipate the segments will rebound with about 50% sequential growth, Primarily driven by increased demand by our Tier 1 U. S. Smartphone customer and China's high end quick charter demand. Additionally, we anticipate continued strength in the power tools category.

Speaker 2

In closing, as we stated last quarter, Our business is affected by the economic environment and industry cycles. But given our strong fundamentals, leading technology, More diversified product portfolio, Tier 1 customer base in all our business segments, expanding manufacturing capability and supply chain and robust balance We are in the best position we have ever been to continue our growth momentum once this downturn is past us. Moreover, the encouraging data from our backlog and constructive conversations with our customers leads us to believe that the March quarter was the bottom and that the worst is now behind us. As such, we are optimistic about the future and look towards executing on the opportunities ahead of us. With that, I will now turn the call over to Yifan for a discussion of our fiscal Q3 financial results and our outlook for the next quarter.

Speaker 3

Thank you, Stephen. Good afternoon, everyone, and thank you for joining us. Revenue for the quarter was $132,600,000 Down 29.8 percent sequentially and 34.8% year over year, reflecting the current industry wide inventory correction. In terms of product mix, Demos revenue was $81,000,000 down 41.2% sequentially and 42.2 percent over last year. Power IC revenue was $47,400,000 down 5.1% from the prior quarter and 22.1% from a year ago.

Speaker 3

Assembly service revenue was $600,000 as compared to $1,200,000 last quarter and $2,300,000 for the same quarter last year. License and Engineering Service revenue was $3,600,000 for the quarter. In February 2023, we entered into a license An engineering service agreement with a leading power semiconductor automotive supplier related to our silicon carbide technology for a total amount of $45,000,000 This contract Further validates the technical leadership of our silicon carbide technology. In the agreement, besides this license, We will also provide product development and engineering services over the next 24 months. The revenue related to this agreement is recognized over the contract period.

Speaker 3

Non GAAP gross margin was 25.1% compared to 29.5% in the prior quarter and 36.7 percent a year ago. The quarter over quarter decrease in non GAAP gross margin was mainly driven by less favorable mix and lower manufacturing efficiency. Non GAAP operating expenses were $36,200,000 compared to $32,800,000 for the prior quarter and $34,000,000 last year. The quarter over quarter increase was primarily due to last quarter's reversal true up in variable compensation accruals. Non GAAP tax expense was $2,500,000 versus $1,500,000 last quarter and $2,200,000 in the prior year.

Speaker 3

The quarter over quarter increase was due to the withholding tax on the $18,000,000 payment received under the Silicon Carbide license agreement mentioned previously. Non GAAP quarterly EPS was negative $0.21 compared to $0.67 last quarter and $1.34 a year ago. Moving on to cash flow. Operating cash flow was $11,600,000 which included $18,000,000 first tranche payment received from our licensing deal And $8,900,000 of repayments of customer deposits. By comparison, Operating cash flow in the prior quarter was $300,000 which included $12,200,000 net repayments of Customer deposits.

Speaker 3

Operating cash flow a year ago was $61,800,000 which included $6,400,000 net customer deposits. We expect to refund around A total of $30,000,000 customer deposits in calendar year 2023. Consolidated EBITDAS was $6,500,000 compared to $31,800,000 last quarter $48,400,000 last year. During the quarter, we repurchased 107,000 shares of our stock for $2,700,000 through our existing share repurchase program that was previously approved by the Board. We also purchased 217,000 shares of employee restricted stock units vested during the quarter by paying $5,500,000 withholding tax on behalf of employees.

Speaker 3

Now let me turn to our balance sheet. We completed the March quarter with cash balance of $265,900,000 compared to $287,800,000 at the end of last quarter. The cash balance a year ago was $323,100,000 Net trade receivables were reduced to $19,400,000 compared to $53,200,000 at the end of the prior quarter. Days sales outstanding were 30 days for both this and the prior quarter. Net inventory was $179,800,000 at the quarter end compared to $163,800,000 at the end of the prior quarter $143,500,000 last year.

Speaker 3

Average days in inventory were 152 days compared to 109 days in the prior quarter. We expect average days in inventory to improve along with our revenue recovery. CapEx for the quarter was $22,700,000 We expect CapEx for the June quarter to range from $15,000,000 to $20,000,000 Our Oregon fab expansion is complete and started ramping in March 2023. Now I would like to discuss June quarter guidance. We expect revenue to be approximately $160,000,000 plus or minus $5,000,000 GAAP gross margin to be 24% plus or minus 1%.

Speaker 3

We anticipate non GAAP gross margin to be 25.8 percent plus or minus 1 percent GAAP operating expenses to be in the range of $45,500,000 plus or minus $1,000,000 Non GAAP operating expenses You expect it to be in the range of $36,500,000 plus or minus $1,000,000 Interest expense to be approximately $1,200,000 and income tax expense to be in the range of $1,300,000 to 1

Operator

When preparing to ask your question, please ensure that your line is unmuted. Our first question today comes from David Williams from Benchmark. Please go ahead, David. Your line is now open.

Speaker 4

Hey, good afternoon. Thanks for letting me ask the question. And Stephen, congrats to you on the position and just here finding the bottom. So it's good to see.

Speaker 5

Thanks David.

Speaker 4

Appreciate it. Yes. So first, I wanted to ask Ivan on the gross margin. Obviously, you had some pressure last quarter and understandably with the mix and the utilization. But just kind of curious how we should be thinking about the margin As you get back up to more normalized revenue levels and a typical run rate, can we see this return to where we were previously in the mid-30s range?

Speaker 4

Is there anything structural that's going to keep you maybe a little bit below the 30 longer term?

Speaker 5

For us, our target model is still to move Towards that mid-thirty percent range. Right now, the market has flipped from a seller's market to a buyer's market. So we do have It'd be competitive in order to protect our business and also to grow share. So in the time being, before the market recovers, We will be shy of that target, but that doesn't change. Nothing structurally changes our model for when we get out of this The market situation we're in now.

Speaker 4

Okay. That's fair. So is it Should we think about this as you're competing on price and so you're giving margin to get the business? Or are you able to maintain kind of your pricing just from a competitive maybe a performance competitive stance.

Speaker 5

Certainly, we will compete on performance. It's more that in the last few years during the supply shortage, we didn't touch price and in some cases we have increased prices In that environment, which is very, very unusual, right, in our market. But our products continue to compete On our performance, but we also need to price accordingly in the market.

Speaker 4

Okay, fair. Thanks for the color. And then Stephen, just maybe your strategy and maybe I missed this in your opening remarks, but how do you think about the IT business And just the opportunity there, I know you've been a proponent of that. And just kind of curious how maybe what your strategy is and as you go forward?

Speaker 5

Sure. IC

Speaker 2

is a key part of

Speaker 5

our business. It's been one area that we've been broadening our product portfolio In order to address higher margin content, at the same time, we recognize that in some of our applications, especially in PCs, There's already been a move towards more integration, meaning using ICs to replace MOSFETs in certain sockets. So for us, it's a necessary part Of being a part of that BOM content and going forward. And with that, we are seeing BOM content increase In some of our applications. So we continue to invest more in our ICs in order to bring out more power IC products.

Speaker 5

These products tend to be more application specific. So as we come out with more products, they will be tackling sockets that we weren't able to address before.

Speaker 4

Okay, fantastic. And just one more if I might. Just on the licensing and engineering agreement, That sounds very interesting and around your silicon carbide. Just wondering if you could give us any more color around that and then maybe what segment or end market you expect that product be shipping into this automotive or what market that might be serving?

Speaker 5

Sure. Certainly, we are definitely excited about the Closing that licensing deal, it's great validation of our technology that another of our peers recognizes that our technology And compete in the global space. So for us, we're this is actually going to help us to and fund Our ability to grow this business, this business does take a lot of investment in terms of The R and D as well as to secure the supply chain, but it's going to help us to enter into markets that we haven't been into before, such as automotive Or industrial power supplies. So we're excited about the new this new extension or new of our product portfolio.

Speaker 2

Thank you. Best of luck on the quarter, guys.

Speaker 5

Thank you.

Operator

Thank you. The next question comes from Craig Ellis from B. Riley Securities. Please go ahead. Your line is now open.

Speaker 6

Yes. Thanks for taking the questions and I'll echo the congratulations, Stephen. This is great. I look forward to working with you. I wanted to follow-up on the last question.

Speaker 6

This may be more for Yifan, though. Yifan, can you just talk about how much revenue associated with the new Silicon carbideal, rev rec in fiscal 3Q and how much revenue It's baked into the guide for fiscal 4Q.

Speaker 7

Sure. We recognized $3,600,000 revenue from this licensing deal. This agreement is for 24 month period. So the revenue recognition It's going to be spread out over this contract period. So Yes.

Speaker 7

And we already baked in some estimated revenue in our June quarter guidance.

Speaker 6

And should it be about $5,000,000 to $6,000,000 a quarter, Yifan, if we just do the high level math at $45,000,000 over A couple of years, so $2,000,000 a month? Or is there something related to either technology development milestones or other that would cause Revenue to be Vonpeer?

Speaker 7

It's in that ballpark number, but it's more Depends on the engineering service hours and our team spend relative to The overall total expected engineering hours, so it's more like go with the Progression of this engineering service.

Speaker 6

Yes. And then just a clarification on that before I flip it to Stephen. So With that being the revenue impact $3,600,000 in the quarter, something greater than that and Closer to $5,000,000 to $6,000,000 in the fiscal Q4. How do we think about the gross margin impact of this contribution? Does it come in Near a corporate average level or does it come in either materially lower or higher?

Speaker 7

For the Licensing Engineering Service portion of the revenue, they carries at a higher Gross margin for us.

Speaker 6

Okay. And that was baked into the gross margin color for the fiscal Q4, I take it. Okay. So Stephen, so nice to see that some of the businesses are rebounding strongly with the color that PC is up 40% Quarter on quarter and industrial up 50%. So to your point in the prepared remarks that There are some places where inventory is better.

Speaker 6

Can you just elaborate in more detail where in So are you seeing good inventories that across the board or just in some products like Chromebooks or gaming PCs, which we've heard are stronger And industrial, can you characterize that? And then if you could characterize maybe how bad things are in the communications market given it seems like We're seeing lower expectations now than maybe 3 months ago, that would be helpful as well.

Speaker 5

Sure. Yes, I wouldn't say there's a necessary pattern to it's tied to certain types of PCs. We know that overall the end Demand is still a bit soft in terms of because both consumers and corporate buyers are delaying their refresh cycles. That said, that's not at the component level, this is where we saw the sharper inventory correction, which led to our March quarter results. And going into the June quarter, we're starting to see some signs of that inventory correction abating in certain sockets.

Speaker 5

I can't really see a clear pattern out of that, except that we are getting starting to get getting orders again. Part of this is also Yes, dependent upon which customer you're engaging with because based on their inventory policy during the shortest time, some ordered a lot more ordered a lot more components during that time, whereas others were hand them out. So they don't really have as much of an inventory correction problem. So it's more of a kind of customer by customer in terms of their inventory levels and some are More out of that whereas others will still take longer to get through that.

Speaker 6

Got it. And then could you just provide some commentary on communications? And how do you feel about inventory levels in that end market?

Speaker 5

Sure. So the smartphone market, everybody was starting the correction even at the end of last year. And we still see the 1st sorry, I should I just say that March June quarter is still relatively soft when it To battery protection. In general, also those two quarters are usually the lower quarters because of just when our customers go through There are phone launches. So we're still preparing and anticipating that the second half will be stronger, but that will be seen as our Customers release their fall refreshes.

Speaker 6

And that leads me to my last question before I hop back in the queue. I think you commented in your prepared remarks, you saw, I believe it was potential for growth And the fiscal Q1, which is typically a seasonally strong quarter for the company. Can you just elaborate on that in more detail? Do you expect that Across the business for select segments, just any indications that you're getting about how the fiscal first Order can play out for the company would be quite helpful. Thanks, Stephen.

Speaker 6

Thanks, Yipa. Sure.

Speaker 5

So overall, we are our eyes are definitely looking at that second half to see, will there be a rebound, what degree it can recover. Right now, it's still a bit murky in terms of the visibility of the end demand. But that said, we are Expecting the component level inventory correction to continue to improve going into the September quarter. I don't think the demand will be back to what it was originally. And typically that September quarter is a peak season, But the end demand I think isn't quite there yet.

Speaker 5

I think it'll still be more the impact of the relief from the inventory control abating.

Speaker 6

Got it. Thank you.

Operator

Our next question comes from Jeremy Queen from Stifel Nicolaus. Please go ahead. Your line is now open.

Speaker 8

Yes. Thank you. And let me also add my congrats on both the appointment Good CEO for full year and also on calling the bottom here. I guess first question on The inventory correction appearing to abate and in terms of the end demand that you're seeing, can you give us How much of the how much of this is currently the inventory replenishment that you're seeing in the June quarter? And how much Is maybe the underlying sell through or end demand?

Speaker 8

Any kind of color you can provide on that would be very helpful.

Speaker 5

Sure. I would say most of the impact is still coming from the inventory correction getting back to more normal. That's probably the bigger contributor of that. We were hoping for a bigger, stronger September end demand, but that's, I would say, still remains to be seen. But the inventory correction inventory levels are improving.

Speaker 5

And so on that front, we are seeing that in the backlog and in the orders that are being

Speaker 8

Placed. Great. And then maybe a follow-up on the licensing agreement. Can you just Maybe walk us a little bit through more how that came about. Is this a customer that you've been working with maybe on the product side and you've signed a partner up In doing a license?

Speaker 8

And also any other details you can provide on the terms, is this exclusive? Are you still working on your own products? Just any more detail and also on the manufacturing, any details on that would be great.

Speaker 5

Sure. So this partner, they are basically behind in their silicon carbide technology. They didn't really have anything going. And we basically they're basically looking for a jump start to that. So they approached us and we came to an agreement For that too for them to license our products and technology for that.

Speaker 5

It is an exclusive license, but at the same time it doesn't prevent us From continuing our own development like we have been doing. If anything, as I mentioned before, this deal is helping to And help us to speed up our own silicon carbide initiatives in order to expand the product portfolio The marketing and sales needed to promote the products as well as secure the supply chain.

Speaker 8

And are there once this customer develops their own product, is there an ongoing potential royalty or any kind of ongoing Revenue stream from that? And also when can we expect first products from that partnership and also from your own internal development?

Speaker 5

Yes. So we already have released products from our for our silicon carbide even before this licensing agreement. Before this licensing agreement. And there is as part of the contract in the contract period, We will have benefits through supplying these products to them for the period of the agreement. So and again, we will still at the same time continue to grow and our own silicon carbide business.

Speaker 8

Great. And then I guess turning to the power management, the integration that you're talking about longer term. Can you give us an update maybe on is this coming from the digital control power ICs that you've been working on? Can you give us maybe an update there in terms of your progress in penetrating beyond the graphics cards? Thank you.

Speaker 5

Sure. So our biggest and most immediate impact is still going to be in the client computing area. And because we're addressing not only the MOSFET and the driving MOSFET IC side, we're Also developing controllers in that space, which is helping us to expand the BOM content there quite significantly, Going somewhere from what used to be $2 in terms of approaching $4 to $5 because of The integration that we're seeing, the additional sockets that we can address because of our power management IC Technologies that have been deployed there. So in the near term, I think that's kind of the biggest impact for us, Significantly increasing the BOM content in the client computing. We will move onwards from there to other areas, but I think most immediately That's what's going to move

Speaker 8

the needle for us. Great. And I guess Maybe in terms of the going back to the pricing question, it sounds like the environment has kind of shifted back over to More balanced and maybe more normalized environment. Can you give us maybe an update in terms of the competitive landscape? I remember you mentioned a couple of quarters ago Kind of seeing some increased competition as supply capacity has eased up in other areas and In certain regions, can you just give us an update there and kind of your expectations for pricing in fiscal 2024 versus The fiscal 2023.

Speaker 8

Thank you.

Speaker 5

Sure. I think during the as we're in the Correction period for inventory correction. The pricing is going to be tougher in terms of because our competitors, as we mentioned before, They do have access to supply, whereas during the shorter time, they didn't. So it's getting back to kind of normal competitive Type of market. Again, but cycles come and go as well too.

Speaker 5

So as we exit out of inventory correction, it will approach more of a normal pricing, Correction, it will approach more of a normal pricing situation or environment regarding the relationship between us and our customers.

Speaker 8

Great. And with just one final question, maybe for Yifan. The cash flow looked pretty nice, I guess, relative to the operating results. I noticed the Accounts receivable was down quite a bit. DSOs were roughly flat, but do you see where do you see accounts receivables going?

Speaker 8

Is this And then what do you see kind of cash flows going over the next couple of quarters? Thank you.

Speaker 7

Sure. Yes. I mean, In terms of base sales outstanding, yes, it has been around 30 days. So We don't see any collection issues. Receivable balance down was mainly because of the shipment and the revenue Was kind of exceptionally low for the March quarter and the timing of the Collections and then shipment.

Speaker 7

So going forward, I would expect As our revenue recovers, yes, I would expect that our cash flow would Continue to improve.

Speaker 8

Sorry, just another follow-up on that. With The Oregon FAS expansion mostly complete and you provided us with your outlook for CapEx. Can you give us maybe a longer time horizon like where do you see your manufacturing needs? I know you mentioned, I think it was Looking at other geographical locations, is there a CapEx outlook associated with that? And also, what kind of Activity, can you are you looking would you be able to get from potentially the CHIPS Act and Government subsidies and things of that nature.

Speaker 8

Thank you.

Speaker 7

Okay. Yes, our Oregon fab The expansion is complete. And so from the cash flow perspective, we will still have A little bit lingering payments. So that's why you see in the June quarter, we guided $15,000,000 to $20,000,000 level CapEx. From there, I would expect our CapEx gradually to come down a little bit.

Speaker 7

Then at the Same time, yes, we are working with other foundries to develop our The capacity, right now, we don't have concrete plan for our internal The foundry internal fab expansion. So in terms of Chips Act, yes, we are actually working with the state government and the federal Government with our consultants and so right now, this we still have a lot of work To do in terms of getting some potential funding from the CHIPS Act.

Speaker 8

And one final question. In terms of the your utilization rates and lead times, you give us an update there? I would imagine utilization is a little bit lower. And could is this kind of the lowest level you kind of anticipate over the next couple of quarters? For the next couple of quarters?

Speaker 7

Yes. Utilization right now, it is relatively low. And then Especially for the back end. For the Oregon fab, since we're ramping up our expansion, so That expansion capacity actually is What we need right now. So our Oregon fabs and utilization is relatively better.

Speaker 7

Yes. I would expect that we can improve on factory utilization once our Revenue started in the 4 way.

Speaker 8

Thank you very much.

Speaker 7

Thank you.

Operator

Thank you. Our final question today is a follow-up from David Williams from Benchmark. Please go ahead. Your line is now open.

Speaker 4

Hey, Julien. Thanks for letting me jump back on. I just wanted to ask quickly On the JV and the disposition there, we know we've got a healthy equity stake. And anything, I guess, changed or indifferent there that we should be thinking about or maybe timing?

Speaker 7

Right now, they are in the process of raising additional funds From our side, so we'll see. I mean, right now, the market, it's tough Right now, so other than that, we don't have other information.

Speaker 4

Okay. And on the Oregon fab, can you remind us of what that the magnitude of the capacity expansion was in terms of maybe annual revenue? It's

Speaker 7

relatively expanded about additional 15% also.

Speaker 4

15% in terms of wafers or revenue?

Speaker 7

Yes, wafer. Wafer, 15% in house wafer.

Speaker 4

Okay. Thanks very much. I appreciate it. That's all for me.

Operator

Thank you. We have a follow-up question from Jeremy Corbyn from Stifel Nicolaus. Please go ahead. Your line is now open.

Speaker 8

Yes. Just a quick follow-up on the JV. It looks like the equity method investment that went up by a couple of million, It has been going down previously. Is there and then I think the Minority interest, the loss kind of went up a bit there on the income statement side. Can you help us understand what's going on there?

Speaker 8

Is there is the JV kind of running a little bit lower than before? And Has there been kind of an increase in investment in that? Thank you.

Speaker 7

Sure. Yes. In the March quarter, we recorded our portion of JV's December quarters December 2022 quarter's results, so we always have 1 quarter lag there. So

Speaker 1

In the

Speaker 7

December quarter last year, the JV incurred a loss, so compared to the September 2022 quarter, Which where they had a small income. So we recorded 42% of their December quarter's loss in our March quarter's financials.

Speaker 8

Got it. And then the on the balance sheet side that going up a little bit, What was the driver there?

Speaker 7

That's mainly because of the Exchange rate changes, the translation because of their financials is on the RMB, not U. S. Dollar, yes.

Speaker 8

Great. Thank you for that clarification.

Speaker 7

Thank you.

Operator

Thank you. We have no further questions. So I'll hand back over to the management team for any closing remarks.

Speaker 7

So this concludes our earnings call today. Thank you for your interest in AOS and we're looking Forward to talking to you again next quarter. Thank you.

Speaker 1

Thank you.

Operator

Ladies and gentlemen, that concludes today's call. Thank you for joining. You may now disconnect your lines.

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Earnings Conference Call
Alpha and Omega Semiconductor Q3 2023
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