Alpha and Omega Semiconductor Q2 2025 Earnings Call Transcript

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Provided by Quartr
February 5, 2025
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Operator

Good afternoon. Thank you for attending today's Alpha and Omega Semiconductor Fiscal Q2 twenty twenty five Earnings Call. My name is Jayla, 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'd now like to turn the conference over to our host, Steven Pelayo.

Operator

Steven, you may proceed.

Steven C. Pelayo
Steven C. Pelayo
Investor Relations Representative at Alpha and Omega Semiconductor

Good afternoon, everyone, and welcome to Alphan Omega Semiconductor's conference call to discuss fiscal twenty twenty five second quarter financial results. I'm Stephen Pulejo, Investor Relations Representative for AOS. With me today are Stephen Cheng, 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.

Steven C. Pelayo
Steven C. Pelayo
Investor Relations Representative at Alpha and Omega Semiconductor

Our call will proceed as follows today. Stephen will begin business updates, including strategic highlights and a detailed segment report. After that, Yvonne will review the financial results and provide guidance for the March. Finally, we will have a Q and A session. The earnings release was distributed over the wire today, 02/05/2025, after the market closed.

Steven C. Pelayo
Steven C. Pelayo
Investor Relations Representative at Alpha and Omega Semiconductor

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.

Steven C. Pelayo
Steven C. Pelayo
Investor Relations Representative at Alpha and Omega Semiconductor

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 more detailed descriptions of these risks and uncertainties, please refer to our recent and subsequent filings with the SEC. We assume no obligation to update the information provided in today's call. Now, I'll turn the call over to our CEO, Steven Chang. Steven?

Stephen Chang
Stephen Chang
CEO at Alpha and Omega Semiconductor

Thank you, Stephen. Welcome to Alta and Omega's fiscal 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 and EPS results in line with our guidance. Revenue was $173,200,000 Non GAAP gross margin was 24.2% Non GAAP EPS was $0.09 While we saw seasonal sequential declines in fiscal Q2 from each of our major segments, the Communications and Industrial segments outperformed our initial forecast and we saw sequential growth in graphics cards, quick chargers, PC, desktops and power tools.

Stephen Chang
Stephen Chang
CEO at Alpha and Omega Semiconductor

These increases were offset by seasonal declines in gaming, notebooks, tablets and wearables. With the December now complete, we can reflect on our performance in calendar '20 '20 '4, where AOS revenue increased 4.1% year over year. While this modest overall growth might not seem overwhelming, the recovery in our segment suggests the inventory correction is clearly behind us. Further, a closer examination by segment validates AOS's strategic shift from a component supplier to a total solutions provider. This transition is enabling us to tap into new opportunities, gain market share and increase BOM content.

Stephen Chang
Stephen Chang
CEO at Alpha and Omega Semiconductor

Most notably, our Computing and Communications segments each grew more than 25% in calendar twenty twenty four, driven by market share gains and BOM content growth in motherboards, AI, graphics cards and tablets. In smartphones, our battery PCM product line contributed the largest incremental dollar growth to the company in calendar year twenty twenty four. We now believe AOS is the industry leader in smartphone battery PCM. We also saw strong growth in wearables and e mobility in calendar twenty twenty four, further proving our ability to build on existing customer relationships, while broadening into new and adjacent markets. The primary headwinds to calendar twenty twenty four growth were mostly concentrated in gaming and quick chargers, yet both markets have now digested excess inventories and returned to growth in the past few quarters.

Stephen Chang
Stephen Chang
CEO at Alpha and Omega Semiconductor

As we look ahead, we are delivering on our commitments and advancing our transformation from a component supplier to a total solutions provider. Our strategic focus is to go deeper by leveraging strengths in high performance silicon packaging and intelligent ICs. Our goal is to leverage premier customer relationships to expand market share and increase BOM content with a broader portfolio. With that, let me now cover our segment results and provide some guidance by segment for the next quarter. Starting with computing.

Stephen Chang
Stephen Chang
CEO at Alpha and Omega Semiconductor

December revenue was up 6% year over year, but down slightly negative 0.5% sequentially and represented 43.9 of total revenue. These results were better than typical seasonality, but slightly worse than our original expectation for slight sequential growth. We saw relative strength from PC desktops and graphics cards offset by the seasonal decline in notebooks and tablets. Servers and AI accelerator cards were also softer as the industry prepares for the next platform transition. We continue to see a good opportunity in advanced computing and we are encouraged by the progress we had made thus far.

Stephen Chang
Stephen Chang
CEO at Alpha and Omega Semiconductor

Within AI for large data centers, we are a contender in the middle stages of the design in phase and we see potential for these products to contribute to revenue in the middle of the calendar year. On graphic cards, the next generation platform is ramping to up to mass production. With this new platform, we expect BOM content to increase as more power stage ICs paired with our controller are being used to power the GPU. Looking forward into the March, the computing segment will likely decline due to seasonality. However, the PC market is expected to be flat as tariff uncertainty is leading to demand pull ins with PC makers.

Stephen Chang
Stephen Chang
CEO at Alpha and Omega Semiconductor

Turning to the consumer segment. December revenue was down 3.9% year over year and down 28.8% sequentially and represented 13% of total revenue. The results were in line with our forecast driven by seasonality in gaming and home appliances as well as a pullback in wearables following a record level achieved in the third calendar quarter. As a reminder, we don't expect gaming to return to meaningful growth until the customer transitions to the next platform. For the March, we forecast a low single digit sequential decline in the consumer segment driven by continued seasonality in gaming, TVs and softness in home appliances.

Stephen Chang
Stephen Chang
CEO at Alpha and Omega Semiconductor

Next, let's discuss the Communications segment. Revenue in the December was up 14.5% year over year, but down 6.4% sequentially and represented 19.2% of total revenue. These results were above our initial expectations for a double digit sequential decline as broad based demand from our Tier one U. S. Smartphone customer and China OEMs moderated only slightly, while Korea saw an increase in preparation for product launches in the first calendar quarter.

Stephen Chang
Stephen Chang
CEO at Alpha and Omega Semiconductor

We believe the better than expected results are due to a combination of market share gains, a mix shift to higher end phones in China and generally higher charging currents driving increased BOM content. Looking ahead, we anticipate a low teens sequential decline in the March for the Communications segment mostly due to seasonality. Now let's talk about our last segment, Power Supply and Industrial, which accounted for 20.2% of total revenue and was flat year over year and up 9.6% sequentially. The results were ahead of our forecast for low single digit sequential growth driven by seasonal strength in quick chargers as well as an increase in power tools. Demand also held relatively steady quarter over quarter in ACDC power supplies and e mobility.

Stephen Chang
Stephen Chang
CEO at Alpha and Omega Semiconductor

As we stated before, we see additional opportunities in 2025 for quick chargers due to increased BOM content driven by higher charging currents. Further, we are leveraging relationships in Taiwan to partner on DC fans for server racks. For the March, we expect a low teens sequential decline for the Power Supply and Industrial segment, primarily driven by seasonal decline in Quickchargers. This decline will be partially offset by some sequential growth in e mobility and ACDC power supplies. In closing, December revenue was slightly ahead of our expectations, while gross margin was a bit softer.

Stephen Chang
Stephen Chang
CEO at Alpha and Omega Semiconductor

The continued year over year revenue growth confirms the inventory corrections we experienced over the past year are complete. Seasonality has returned and new markets like AI and advanced computing are emerging. As we look ahead to 2025, visibility remains limited and the first quarter is typically affected by seasonal softness. The subdued market environment will likely pressure pricing and wind down our licensing and engineering revenue will further impact gross margin. We expect both revenue and margin to recover beyond the March with incremental growth likely from smartphones, graphics cards and AI.

Stephen Chang
Stephen Chang
CEO at Alpha and Omega Semiconductor

AOS is well positioned for growth, supported by our advanced technology, a broad product range and a premier customer base across various industries. Strategic initiatives over the past few years are yielding results with successful design and integration of controllers and power stages into PCs, graphics cards and AI applications. We are poised to accelerate this expansion, capturing new opportunities and increasing our bond content. Power management remains at the core of major industry trends, including AI, digitalization, connectivity and electrification, critical to achieving a low carbon sustainable future. We anticipate continued growth driven by advanced computing and data centers, AI integration in PCs and smartphones and higher charging currents in smartphones.

Stephen Chang
Stephen Chang
CEO at Alpha and Omega Semiconductor

Beyond computing and communications, we see many opportunities in solar, motors and e mobility, gaming, home appliances and power tools. 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?

Yifan Liang
CFO & Corporate Secretary at Alpha and Omega Semiconductor

Thank you, Stephen. Good afternoon, everyone, and thank you for joining us. Revenue for the quarter was $173,200,000 down 4.8% sequentially and up 4.8% year over year. In terms of product mix, Demos revenue was $113,000,000 down 7.8% sequentially and up 3.8% over last year. RIC revenue was $53,700,000 up 1.5% from the prior quarter and 6.8% from a year ago.

Yifan Liang
CFO & Corporate Secretary at Alpha and Omega Semiconductor

Assembly service and other revenue was $1,100,000 as compared to $900,000 last quarter and $700,000 for the same quarter last year. License and engineering service revenue was $5,400,000 for the quarter versus $5,600,000 in the prior quarter and $5,500,000 for the same quarter a year ago. The license and engineering service revenue will end in the mid February after the twenty four month contract expires. Non GAAP gross margin was 24.2% compared to 25.5% last quarter and 28% a year ago. The quarter over quarter decrease was mainly impacted by ASP erosion and mix changes.

Yifan Liang
CFO & Corporate Secretary at Alpha and Omega Semiconductor

Non GAAP operating expenses were $39,000,000 compared to $38,500,000 from the prior quarter and $37,900,000 last year. The slight quarter over quarter increase was primarily due to higher R and D expenses. Non GAAP quarterly EPS was $0.09 compared to $0.21 per share last quarter and $0.24 per share a year ago. Moving on to cash flow. Operating cash flow was $14,100,000 including $5,000,000 of repayment of customer deposits.

Yifan Liang
CFO & Corporate Secretary at Alpha and Omega Semiconductor

By comparison, operating cash flow was $11,000,000 in the prior quarter and negative $23,500,000 last year. We expect to refund $11,100,000 customer deposits in the March. EBITDAS for the quarter was $16,800,000 compared to $20,600,000 for last quarter and $20,700,000 for the same quarter a year ago. Now let me turn to balance sheet. We completed December with a cash balance of $182,600,000 compared to $176,000,000 at the end of last quarter.

Yifan Liang
CFO & Corporate Secretary at Alpha and Omega Semiconductor

Net trade receivables decreased by $4,700,000 sequentially. Day sales outstanding were twelve days for the quarter compared to fifteen days for the prior quarter. Net inventory decreased by 1,200,000 quarter over quarter. Average days in inventory remained at one hundred and twenty five days for the quarter. CapEx for the quarter was $7,400,000 compared to $6,700,000 for the prior quarter and we expect CapEx for the March to range from $7,000,000 to $9,000,000 Now I would like to discuss March guidance.

Yifan Liang
CFO & Corporate Secretary at Alpha and Omega Semiconductor

We expect revenue to be approximately $158,000,000 plus or minus $10,000,000 GAAP gross margin to be 21.5% plus or minus one percent. We anticipate non GAAP gross margin to be 22.5% plus or minus 1%. The expected quarter over quarter decline is largely due to the decrease in license and engineering service revenue and to a lesser extent the anticipated increased manufacturing costs during the Lunar New Year period. GAAP operating expenses to be $46,500,000 plus or minus $1,000,000 Non GAAP operating expenses are expected to be $39,500,000 plus or minus $1,000,000 Interest expense to be approximately equal to interest income 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 and A session.

Operator

Our first question comes from Craig Ellis with the company B. Riley Securities. Craig, your line is now

Craig Ellis
Director of Research at B Riley Financial

open. Yes. Thanks for taking the question guys and congratulations on the areas of year on your growth in calendar twenty twenty four. I wanted to go back to the prepared comments on performance versus expectations in fiscal 2Q in the AI Accelerator market. You commented that revenues were a little bit below what you had expected.

Craig Ellis
Director of Research at B Riley Financial

Can you provide more detail? Was the issue either an AOSL product issue or share into a platform? Or was it just the pace at which the platform is ramping up?

Stephen Chang
Stephen Chang
CEO at Alpha and Omega Semiconductor

No. It's simply that transition from our customers' old program moving into the new program. We're continuing to be working with them in their ramp up, but this is their transition phase. So just remember that we have been shipping into especially the accelerator cards throughout this throughout the past 2024 calendar 2024. And now that they've launched, the projects are transitioning to the new platform.

Stephen Chang
Stephen Chang
CEO at Alpha and Omega Semiconductor

So we expect a bit of and that's going to continue to grow throughout this current calendar year.

Craig Ellis
Director of Research at B Riley Financial

And then a follow-up to that, Stephen, and thanks for that color. There had been reports in the mid December time frame around some thermal issues associated with AOS sales products. Can you speak to whether that was the case and to the extent that it was whether, those issues as reported accurately or potentially inaccurately have been resolved?

Stephen Chang
Stephen Chang
CEO at Alpha and Omega Semiconductor

Yes. So we're actually not going to comment. We never offered any comments regarding the article that was put out about us. Our general practice isn't to go into details about our designs at our customers, out of respect for our customers. But we did say in our prepared remarks and what's actually going on is that we continue to be one of the main contenders in this upcoming design for data centers.

Stephen Chang
Stephen Chang
CEO at Alpha and Omega Semiconductor

So we're pretty excited about that. We are giving guidance that we expect this program to well, their program to launch in the middle of the year. And this is something that we are excited and looking forward to.

Craig Ellis
Director of Research at B Riley Financial

And then if I could, and it's along the same thing because that's where all the investor questions are. I think there are generally speaking multiple opportunities for the company. One would be more card centric and somewhat similar to a long shipment history you've had with the customer. One would be more on server system board. Can you talk about the extent to which each of those and the magnitude would contribute to growth?

Craig Ellis
Director of Research at B Riley Financial

And how should we think about the growth potential from this platform? How material can it be as we think about revenues ramping into here? Thank you, Steven.

Stephen Chang
Stephen Chang
CEO at Alpha and Omega Semiconductor

Sure. Thanks, Craig. Certainly, our opportunity in AI falls into two categories. The first is continuing what we've been doing already, which is getting our products shipping our products into both graphics cards as well as accelerator cards. And this with our target end customer, it's pretty much a similar solution that's being used there for both graphics as well as AI acceleration in these daughter cards.

Stephen Chang
Stephen Chang
CEO at Alpha and Omega Semiconductor

This portion, as I mentioned, is undergoing the transition. They are our customer is ramping up. We are ramping with them. And we do expect to see content increase also because I believe these cars are more powerful. They can do a lot more and they also but they also require more power, which is a good fit for our solutions.

Stephen Chang
Stephen Chang
CEO at Alpha and Omega Semiconductor

We are shipping one big change from last generation to this generation is that we're also now shipping the multi phase controller in addition to our power stage. And so that's helping us to provide the total solution to the customer for this application. So that's the first category of business. And we're as I mentioned, we are continuing to ramp with them as they bring up production fully, then going throughout this quarter and then throughout the next few quarters. The second category of projects that we are targeting is the AI data center portion.

Stephen Chang
Stephen Chang
CEO at Alpha and Omega Semiconductor

And this is where our solutions are being used on board to power GPUs and these go into their server solutions. And this is something that we are very excited to take part in to be able to design into. We are right now still in the middle of that design in phase. We're closely working with that customer in bringing up boards and working with them. And I'm not going to go into details about the design, but we did already indicate that this is something targeting mid year for the launch.

Craig Ellis
Director of Research at B Riley Financial

That's very helpful. Thank you, Steven.

Operator

Thanks. We'll go to David Williams with the company Benchmark Company. David, your line is now open.

David Williams
Equity Research Analyst at The Benchmark Company LLC

Hey, good afternoon, gentlemen. It's good to talk with you. And thanks for letting me ask a question here. Yes, David. Steven, first, hey, not to beat the proverbial dead horse here, but as we kind of think about the AI opportunity for you and you've talked about being in the middle of the design phase here, how do you think obviously mid kind of year launch, but when do you think you'll have a better indication on your content that you have and if you've won that slot and what you've won, when do you think you would kind of get that indication?

David Williams
Equity Research Analyst at The Benchmark Company LLC

And then when should we begin to really think about those revenues coming in? And given that it's that's kind of a new area for you, it seems like that should be a fairly sizable step up in the revenue. Is that fair to think of it that way?

Stephen Chang
Stephen Chang
CEO at Alpha and Omega Semiconductor

Yes. We just certainly think the potential for our business in data center to be much bigger than that of the graphics portion simply because the usage goes up much more, as you can imagine, in these data centers. The power levels are significantly bigger. So it simply requires more power stages to power each of these GPUs. I don't want to quantify that at the moment.

Stephen Chang
Stephen Chang
CEO at Alpha and Omega Semiconductor

But basically, it is something that is multiples bigger, you can say, in terms of the total TAM that we can go after. We know that we're not the only one players going after this. So the share is still to be determined. The final design, everything is still to be finalized as well too. So we're working closely with the customer.

Stephen Chang
Stephen Chang
CEO at Alpha and Omega Semiconductor

Again, at this point, we can say that we're targeting for a midyear launch.

David Williams
Equity Research Analyst at The Benchmark Company LLC

Fantastic. Well, congratulations on the progress there. North and Mary, you've been really working to get into. So it's fantastic. And then maybe Yifan, if you kind of think about the gross margin profile, we knew it would come down here a bit.

David Williams
Equity Research Analyst at The Benchmark Company LLC

I think actually performed a little bit better than we anticipated. But how do you think about the margin profile as we get into next year? And as you kind of get this ramp coming back in, it seems like some higher margin products potentially in the volumes. Should we begin to see that utilization snap back? And where do

David Williams
Equity Research Analyst at The Benchmark Company LLC

you think margins

David Williams
Equity Research Analyst at The Benchmark Company LLC

can genuinely go over the next twelve to eighteen months?

Yifan Liang
CFO & Corporate Secretary at Alpha and Omega Semiconductor

Sure. I mean, generally, I mean, yes, for the next twelve and eighteen months, I would expect that, yes, the product mix probably will improve from this March low point margin. I would expect that probably in the June, we can expect gross margin on the non GAAP basis get back to the December level. So March was mainly some product mix and also the decrease in revenue license and engineering service revenues and along with the Lunar New Year period, which is not going to help on the margin side. So then I mean, I would expect that, yes, we can bounce back and recover from there.

David Williams
Equity Research Analyst at The Benchmark Company LLC

Okay, great. And then maybe just last one for me. I guess, Stephen, as you look across the landscape and you see the inventory digestion complete, but we've got the tariff issues that are kind of settling in and you pointed to some of that being pulled in this quarter. Is there a way for you to for us maybe to think about the magnitude of pull ins you saw? And then what maybe are you hearing thus far from your customers just given your base in China?

David Williams
Equity Research Analyst at The Benchmark Company LLC

How are you hearing from them? Or what are you hearing And how are you positioned for the tariffs as we move forward? Thank you.

Stephen Chang
Stephen Chang
CEO at Alpha and Omega Semiconductor

I think it's not a huge amount, but I think it makes it that right now, we're guiding computing just to be slightly down, whereas in like a normal year, it will have more of a pronounced effect there. And I think there's still a lot of uncertainty about how that's going to play out in terms of the what the new administration is doing and what the impacts will be on trade, you can say. But right now, I think this because of the anticipation of tariffs there, we saw some we saw a little bit of pull ins coming because of that.

David Williams
Equity Research Analyst at The Benchmark Company LLC

Great. Thanks so much.

Operator

Our next question comes from Jeremy Kwan with the company Stifel. Jeremy, your line is now open.

Jeremy Kwan
Jeremy Kwan
Associate Vice President - Equity Research at Stifel Financial Corp

Yes. Thank you. Just wanted to circle back on the gross margin question. You mentioned, I think it being impacted by ASP erosion and mix changes. Can you quantify that?

Jeremy Kwan
Jeremy Kwan
Associate Vice President - Equity Research at Stifel Financial Corp

I do recall, I think you talked about pricing declines in the high single digits kind of being above maybe typical. Can you

Jeremy Kwan
Jeremy Kwan
Associate Vice President - Equity Research at Stifel Financial Corp

kind

Jeremy Kwan
Jeremy Kwan
Associate Vice President - Equity Research at Stifel Financial Corp

of level set us where things are now and how you see it shaping up over the next twelve months?

Yifan Liang
CFO & Corporate Secretary at Alpha and Omega Semiconductor

Okay, sure. Yes, I mean for the whole year, ASP erosion was in the range of mid to high single digit range and then on the same product basis. So going forward for this calendar year 2025, we continue to expect the mid to single digit mid single digit type of ASP erosion. What we do here is we will accelerate our new product rollout to counter the ASP erosion. So with some good opportunities designed in opportunities here, yes, we expect beyond March that our gross margin can bounce back and recover.

Jeremy Kwan
Jeremy Kwan
Associate Vice President - Equity Research at Stifel Financial Corp

Great. And can you remind us again what your current utilization levels are both internally and also maybe potentially at your foundry partners including the JV? And how do you kind of expect that to look as we look ahead throughout the rest of the year?

Yifan Liang
CFO & Corporate Secretary at Alpha and Omega Semiconductor

Okay. Sure. For our internal utilization right now is around 80% also. So for Foundry and JV, they are on their own. So yes, they can provide and meet our expectations on the purchase.

Jeremy Kwan
Jeremy Kwan
Associate Vice President - Equity Research at Stifel Financial Corp

Got it. And maybe one last question on the gross margin side. With margins expected to bottom at the 22.5% level, you talked about bouncing back to just under quarter levels in June. How do you see your long term targets? And what kind of revenue level do you need to get to kind of maybe get back to that 30% gross margin that you experienced in the past?

Jeremy Kwan
Jeremy Kwan
Associate Vice President - Equity Research at Stifel Financial Corp

Thanks.

Yifan Liang
CFO & Corporate Secretary at Alpha and Omega Semiconductor

Yes. Our midterm target model is revenue reaches $1,000,000,000 and then at that time, we expect non GAAP gross margin to be around 30 about 30% range. So that's our midterm target.

Jeremy Kwan
Jeremy Kwan
Associate Vice President - Equity Research at Stifel Financial Corp

And that contemplates price erosion in the mid single digits?

Yifan Liang
CFO & Corporate Secretary at Alpha and Omega Semiconductor

Yes, yes.

Jeremy Kwan
Jeremy Kwan
Associate Vice President - Equity Research at Stifel Financial Corp

Got it. I guess turning to the end markets, Stephen, you mentioned on the consumer side that there's a transition going on in terms of the gaming. Can you kind of walk us through the dynamics of that? When do you see that the transition, reflecting so that the next gen is contributing more meaningfully? And how long is that expected to be a headwind before it turns into more of a tailwind?

Stephen Chang
Stephen Chang
CEO at Alpha and Omega Semiconductor

Sure. So the gaming platform cycles tend to last somewhere around six to seven to eight years. It really depends on how our customers' cadence. Right now, we're around year five of the launch. So it is expected that their production volumes is starting to tail off.

Stephen Chang
Stephen Chang
CEO at Alpha and Omega Semiconductor

So for now, we aren't expecting this to be a huge part of the consumer portion. Our sites are set on getting ready for the next platform, which is still kind of early stages for. So in the meantime, we're putting our attention in the other areas that are growing, especially AI. Smartphones is also something that we continue to grow in as well too. So we'll shift to addressing the other markets.

Stephen Chang
Stephen Chang
CEO at Alpha and Omega Semiconductor

And of course, we're going to be preparing ourselves for the next major gaming platform launch.

Jeremy Kwan
Jeremy Kwan
Associate Vice President - Equity Research at Stifel Financial Corp

Got it. And then I guess maybe kind of going off that, those comments, as you look ahead to the rest of this year, which end markets are you most excited about in terms of growth contributors? And if we could get a little bit more insight within computing, can you give us the split rough split between graphics cards, PCs and AI accelerator cards? Thank you.

Stephen Chang
Stephen Chang
CEO at Alpha and Omega Semiconductor

Sure. Yes, we're certainly excited about AI, and that's certainly going to help to strengthen our overall computing segment. In the past, we thought that this segment will start to reduce in terms of proportion of revenue. But because of our efforts into AI, data center and graphics, this is something I think this is actually going to continue to grow. This is actually a natural evolution of us focusing on PCs first and then moving to graphics and now moving to AI.

Stephen Chang
Stephen Chang
CEO at Alpha and Omega Semiconductor

And that's that pairs well with our solutions that we've been offering from discretes to ICs for the power stages and now selling the total solutions for that. Right now, AI is really just starting. So it's a small portion of our computing business. Our core PC business is still mainstream and we still expect that to be steady and we're still waiting for that recovery, ultimate recovery to happen for the PC market. But over time, actually, we do see we expect to see acceleration in growth for our AI and graphics business.

Stephen Chang
Stephen Chang
CEO at Alpha and Omega Semiconductor

I don't want to size it at this point, but this is definitely going to be the probably the biggest growth area for us in this calendar year.

Jeremy Kwan
Jeremy Kwan
Associate Vice President - Equity Research at Stifel Financial Corp

Great. Thank you. I'll hand it back open.

Stephen Chang
Stephen Chang
CEO at Alpha and Omega Semiconductor

Sure. And I want to go ahead. The other area that just to finish your question, it was only on AI. We also see that smartphone will be an area that will continue to be strong for us. We are continuing to be a market share leader in all the three core markets that we're in when it comes to battery protection.

Stephen Chang
Stephen Chang
CEO at Alpha and Omega Semiconductor

And for these customers, especially the leading brand, we are extending continuing to expand our footprint into the other products too. So that will also be continue to be a growth area and focus for us. And we still see other subsegments also emerging that can help us to grow as well. We're still excited about e mobility. That's a newer area when it comes to eBugs, e scooters.

Stephen Chang
Stephen Chang
CEO at Alpha and Omega Semiconductor

And we'll continue to invest in other motor applications as well.

Jeremy Kwan
Jeremy Kwan
Associate Vice President - Equity Research at Stifel Financial Corp

Great. Thank you very much.

Stephen Chang
Stephen Chang
CEO at Alpha and Omega Semiconductor

Thanks, Jeremy.

Operator

Our next question comes from Craig Ellis with the company B. Riley Securities. Craig, your line is now open.

Craig Ellis
Director of Research at B Riley Financial

Yes. Thanks for taking the follow-up questions. And in fact, my first question is right where I think Jeremy and even you ended the conversation there. And it was really framing up the things you're most confident in, in deriving calendar twenty five year undergrowth, setting aside anything that's unit growth related whether smartphones, PCs, whatever, but either accruing from content gain, share gain or just Sam expansion into a new application. Stephen, I think what I heard you say is that AI would be the biggest.

Craig Ellis
Director of Research at B Riley Financial

After that, you still got a lot of headroom with smartphone content, and then there are other areas like e mobility. Is that the right prioritization? And is there anything else that would go on that list?

Stephen Chang
Stephen Chang
CEO at Alpha and Omega Semiconductor

Yes. I would put those that's about right. For sure, the AI, the top one, we talked quite a bit about the potential there. Smartphones is exciting again because we are seeing charging currents increase. There is generally a demand for fast charging, and we see phone makers advertising that.

Stephen Chang
Stephen Chang
CEO at Alpha and Omega Semiconductor

And this is something that's directly tied to the usage of our products in those battery packs. So with the new charging currents going up, the performance requirements for our solutions also go up and thereby the BOM content is expected to increase in each forthcoming generation. And this is something that I think will continue to be rolled in going forward across various models at our customers.

Craig Ellis
Director of Research at B Riley Financial

Thank you. That's very helpful. And then the follow-up is a little bit further on intermediate to longer term gross margin. So clearly, there's been a lot of competitor pricing pressure in the market at volume levels that are this low and it's had a negative impact on gross margins and here we are back down in the low 20s. As the company looks at things it can do to move back to that mid-20s range, and then to the 30% range, are there things other than the new product release cadence and higher value, higher ASP products like we've seen UPR multiple times in the last couple of months that could get you back there?

Craig Ellis
Director of Research at B Riley Financial

How do we think about things that you're doing differently amidst recent pricing pressure to reaccelerate margins? Thank you.

Yifan Liang
CFO & Corporate Secretary at Alpha and Omega Semiconductor

Sure. I mean, yes. And then new products and higher margin products and the roll off, yes, definitely is a major factor to improve gross margin. On top of that, yes, and then I mean, as we continue to grow our business and we would expect our utilization to go up. So, I mean, internally, we also focus on the cost reduction.

Yifan Liang
CFO & Corporate Secretary at Alpha and Omega Semiconductor

So all those aspects, we expect to grow our gross margin.

Craig Ellis
Director of Research at B Riley Financial

Got it. And Yifan, would you expect a fairly steady climb back? I know that's in part trying to put a prediction on end demand, but maybe the different way to ask it is, are there any discontinuities coming either in new products and pricing and gross margin or cost reduction that would give us a particular step up as we look out over 2025 and 2026?

Yifan Liang
CFO & Corporate Secretary at Alpha and Omega Semiconductor

I mean, for that long, it's hard to say. I mean, there are a lot of factors that would intertwine there. But what I expect is in the June, we can expect our non GAAP margin get back to the December non GAAP margin level.

Craig Ellis
Director of Research at B Riley Financial

Got it. Okay. Well, that will be a nice step forward. Okay. Thanks very much, team.

Yifan Liang
CFO & Corporate Secretary at Alpha and Omega Semiconductor

Okay. Thank you.

Stephen Chang
Stephen Chang
CEO at Alpha and Omega Semiconductor

Thank you.

Operator

Our next question comes from Jeremy Kwan with the company Stifel. Jeremy, your line is now open.

Jeremy Kwan
Jeremy Kwan
Associate Vice President - Equity Research at Stifel Financial Corp

Thank you. Just a quick clarification follow-up on the customer deposits. I think in the past you've broken out short term versus long term. And your total deposits, I believe it's $42,300,000 last quarter, with the $5,000,000 down of $37,000,000 but can you break that out between short term and long term deposits and how you see that shaping up? And one follow-up to that would be, the, are there any license payments that you might need to make in terms of the silicon carbide agreement or is that pretty much locked in at this point?

Yifan Liang
CFO & Corporate Secretary at Alpha and Omega Semiconductor

Okay, sure.

Jeremy Kwan
Jeremy Kwan
Associate Vice President - Equity Research at Stifel Financial Corp

Or not licensing, I'm sorry, just deposit.

Yifan Liang
CFO & Corporate Secretary at Alpha and Omega Semiconductor

Okay. In terms of customer deposits, yes, there are 30 some million dollars balance right now on our balance sheet. In calendar year 2025, we expect to return about $25,000,000 ish. So most of that $30,000,000 some already classified to short term within the next twelve months. So after that and then I mean in calendar year 2026, there will be a few million dollars left over there.

Yifan Liang
CFO & Corporate Secretary at Alpha and Omega Semiconductor

So now we're down by 2026. So what else on

Jeremy Kwan
Jeremy Kwan
Associate Vice President - Equity Research at Stifel Financial Corp

the There was, I think in the past we had a silicon carbide supply agreement. Is there any kind of payment that's anticipated for that?

Yifan Liang
CFO & Corporate Secretary at Alpha and Omega Semiconductor

No, that's it. Yes.

Jeremy Kwan
Jeremy Kwan
Associate Vice President - Equity Research at Stifel Financial Corp

Okay, great. Thank you very much.

Yifan Liang
CFO & Corporate Secretary at Alpha and Omega Semiconductor

All right. Thank you.

Operator

At this time, there are no more questions registered in queue. Again, if you would like to ask a question, it will start followed by one. And no more questions registered in the queue. I'd like to pass the conference back over to our hosting team for closing remarks.

Steven C. Pelayo
Steven C. Pelayo
Investor Relations Representative at Alpha and Omega Semiconductor

Okay. Great. This is Steven Palayo and this concludes our earnings call today. Thank you for your interest in AOS. We look forward to talking to you again next quarter.

Steven C. Pelayo
Steven C. Pelayo
Investor Relations Representative at Alpha and Omega Semiconductor

Take care.

Operator

That will conclude today's conference call. Thank you for your participation, and enjoy the rest of your day.

Executives
    • Steven C. Pelayo
      Steven C. Pelayo
      Investor Relations Representative
    • Stephen Chang
      Stephen Chang
      CEO
Analysts
    • Yifan Liang
      CFO & Corporate Secretary at Alpha and Omega Semiconductor
    • Craig Ellis
      Director of Research at B Riley Financial
    • David Williams
      Equity Research Analyst at The Benchmark Company LLC
    • Jeremy Kwan
      Associate Vice President - Equity Research at Stifel Financial Corp
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Earnings Conference Call
Alpha and Omega Semiconductor Q2 2025
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