Alpha and Omega Semiconductor ready to bounce, DOJ cloud lifts

Key Points

• AOS is a leading developer and manufacturer of power semiconductors, which could be a second-half recovery story as the bottoming cycle for consumer electronics has kicked in.
• Power semiconductors are chips that control electrical power in devices and systems across numerous industries, including automotive, industrial, consumer electronics, and renewable energy.
• The U.S. Department of Justice concluded its criminal investigations with no charges relating to potential sales to Huawei during the 2019 blacklist.

Power semiconductor developer Alpha and Omega Semiconductor Ltd. NASDAQ: AOSL makes computer chips that manage and control electrical power in numerous systems and devices. Regulating the flow of electrical current is often taken for granted, but it's a crucial role that requires power semiconductors to perform.

AOS's products help to improve energy efficiency, reduce the costs of electronic systems, and enhance the performance of electronics across a wide range of industries, including consumer electronics, telecom, industrial, automotive, and renewable energy. The company competes with STMicroelectronics N.V. NYSE: STM, Infineon Technologies AG OTCMKTS: IFNNY and Vishay Intertechnology Inc. NYSE: VSH in the computer and technology sector.

Common power semiconductors

Two of the most commonly used power semiconductors are MOSFETs and IGBTs. Metal-oxide-semiconductor-field-effect-transmitters (MOSFETs) regulate the flow of electrical current by varying the voltage that's applied to a transistor's gate terminal. MOSFETs are one of the most common power semiconductors used in memory chips, microprocessors, and analog circuits operating computers, cameras, and smartphones.

Insulated-gate-bipolar-transistors (IGBTs) are high-powered chips used to switch and amplify electrical signals. IGBTs are commonly used in inverters that convert DC power to AC, like solar inverters, battery backup systems, and electric vehicle (EV) motors. They are also used in power supplies found in TVs and computers, wind turbines, solar panels, industrial robots, and railway systems. Get AI-powered insights on MarketBeat.

Electronics inventory normalization

Inventory normalization is occurring throughout the consumer electronics, industrial, and automotive segments. Mobileye is experiencing inventory normalization as its manufacturing customers are working through their inventory of ADAS chips due to overstocking after the post-pandemic supply chain disruptions were met with demand shock as consumers pulled back on discretionary spending.

Recovery and inventory normalization

AOS reported its fiscal Q2 2024 EPS of 24 cents, beating consensus analyst expectations of 15 cents by 9 cents on Feb. 6, 2024. Revenues fell 12.4% YoY to $165.29 million versus analyst estimates of $165.29 million. Non-GAAP gross margin was 28%, down from 28.8% in the year-ago period. Non-GAAP operating income was $8.4 million, down from $11.2 million in the year-ago period. The company closed the quarter with $162.3 million in cash and cash equivalents.

In-line guidance

AOS issued in-line guidance for fiscal Q3 2024 with revenues expected between $140 million to $160 million versus $159.17 million consensus analyst estimates. Non-GAAP gross margins between 24% to 26%, taking into account lower factory utilization due to the Lunar New Year holiday in China.

Justice Department drops criminal investigation.

The United States Department of Justice (DOJ) closed its criminal investigation into AOS’s compliance with export control regulations related to transactions with Huawei and its affiliates during the Chinese trade bans in 2019. The allegation focused on potential unauthorized sales of products to Huawei during the U.S. trade blacklist due to national security concerns in 2019. The DOJ closed its investigations without any charges. AOS will continue to work with the United States Department of Commerce (DOC) with the ongoing civil investigation. Check out the sector heatmap on MarketBeat.

Signs of a bottoming cycle

AOS CEO Stephen Chang commented that they are seeing recovery across desktop and notebook computers, smartphones and power tools. However, the recovery is partially offset by ongoing inventory correction in gaming and weak demand for solar and quick chargers.

Chang commented, “Beyond normal seasonality, promising signs suggest the cycle has bottomed. AOS's diverse product portfolio mitigates short-term unpredictability while preparing us to take advantage of a broader market resurgence in the second half of the 2024 calendar.”

Second quarter story

Chang concluded, “More specifically, we are seeing encouraging near-term strength in graphics cards, AI accelerators for data centers, smartphones from Chinese OEMs, and e-mobility. We are confident that our leading technology, extensive and diverse product range, and Tier 1 customer base strategically position AOS to navigate through the current cycle and thrive in the forthcoming one."

Alpha and Omega Semiconductor Ltd. analyst ratings and price targets are at MarketBeat. Alpha and Omega’s peers and competitor stocks can be found with the MarketBeat stock screener.

Daily descending triangle pattern  

The daily candlestick chart for AOSL illustrates a descending triangle pattern. The descending trendline is comprised of lower highs formed at $29.11 on January 24, 2024. The daily 200-period moving average (MA) attempted to hold support at $25.37 and even attempted a breakout, but shares gapped back down on its earnings release. Shares fell to a $21.37 swing low before snapping back into the triangle range. The daily relative strength index (RSI) coiled off the oversold 30-band. Pullback support levels are at $22.25, $21.02, $20.03 and $19.27.