Good day, ladies and gentlemen. Welcome to Alpha and Omega Semiconductor reports financial results for the fiscal second quarter of 2019 , ending December 31, 2018. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will follow at that time. If anyone should require assistance during the conference, please press star then zero on your touchtone telephone. As a reminder, this call is being recorded. I would now like to introduce your host for today's conference, So-Yeon Jeong. Ma'am, you may begin.
Thank you. Good afternoon, everyone, and welcome to the Alpha and Omega Semiconductor conference call for fiscal 2019 second quarter results. This is So-Yeon Jeong, investor relations representative for the company. With me today are Dr. Mike Chang, our CEO, and Yifan Liang, our CFO. I would like to take this time to welcome Stephen Chang, who is joining us on today's call as a speaker. Stephen is the Senior Vice President of Marketing, and he has been with the company since 2004. Yifan will begin the call with the review of the financial results for the quarter. Mike will review the business highlights, followed by Stephen, who will provide a detailed segment report. After that, Yifan will follow up with the guidance for the next quarter. Finally, we'll reserve time for questions and answers.
This call is being recorded and broadcast live over the web and can be accessed for seven days following the call via the link in the investor relations section of our website at aosmd.com. The earnings release was distributed by Business Wire today, February 6, 2019, after the market closed. 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 our earnings release. We would like to remind you that during the course of this conference call, we'll make certain forward-looking statements, including discussions of business outlook and financial projections.
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 a 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 the information provided in today's call. I'll turn the discussion over to Yifan, our CFO, to provide an overview of the second fiscal quarter financial results. Yifan?
Thank you, So-Yeon. Good afternoon, thank you for joining us. Revenue for the December quarter was $114.9 million, essentially flat when compared to the prior quarter and up 10.6% from the same quarter last year. We performed well on the top line and overcame market challenges as a result of growing momentum in our higher-value new products. In terms of product mix, MOSFET revenue was $93.3 million, up 1.1% sequentially and up 9.6% year-over-year.
Our IC revenue was $19.4 million, flat from the prior quarter and up 23% from a year ago. Assembly service revenue was $2.2 million as compared to $3.4 million for the prior quarter and $3 million for the same quarter last year. Regarding the segment mix, computing segment represented 48.5% of the total revenue, consumer 16.2%, power supply and industrial 19.4%, communications 13.8%, service 2%, and others 0.1%.
Non-GAAP gross margin for the December quarter was 29.2%, as compared to 29.7% in the prior quarter and 27.4% for the same quarter last year. The sequential decrease of 50 basis points in non-GAAP gross margin was primarily impacted by the fluctuation of production and operation expenses. Non-GAAP gross margin excluded $0.5 million of share-based compensation charge for the December quarter as compared to $0.5 million for the prior quarter and $0.4 million for the same quarter last year. Non-GAAP gross margin also excluded $3.5 million of production and ramp-up costs related to the Chongqing joint venture for the December quarter, as compared to $1.1 million for the prior quarter. Non-GAAP operating expenses were $25.1 million compared to $24.5 million for the prior quarter and $21.3 million for the same quarter last year.
Non-GAAP operating expenses excluded $3.9 million of share-based compensation charge as compared to $2.6 million in the prior quarter and $3.6 million for the same quarter last year. Non-GAAP operating expenses also excluded $3.7 million of pre-production expenses related to our Chongqing Joint Venture, as compared to $4.6 million in the prior quarter and $0.0 For the same quarter last year. Both GAAP and non-GAAP operating expenses included $3.1 million of digital power controller team expenses for the quarter, as compared to $2.7 million for the prior quarter and $0.4 million for the same quarter last year. Our digital power controller team continues to work with customers in product designs and is making steady progress toward our product roadmap.
Income tax expense was $0.7 million for the quarter, compared to $0.6 million for the prior quarter, and a tax benefit of $2.1 million for the same quarter last year, due to a one-time tax benefit of $2.7 million as a result of the U.S. tax reform. Non-GAAP EPS attributable to AOS for the quarter was $0.30 per share, as compared to $0.36 per share for the prior quarter, and $0.32 per share for the same quarter last year.
AOS continued to generate positive operating cash flow. In the December quarter, we generated $22.1 million operating cash flow attributable to AOS, as compared to $18.4 million for the prior quarter and $12.2 million for the same quarter last year. The $22.1 million operating cash flow included a $5 million customer deposit for securing more future shipments from us.
Cash flow used in operations attributable to our Chongqing joint venture was $9.1 million for the December quarter, compared to $0.4 million for the prior quarter and $2.6 million for the same quarter last year. EBITDA for the December quarter was $13.5 million, compared to $15.4 million for the prior quarter and $16 million for the same quarter last year.
Moving on to the balance sheet. We completed the December quarter with a cash and cash equivalent balance of $146.6 million, including a $53 million cash balance at our Chongqing joint venture, as compared to $113.2 million at the end of last quarter, which included a $32 million cash balance at the JV Company. Our cash balance a year ago was $146.2 million, including $57.1 million at the JV Company. During the quarter, our JV Company borrowed a working capital loan of approximately $14.5 million against the future value-added tax refunds.
In addition, our joint venture partners contributed additional $24 million cash to the JV Company at the end of December 2018, which changed the AOS ownership back to 51% and the joint venture partner's ownership to 49%. Net trade receivables were $33.9 million as compared to $37.1 million at the end of last quarter, and $24.3 million for the same quarter last year.
Day sales outstanding for the quarter was 23 days, compared to 27 days in the prior quarter. Net inventory was $103 million at the quarter end, up from $98 million in the last quarter and from $85.7 million in the prior year. The inventory increase was primarily occurred at the JV Company as we are ramping up mass production of assembly and test and preparing inventories for the 12-inch fab. Average days in inventory, 106 days for the quarter as compared to 103 days in the prior quarter.
Net property, plant, and equipment balance was $380.8 million as compared to $358.5 million last quarter, and $193.3 million last year. Capital expenditures were $16.5 million for the quarter, including $8.5 million from the JV Company and $8 million from AOS. Before I turn the call over to Mike, I would like to say a few words on the update of our Chongqing joint venture. We are pleased that both the assembly and test production ramp and 12-inch fab trial production were on track during the December quarter. We will continue to ramp up our assembly and test production in the March quarter to reach our targeted production level in the June quarter.
We expect to start the product sampling and customer qualification process with our 12-inch fab in the March 2019 quarter. With that, now I would like to turn the call over to our CEO, Dr. Mike Chang, who will provide the business highlights for the quarter. Mike?
Thanks, Yifan, and good afternoon, everyone. Our solid December quarter results demonstrate the business momentum we continue to build. The year-over-year revenue increase of 10.6% represents the 12 consecutive quarter of growth. We generate healthy operating cash flow, which is funding our key growth initiatives. The soft market that we had discussed last quarter, namely home appliances and smartphone applications in China, further weakened during the December quarter. The weakness deteriorated in the March quarter as high-end smartphone business conditions have changed recently. Our smartphone customers are reducing their inventories, which has led us to adjust our production plan accordingly. Trade tensions are adding more headwind in the near term. We are navigating these business environment challenges by our growing momentum in higher-value new products.
During the December quarter, we won key strategic customers in home appliances and smartphone applications, further expand our market share in computing, and increased the share of BOM in high-end tablets. Even after the adjustment, our demand is still ahead of capacity. The Oregon fab ran at a full capacity, and we look forward to ramping the Chongqing joint venture so we can better fulfill the demand. Investors often ask us why we are winning and why customers like to work with AOS.
Let me take a few minutes to highlight and reiterate our core competencies and customer support philosophy. Data are transforming AOS into a preferred supplier in key markets. Our core differentiator versus larger competitors is our highly effective R&D capability. True, we have over 1,800 granted and pending worldwide patents, but our ability extends far beyond that.
We now have the critical building blocks of discrete IC design, advanced packaging, and silicon processing technology, enabling us to serve our customers with the best products in a wide range of applications. We can deliver total solution components in many forms: MOSFETs, IGBTs, and power ICs. Beyond the components, we are also addressing customers' challenges through our deep system-level application know-how, thereby improving the efficiency of our customers' overall systems. What sets us further apart is that we are nimble, agile, and eager. We go out of our way to make our customers' products better. That can involve working with them in the design process to speed development, creating a spec that is more efficient, delivering supplies in critical times, or simply being pleasant to work with.
We always try to offer something above and beyond the ordinary so that our customers see the significant value we bring to their businesses. The combination of our technology competencies and the customer support philosophies is one of the key traits that underpin our growth. I believe that the same trait will help us better endure current headwinds and manage the challenging times. This is a winning strategy across all phases of the cycle.
Sound strategy and solid execution have enabled us to deliver healthy financial results as well as build the foundation for the future with new customers and design programs. We are further encouraged by the solid business pipeline driven by our proprietary solutions. We remain focused on delivering on our multidimensional growth initiatives against the near-term market challenges while relentlessly pushing ahead with our long-term business plans. This concludes my prepared remarks.
As our business evolves in line with fast-changing market, we think it is helpful to share with you first-hand insight from our marketing departments with a more direct and comprehensive segment update. Stephen has his finger on the pulse of fast-paced market dynamics and customer requirements. With that, I will turn the call over to Stephen for a segment report. Stephen?
Thank you, Mike, and good afternoon. It's my pleasure to be on the call today to give you an update on our results across the major market segments. Let me start with computing. It represented 48.5% of total revenue in the December quarter. We posted a 10.8% sequential increase and a 26% growth year over year. We continued to grow our computing business by expanding our BOM content in various computing applications.
Our high-value DrMOS power IC products continued to gain market share into the Vcore application. We achieved major design wins in the latest graphics card platform and further diversified our business into the add-in card market. In addition, we expanded our footprint at our new global brand OEM to the tablet application, and we began to ship parts for these high-end tablets during the December quarter.
Please note that this particular tablet battery protection business was originally tied to the same customer name in our communication segment when we gave guidance last quarter. To better align our product categories with our business segments, we separated this new tablet business and moved it from the communication segment to the computing segment. The CPU shortage in 2018 did not have a major impact on our business because processors were prioritized to support higher-value big core systems.
The shortage is expected to affect more PC applications in the March quarter, but it is expected to be resolved in the June quarter. Accordingly, we are adjusting our forecast of computing business marginally down for the March quarter. Now let's discuss the consumer segment, which was 16.2% of total revenue. As expected, this segment declined 12.7% sequentially and 12% year- over- year.
The declines were due to seasonality in TV and weakness in Chinese home appliance markets. Despite the appliance weakness, our IGBT line continued to gain traction in design activities, drawing on the strength of our optimized devices that increase power efficiency in motor applications. IGBT grew more than 40% in calendar year 2018 and is on track for a similar increase in calendar year 2019.
During the December quarter, we gained market share in refrigerator applications and won new customers in the Chinese home appliance market. For TV applications, we secured design wins in premium TVs, which represent significantly higher BOM content for us. We are now ramping these TV products in the March quarter. In this context, we allocated more capacity and expect healthy growth in the consumer segment for the March quarter. Now let's turn to the power supply and industrial segment.
This segment was 19.4% of total revenue, up 2.1% sequentially and up 6.7% year-over-year. We see continued favorable momentum in our high-performance medium voltage product line. Quick charger and USB PD charger applications are moving to even higher power levels by increasing voltage and current. This trend requires more efficient MOSFETs, thereby commanding higher selling prices while leaving fewer players in the market.
We believe we are well-positioned to benefit from this trend and encouraged by the ongoing share gains of our medium voltage products. Even with near-term softening in the smartphone market, we expect our quick charger business to expand in calendar year 2019. In accordance with our product mix management activity, we expect to see a slight decrease in this segment sequentially in the March quarter. Finally, let's discuss the communication segment, which was 13.8% of revenue in the December quarter.
Segment revenue dropped 11% sequentially and increased 9.4% year-over-year. Keep in mind that the new tablet battery protection business was moved into computing segment, which impacted growth rates. Without it, the December revenue came in line with our expectation. The weakness in global smartphone market is further deteriorating as smartphone makers are adjusting their inventories. During the December quarter, we partially offset the overall slowdown in Chinese smartphone demand with a ramp of production for the new global customer that we added in the September quarter. We also won an additional global smartphone OEM in the December quarter, which will gradually ramp in the March quarter. In parallel, we secured multiple design wins in enterprise telecom equipment for 5G. Our medium voltage products are specifically designed to deliver robust performance in telecom base stations.
We did not participate actively in the past 4G deployment. We are very excited about the new opportunities ahead of us as the industry moves forward with the 5G ramp. Demand for our telecom equipment products should grow in the March quarter, thus partially offsetting the smartphone headwinds combined with seasonal slowness. While we are confident that our communication segment will rebound starting from the June quarter, we expect this segment to trough in the March quarter. With that, I will now turn the call over to Yifan for the guidance.
Thank you, Stephen. As we look forward to the third quarter of fiscal year 2019, we expect the revenue to be between $109 million and $113 million. Gross margin to be approximately 25.2% ± 1%. Non-GAAP gross margin is expected to be approximately 28.5% ± 1%. Non-GAAP gross margin excludes $0.5 million of estimated share-based compensation charge and $3.2 million estimated production ramp-up costs relating to the Chongqing joint venture. Operating expenses to be in the range of $32.3 million ± $1 million. Non-GAAP operating expenses are expected to be in the range of $25.2 million ± $1 million. Both GAAP and non-GAAP operating expenses include $3.1 million-$3.3 million of estimated expenses related to our digital power controller team.
Non-GAAP operating expenses exclude an estimated share-based compensation charge of approximately $2.7 million, an estimated pre-production expenses relating to the joint venture of $4.4 million. Tax expense to be approximately $0.5 million to $0.7 million. Loss attributable to non-controlling interests to be around $4.8 million. On a non-GAAP basis, excluding estimated pre-production expenses and production ramp-up costs relating to the joint venture, this item is expected to be approximately $0.6 million. 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?
Thank you. Ladies and gentlemen, if you have a question at this time, please press the star and the number one key on your touch-tone telephone. If your question has been answered or you wish to remove yourself from the queue, please press the pound key. Your first question comes from Jeremy Kwan with Stifel Nicolaus. Your line is open.
Yes, good afternoon, and thanks for taking the question. I guess, Stephen, it sounds like you're pretty confident in looking at the March quarter being a bottom for the smartphone business and a nice rebound in June. Can you help us understand how much of it is coming from the new program ramps that you've talked about, and how much of it is the end market itself kind of recovering?
Thank you. Yes, it is a little bit of both. Certainly, the global market took a turn down starting in the end of the last December quarter, and we expect that to continue to drop a bit going into the March quarter. From what we see, at least in our business, the smartphone business is typically usually at a seasonal low in the March quarter.
Of course, this time is a little bit lower than typical seasons. We are already seeing that the June quarter should begin to rebound at a variety of our customers, including in the China market, as well as the global OEMs. This reflects both our products that are already selling into the market today, as well as new products that are being designed in. Right now, we are still more in the current cycle of phones.
Right now, we're going into Q1 and Q2. We're talking about the existing products that are ramping.
Great. That's very helpful. A question maybe for Mike, stepping back a little bit, you talked about demand continuing to outstrip supply. Can you help us quantify this in maybe in terms of your backlog and lead times, maybe where they are now versus six months ago, and maybe even how you can characterize it in the context of past cycles that you've seen?
Hi, Jeremy Kwan. This is Yifan. Maybe let me take this question. Overall, we did see some adjustments in the December quarter in terms of booking and backlog. I guess there were several elements in here. One is the double booking cleanup, I would say. Last year, with the tight and global supply in MOSFET and in the power discrete areas, we would expect some double bookings there. Actually, the cleanup actually is good for us. Another element is, as Stephen and Mike mentioned, some of our customers, especially in the China smartphone areas, some customers are adjusting their bookings. We also need to adjust our production plans accordingly. Another element is we're seeing fresh bookings from our new design-ins and wins. All in all, if you say the net changes, some adjustments.
Right now, after all those adjustments, our backlog is still ahead of our capacity at this moment.
Thank you, Yifan. I guess, if we can switch gears to the JV Company. It was nice to see that $24 million cash infusion from the funds. At this point, given your current cash balance, your CapEx plans, the operating cash burn, and then the wrap-up stage, is this going to be it in terms of financing you'll need to get the JV up and running and cash flow neutral? Also looking at the lease repayment schedule that's coming up.
Oh, sure. The joint ventures ramp right now for the assembly and test is on track. In the December quarter continued to ramp up, we'll see similar ramp-up in the March quarter. We expect by the June quarter, we can see their assembly and test, and production level up to our target range. In terms of 12-inch fab, yes, in the December quarter, their trial production was on track.
We expect that in the March quarter, we can start sampling the products to our customers. We'll see how that qualification going. We expect gradually, starting from the June quarter and certainly into the September quarter, we expect to see a 12-inch fab ramp. In terms of the cash, yes, we are pleased with the additional $24 million contribution from our joint venture partners, which definitely shows the confidence from their side.
In terms of the overall cash needs, we are currently still in the negotiation process with local banks to enter into some loans to support our equipment payment and our working capital. We will report it as we finalize the contracts.
Maybe on that last note, can you give us an idea of how much is left in terms of the equipment that you still need to purchase and any remaining CapEx for this phase one?
Phase I right now is most of the equipment are in. Right now it's got down to the payment stage. We need to borrow some money in order to pay those equipment. That's the notion is I don't want to borrow them all upfront a year ago. I have to pay a big chunk of interest along the way. Right now, we need cash, and we'll borrow money from bank. Currently, those investors' contributions, and then also, they own land and the buildings and the equipment, and so on. All those things can be used for borrowing capacity. They still have enough borrowing capacities over there.
Great. Thank you very much.
Okay. Thank you, Jeremy.
Thank you. Your next question comes from Craig Ellis with B. Riley Securities. Your line is open.
Yeah. Thanks for taking the question. Nice to be in touch again, Mike and Yifan, and Stephen, welcome to the call. What I wanted to do was just clarify. I think from the prior questioner, I heard that the company thought that the fiscal third quarter could be a trough for communications. Was the point that it would be a trough in revenues for the entire business for the calendar year, or are there some headwinds that you see forming in the calendar second or third quarter, your fiscal fourth and first quarter?
What we expect, again, that, yes, definitely communications will through in the March quarter, especially with regard to smartphones and business. As we mentioned, we expect a recovery not only in the smartphone business, as well as the other segments as well. Normally, in Q1, it's typically a lower season for us, especially due to the holidays, so our production is a little bit shorter than other quarters. From the marketing and demand side, we mentioned the smartphone market will recover. At the same time, we expect also that the CPU shortage in the PC market will be alleviated in the June quarter. That is expected also to drive up the June quarter revenue.
That's helpful. Stephen, what gives you confidence that there will be an alleviation of the shortage issues in June?
Specifically, the main shortage has been with CPUs, and what we've been told not only by the CPU maker, but also by our customers, our ODMs in the field, is that they expect the recovery to happen within, at the latest, by the end of June. We are already expecting our customers to prepare and are ready for a recovery within the June quarter.
Okay, that's helpful. The 5G base station power management opportunity sounds interesting. Couple of follow-ups there. One, how broad is the company's participation across the top 5 makers? What's your dollar content, and what do you think your share will be with this round of devices?
Just giving you some background, as we mentioned in the prepared remarks, we didn't participate that much in the 4G business in the past. Right now, we are starting to enter into that pre-5G ramp-up, we are participating on a few programs in a couple of the tier one players. We are really just starting to enter into this market. We are for sure going to be targeting all the major makers, we already engage with a couple of them right now at the moment.
Is that with power management ICs or MOSFETs?
That was mainly right now for the first phase is going to be with our MOSFETs. In the future, we will be offering those total solutions, too.
Okay. Then, moving tangentially and perhaps there's some relationship between the product team on the base station side and the team that's working on server power. Server power expenses in the quarter were about $3.1 million. Yifan, is that the run rate going forward for that team and the initiative, or should we expect that quarterly expenses would rise further, either to $3.5 million or potentially higher than that?
Yeah. At this point, we expect that will be the expense level. As the team further develop the new products and start taping out and sampling, I would expect some additional engineering expenses would be added into there.
Initial product tape-out would occur when?
I would say in the summertime or closer to the fall.
Last question from me before I get back in the queue. The company has had an objective to grow revenues 10% in fiscal 2019. That was initially established before we encountered a period of macro choppiness and more severe U.S.-China trade issues. Is it still the hope of the company that you can grow 10% in fiscal 2019? If so, beyond the fiscal third quarter, what are some of the things that need to happen in the fourth quarter to get there?
Sure, Craig. Right now, that goal is still within our target model. Q1 is a low season, seasonality wise , and also the current business environment. You saw our guidance reflected some cautions there. We expected seasonality growth in the June quarter. As Stephen mentioned, this CPU for PC area, we expect it can be alleviated in the June quarter. We're still targeting that model right now.
Yeah, let me just add a little bit more color. By the way, this is Mike Chang.
Hey, Mike.
Hi. Okay. Yes. Okay. The seasonality and also some of the recovery from our clients, okay. What really is center for us is our new technology and new product really start to gain some benefits there. Basically, from our design win, okay, the track there, we see the momentum is building up there. Of course, now this, you'll never be able to predict the environment. Okay? You are assuming the environment will not further decline, it's the macroeconomy. Okay. I think that's where is our confidence.
The point is you feel good about the products and the design wins that you have, but there may be some uncertainty in this kind of macro environment around program start time and actual program volumes. Is that the takeaway there, Mike?
Yes. I think basically it's the design win pipeline, the track record, which is what I would base down there. God forbid, okay, then hopefully this trade tension will be relieved, okay? Otherwise the effect of overall economy, not necessarily directly against us, but everybody will suffer.
That's helpful. Thank you.
Thank you.
Thank you. Your next question comes from Ed Roesch with Sidoti & Company. Your line is open.
Hi, good afternoon. Could you repeat what you said about the JV Company ownership at this point after the equity infusion from your partner?
Right. Ed, this is Yifan. Yes, after this contribution, $24 million from our joint venture partners. Yes, in equity ownership and for AOS back to 51% joint venture partners and ownership back to 49%.
Okay. There's no way that your ownership can perceivably drop below that threshold, right? 51% would be the floor?
Well, that was originally when we negotiated this joint venture deal.
I think there's a couple angle. Excuse me, this is Mike Chang, okay? Our future business expansion based on that, we need some certain of assurance or control. This one angle. The good things, the other side, they also see this highly technical and specialized business, and they trust that AOS is a better way to manage that. Going forward, when the situation changes there, we'll see what's benefit to AOS. That's what will be.
Okay. Thanks for that color. Then assuming that the demand does recover in the June quarter there, could you just give us an update on quarterly capacity? Is it still about $115 million of production capacity? When is the next expected step up in that figure, please?
Yes, Ed. This is Yifan. Currently, yes, our capacity is around $115 million range. This March quarter's guidance reflected some production loss during the Chinese New Year timeframe. Overall, was still at that $115 million range. The next wave of capacity increase will depend on the ramp of the Chongqing joint venture, that 12-inch fab. That is why we want to ramp that fab gradually in calendar year 2019 to fulfill the demand and fuel our growth.
Okay, got it. One last one on the computing segment, which is contending with the CPU shortage. Is it fair to expect that once the CPUs are back on the market and available, that could be just an outsized quarter for you in that end market because there's latent demand that needs to be caught up with, that hasn't been fulfilled in the March quarter?
This is Stephen. Yes, that is the expectation. The shortages have, again, been persisting starting at the second half of 2018. Overall, this market has been underserving the demand in the marketplace. We are expecting that there will be some rebound as a result of that, in addition to the normal seasonality that happens beginning in Q2. That is what we are seeing from our customers and also from the market.
Okay, thank you. That's it for me.
Thank you. I'm sorry. Ladies and gentlemen, if you have a question at this time, please press star then one. Your next question is a follow-up from Jeremy Kwan with Stifel Nicolaus. Your line is open.
Yes, thank you. I wanted to follow up on the, I guess, the capacity question. With the $8 million in AOS spending only, if your capacity is fully maxed out, is this kind of just ongoing maintenance costs and things like that, or is there more to it?
Yes, Jeremy. This is Yifan. Yes. Right now, our major capacity expansions in our Oregon fab is pretty much done. Right now, we're in the stage to fine-tune the mix, optimize the production line. In that nature, it will not significantly increase the total capacity. The additional total capacity we expected will contribute from our joint venture along the year, this year, this calendar year.
For AOS only, are you still targeting the 68% range for fiscal 2019?
Oh, yeah. That one is pretty much in the range for maintenance, for the fine-tune the operations, and optimize our mix.
Last question in terms of the JV Company. Can you give us an idea of how long you expect the qualification process to be? Is it kind of a one-quarter thing, or can you give us an estimate?
For sure. It kind of depends. Some customers may qualify faster. Even right now, we've already received first order from customers. In order to ramp up, we still need to have some time to qualify with customers. I would say probably a quarter or two, we should be able to see some ramp-up .
Sorry, just last question. As it does ramp up, do you expect to see a gross margin benefit because of the 300 millimeter, or do you still have to work out some yield challenges?
Oh, yeah. During the ramp-up time, I would not expect to see a cost benefit. Actually, just to the contrary. Once we ramp up to the phase 1 capacity, I would expect our 12-inch fab wafer cost neutralize with our 8-inch fab wafers.
This is Mike Chang. I think whenever you talk production, there's one key factor is called economies of scale. In the ramp case there, the cost will be there until we get into the equivalent. Yeah.
Understood. Thank you very much.
Thank you.
Thank you. I am showing no further questions at this time. I'd like to turn the call back over to management for closing remarks.
This concludes our earnings call today. Thank you for your interest in AOS. We look forward to talking to you again next quarter. Thank you.
Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program. You all may disconnect. Everyone, have a wonderful day.