Good day and thank you for standing by. Welcome to the Alpha and Omega Semiconductor Reports Financial Results for the Fiscal Third Quarter of 2021 Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer session. Thank you.
I would now like to hand the conference over to your speaker today, Mr. Gary Dvorchak, Managing Director of The Blueshirt Group Asia.
Good afternoon, everyone, and welcome to Alpha and Omega Semiconductor's conference call to discuss fiscal 2021 Third Quarter Financial Results. I'm Dary Dvorchak, Investor Relations representative for AOS. With me today are Doctor. Mike Chang, our CEO Stephen Chang, our President and Yifan Liang, our CFO. This call is being recorded and broadcast live over the web.
A replay will be available for 7 days following the call via the link in the Investor Relations section of our website. The call will proceed as follows. Mike will begin with strategic highlights. Then Steven will provide business updates and a detailed segment report. After that, Yipan will review the financial results and provide guidance for the June quarter.
Finally, we will have the question and answer session. The earnings release is distributed over wire services today May 5, 2021 after the close of the market. The release is also posted on the company's website. Our earnings release and this presentation include certain 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 that we provide.
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 and and uncertainties that could cause our actual results to differ materially from such expectations. For a more detailed description 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 will turn the call over to our CEO, Mike, to provide strategic highlights.
Mike?
Thank you, Gary. I would like to welcome everyone to today's call. I am excited to be speaking with all of you again today and to report another and strong quarter. In the March quarter, we experienced strong year over year performance in each of our market segments. We saw robust shipments across most of of our product categories leading to the results ahead of expectations.
Revenue of $169,000,000 reflect solid year over year and sequential growth. We benefited from strong end market demand, which enabled us to optimize our product mix. In the meantime, we continued to take a disciplined approach to our spending. All of these resulted in non GAAP gross margin of 31.9% and the non GAAP EPS of $0.77 which increased by 7 times year over year. Yifan will go into more details on our financial performance later.
I remain encouraged by our team's solid execution. The operational controls and the efficiency continue to positively impact our bottom line, resulting in significant Profitability Improvement. As I discussed on previous calls, our mission is to be a trusted Technology Department and a global supplier of a broad portfolio of power semiconductors. This mission continues to drive our strategic focus and the work we do at AOS. Our focused R and D effort is driven broader and deeper product innovation.
Our strong engineering team and the technical expertise enable us to develop a broader variety of of our discrete and power IC technology platforms. This allows us to and our product offerings and deliver complete power solutions for more targeted applications. As a solution provider, we have deepened our relationships with customers, become their Trusted Strategic Partners. As a result, our newer products are driving growth, primarily by increasing our farm content in core applications. On the manufacturing front.
We continue to ramp up our capacity as our joint venture fab in Chongqing according to plan. The semiconductor capacity remains globally. As end market demand outlook continues to be started across report. With our expanded capacity at the JV fab, we are thankful to be able to address and Additional Customer Demand from the Chongqing Joint Venture. The JV fab is fulfilling its purpose and providing us with flexible capacity management, which is critical to supporting our growth.
I'm very, very pleased with the progress, and we are on track to approaching the Phase 1 target run rate in the September quarter. Yifan will update you on the progress of the JV fab later on this call. While we have made a tremendous progress as a company over the last several years, we are energized by activity in front of us. We believe that our focus on innovation and unwavering Commitment to developing strategic partnerships with Tier 1 OEM customers will enable us to continue to capitalize on our core growth opportunities as well as progressively penetrate other markets. Importantly, we are confident that we will surpass our target of $600,000,000 annual revenue for calendar year 2021.
Now I will turn the call over to Steven for updates on our business and a detailed segment report. Steven?
Thank you, Mike, and good afternoon, everyone. I will start with an update on our business and then provide detailed segment highlights for the March quarter. As Mike discussed earlier, Industry wide supply remains tight, while demand continues to be strong across all our core market segments. In the midst of worldwide shortage, we continue to optimize our operations, product mix and capacity allocation to support our key customers and maximize revenue. We are working diligently with our strategic customers to meet their procurement needs.
In particular, we have been ramping production at the JV fab in Chongqing. Supply from the JV fab has enabled us to address growing demand. Our business momentum in recent quarters reflects our broad product portfolio, go to market strategy and expanding production capacity. More and more, our products offer a comprehensive solution to our customers, leveraging our expertise in power. This expands beyond commodity parts into multi socket optimized solutions, enabling our customer products to to become more reliable and efficient.
We are accelerating growth by winning new customer engagements with an expanding pipeline of new products and increasing BOM content with our application specific solutions. For example, we are designing in more and more Power IC products into notebook applications. We are also expanding our compact module solutions to address additional home appliance applications like washing machines and room air conditioners. Now let me drill down into each of the business segments. Let's start with Computing.
Revenue was up 48.6% year over year and up 8.6% sequentially as anticipated. This segment represented 41.5 percent of our total revenue. End demand for our products remained strong even going into the March quarter as our major customers were still facing shortages. While we were on allocation, we actively managed our capacity to support customer demand and resumed sequential growth in the quarter. During the quarter, we were able to improve product mix by selling more higher ASP products for both MOSFETs and Power ICs.
We allocated more resources to support the Computing segment, especially the notebook application. The graphic card business was strong in the March quarter and is expected to remain strong driven by cryptocurrency mining. Looking ahead, We expect overall computing revenue to grow by mid single digits in the June quarter. We expect solid demand at our ODM customers for both notebooks, offset by a temporary drop in graphic card business due to production delays. Moving on, The Consumer segment, which was 21.2 percent of total revenue in the March quarter, up 79.1% year over year and up 1.3% sequentially.
TV business was down seasonally, offset by the strength in home appliances. We shipped high volumes of module solutions to important home appliance customers in Korea and China. Gaming resumed growth in the March quarter, and we expect momentum to continue in the coming quarters. We continue to grow our gaming business with both our MOSFET and Power IC products in multiple sockets. Looking to the June quarter, we expect the consumer segment to be flat with continued strength in home appliances and gaming offset by a decline in our TV business.
Next, let's move to the Communications segment, which was 16.2% of total revenue in the quarter, up 42.2 percent year over year and up 1.8% sequentially. This segment played out better than expected as smartphone business performed better than normal seasonality. Demand for some phone models extended into the March quarter, particularly in the China market. We expect our Communications segment to decrease low double digits in the smartphone low season for the June quarter. Finally, let's discuss the Power Supply and Industrial segment, which accounted for 19.2% of total revenue.
This segment was up 70.5% year over year and up 12.5% sequentially. The solid growth was due to several factors. 1st, Quick chargers were strong due to demand for travel adapters used for tablets as well as quick charger solutions for smartphones. 2nd, The demand for ACDC power supplies for laptop adapters was robust with incremental design activity with major power customers in Taiwan. 3rd, demand from our power tool customers remained strong with our low voltage motor drive solutions.
We have been growing this overall segment due to support from our JV fab. We expect this segment to grow by high single digits in the June quarter, driven largely by robust quick target business for both U. S. And China markets. I am excited by the momentum we are seeing in our business.
With 9 months of fiscal 2021 now under our belt, We are executing well and on track with the roadmap we've laid out for the investment community in terms of our key growth drivers across various business segments. With that, I will now turn the call over to Yifan for a discussion of our fiscal Q3 financial results and our outlook for the next quarter. Yifan?
Thank you, Stephen. Good afternoon, everyone, and thank you for joining us. Revenue for the March quarter was $169,200,000 up 6.5% from the prior quarter and up 58.4% from the same quarter last year. In terms of product mix, Bemos revenue was $122,600,000 up 3.5% sequentially and up 40.1 percent year over year. ROIC revenue was $43,400,000 up 16.1% from the prior quarter and up 139.5% from a year ago.
Assembly service revenue was $3,200,000 as compared to $2,900,000 last quarter and $1,200,000 for the same quarter last year. Non GAAP gross margin for the March quarter was 31.9%, up from 31.4% in the prior quarter and up from 27.5% in the same quarter last year. The quarter over quarter increase in non GAAP gross margin was mainly driven by the better product mix, partially offset by the lower utilization at some of our factories due to the Lunar New Year holiday and 1 week shutdown at our Oregon fab near the end of March for annual maintenance. Non GAAP gross margin excluded $800,000 of amortization of purchased IP for both the March quarter and the prior quarter. In addition, non GAAP gross margin excluded $400,000 of share based compensation charges for the March quarter and for the prior quarter as well as the same quarter last year, respectively.
Non GAAP operating expenses for the March quarter were $30,900,000 compared to $31,500,000 for the prior quarter $25,800,000 for the same quarter last year. The quarter over quarter decrease was primarily due to the higher variable compensation accruals last quarter. Non GAAP operating expenses for the quarter excluded $3,400,000 of share based compensation charges and $600,000 of legal expenses related to the government investigation. This compares to $2,800,000 of share based compensation charges and $800,000 of legal expenses related to the investigation for the prior quarter as well as $2,500,000 of share based compensation charges, $2,100,000 of legal expenses related to the investigation and $600,000 of impairment charge related to an investment in a start up company for the same quarter last year. Income tax expense for the quarter was $1,000,000 compared to $700,000 for the prior quarter and $1,000,000 income tax benefit for the same quarter last year.
Non GAAP EPS attributable to AOS for the quarter was $0.77 per share as compared to of $0.65 for the prior quarter and $0.11 for the same quarter last year. AOS continued to generate positive operating cash flow. AOS on a standalone basis generated $33,300,000 of operating cash flow in the March quarter as compared to $35,700,000 in the prior quarter and $29,500,000 in the same quarter last year. In the March quarter, we received $20,000,000 Customer Deposits for securing supply. The JV Company generated positive operating cash flow of $5,300,000 in the March quarter compared to $400,000 in the prior quarter and $15,200,000 of cash flow used by the JV Company in the same quarter last year.
Consolidated EBITDAS for the March quarter was of $36,200,000 compared to $31,600,000 for the prior quarter and of $8,800,000 for the same quarter last year. EBITDA attributable to AOS for the quarter was of $30,600,000 as compared to $25,300,000 for the prior quarter $6,500,000 for the same quarter last this year. EBITDAS for the JV Company was $4,500,000 in the March quarter as compared to $6,000,000 for the prior quarter and negative $1,100,000 for the same quarter last year. Now let's look at the balance sheet. We completed the March quarter with cash balance of $192,100,000 including $158,300,000 at AOS and $33,800,000 at the JV Company.
This compares to $181,000,000 at at the end of last quarter, which included $142,300,000 at AOS $38,700,000 at the JV Company. Our cash balance a year ago was $110,200,000 including $99,500,000 at AOS and $10,700,000 at the JV Company. The bank borrowing balance at the end of March was $167,200,000 including 26 point $4,000,000 at AOS $140,800,000 at JV Company. During the quarter, AOS and JV Company repaid $2,100,000 $4,400,000 of existing loans, respectively. Net trade receivables were $33,700,000 at the end of the March quarter as compared to $24,900,000 at the end of the prior quarter $17,500,000 for the same quarter last here.
Base sales outstanding for the March quarter was 22 days compared to 21 days in the prior quarter. Net inventory was $145,100,000 atquarterend, slightly up from $144,300,000 last quarter and up from 127 $4,000,000 in the prior year. Average days in inventory were 112 days for the quarter compared to 115 days in the prior quarter. Net property, plant and equipment was of $432,600,000 up from $430,800,000 last quarter and up from $412,300,000 last year. Capital expenditures were $15,800,000 for the quarter, including $10,100,000 at AOS and $5,700,000 at the JV Company.
The JV Company continued to ramp its 12 inches fab during the March quarter. It's on track to achieve the Phase 1 target run rate in the September quarter this year. The JV company is in the process of additional financing to further expand its capacity. We will provide more details when available. With that, now I would like to discuss the guidance for the June quarter.
We expect Revenue to be approximately $170,000,000 plus or minus $3,000,000 GAAP gross margin to be 31.7 percent plus or minus 1%. We anticipate non GAAP gross margin to be 32.5 percent plus or minus 1%. Non GAAP gross margin excludes $800,000 amortization of acquired IP and $600,000 of estimated share based compensation charges. GAAP operating expenses to be in the range of $36,200,000 plus or minus $1,000,000 Non GAAP operating expenses are expected to be in the range of $31,000,000 plus or minus $1,000,000 Non GAAP operating expenses exclude $4,700,000 of estimated share based compensation charges and $500,000 of estimated legal expenses relating to the government investigation. Income tax expense to be approximately $900,000 to $1,100,000 loss attributable to non controlling interest to be approximately $200,000 As part of our normal practice, we are not obligated to update this information.
With that, We will open the call for questions. Operator, please start the Q and A session.
Thank you. Your first question comes from the line of Craig Ellis from B. Riley Securities. Your line is open.
Thanks for taking the question and The entire team congratulations on just very robust execution and a breakthrough performance. Mike, you and I have known each other for at least 10 years now and you've always had an unwavering vision for where you wanted to take the company and this is certainly a very significant milestone. So, good for you. And maybe the first question should be to you with JV Fab Phase 2 through 4 still ahead of us. Is the VESPR AOSL still ahead?
And if so, can you just comment on some of the things that you see when you look out over the next couple of years for the company?
You talked about specifically on this joint venture?
Not necessarily just the joint venture, but that as well as some of the things that's happening with Things like the Tier 1 OEM wins that you talked about, the increased diversification that you're getting across different end markets and the strong revenue and earnings growth that you see in the business. It was more of a general question on the company's evolution over the next 2 to 3 years.
Well, thank you very much. Actually, no, the company has a very one All determination of belief and no matter what, we always want to grow. So we Worked hard all these years. We believe once we grow, our infrastructure will be stronger, our quality will be better, Our product will be stronger and our relationship with the customer will be deeper because they will recognize the value and that's exactly what we're doing. Of course, before today, you need to cross over certain critical mass or threshold.
Before that, okay, you read out the eloquent. So as of right now, we start to get enough mass, right? So the drivers still stand, maybe it will accelerate because of our capabilities right now, also because of our infrastructure, everything. I don't know what is that to your question. Okay.
So we are actively looking for $1,000,000,000 and more.
No, that helps. And certainly, large companies with big product programs want companies that can scale with them. And I think one of the things that you're saying is you now have and the ability to do that and to be a trusted partner to Tier 1. So thanks for that. Let me take that line of thinking a little bit into the near term and flip it over to you, Stephen.
So we had stellar fulfillment execution in the quarter, dollars 170,000,000 in revenues with growth across, I believe, 3 for End Markets. As we look at the end market profile, we would typically expect to see revenues increase sequentially from 2Q to 3Q, just given seasonal dynamics and things like smartphones and gaming cards and notebooks. The question is, do you have that kind of flexibility in the business or as we look at Calendar 2Q fiscal 4Q revenues, are we really fully optimized in terms of and our
output relative to end demand.
Sure. And on previous time, we are a beneficiary of being able to The growth are new signs. We're in the main pool that we have, a lot of in house and production that helps to support our growth. But even with that, we've had to make some decisions about what kind of business to support and how to grow, how do we While also maximizing the ALS revenue as well. So that's been a careful, but I would say deliberate and decisions that we've been making to grow our business.
So in the short term, we definitely saw And computing, we've taken the chance to improve the ASPs by selling higher value sockets for both MOSFETs and power ICs. We're getting into some more advanced applications too in terms of higher power sockets, including getting into the graphics, Of course, the power stage for the CPUs is still big as well too. We also continue to deepen our home appliance business. And this is an area that we've been we entered into the market a few years ago and have been consistently growing that and that business. And I think during this time of shortage, It's a great time to improve our ability to serve some of these Tier 1 customers.
And smartphone is going to be big and it's still going to be coming back. So you're talking about kind of looking a little further out. We are preparing for a for a normal peak in the September quarter, because we are well positioned with the key smartphone makers there. So I think seasonality is a little bit different this year, but I think in some ways it's still the same as long as you're still seeing it. So I think smartphone is an example of
That's really helpful. And then clarifying the gaming card production delay issue, is that related to AOSL Cell components or is that related to components away from AOSL, but it impacts your shipment intensity into the application?
It's a little bit of both. I think right now when things are so tight and especially with our IC products, the more things that you have to Both here or to have, I guess, allocation for. So, but we believe that this is a short term thing and it's behind us. It's just a temporary thing And this should be resolved quickly.
Yes, that's helpful. And then Yifan, a couple for you, if I Good, please. The first question is nice to see the guidance for our gross margin increase, but I thought that 3 months ago when the company initially guided to gross margin, it indicated that the Lunar New Year when we shut down and that Oregon fab shutdown would negatively impact gross margin by about 190 basis points. So is it possible that the gross margin improvement would actually be greater than what I think is a 60 basis point increase as you get the full month benefit from that higher level of utilization versus really the absence of a week in each of your 2 internal fabs. Sure.
And if not, what would the offsets be that would preclude that?
Okay. We are pleased with our margin improvement. In the March quarter, it was Primarily driven by the better part of mix. Yes, I mean originally, we Estimated some reductions on the operators in China for Lunar New year actually it turned out better than expected. And also the Oregon Fab's annual maintenance mostly got pushed toward the end of the March Quarter.
So the impact on the March quarter was relatively smaller. So overall, I mean, We think I mean, this product mix and then we can Continue to improve some there. And then one factor is The current tight demand supply environment where we're in now provided some opportunities for us to optimize the mix. Another contributing factor It's the growth of from our new products. For example, you saw our Power IC products grew quite a bit, almost 140 percent year over year growth.
So Those newer products generally carry at higher margin for us. So fundamentally, we expect to gradually improve our margin with new products.
Got it. And then in the prepared remarks, there was mention of a $20,000,000 advance payment, I believe related to capacity. Can you talk a little bit more about what that relates to and when the fulfillment would be executed for that payment.
Sure. In the March quarter, we received $20,000,000 in customer Depart is for securing supply for the next Few years and I mean each year, we have some numbers and we guarantee. In the Quarter before, in the December quarter, we also received $10,000,000 I think Hi, Dan. Those deposits, I think, indicate Our relationship with our customers and getting deeper and So they recognize AOS products value and our supply. So we're happy to see that.
That's helpful. And then lastly, before I hop in the queue, Nice to see the JV fab EBITDA motoring along around the mid single digits for another quarter. At these revenue levels, is that a reasonable level or are there some gives and takes either way coming in the next couple of quarters that would shift fab EBITDA either materially up or down?
I would expect and I mean stay around this level for a couple I mean, this relatively June quarter's revenue guidance slightly Higher than the March quarter, so that would be at a similar production level for the JV Company. So overall, yes, it is marching toward their target run rate in the September quarter.
Got it. Thanks everybody. I'll get back to you.
All right. Thank you.
Thank you, Greg.
Your next question comes from the line of David Williams from Duke Capital. Your line is open.
Hey, good afternoon and congrats on the Incredible quarter here. It's great to see the progress.
Thank you.
David? Thank you.
So I wanted to maybe think a little bit about From the solution standpoint and maybe the modules that you talked about, obviously, you've been growing the IC business. But Do you think that over time, AOS becomes more as a solution provider, maybe modules and less like a discrete, maybe silicon provider?
I think from our perspective, definitely moving to modules and IC is something that we have been doing and is part of our strategy going forward. And our view of total solutions is actually it's a total set, right? When you're talking about individual sockets, then yes, we're talking about high season modules. What we want to be is the solution provider to our customers. So usually when they're looking when a customer is designing a board, They have multiple sockets and they need to work together in order for the application to perform at its best.
So it's best when we can provide a total solution to help the and say, hey, these parts work together and they know how to perform as without leaving too much on the table and basically, we can get the best performance by having the parts operate together. So for us, I think we will be continuing to grow our portfolio of products certainly, but it's not going to be moving away From discrete or anything. And also just want to make a point that our ISC products and our module products, They have a lot of them have discrete solution, a discrete silicon device inside, and that's what powers the device. But of course, coupled with the IC,
Thank you. And thinking about that, is there do you think that this is of an organic approach longer term or do you think there's an opportunity maybe for an acquisition or something that might come in to perhaps supplement that?
In general, we always are on the lookout for M and A opportunities, especially if there's something that complements What we're trying to do that can help us to really to move forward in one area or maybe compensate for the period that we're weak. But I think we definitely have an organic plan for it, but it's not strictly restricted to that.
Okay, Great. And then maybe on the bookings side, obviously strong quarter and a good guide. Can you Maybe a little bit about the velocity of bookings through the quarter and how that maybe trended into April?
Sure. Backlog has been strong and steady throughout the quarter, not so much Fluctuation there. It's reflecting the strong end market demand and our company specific business growth and our design wins. So So we adjust our plans accordingly.
Okay. That's fair. And maybe in terms of the JV, you've talked about it reaching the run rate in the September quarter and the planning phase of the or the 2nd phase there of the JV. When do you think in maybe realistic times, could you have capacity if we continue to see the strength that we're seeing in the market now? When could you recently have the Phase II, at least in a ramp phase?
Certainly, we understand the current market demand and supply situation. Our JV company also understands it. As I said in my prepared remarks. The JV Company is in the process of additional financing to further expand on the Phase II. So I don't want to jump the gun here.
We will provide more details when available.
Okay, great. And then just one more for me if I can. On the margin improvement, is there any way you really decide maybe what the prioritization of the higher margin products versus maybe what the volume benefit would have been in the quarter?
In the March quarter, pretty much entirely the margin improvement came from the better product mix In this tight supplydemand environment, we have opportunities to optimize our mix. And also reflected some newer products which are carrying at a higher margin for us. So, yes, it's primarily from the product mix.
Great. Thanks so much.
Thank you.
Thank you. Your next question comes from the line of Jeremy Kwan from Stifel Nicolaus. Your line is open.
Yes. Thank you. And let me add my congratulations on the strong execution and results. Yifan, I wanted to follow-up on the capacity question, because, yes, my understanding is that, combined with the JV and the Oregon fab, The quarterly revenue that it could support, the total company could support in with Phase 1 was $150,000,000 or so quarterly revenue. Obviously, they're well above that.
Can you give us an idea of where the utilization stands, both in Oregon and also in the JV? And how that and to kind of follow on with some of the earlier questions, how quickly can you add
Sure.
Overall, last year or a year A year and a half ago, maybe I guided that, yes, combined capacity probably can support us to $150,000,000 revenue per quarter level. During the last year or 2 or so, our product mix improved quite a bit. So when we rolled out our newer products and carriers generally Carries at higher ASP, higher margin. And then also at the same time, The new products generally have the shrinking die size, so which is like equivalent to giving us additional capacity. So that's the delta right now, the $170,000,000 quarterly revenue versus $150,000,000 quarterly revenue that pretty much contributed to our newer products.
Right now, our organ fab is at full capacity and the JV 12 inches fab is ramping up and is fairly close to their target run rate. So we still have some room to go. So overall, yes, we're Happy with JV's progress.
Maybe if I can kind of push a little further on that. Can you give us an idea of How much room you have left to go and how much of a runway you need to keep growing? Because from what I understand, the equipment market is there's very long lead times. It takes time to install equipment, get things up and running. So is there a period where you might be a little bit capacity limited at some point?
And can you give us an idea of what that could be, what that limit might be?
Okay, sure. As I said, the JV fab can still ramp up A little bit. I would say probably a few $1,000,000 per quarter contribution to our revenue range. Yes, we recognize the semi equipment lead time is getting longer Yes. The JV is also doing their part of the work to Expanding their capacity.
I mean, we don't have to Due to the whole phase of Phase 2 altogether, beyond the Phase Over there, actually, the current Phase I clean room still has some space, so they can squeeze in some equipment to lift up some bottleneck areas so that they can produce more wafer. Fundamentally, yes, let's know where they are in the process of additional finance for the full phase of Phase II expansion. Yes, and then we will provide more information later on.
Great. Thank you. That's very helpful. And a question on the $20,000,000 deposit. I guess, two questions there.
One is, is this included in the operating cash flow for AOS?
Yes, yes.
Okay. And is this for securing capacity at the origin tab or at of the JV.
It's supply from AOS. They're not spelled out wherever we manufacture them.
Got it. Okay. And is this something that's recognized? It sounds like it's going to be recognized over the next couple of years, it's securing capacity for the next couple of years and is it kind of expense potential revenue?
Incremental isn't guaranteed them for a certain dollar amount of
So is it something that gets converted into revenue
at some point? Or is
it just kind of a deposit that you Hold for now. Just to return later. Just to
deposit, yes, that will return later.
Return later, got And then when that happens, is it will you will it be counted as like a how do you record that on the cash flow statement?
Well, that will be reduction of operating cash flow at the time when we returned a deposit.
Got it. Okay. Thank you. And a question for Mike. On the Power ICs, it's very nice to see that Increased so substantially as a percent of sales, I think 15% -ish last year, 25% or more this year.
Two questions. First part is, is this fabs externally? And if so, what kind of wafer requirements are you seeing? Are there any shortages, I think, that can impact your needs from that level? And then longer term, when you mentioned that $1,000,000,000 target eventually, where could par ICs be once you hit that kind of revenue raise?
This is Stephen. Maybe I'll address some of this first and then I think Mike can definitely give the overall picture. Power ICs, just like Any product, everything does need to be sourced. And some of our products are monolithic, some of our products are multi chip, especially when it's taking advantage of our silicon. And so to some degree, it's internal, but to some degree, we also depend on outside.
And in general, I think ICs for any kind of foundry business is tight these days, whether it's a Mosfet or whether it's a mid IC. So yes, I think we are facing some constraints there just like any other business. Power IC definitely is something that we are investing to grow in and They will become and proportional wise, they'll start to become a bigger portion going forward, especially when you look out to the plan for $1,000,000,000 and beyond. But at the same time, I also expect the discrete business to grow as well too. And fundamentally, Suite is still one of the it's underpinning a lot of the Power ICs strength.
So in the bigger picture, we still expect discrete So it could be a bigger majority of the business still, but at the same time, Power IC is going to grow both percentage of business wise as well as Total Absolute Dollars.
Great. Thank you, Stephen.
Actually, Stephen Because that's what I would like to say anyway. So this is complete, yes.
Yes. That was very thorough. Thank you, Stephen. One last question on the communication segment. It looks like you're doing very well there.
I think in your prepared remarks, you talked about Chinese OEMs doing quite well. Can you talk about the dynamics you see? I understand Yes. There's market dynamics going on with Huawei and it's non Huawei Chinese OEMs going after that market share. Can you talk about what you're seeing in terms of the how that settles out?
And if there's a chance for A pause as people take stock of where their market share gains actually were.
Sure. I mean, I don't want to speculate in terms of like who's going to win out at the end. But in general, yes, certainly other Chinese vendors, they're all jockeying for market Sure. Starting from last year. But part of it also is we have More increased ability to serve that market before.
Actually these Chinese customers, phone makers, they were our first 1 of our first early customers for PCM, sorry, as battery protection products before we engage with the Tier 1s. And we had to put them on allocation for a bit. But now because of Chongqing, Chongqing gave us increased ability to supply. So we actually have been working on winning some of this business and supporting some of this business. So going forward, I believe that We will have strong business from all of the, I guess, global markets, U.
S, Korea as well as China.
Great. Thank you. And sorry, one last question. Some of your semiconductor peers have talked about first half versus second half, maybe first half being strong in the second half. Can you do you have any kind of early read on that given your backlog levels and your visibility, any expectations from your end?
Well, this one, I mean, right now, the March quarter was definitely above normal seasonality. The June quarter is that we guided already. So right now, our backlog It's still strong and healthy. So we are closely monitored the Market Dynamics. Our channel inventory actually is below our target range Right now.
Can you quantify that for us, please?
The channel inventory specifically?
Channel inventory, we normally target 2 to 3 months and then channel inventory right now is simply low end of the target.
Great. Thank you very much.
Okay. Thank you.
I think we have a follow-up question from the line of Craig Ellis from B. Riley Securities. Your line is open.
Thanks for taking the follow-up. Two quick ones. The first is either for Stephen or Yifan. Guys, if I re round the clock 6 months, I think when we were talking about some wiggle room on fab capacity, one of the things that we were talking about is the potential for An incremental tool here or there to yield some debottlenecking benefits and give some incremental supply. And In today's discussion, it sounds like the variance 150 to 170 is really new prospect.
So did I misinterpret what the company 6 months ago or is the de bottlenecking benefit just a small minority of the overall gain that we're seeing from $150,000,000 to $170,000,000 with the majority being the new product held.
Yes, you are right.
Okay. And then the second question is really a bigger picture question Just on how we look at how the joint fab is being optimized from Phase 1 through Phase 4. My understanding was and has been for the last few years that we were going to optimize Phases 1, 2, 3 for volume and scaling. We're certainly doing that, but we really weren't going to optimize for gross margin until Phase 4. But with your strong fulfillment execution, Good industry dynamics and some other things that we're getting very good gross margin.
So is it possible going forward that we can actually optimize for both through Phase II through IV where we're optimizing for both Strong gross margin and getting the volume ramp that Mike talked about as being so important for the longer term evolution of the company.
Sure. I mean, yes, I mean, it can help both ends. But For us, the first thing is to expand their capacity, provide the volume support So, and I mean, yes, I would expect that in Phase II and III, the margin on the front probably can also benefit to some extent.
That's great. Thanks guys. Thank you.
Thank you.
Thank you.
Thank you. We have a follow-up question from the line of Jeremy Kwan from Stifel Nicolaus. Your line is open.
Yes. Thank you. Just a quick question on the pricing. I think you mentioned adjusting the pricing to reflect cost increases, That's been very selective about it. Can you give us maybe an update about where you see things now in terms of your own input costs, things that you're doing to mitigate that and any kind of pricing that you're benefiting from?
Yes. So, I think in this current climate, I certainly know we are seeing cost thesis just like anybody else. We are putting and implementing what we said last time in terms of implementing price up at some of our customers in order to absorb and share that pain and pass along that cost. Again, we're being selective about that. We need to support our customers and their business, but we also understand the nature of this industry wide situation too.
So, some bells, but we are in the 20 now.
Great. Thank you.
Thank you. There are no other audio questions as of this moment. I would like to turn the call back to the management for the closing remarks.
Sure.
This concludes our earnings Call today. Thank you for your interest in AOS, and we look forward to talking to you again next quarter. Thank you.
Thank you so much, speakers. Ladies and gentlemen, this concludes today's conference call. Thank you all for joining. You may now disconnect.