Alpha and Omega Semiconductor (NASDAQ:AOSL) Q1 2020 Earnings Call

0:00 Ladies and gentlemen, thank you for standing by and welcome to the Alpha and Omega Semiconductor Fiscal Q1 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during this time, simply press star one on your telephone keypad. Please be advised that today's conference is being recorded. Thank you. I'll now turn the conference over to Soyeon Jeong. You may begin. Thank you. Good afternoon, everyone, and welcome to Alpha and Omega Semiconductor's conference call to discuss fiscal 2020 first quarter financial results. I am Soyeon Jeong, investor relations representative for the company.

0:48 With me today are Dr. Mike Chang, our CEO, Yifan Liang, our CFO, and Stephen Chang, our executive vice president. His call is being recorded and broadcasted live over the web and can be accessed for seven days following the call via the link in the investor relations section of the website at www.aosmd.com Yifan will begin with a review of financial results for the quarter. Then Mike will review the business highlights, followed by Stephen, who will provide a detailed segment report. After that, Yifan will conclude with guidance for the next quarter. Then we'll have a question and answer session.

1:36 The earnings release was distributed by BusinessWire today, November 4th, 2019 after the close of market. The release is also posted on our company's website. Our earnings release and this presentation include certain non-GAAP financial measures. We use non-GAAP measures because we believe we provide useful information about our operating performance that should be considered by investors in conjunction with the GAAP measures that we provide. A reconciliation of these non-GAAP measures through comparable GAAP measures is in our earnings release. We remind you that during the course of this conference call, we'll make certain forward-looking statements, including discussions of the business outlook and financial projections.

2:25 These forward-looking statements are based on management's current expectations and involve risks and uncertainties that could cause our actual results to differ materially from such expectations. For 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 information provided in today's call. Now, I'll turn the call over to our CFO, Yifan, to provide an overview of the first fiscal quarter financial results. Yifan. Thank you, Suyang. Good afternoon, everyone, and thank you for joining us. Revenue for the September quarter was $117.8 million, up 5.3% when compared to the prior quarter, and up 2.4% from the same quarter last year.

3:23 In terms of product mix, MOSFET revenue was $100.6 million, up 4.3% sequentially, and up 9% year over year. Power IC revenue was $15.7 million, up 14.1% from the prior quarter, and down 19% from a year ago. Assembly service revenue was $1.5 million, as compared to $1.7 million for the prior quarter and $3.4 million for the same quarter last year. Regarding the segment mix, computing represented 39.2% of the total revenue, consumer, 18.2%, power supply and industrial, 23.2%, communications, 18.1%, and service, 1.3%.

4:22 Non-GAAP growth margin for the September quarter was 28.3% as compared to 27.4% for the prior quarter and 29.7% for the same quarter last year. The quarter-over-quarter increase in non-GAAP growth margin was mainly driven by the improvement of operation efficiency and product mix, partially offset by price erosion. Non-GAAP gross margin excluded $0.4 million of share-based compensation charge for the September quarter as compared to $0.4 million for the prior quarter and $0.5 million for the same quarter last year. Non-GAAP gross margin also excluded $6 million of production ramp-up costs related to the Chongqing joint venture for the September quarter as compared to $2.6 million for the prior quarter and $1.1 million for the same quarter last year. As the JV Company's 12-inch fab started production in July 2019, all fab-related costs were moved from GMA to cost of goods sold for the September quarter.

5:45 Non-GAAP operating expenses for the September quarter were $25.6 million compared to $22.6 million for the prior quarter and $24.5 million for the same quarter last year. The quarter-over-quarter increase in non-GAAP operating expenses was primarily due to the increase in R&D engineering expenses and our annual merit increase started in the new fiscal year. Non-GAAP operating expenses excluded $1.9 million share-based compensation charge as compared to $2.1 million for the prior quarter and $2.6 million for the same quarter last year.

6:33 Both GAAP and non-GAAP operating expenses included $2.8 million of digital power controller team expenses for the quarter as compared to $2.3 million for the prior quarter and $2.7 million for the same quarter last year. Our digital power controller team continues to engage with customers in product designs and is making steady progress toward our product roadmap. Income tax expense for the quarter was $0.4 million as compared to income tax benefits of $0.6 million for the prior quarter and income tax expense of $0.6 million for the same quarter last year.

7:21 Non-GAAP EPS attributable to AOS for the quarter was 26 cents per share as compared to 35 cents for the prior quarter and 36 cents for the same quarter last year. Historically, AOS has been generating positive operating cash flow. However, in the September quarter, net cash used in operating activities by AOS was $4.2 million. This was largely impacted by two items totaling $15.1 million. First, $9.2 million one-day delay of receivable payment from one of our major distributors due to the bank shutdown on September 30th, 2019 because of Typhoon Mittag in Taiwan.

8:16 Second, $5.9 million net intercompany receivable impact from the JV company. For the prior quarter, it was generated $15.2 million operating cash flow and $18.4 million for the The JV company generated $1.6 million operating cash flow in the September quarter compared to $6.9 million used in operating activities for the prior quarter and $0.4 million for the same quarter last year. The $1.6 million operating cash flow was largely attributable to the $5.9 million intercompany payable to AOS and a $2.7 million interest refund received from the local government under the joint venture agreement.

9:17 This refund program will continue for the next two years at the same amount each year. Consolidated EBITDAs for the September quarter was $14.3 million compared to $14.2 million for the prior quarter and $15.4 million for the same quarter last year. EBITDAs attributable to AOS for the quarter was $13.8 million as compared to $15.1 million for the prior quarter and $16.7 million for the same quarter last year. Now let's look at the balance sheet. We completed the September quarter with cash and cash equivalents of $103.1 million, including $88 million at AOS and $15.1 million at the joint venture.

10:10 This compares to $121.9 million at the end of last quarter, which included $100.7 million at AOS and $21.2 million at the JV Company. Our cash balance a year ago was $113.2 million, including $81.2 million at AOS and $32 million at the JV Company. Bank borrowing balance at the end of September quarter was $136.4 million, including $41 million at AOS and $95.4 million at the JV Company.

11:00 In the September quarter, AOS borrowed $2 million from a new line and paid back $2.1 million of the existing loans. The JV Company borrowed $0.8 million from a new working capital line and paid back $1.7 million of the existing loans. Net trade receivables were $39.3 million as compared to $24.3 million at the end of last quarter and $37.1 million for the same quarter last year. Day sales outstanding for the quarter was 25 days compared to 24 days in the prior quarter.

11:47 Net inventory was $118.6 million at the quarter end up from $111.6 million last quarter and from $98 million in the prior year. Average days in inventory came down to 114 days for the quarter as compared to 117 days in the prior quarter. Net property plant and equipment was $400.3 million as compared to $409.7 million last quarter and $368.5 million last year. Capital expenditures were $14.4 million for the quarter, including $8.3 million at AOS and $6.1 million at the JV Company.

12:42 Before I turn the call over to Mike, I would like to share the progress at our JV Company. During the September quarter, assembly and test production continued to ramp up and the 12-inch fab started small mass production in July 2019. We expect to continue to ramp up phase one of the 12-inch fab in accordance with our plan to approach the target run rate by the September quarter of calendar year 2020. With that, now I would like to turn the call over to our CEO, Dr. Mike Chen, who will provide the business highlights for the quarter. Mike. Thank you, Yifan. Good afternoon. We are pleased with our performance and the financial results in the September quarter.

13:35 AOS achieved a record quarterly revenue of $117.8 million. marking the 15th consecutive quarter of year-over-year revenue growth. The strong top-line performance was driven in part by the additional supply contribution from the 12-inch fab at the JV Company. Growth margin came in higher than the midpoint of our guidance, which was more than enough to offset the investment in R&D. and the Delivered Healthy Earnings for the Quarter. One of the major growth drivers for us is mobile applications such as smartphone, battery protection and the quick chargers.

14:26 I will take a few minutes to share with you the exciting progress we are seeing in this business. It always starts with strategy. As a relatively young company, we identify applications that give us a head start with our core technology as well as the volume to scale. Once we land, we expand our footprint with multi-dimensional initiatives, including share gain, content increase, and customer expansion to become a market leader. We then use this success as a springboard to leap to the next market and replicate the success.

15:18 We have demonstrated our ability to execute this strategy in the computing market where we grew from zero to about 200 millions in annual revenue. We plan to do the same in the mobile market. and many more. We have successfully landed at each of the seven largest smartphone OEMs worldwide. As one of their key suppliers, our mobile business combining battery protection and quick charger products is growing significantly.

16:09 In the September quarter, we doubled mobile business revenue from the same quarter last year. Now that we are aligned with top tier global brand OEMs and ODMs, we will continue to keenly focus on expanding our presence to multiple generation smartphone models and peripheral devices. As a case in point, last year we initially penetrated into a global brand OEM with a one-year model as a new supplier. This year, we want new models on top of the last year's model and further penetrate into several adjacent sockets.

16:59 We plan to grow our share by adding additional layers of business year after year. are the multiple global OEMs and ODMs. The JV company is expected to play a vital role as a reliable and scalable supply chain for many years to come. In the meantime, to support the current demand for our mobile products for this year's models, we are diligently working to make room at the Oregon Fab by transferring production of some of our products to the JV company. Typically, transfer activity takes approximately six to nine months depending upon the complexity of applications, as well as the number of OEMs and ODMs involved.

17:57 Generally speaking, transferring products for applications with short cycles, such as the PC, is relatively faster with a simpler requalification process. We have already started the requalification process for some computing products and are making steady progress. Given that the market is less tight and the macro environment is uncertain, the requalification process is returning to a normalized pace rather than the accelerated pace we experienced last year. Nonetheless, we expect this transfer activity to still help us back to seasonality with slight growth in the December quarter, following the record high September quarter.

18:54 The products manufactured at the JV company are already in customers' hands for qualification. and the design momentum for these products is building. We are confident in our ability to reach the phase one target run rate by the September quarter next year, as we discussed on our last earnings call. In addition to the mobile business, we are also encouraged by healthy demand across our product lines. As the computing industry expands, to include artificial intelligence, big data, and the internet of things. Our customers increasing value of high efficient and high performance products, especially for vehicle and the system power.

19:49 Our IGBT solutions also contribute, also continue to establish strong footing at the broad base of home appliance customers. We also see solid demand for our products for ACDC power supplies. Notably, the Oregon Fab has been running at the full capacity, and some products built there are still on allocation. Despite macro headwinds and growing market uncertainty, we are generating positive results by executing our prudent business strategy.

20:35 Our diversified products are well positioned with strategic players in multiple key market segments. We are committed to even better serving those customers through increasingly sophisticated and total solution and a reliable supply chain. We are encouraged have tremendous growth opportunities ahead of us, which give us confidence in achieving our calendar year 2021 target of $600 million of annual revenue. With this started start in the first quarter, we will continue to execute on our growth strategy and build strong momentum in our business in fiscal year 2020 and onward.

21:31 Now I will send the call over to Stephen for a detailed segment report. Stephen. Thank you, Mike, and good afternoon. Let me start with computing. It represented 39.2% of our total revenue in the September quarter. Revenue was down 6.1% sequentially and down 8.3% year over year. As planned, we served our computing customers in the peak season utilizing channel inventories on hand. Computing sell-through grew by double digits sequentially to reach a record high. Our vCore business is strong and we see some early adopters of the system power products built at the Chongqing JV.

22:19 While the CPU supply constraint is easing, It is expected to remain challenging in the December quarter. Based on that, we are estimating conservatively a modest increase for the December quarter. Now let's discuss the consumer segment, which represented 18.2% of total revenue in the September quarter. Revenue increased 2.5% sequentially and was up 0.6% year over year. The sequential growth was driven mainly by IGBT products in home appliances in China and Korea. We continue to grow our business in refrigerators and air conditioning systems as our IGBT products provide our customers with the performance and reliability demanded by these applications.

23:13 We are on track to achieve another 40% growth with our IGBT product line this calendar year. and Yifan Liang. up 19.1% sequentially and up 25.4% year over year.

23:59 Our quick charger momentum accelerated during the September quarter. We again achieved a double digit growth from the strong June quarter because of our strategic position as global smartphone OEMs in their peak season. We also saw a rebound in our ACDC power supply business during the September quarter. Looking into the December quarter, the quick charger business was slow as we exit the smartphone season. However, we expect to maintain overall segment of revenue at the September quarter level due to growth from other applications. Finally, let's discuss the communications segment, which was 18.1% of revenue in the quarter, up 24.6% sequentially and up 19.2% year over year.

24:51 Rising demand for our battery protection products resulted in substantial growth in this segment in the peak smartphone season. Our products are based on our leading low voltage MOSFET technology, which enables higher efficiency and cooler operation during battery charging and discharging. We saw some softness in the 5G telecom business during the September quarter in the midst of trade tensions, Looking to the December quarter, we expect the battery protection business to decline slightly. This will be offset by some recovery of our 5G telecom business. Therefore, we expect to maintain this segment's revenue in the December quarter. With that, I will now turn the call over to Yifan for the guidance.

25:41 As we look forward to the second quarter of fiscal year 2020, we expect Thank you for your attention. and $5.8 million of estimated production ramp-up costs relating to the JV company. Gap operating expenses to be in the range of $27.4 million plus or minus $1 million. Non-gap operating expenses are expected to be in the range of $25.4 million plus or minus $1 million.

26:44 both GAAP and non-GAAP operating expenses include $3.1 million to $3.3 million of estimated expenses relating to the development of our digital power controller business. Non-GAAP operating expenses exclude an estimated share-based compensation charge of approximately $2 million. Tax expense to be approximately $0.5 million to $0.7 million. Loss attributable to non-controlling interests to be around $3.6 million. On a non-GAAP basis, excluding estimated production run-up costs relating to the JV company, this item is expected to be approximately $0.9 million.

27:41 As part of our normal practice, we're not assuming any obligations to update this information. With that, we'll open up the floor for questioning. Operator. As a reminder, to ask a question, you will need to press star one on your telephone keypad. To withdraw your question, press the pound key. Please stand by while we compile the Q&A roster. And our first question comes from David Williams with Loop Capital. Hey, thanks, and thanks for allowing me to ask the question, and congrats on the quarter and the progress being made.

28:28 First, from a design win perspective, just kind of trying to gauge the customer level, and Chris, what are you seeing in terms of design activity and in terms of projects kicking off? Are you seeing any delays there or maybe some acceleration? I know in the past you talked about some delays and push out the certain projects. Are you still seeing that or are you seeing customers maybe a little more willing to go ahead and step in and kick these projects off? Sure, this is Stephen. Good question. So our design is very healthy. Right now it's in the We're following normal seasonal patterns. Several of our peak segments are computing and smartphone related, and those tend to be heavy peaking in the Q3 timeframe.

29:19 So our design wins are going well in terms of tracking into those new projects going into next year. So we are happy with the progress that we see there. Great, thanks. And then secondly, in terms of the demand trend and what you're seeing in terms of channel inventory or distributor inventory, I guess more broad-based, you're looking across all geographies and all in-markets. Are you seeing the demand levels, or excuse me, the inventory levels have come down? Are they lean? Are they still a little heavy? And what do you expect in terms of maybe a possible replenishment of the supply chain? Sure. David, this is Yifan. Right now, our channel inventory remains at a healthy level.

30:07 Right now, it is at the toward low end of our target range of two to three months. So right now, we don't see much channel inventory stuffing at this point. Okay, do you expect to see some replenishment or yet level that you would expect to see some pull in from that as we head into December and maybe for the first calendar quarter. Well, as we stated in our prepared remarks, in different sectors, and we may see different, a little bit different scenarios there. Overall, we see our productions is catching up in the, you know, so that it can allow us to buck the seasonality.

31:04 I mean, that's the overall picture over there. So in terms of segment in the computing area, we would expect some strong segment selling over there. Okay, fantastic. And then just kind of thinking about, and you talked a little bit about this earlier, But can you talk a little bit about the design lens and, I guess, the additional sockets that you're picking up in the share games you're making at some of the major OEMs, and what your expectation is there? I know there's some periphery-type sockets that we've talked about in the past, but what kind of headway are you making in terms of, if we think about the next generation, do you think that you're – pick up share, and what is the opportunity, I guess, to move into a first or maybe even a second source position at those handset OEMs where you may be serving maybe a third source position?

31:59 Sure, I'll take that question. So in our smartphone business, the two main applications we get into, one is the battery protection, and the second is the quick charger, which is sold in the box with many of these handsets. So right now our position is growing stronger. We are, as Mike mentioned, in each of the seven leading smartphone makers. And some of these are relatively newer. Some have been longer-term customers of AOS. So we'll continue to layer on top of our business as additional models continue to roll out. The same thing goes also with our quick charger business. Okay, great. And then one last one for me, if you don't mind.

32:47 Just kind of thinking about the margin profile, as it is, JV comes online, and I understand the benefits and cost savings of the 12-inch FAB will take some time to really work through, given the yield inefficiencies and the likes. But given the size of the revenue potential, what could the incremental margin contribution look like once that 5-inch FAB hits its stride? Sure, David. Right now, we expect we can ramp up to the target run rate of Phase I 12-inch fab in the September quarter next year timeframe. At that time, we're currently estimating our 12-inch fab Weaver cost on the per die basis will be on par with our current eight inch wafer.

33:40 This is only phase one. I mean, so right now is for the additional phase, I would expect some cost benefit generating from there. Great. Thanks so much and best of luck on the quarter. Thank you. Thank you. Thank you. And your next question comes from Craig Ellis with B-Rally. Yeah, thanks for taking the question and congratulations on your first full quarter of 300 millimeter fab output. Yifan, I'll start with some clarifications for you. So first, you mentioned two items that hit at the end of the quarter that were in total $15 million. So is it fair to say that if not for those operating cash flow and end of quarter cash would have been 11.8 million and 103 million respectively. And I assume that those collections came in right at the start of fiscal 2Q, is that correct?

34:42 Yes, yes, exactly. The $9.2 million came in October the 1st. So that was the way it is. Okay. Secondly, I think we had been looking for an increase in operating expense in the quarter, but it came in about a million above what I was expecting. I anticipated that digital power would be ramping up. But were there any one-time items in the quarter, or was the increase really all about fringe and performance, accruals, et cetera? Yeah. Our packs in the last quarter was relatively low and, you know, was fluctuating significantly. to a low point.

35:28 This quarter, it fluctuated back and also we also increased some investment to beef up our R&D activities. So we would expect that those R&Ds will support us for the next year and the future growth. So is it fair to say you expect a flatter OpEx trajectory from here, or is there something that would cause OpEx to move higher as you go through the second half of fiscal 20? I would expect in the March quarter, probably in line with the current level.

36:16 In the June quarter, I would expect an increase at that time. have more activities for the R&D design units for the following year. Okay, my last clarification, and it's a follow-up to the earlier question. I know three months ago we were worried about distributor channel inventory, particularly in the PC space and distributor intent to get inventory levels down. I know you talked about and Yifan Liang. Thank you very much. in the September quarter, we would have computing and mobile, both major businesses will be in the peak season. So with our limited constraint capacity, we're managing those dynamics so that we use our channel inventory to support our September's quarters

37:46 PC peak season. So that's why, you know, from the real business perspective, you know, our sell-through PC revenue actually reached a record high in the September quarter. So just we spared more capacity to support the mobile side of the business growth. Okay, thanks for that, and congratulations on the record sell-throughs with compute. I'll use that as a segue to ask Stephen a few questions. Stephen, just on the communications business, can you help us understand, one, the degree to which the wins that the company is getting is for 4G phones versus 5G, and given the very significant increase in expectations for 5G phones next year, which I think, Consensus is probably around 250 million units. How does the company feel about its ability to get designed into those phones since that's where a lot of the interesting growth is going to be coming from in calendar 20?

38:59 Sure, Craig. So in general, the higher the power, the higher the battery that's needed, the more power content there is for AOS. With the advent of 5G, we're anticipating that the usage will go up, more video streaming, and there's more demands on the battery, whether you're charging or discharging. So for us, we're happy to see a push for greater performance out of power products. So for us, we believe that this could continue to be a growth area for us as battery capacities are increasing and as the MOSFETs basically have to be more efficient. Does that mean you think that a majority of your design wins are 5G or just that a majority of your design wins are at the very high end of the performance continuum for the seven smartphone OEMs that you and Mike have mentioned?

39:57 We don't really split it out that way. In general, the high-performance ones are the higher-end smartphones. 5G is one of the trends that's pushing for the higher batteries, not the only trend that's pushing for the bigger capacities and the higher power consumption. To us, it's a bit of a spectrum in terms of the demand on the phones themselves. Okay and then lastly in the communication space before I flip it over to Mike I think right now just given the significant baseband release activity out of Asian players there's a forming view that the first calendar quarter or your fiscal 3Q and potentially even fiscal 4Q could be above seasonal as a lot of the and others.

40:57 What's your sense for the strength in the communications business beyond the current quarter? Is there potential for the business to be flat in the first quarter, potentially even grow, given what we're seeing with new model launch activity around the corner? Generally, smartphone, again, the peak is in this September quarter. definitely I think we're seeing more models kind of filling in the gap between the peaks. But in general, I don't think that will be big enough to offset the normal seasonal pattern for phones. The major vendors still tend to be releasing around that September timeframe. Okay. Got it. One for Mike and then I'll ask my final.

41:44 Mike, it's helpful to get your perspective on land and expand in the strategy, the companies deploying, and certainly there are some encouraging signs of success in communications. My question is this. As you look at the penetration rate and adoption capacity of the seven different OEMs, in a better case environment, if all OEMs were to march at the pace of some of your best adopters within that group, how big can communications be in a year or two years from now? If it's 18% of sales now, does it Does it have the opportunity to get into the mid-20s in 12 months and maybe even towards 30% longer term? Or what are we looking at if things really hit with land and expand?

42:31 For the mobile business there, definitely we're looking for above 20%. That's for sure. So the healthy one would be 25% to 30%. And we look into the momentum. We think this is pretty good. are pretty practical, and probably in the Q3, we'll probably reach 25%. That's great, and that helps answer my last question. I'm not sure if this is for you or Yifan or even Steve, but... Yifan, can you clarify what the 300 millimeter revenue contribution is within the fiscal second quarter guide? And from the first fiscal quarter, if we got the $7 million we were looking for, then there's about $30 million of revenue to get to that run rate level in the September quarter of next year. If we were to break that down, $10 million in three buckets, How do we bridge the gap between where we are now and where we need to be late next year so that we're that $37.5 million run rate? How much of that said differently comes from comms, from compute, from IPC, etc.?

43:48 I'll start with this question. Yes, we said we're confident to reach the target run rate in the September quarter next year. Right now, we're gradually ramping up the 12-inch fab. It may not be linear. Right now, we're doing the design ins and wins using the products produced from the joint venture. And also, we're transferring some Productions of our products to the joint ventures so that it can spare some room for our organ fab. So that transferring production requires a re-qualification with our customers. So those two things, you know, depend on how it played out. And so I would expect a re-qualification We need some time, like as Mike and Stephen mentioned, it takes some time to design in and re-qualification. So I would expect that in the June quarter, you probably will see some, and in the September

45:18 quarter, you will see the most. And I just want to chime in. This is Stephen. The move to Songqing actually helps not only the products that are moving to Songqing, but also the products that stay behind in our 8-inch fab. So it actually helps with the total loading. So basically, I think every segment can benefit from the additional total capacity after we open up Songqing to that level. But Stephen, in terms of getting from here to the We're starting right now with initial segments that we're ramping with including computing as well as various consumer applications. But like we said, we're trying to make room, especially going into Q3, which is a peak season for both computing as well as communications, to make room for both of those applications when we're hitting that crunch time that we did this year. So next year, with the more balanced, opened-up capacity, we expect to more naturally, more comfortably address that demand.

46:36 Thanks, guys. Good luck. Thank you. And your next question comes from Tor Steinberg with Stifle. Yes, this is Jeremy calling for Tori. Let me add my congratulations on the cash flow profitability for the JV. I do know that some of that came from that intercompany payment. Can you tell us a little bit more about what that is and also what the 2.7 million interest refund is? Sure. I mean, that... 5.9 million dollars impact and it was an intercompany receivable payables and balance so you know right now the joint venture is in the final stage of processing this loan like a paperwork so you know the loan itself has been approved, and right now is going through the final stage of the paperwork.

47:45 There are quite a bit of bureaucracies over there, so we have to be patient. In terms of that $2.7 million interest expense refund, that was a part of the joint venture. agreed, and so finally we got approval from the local government. So the refund came in in the September quarter, and then for the next two years, each September quarter for the next two years, the joint venture is expected to receive the same amount of refund. for the next two years.

48:35 So that refund, it's basically interest that the JV paid to the finance company and that's being returned back to you? No. Those are the ones that refunded on the interest expense they paid on the lease financing and loans. So it's the JV, they paid the interest on the lease financing loans and they get some of that back at the end of each year. Yes, yes. From the local government. From the local government. Got it. Yes. I see. Okay. And then in terms of that intercompany receivable, you said that's related to a loan that's been approved? No, no, no. That's not related to the loan. That's a normal business company balance.

49:27 Okay. And that's basically for... I guess, is that based on expenses that AOS incurred on behalf of the JV? Well, they purchased some materials and wafers from us. Got it. Okay. They sell finished goods to us. I mean, those are in the house. Got it. Okay. And then that loan that you mentioned, that's still in the works. Do you have a quantification of how much that's going to be? Well, disclosed it when we signed an agreement. Okay, great. And then I guess we can move on to the JV. Can you give us an idea of how much business is currently running through that, through the JV?

50:21 You know, for the September quarter, yes, they supported us, you know, for the incremental revenues. I mean, right now, it is for the December guidance, and we also factor in their ramp-up. Got it. Okay. And maybe just kind of getting at some of the earlier questions, but maybe looking at it a different way, if we look at that, you know, again, that incremental $37.5 million that you expect from the JV, you know, can you, do you have an idea of how much is based on products, new products that you've introduced over the last maybe year or so, or how much of it is related to maybe expanding opportunities from existing products?

51:11 Well, those are relatively, you know, as Stephen mentioned, you know, we're getting some existing products right now, you know, qualified with a PC customers initially when transferring some productions to the joint venture. Relatively speaking for the PC requalification process, normally it's shorter than other products. So we started from there. Later on, yes, we'll add in other products will produce from the 12-inch fab in the consumer area, in the power supply area as well.

52:04 Very good. And I guess also you mentioned price erosion earlier. Can you help us release pricing pressure impacting gross margin? Can you quantify that for us and maybe what the expectations are for the next year or 12 to 18 months? Okay, sure. In the last two years or so, I would say the MOSFET industry was relatively tight. Supply was tight. So the ASP environment was relatively favorable to us. This year, the market has been loosening up.

52:52 after a couple of quarters and now it's getting to the point, back to the normal, I would say. So right now it's in the normal ASP erosion situation. What we want to do is to overcome those ASP erosion is to rolling out our new products. And so then, you know, you're providing a better performance you have commanding the better margin so that offset in those ASV erosion. Of course, that depends on the timing and dynamics of those existing products versus new products. So from time to time, you may see new products overcome old products, and sometimes you may see some erosion temporarily.

53:57 And in terms of the normal erosion, is that, you know, on the order of 3% to 5% annually? Is that kind of what you're looking at? More like mid-single digit to high single digit, depends on the years and other market situation, I would say. and that's compared to maybe flat to slightly down in the past two years? Yeah. Okay. And then if we look at the, on the communication side, you know, with the smartphone exposure, you know, would you say the ASP dynamics there are similar to, you know, the rest of your products or is it, you know, is it a different dynamic? And also in terms of the gross margin relative to corporate?

54:44 In terms of ASP environment, I would say similar or slightly better. In terms of margin profile, in that segment, it is above our corporate average. Very good. I think I'll just leave it at that and maybe come back for more questions later. Thank you. Congratulations. Thank you. At this time, there are no further questions. I'll now turn the conference back over to your host for closing remarks. This concludes our earnings call for today. Thank you for your interest in AOS, and we look forward to talking to you again next quarter. Thank you.