Alpha and Omega Semiconductor (NASDAQ:AOSL) Q1 2027 Earnings Call

0:00 Hello everyone, thank you for joining us and welcome to the Alpha and Omega Semiconductor Fiscal Q1 2027 Earnings Call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. To withdraw your question, press star 1 again. I will hand the call over to Stephen Paleo of Investor Relations. Please go ahead.

0:31 Good afternoon, everyone, and welcome to Alpha and Omega Semiconductor's conference call to discuss fiscal 2027 first quarter financial results. I'm Stephen Palale, investor relations representative for AOS. With me today are Stephen Chang, our CEO, and Yifan Liang, our CFO. This call is being recorded and broadcast live over the web. will be available for seven days following the call via the link in the investor relations section of our website. Our call will proceed as follows today. Stephen will begin with business updates, including strategic highlights and a detailed segment report. After that, Yifan will review the financial results and provide guidance for the December quarter. Finally, we will have a Q&A session. The earnings release was distributed over the wire today, November 5th, 2026, after the market closed. The release is also posted on the company's website.

1:20 Thank you. Thank you.

2:07 Thank you, Stephen. Welcome to Alpha and Omega's fiscal 2027 first quarter earnings call. I will begin with a high level overview of our results and then discuss performance across our end market segments. We delivered September quarter revenue of $177.8 million, up 4.3% sequentially and down 2.6% year over year, slightly above the midpoint of our guidance. Non-GAAP gross margin improved to 25.2%, compared with 23.7% in the June quarter, and our non-GAAP loss narrowed to 7 cents per share. Our results reflect the accelerating momentum in AI infrastructure, even as traditional PC and consumer markets face increasing headwinds. Advanced computing revenue, which includes AI servers and graphics cards, increased more than 50% sequentially and 80% year-over-year, reaching nearly 23% of total company revenue ahead of our expectations.

3:05 Importantly, AI and server applications accounted for nearly 90% of advanced computing revenue and approximately 20% of total company revenue compared with just 5.5% a year ago. This rapid expansion underscores the tangible progress we are making in transforming AOS into a higher performance power semiconductor company. Meanwhile, elevated memory costs and growing component shortages continue to weigh on traditional PC demand, contributing to a sharper than expected decline in that market. Consumer electronics also remained weak. Despite these headwinds, Strong growth in AI and servers, along with increased shipments of premium smartphone battery protection solutions, power tools, DC fans, and power supplies helped offset much of the weakness in our traditional markets and supported sequential revenue growth and improved gross margins.

4:01 With that, let me cover our September quarter segment results and preliminary outlook for December. Starting with computing. September quarter revenue was $83.2 million, down 2% sequentially and 14.3% year over year, representing 46.8% of total revenue. The headline results masked a significant shift in mix. Led by our strong AI and server business, advanced computing grew more than 50% sequentially, nicely ahead of our guidance for growth of more than 40%, while traditional PC-related revenue declined approximately 30% sequentially. We are seeing growing adoption of our power solutions across AI infrastructure, including robust medium voltage MOSFETs for intermediate bus converter applications.

4:51 These opportunities broaden our BOM content and customer relationships as our portfolio evolves towards higher performance solutions. Within advanced computing, AI and server-related revenue grew more than 65% sequentially and more than 250% year over year. We continue to expand our presence across major cloud and hyperscale ecosystems, supported by targeted investments in manufacturing capacity, product development, and customer qualifications. These efforts are broadening our opportunities across increasingly complex power conversion architectures and position us for sustained growth. Looking ahead to the December quarter, we expect advanced computing to reach another quarterly revenue record, led by continued strength in AI and server applications.

5:40 However, worsening demand for traditional PCs compounded by elevated memory costs and broader component shortages is expected to more than offset this growth. As a result, we anticipate total computing revenue will decline mid to high single digits sequentially. Turning to the consumer segment, September quarter revenue was down $16.1 million, down 22.9% sequentially, and 31.4% year-over-year, representing 9.1% of total revenue. Results were slightly better than our guidance, with broad-based declines led by lower shipments in home appliances, gaming, and wearables. Gaming continued to reflect the maturity of the current console cycle, while wearable demand also remained soft. For the December quarter, our planning assumptions suggest consumer revenue will be flattish sequentially, although the outlook varies by application.

6:32 Next, let's discuss the communications segment. September quarter revenue was $37.8 million, up 15% sequentially and 15.8% year-over-year, representing 21.3% of total revenue. Results were above our guidance for growth of approximately 10%. The sequential increase was primarily driven by a strong ramp in battery protection solutions for our Tier 1 US smartphone customer. Battery PCM revenue increased more than 50% sequentially, benefiting from new flagship smartphone production ramps. Our differentiated battery protection technologies continue to address increasing charging currents and higher performance platforms, driving higher BOM content per device. Looking ahead, we see additional content expansion opportunities as smartphone designs evolve, particularly with the growing adoption of foldable and multi-screen devices that incorporate multiple batteries, each requiring dedicated protection circuitry.

7:31 However, these gains were partially offset by software demand in other regions, particularly China, where rising memory costs are pressuring smartphone affordability and prompting some manufacturers to reduce component specifications and overall bomb costs. For the December quarter, we expect communications revenue to grow mid-teens sequentially, driven by continued momentum in our premium smartphone programs, particularly battery PCN. Finally, power supply and industrial revenue was $38.7 million, up 29.2% sequentially and 38.8% year-over-year, representing 21.8% of total revenue. Results were in line with our guidance for sequential growth of nearly 30%, driven by strength across power supplies, power tools, motor control, and DC fans.

8:20 We are particularly encouraged by the recovery in power tools, where improving end market demand and increased business with a major customer are contributing to growth. DC fans also achieved record quarterly revenue, reflecting a substantially higher underlying revenue run rate compared with last year. This growth is supported in part by increasing cooling requirements in AI servers and data centers, further expanding our participation in the AI infrastructure ecosystem beyond traditional computing power conversion. In the December quarter, we expect power supply and industrial revenue to grow high single digits sequentially, primarily driven by strong e-mobility demand for electric motorcycles and scooters in emerging markets. We also expect ACDC power supplies and power tools to remain resilient, supported by continued demand across their respective end markets.

9:13 In closing, our September quarter results demonstrate meaningful progress in AOS's transformation towards higher performance, higher content applications. Advanced computing now represents nearly half of our computing segment and growing demand for AI infrastructure is creating additional opportunities in adjacent applications such as server cooling and power supplies. This momentum helped offset continued weakness in traditional PCs and consumer electronics. More importantly, the richer product mix is showing up in our margins. Non-gap gross margin improved 150 basis points sequentially. Our expanding participation in high-performance AI power applications, particularly differentiated medium voltage MOSFETs, is improving the quality of our revenue and contributing to a more attractive margin profile. Turning to the December quarter, which is typically a seasonally softer quarter for us, we anticipate a more balanced and resilient demand profile to drive counter-seasonal growth. We expect total revenue to be up slightly sequentially and up approximately 10% year over year, despite significant weakness in traditional PCs. Importantly, our growth story extends well beyond AI and advanced computing. We expect communications revenue to increase at mid-teens sequentially and more than 20% year-over-year, reflecting continued strength with our Tier 1 US smartphone customer. Similarly, power supply and industrial revenue is expected to increase by high single digits sequentially and more than 50%

10:45 year-over-year, supported by improving demand across applications, including power tools and e-mobility. These trends demonstrate the increasing breadth of our growth drivers and the tangible progress of our business transformation as we leverage technology leadership, premier customer relationships, and total solution strategy to capture opportunities across a more diversified portfolio of higher value markets while positioning us for further marginal improvement as our business scales. At the same time, we remain mindful that market conditions are uneven. Elevated memory costs and other component constraints continue to weigh on traditional PC demand, and we do not expect a near-term PC recovery. Notwithstanding this headwind, we believe our expanding relationships across hyperscalers, ODMs, power supply manufacturers, and other ecosystem partners, combined with our disciplined investment and growing BOM content, position us well to capitalize on the long-term opportunities ahead.

11:44 With that, I will turn the call over to Yifan for a discussion of our fiscal first quarter financial results and our outlook for December. Yifan.

11:53 Thank you, Stephen. Good afternoon, everyone, and thank you for joining us. Revenue for the September quarter was $177.8 million, up 4.3% sequentially and down 2.6% year over year. In terms of product mix, DMOS revenue was $137.2 million, up 21.1% sequentially and 26.4% over last year. RAC revenue was $38.7 million, down 30.2% from the prior quarter and 46.8% from a year ago. Assembly Service and other revenue was $1.9 million as compared to $1.7 million last quarter and $1.3 million for the same quarter last year.

12:47 Non-GAAP growth margin was 25.2% compared to 23.7% last quarter and 24.1% a year ago. The quarter-to-quarter increase was mainly impacted by better product mix. Non-GAAP operating expenses were $45.9 million compared to $45.3 million for the prior quarter and $41.4 million last year. The slight quarter-over-quarter increase was primarily driven by higher personnel-related expenses. Non-GAAP quarterly EPS was $0.07 loss compared to $0.13 loss per share last quarter and $0.13 earnings per share a year ago.

13:34 During the quarter, the majority shareholder of the JV company injected approximately $344 million of capital into the JV company. and the JV Company used a portion of the proceeds to completely retire the equity interests of all shareholders whose interests were smaller than ours. As a result, we recognized a $4 million gain and our equity interest in the JV Company decreased from 18.9% to 15.1%. A $4 million gain from this transaction was excluded from our non-GAAP EPS for the quarter. Moving on to cash flow.

14:21 Operating cash flow was $5.6 million compared to negative $10 million in the prior quarter and $10.2 million last year. EBITDA was $12.2 million for the quarter. compared to $10.1 million last quarter and $19.4 million for the same quarter a year ago. Now let me turn to our balance sheet. We completed the September quarter with a cash balance of $175.2 million compared to $180.8 million at the end of last quarter. Net receivables increased by $10.5 million sequentially. Day sales outstanding were 26 days for the quarter compared to 23 days for the par quarter.

15:11 Net inventory decreased by $5.1 million quarter over quarter. Average days in inventory were 133 days for the quarter compared to 138 days for the par quarter. CapEx for the quarter was $9.2 million compared to $14.9 million for the prior quarter. We expect CapEx for the December quarter to range from $12 million to $14 million. With that, now I would like to discuss December quarter guidance. We expect revenue to be approximately $180 million plus or minus $10 million. Gap growth margin to be 25.1% plus or minus 1%.

15:58 We anticipate the non-gap growth margin to be 25.7% plus or minus 1%. Gap operating expenses to be $52 million plus or minus $1 million. Non-gap operating expenses are expected to be $46 million plus or minus $1 million. Interest income to be $1.4 million higher than interest expense and income tax expense to be in the range of $1.1 million to $1.3 million. With that, we will now open the call for questions. Operator, please start the Q&A session. Thank you. We will now begin the question and answer session.

16:46 Please limit yourselves to one question and one follow-up. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Tori Svanberg from Stifo. Your line is now open. Please go ahead.

17:28 Hi, guys. This is Cam Tierney on for Tori Svanberg at Stifo. Thanks for taking my question and congrats on the strong results and guide here. I wanted to ask a little bit about, you know, what drove the Thank you very much. Thank you.

18:12 was mainly contributed by the better product mix. So the pricing played some role to the less extent. So the overall pricing environment now is continue to improve. So we were glad to see that, yeah, overall. So then it's turn, from the neutral position in the June quarter to, I would say, slightly favorable in the September quarter. So, okay.

18:57 Yeah, perfect. And then just for my follow-up, it sounds like, you know, last quarter you kind of communicated that, you know, September would be a bit of a, you know, trough for the PEC market. It sounds like, you know, maybe that... It's gotten worse, I guess, looking out to the December quarter based on the implied guide, which isn't surprising. But I just wanted to get a sense, get a handle on if you guys have a sense of when you think that market might bottom into next year.

19:33 Sure. This is Steven. Yes, like we commented on the call, we do see that there's a sharper correction on the PC size and due to the various constraints that that market is dealing with. So we saw the bulk of that drop happening in the September quarter, but we do think that these challenges will continue to persist in the near future. And we continue to monitor closely. Unfortunately, it's not the only market that we're participating in, but we are watching it closely, especially as it goes into the lower season of the normal PC seasonality. So it's still an important market for us. It's very related to our business going into advanced computing. And so we'll be carefully watching that as it goes forward.

20:23 All right. Thank you. Your next question comes from the line of Tyler Burmeister of Lake Street Capital Markets. Your line is now open. Please go ahead.

20:40 Hey guys, thanks for letting me ask some questions and congrats on the strong quarter and the solid guide here. So first, you know, it's been asked before, but, you know, ask it again, you know, with AI and server business being just to give investors a better view of that business and the underlying PC and broader compute segment business. Just an update on your thoughts there. And then I'll just add another one in quick. Any updates on the 800-volt AI server opportunity? I think last time we talked, you said first revenue could be in 27. Just wondering what an update there might be.

21:24 Sure, thank you. I appreciate the comments. Yes, advanced computing, and especially the AI portion, is just definitely becoming a bigger portion of our business. We said in the call, advanced computing itself is 23% of September revenue, and the AI portion alone is itself 20% of revenue. So it is a question that we are discussing currently about what the timing or what is appropriate to do that. But it is something that we will try to be more explicit in describing our business because it is a very important part. It is a key reason why the margin is improving because of that way to prepare for the margin. That was the first part of your question. The second question was on the 800 volts. That portion, yeah, we continue to work with the various partners in the ecosystem to continue to promote and design our solutions.

22:17 Still don't have a really major update at this point right now. And just that we are progressing along with that. And it's good to see a with 800 volts. And our entry into that middle stage conversion positions us very well with our customers and with our products. So not only from medium voltage, but also going upwards into our wide band gap solutions as well.

22:48 That's great. I appreciate that color. And then on the PCs, maybe looking at it a little bit It seems like you're underperforming the TAMBIC lines. Not to ask you to comment on the market outlook, but do you think going forward or at what point in the future could we return to whatever the market might be, but you being able to at least be in line to outperform that market?

23:17 Sure, I think from what we see in our place in the supply chain is there's correction that happened. Our customers were building at a higher production level at the beginning, the first two quarters of the calendar year. And as we went into the September quarter, that's when we saw that, that's when they saw that their demand or their expected production was going to drop. So it's a correction that's happening there. That's seen in ours. are a portion of the supply chain. Yeah, we are watching closely at this and we hope that our customers can resolve their shortage situations and that we can get back to a normal market. But for now, we're just watching carefully.

24:02 Understood, understood. And then last one for me, just on CAPA allocation, strong cash balance with the stock at the current levels down here. It sounds like a lot of obviously positive things going on. I'm wondering your thoughts about capital allocation and maybe a stock buyback in particular.

24:23 Sure. Yes. And then our board also evaluate the capital allocations from time to time. So at this point, our buyback program, we still have about $10 to $12 million available. with our existing buyback program. So yeah, and those, well, watching the stock market. So we'll see.

25:01 Understood. All right, that's all for me. Appreciate it, guys.

25:04 Thank you. Next question comes from the line of Patrick Muth with Needham & Co. Your line is now open. please go ahead.

25:19 Hi, thank you for taking my question and congrats on the solid results. This is Patrick Smith on for David Williams over at Needham. I guess first question is on customer diversification and man visibility. So how diversified has the AI server business become across customers and platforms? And are you guys beginning to receive longer term demand forecasts or capacity commitments that improve your visibility into 2027?

25:48 Yes, so I think as we've spoken before, we are happy to see the diversification. That's both in terms of the application portions as well as from a customer base. And especially now we're seeing the MOSFET, medium voltage MOSFET, especially in the high performance portion, will be gaining traction. And this is going into various types of end customers from power supply makers to module makers and for right now we've been emphasizing especially the module makers and they sell into their various end customers themselves. So this provides a little more diversification than simply just going after one big opportunity. So we are happy to see that part of the business grow. We are getting more visibility into it Some areas we are seeing we're getting more longer term commitments or visibility or forecasts.

26:41 Other areas, and this is also some areas are still relatively new too. So we're not in a typical, there's no typical seasonality happening just yet because overall this AI program is something that's really taken off in the beginning of this year until now.

27:00 Okay, great. Thank you for the call for that. And then maybe on the design lens as a follow-up, so obviously advanced computing has been growing substantially faster than the overall business, but how much of that growth is coming from new platform design lens and expanding content versus increasing volumes on existing sockets?

27:23 Most of these sockets actually didn't exist in terms of revenue this time last year. So the bulk of it, I'd say LSA is relatively new for us as a company. But that said, we are continuing to secure additional design bins. Thank you. That's all for me. Congrats on the results. Thank you. Just a reminder, if you would like to ask a question, Please press star 1 to raise your hand. To withdraw your question, press star 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device.

29:08 There are no further questions at this time. I will now turn the call back to Stephen for closing remarks.

29:15 Okay, great. Before we conclude, I'd like to highlight a few upcoming investor events the management team will be participating in. First is the 30th Annual UBS Global Technology and AI Conference on December 2nd in Scottsdale, Arizona. Then the Wolf Research Virtual Small and Medium Cap Conference on December 3rd. and the 15th Annual CEO Summit on December 15th in New York City. If you wish to request a meeting, please contact the Institutional Sales Representative at the sponsoring bank. This concludes our earnings call today. Thank you for your interest in AOS and we look forward to speaking with you again next quarter. Take care.

29:52 Thank you. Thank you. This concludes today's call. Thank you all for attending. You may now disconnect.