Thank you for attending today's Alpha and Omega Semiconductor fiscal first quarter 2022 earnings call. My name is Amber, and I will be your moderator for today's call. All lines will be muted during the presentation portion of the call, with an opportunity for questions and answers at the end. If you would like to ask a question, please press star one on your telephone keypad at any time. It is now my pleasure to hand the conference over to our host, Yujia Zhai, with Alpha and Omega Semiconductor. Yujia, please proceed.
Good afternoon, everyone, and welcome to Alpha and Omega Semiconductor conference call to discuss fiscal 2023 first quarter financial results. I am Yujia Zhai, Investor Relations Representative for AOS. With me today are 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 seven days following the call via the link in the investor relations section of our website. Our call will proceed as follows today. Mike will begin with strategic highlights. Stephen will provide business updates and a detailed segment report. After that, Yifan will review the financial results and provide guidance for the December quarter. Finally, we will have the Q&A session. The earnings release was distributed over the wire today, November 3, 2022, after the market closed.
The release is also posted on the company's website. Our earnings release and this presentation will include non-GAAP financial measures. We use non-GAAP measures because we believe they provide useful information for 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 the 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 discussions of the 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 obligation to update the information provided in today's call.
Now, I will turn the call over to our CEO, Mike Chang, to provide strategic highlights. Mike.
Thank you, Yujia. I would like to welcome everyone to today's call. It is good to be speaking with all of you again. Our fiscal Q1 results were in line with our expectations. Revenue grew 11.5% year-over-year to a record high of $208.5 million. Non-GAAP gross margin was 35.4%, and the non-GAAP EPS was $1.20. We are pleased with these results. Looking forward, we expect to be impacted by industry inventory correction, particularly in PCs and smartphones. As a result, we anticipate our calendar Q4 2022 results to be somewhat weaker than the historical seasonality that we typically experience during this period. Our data suggests that this process will occur over the next couple quarters before orders begin to normalize and there'll be more in balance with the end consumer demand.
While our near-term results will be impacted somewhat, I think it is important to highlight that our total PC revenue for calendar 2022, including our December quarter outlook, will actually grow slightly year-over-year against a 20% decline in PC units according to DIGITIMES. Our calendar 2022 smartphone revenue is also expected to be up 15% year-over-year, despite that global smartphone shipment is forecast to decline 6.5% in 2022. This is due to our success in gaining share, increasing BOM content, and deliberately improving our product mix towards more premium tier products. This also demonstrates the strength of our business underlying fundamentals and the traction we have gained in these two important markets.
Even though PC and smartphone demand is slowing in the near term, these two markets will continue to be major components of consumer spending for a very long time. Another example of our solid fundamentals is that our partnerships with tier-one customers and our share with them are the highest it's ever been in our history. We believe this will make us more resilient in recessionary periods. The premium tier products are typically the less sensitive to slowdowns in the economy. These relationships with our tier-one customers make us more attractive to prospective customers. Seeing our chips in a tier-one flagship device is the best marketing and advertising for AOS because it provides the strongest testimony of the quality and capabilities of our products and the service.
Over the last year, this has been a noticeable trend for us as more new customer approaches us proactively, and they initiate a request for product samples and a meeting instead of just our salespeople going to them. Another example is that we have a much more diversified product portfolio that is serving a broader set of end markets across consumer, commercial, and industrial use cases with different business cycles. For example, one of our biggest growth areas over the past years has been gaming, where we have leading share with the number one gaming console manufacturer. This business for us more than doubled year-over-year and is now a major revenue contributor for AOS and is expected to continue to grow even in a weakening consumer demand environment.
We are seeing similar growth trends in multiple other new applications that Stephen will go into more detail in his section. Finally, our business is a lot more diversified in terms of geographies that we serve. In the beginning, when we were still small, the majority of our business was in Asia. Today, our customers are much more globally distributed, including tier-one customers in Europe and North America. Diversification and the proliferation of total solutions has been our strategy from day one, and our execution has been paying off. Today, our business is more balanced with a stronger and more solid foundation. With that said, while these qualities enhance our resilience, we recognize that we are not immune to global slowdown in demand.
To help de-risk some of the top-line slowing slowdowns, we have already paused hiring of previously planned headcount growth and are taking active steps to reduce discretionary spending. In closing, the current market environment does not come to us as a surprise. Over our 22 years history, we have navigated many boom and bust cycles, surviving and thriving, even when we were far smaller than we are now. Today, our market position is stronger than ever, supported by our leading technology, more diversified product portfolio, tier-one customer base in all of our business segments, expanding manufacturing capability and supply chain, dedicated and experienced management team, and a strong balance sheet. More importantly, the underlying trend for more power that's providing a tailwind to our business is here to stay. The electrification of everything is just getting started, and our power products sit at the forefront of that trend.
We are confident that we can navigate the current economic environment and achieve our $1 billion annual revenue target in the next couple of years, and are actively investing to position ourselves to achieve even more after that. Thank you. I will now turn the call over to Stephen for an update on our business and a detailed segment report.
Thank you, Mike, and good afternoon, everyone. Before I give a detailed overview of our segments, I want to expand on what Mike discussed around our new growth areas. As Mike already mentioned, gaming has been a major success story for us, and we continue to expect very strong demand over the next year as our number one gaming console manufacturer ramps up production. Looking under the hood a bit, over the last year, we built a strong partnership with this customer through our great service and support on shipments during challenging times.
Further, our products are significantly more differentiated at the higher-end performance bands. Since gaming consoles are essentially high-end performance PCs, our solutions provide significant competitive advantages against alternative products. Because of these factors, we have won multiple sockets across multiple products, including high-performance MOSFET, as well as advanced power ICs such as DriverMOS and Smart Load Switch products.
Another growth area that I want to highlight has been the success of our MOSFET for quick chargers. AOS has a long history of providing high-performance medium voltage MOSFET to address secondary side rectification in this fast-charging application, particularly as charging power has increased over time. As a result of our focus on product performance and customer support, we have become a leading supplier in the number one U.S. smartphone OEM.
Recently, we expanded our BOM footprint at this key customer to now also supplying the high voltage MOSFET for primary side rectification, thereby effectively tripling our BOM content with this customer application. All of this has been made possible by our investment in R&D and new product programs that focus on the ability to offer our customers a total solutions portfolio that enables cross-selling and leverage the relationship and success of our existing customers.
I will now cover our segment results and provide some guidance for the next quarter, starting with computing. Revenue was up 13.6% year-over-year, flat sequentially, and represented 42.8% of total revenue. The year-over-year growth was driven by strong demand across several different applications, but particularly data centers as this area showed significant growth year-over-year with the adoption of our high performance low and medium voltage MOSFETs by leading cloud providers. In addition, graphics cards, tablets, and notebooks continued to show strength. Looking ahead, in the December quarter, we expect computing segment revenue to be down over 20% sequentially, driven largely by the inventory correction in PCs and to a smaller degree, seasonality.
However, our total 2022 PC revenue is actually still expected to be up slightly year-over-year against a 20% annual decline in global PC volumes as a result of share gains and higher device BOM content. I think our investors should keep this in mind when analyzing these results as the fundamentals of our PC business has never been stronger. Data centers and tablets are expected to remain strong next quarter, which helps dampen some of the softness in PCs. AOS offers performance MOSFETs with an elevated safe operating area designed to deliver high reliability for data center infrastructure. Turning to this consumer segment, revenue was up 11% year-over-year and 23% sequentially, and represented 21.7% of total revenue.
These results were in line with our expectations, driven by record gaming volumes, which grew 122.7% year-over-year and 70.2% sequentially. Looking ahead, we anticipate our consumer segment to remain strong with low double-digit growth sequentially driven by continued record gaming shipments, particularly from the number one gaming console manufacturer where we have leading share. Next, let's discuss the communication segment, which was up 21.8% year-over-year and 5.1% sequentially, and represented 15.1% of total revenue. This segment delivered strong growth as the September quarter is typically our peak season for smartphone shipments, especially as our number one U.S. smartphone customer normally refreshes their devices during this quarter. Our growth was also driven by share gains at this customer in the premium tier.
In fact, we have strong share in high-end models in all three of our markets in the U.S., Korea, and China. This is due to our ability to serve the high-end market with our high-performance battery protection products, as well as strong partnerships with our customers. In the December quarter, we expect this segment to decrease high single digits. As a result of industry smartphone inventory correction, particularly in China. Our business in the U.S. market is still expected to be strong, with Korea about flat. Offsetting lower smartphone demand somewhat is growth in telecom 5G infrastructure. Now let's talk about our last segment, power supply and industrial, which accounted for 19.6% of total revenue. This segment was up 8% year-over-year and 14.3% sequentially.
The increase was mainly due to share gains in quick chargers at the leading U.S. phone maker and growth in power tools. For the December quarter, we anticipate this segment to grow high-single-digits sequentially, mostly from continued growth of quick chargers as we expand our designs in multiple devices with the leading U.S. phone maker. In closing, we are not immune to the overall market and inventory correction. However, we believe our business is a lot more resilient than the old AOS as we have a much more diversified product portfolio servicing multiple end markets and a record number of tier one customers and market share. Further, we continue to execute our product and technology roadmaps, enhancing our diversified manufacturing capability and deepening strategic customer relationships, which should result in growth as the market recovers.
With that, I will now turn the call over to Yifan for a discussion of our fiscal first quarter financial results and our outlook for the next quarter.
Thank you, Stephen. Good afternoon, everyone, and thank you for joining us. Revenue for the quarter was $208.5 million, up 7.5% sequentially, and up 11.5% year-over-year. In terms of product mix, both product lines continue to grow. DMOS revenue was $145.1 million, up 4.5% sequentially and up 11.1% over last year. Power IC revenue was $61.8 million, up 16.3% from the prior quarter and up 18% from a year ago. Assembly service revenue was $1.6 million as compared to $2 million last quarter and $4 million for the same quarter last year.
As Mike mentioned, non-GAAP gross margin was 35.4% compared to 33.8% in the prior quarter and 35.3% a year ago. The quarter-over-quarter increase in non-GAAP gross margin was mainly driven by better production absorption at our assembly and test facility in Shanghai. In the June quarter, our Shanghai factory was partially shut down due to the citywide COVID lockdown. Since July, our Shanghai facility has been operating at a normal capacity. Non-GAAP operating expenses were $36.6 million compared to $36.7 million for the prior quarter and $35.1 million last year. Holding our non-GAAP operating expenses flat reflects our measures to control discretionary expenses and costs.
As such, non-GAAP quarterly EPS was $1.20 per share compared to $0.95 last quarter and $1.06 a year ago. Moving on to the cash flow. We continue to generate healthy cash flow. GAAP operating cash flow was $36.7 million, which included $3.3 million net refund of customer deposits. By comparison, operating cash flow in the prior quarter was $25.7 million, which included $3.4 million net customer deposits. Operating cash flow on a standalone basis for AOS a year ago was $84.4 million, which included $40.2 million customer deposits. Consolidated EBITDA was $45.5 million compared to $36.9 million last quarter and $45.3 million last year. Let me turn to our balance sheet.
We completed the September quarter with a cash balance of $316.1 million compared to $314.4 million at the end of last quarter. The cash balance a year ago was $231.5 million, excluding $20.9 million at the JV company. Net trade receivables were reduced to $55.8 million from $65.7 million at the end of the prior quarter. The quarter-over-quarter decrease was due to the higher balance in the prior quarter caused by uneven shipments toward the second half of the June quarter as our Shanghai facility was partially shut down due to COVID. Day sales outstanding for the September quarter were 30 days compared to 26 days last quarter.
Net inventory was up slightly to $164.9 million at the quarter end versus $158 million last quarter and $163.4 million last year. The quarter-over-quarter increase was mainly in raw materials. Average days in inventory were 106 days compared to 104 days in the prior quarter. Finally, property, plant and equipment was $339.5 million, up from $318.7 million last quarter. The fixed assets balance a year ago was $175.1 million, excluding $266.2 million at the JV company. CapEx for the quarter was $40.3 million. We expect the CapEx to drop to a $30 million level in the December quarter.
To update you, our Oregon fab expansion project continued to make progress in equipment installation and qualification, and we anticipate additional capacity to come online in the March quarter of 2023. Now I would like to discuss December quarter guidance. We expect revenue to be approximately $195 million ± $3 million. GAAP gross margin to be 30% ± 1%. We anticipate the non-GAAP gross margin to be 31% ± 1%. The quarter-over-quarter decrease mainly reflects the impact of expected product mix changes and lower factory production absorption due to the inventory correction.
In addition, this guidance also reflects normal seasonality for the December quarter. GAAP operating expenses to be in the range of $43.5 million ± $1 million. Non-GAAP operating expenses are expected to be in the range of $34.5 million ± $1 million. Interest expense to be approximately $1 million and effective income tax expense to be in the range of $1.2 million-$1.4 million. With that, we will now open the call for questions. Operator, please start the Q&A session.
Of course. Thank you. We will now begin the Q&A session. If you would like to ask a question, please press star followed by one on your telephone keypad. If for any reason you would like to remove that question, please press star followed by two. Again, to ask a question, that's star one. As a reminder, if you are using a speakerphone, please remember to pick up your handset before asking your question. We will pause here briefly as questions are registered. Our first question comes from David Williams with Benchmark. David, your line is now open.
Hey, good afternoon. Thanks for letting me ask a question and congrats on the resiliency for the quarter. I guess the first one for me even is kind of just thinking about the margin profile here. Obviously, you've got some utilization charges that will come in next quarter. But if I look back into your fourth quarter, fiscal fourth quarter, similar revenue level, and I realize the mix has a lot to do with this as well, but it looks like there's about a $5.5 million differential just in that margin. I'm just kind of curious what your utilization charges should be as you kind of think about that.
Also what we should expect, maybe in if we're seeing lower levels of demand into the March quarter, where that margin profile could potentially go to.
Sure. David, I mean, this December quarter's margin guidance mainly reflects the effect of current inventory correction, I mean, particularly in PC and in smartphone areas. You know, this inventory correction we expect to result in less favorable product mix for us, you know, which you know kind of basically we are expecting to ship less higher margin products in the December quarter and relatively speaking you know shipping more lower margin products. Basically, the product mix resulted from this inventory correction, that's quite a bit. Product mix changes, you know, changing unfavorably. That's the major impact for the December quarter's guidance.
Okay. Most of this is just product mix and less on the utilization charges?
Uh-
Do you have the baseline of what those charges are expected to be?
Well, yeah. I mean, the mix impact is a larger effect. Then, to the lesser effect, extended is the utilization. I mean, factory utilization absorption.
Very good. Then maybe just touching on the script, you noted that there was about a $3.5 million customer deposit refund. Just kind of curious how you're seeing customer behavior, and maybe talk about your order cancellations and backlog, just how that's kind of trending, especially as we've kind of gotten into October and November here.
Okay, sure. Yes, I mean, we incurred about $3.3 million in net refund of customer deposits. You know, as you recall, I mean, we first received some customer deposits probably back to about a year ago or so. I mean, those customer deposits normally, you know, require each year we refund one fifth or one fourth of the deposits after they order the certain amount from us. September quarter, in fact, that we started refunding some. At the same time, actually in the September quarter, we also received some customer deposits. I mean, net-net with the net effect was $3.3 million.
In terms of backlog, yeah, I mean, recently, you know, customers have been adjusting orders in backlog. I mean, orders for some products decreased and some increased. I mean, overall, the total backlog has been adjusted downwards. I mean, also the mix dynamics changed quite a bit, which in turn caused us to shift in our production schedules, you know, quite a bit. Our December quarter's guidance reflects, you know, those mix dynamics changes.
Okay. Very, very helpful. Thanks for the color. One just last one for me, if you don't mind. I guess on the visibility into the channel, as you think about just kind of across the board, you had a lot that goes through distie. How comfortable are you kind of with the level of inventory out there, and how confident are you in your visibility there?
For ourselves, I mean, our distie inventory is still at kind of a lean position. Actually, our distie inventory is still below our targeted range of two to three months. This inventory correction is mainly occurred at an ODM, OEM, or even at a retail level. You know, for our own distie inventory is still relatively at a comfortable level.
Okay. Very good. Thanks so much. I'll jump back in the queue.
Thank you, David.
Thank you.
Thank you. Our next question comes from the line of Craig Ellis with B. Riley Securities. Craig, your line is now open.
Thanks for taking the question, team, and nice job navigating a tough environment in that fiscal first quarter. I wanted to get into a little bit more detail on that last question regarding inventory and maybe take a look at it on a segment basis. Can you just characterize how you see inventory downstream, whether it's in the channel or maybe at some of your direct ship customers? I'm not asking for customer names. But just trying to get a sense for what the gives and takes are and where inventory might be relatively higher or lower across compute, consumer, communications, and industrial and power supply.
Sure. Hey, Craig, and good to talk to you.
Hey
We see inventory correction, particularly affecting consumer-facing applications, specifically PCs. I mean, this is where the bigger inventory correction we see taking place, and at least for you know, the current outlook. It's you know, it's throughout the supply chain, and we are also controlling you know, the distie inventory, but there's also inventory you know, at the ODM and at the OEM that they are working through. Over there, it's probably a little more pronounced. On the smartphone side, there also is some impact there. In general, you know, we're doing fairly well at the U.S. phone maker, especially in their premium models.
In those areas, you know, we're still supporting and shifting our support to grow with them. I think PC is probably the bigger area in inventory correction. Some small degree in the smartphones, especially in the low to mid-tier, is more affected. Yeah, those have been the main ones.
Got it. As we look ahead beyond the fiscal second quarter to the fiscal third quarter, one of the dynamics that always impacts things is the timing of Lunar New Year and some of the product builds around that, and it's a pretty early occurrence this year in the third week of February. You know, the question is this: You know, to what extent are your customers saying that some of the build demand related to that would be pulled into fiscal 2Q? And to the extent that it is, how does that impact the way you're starting to think about fiscal 3Q? Do you think that fiscal 3Q would behave seasonally, or would the timing on some of that component pull give it more of a sub-seasonal bias?
I think at this point, you know, first of all, the seasonality is back. You know, we haven't seen that term, heard that term too much in the past, you know, couple years. You know, we're, you know, expecting the third fiscal quarter to start to be a lower season in general, just as it normally is. Whether there's a pull-in, I think, you know, we'll see more towards the end of this current quarter, in terms of, you know, whether there'll be a pull-in for there. Normally, you know, the third fiscal quarter is a shorter quarter, not only for our customers, but also for us too.
We also, you know, plan to have maintenance, and February is a shorter month, so typically that is a lower season for us. In terms of the actual dynamics with, you know, with whether our customers will pull in, and we'll see closer to the end of this quarter.
Yeah. You typically will do fab shutdowns or maintenance activity during Lunar New Year, isn't that correct, Stephen?
Yes, we usually try to time it around then. It makes sense to then.
Yep. I don't know if this is one more for you or for Yifan. Can you just characterize the pricing environment that you're seeing out there and that's starting to come into backlog? Is it holding up as firmly as what we saw in mid to late 2021 and early 2022, or are we starting to see some of the tier two players out there get more price competitive? To what extent may or may not that be impacting the pricing that AOSL is realizing in its portfolio?
Well, yeah, I mean, in the September quarter, yeah, our pricing was, you know, relatively stable. I mean, we're expecting December quarter is in the same similar situation. But having said that, you know, given the current, you know, the inventory correction and the slowdown of the overall demand, and I mean, those some other factors like a stronger dollar. Then I mean all those things and, you know, could expect the environment to turn to more competitive, you know, I would expect.
Got it. That's helpful, Yifan. Lastly, I appreciate that, having invested $100 million in the Oregon fab expansion that the company and customers were going to light things up. Given that we are in a pretty meaningful inventory correction, I am a little bit surprised that the company plans to start production in the fiscal third quarter. Can you just walk through, you know, some of the considerations around firing up that capacity, given the demand backdrop that we have and the extent to which, you know, the output that you're considering now has changed up or down versus what you might have been thinking about three or six months ago? Thanks, guys.
Sure. Yeah. We are still going full steam ahead with our expansion of our eight-inch fab. Just remember that our eight-inch fab is our internal fab, and we actually developed, you know, most of our new technologies do originate in that fab. Even as of today, that fab is still fully utilized. Some of our foundries, you know, we aren't running at the full capacity, but our current fab is, you know, still running at full capacity. With Canon, we will be using the additional capacity once it comes online, so it can directly help and immediately help our output in the short term. I think, yeah, this capacity is very much needed.
It is geared towards our, more, you know, higher performance products in general. The products that are hot now are coming from that.
Yep. I appreciate the point on doing some foundry and sourcing when you get that capacity. Okay, thanks, guys. I'll hop back in with you.
Thank you.
Thank you.
Thank you. Our next question comes from Jeremy Kwan with Stifel. Jeremy, your line is now open.
Yes, good afternoon, and thank you. A question to me, a follow-up question on the pricing questions from earlier. Can you give us maybe more detail or color on what you're seeing in terms of, you know, pricing on the discrete side, you know, versus the power ICs? I know power IC is probably gonna be a bit more stable. You know, and not just on the ASPs, you know, due to new products coming out, but maybe on a like-for-like basis. Along with that, I think last quarter you mentioned some emerging local competitors. Can you just give us an update there, and how much impact they're having on pricing? Thank you.
Yeah. In terms of pricing, it does depend on the product. Of course, you know, the more differentiated a product is, then, you know, the more leverage we have in pricing negotiations. For the higher performance products, including much of the power ICs, you know, it's a little bit less pressure, but it's not immune either. The power ICs are still used, you know, largely also in our PC business, and which is seeing the inventory correction. Even there, you know, we still have to be competitive, but it's less competitive pressure in general relative to, you know, more standardized products. Discretes also have their own spectrum of performance versus kind of standard products too. The higher end, we can, you know, we can differentiate more.
There's less competitors to compete against. At the lower end, you know, this is where, you know, that's where the local players are starting to come in to be more aggressive, and you see more pressure at that end. It depends on the product.
Great. Thank you. I guess maybe on the gross margin side, you know, it sounds like the mix is having a larger effect than utilization. Is this a function of, you know, in the past when you've had customers on allocation, you optimize the mix or margin. Is this a situation where you're now reallocating for utilization?
I mean, right now then, I mean, yes, in the past, when we had the supply constraints in the short run, you know, we allocated more toward higher margin products. You know, in the December quarter, because of the inventory correction, we are seeing some product mix changes. That the change is unfavorable at this point. Right now, it is more impacted. Our margin is more impacted by the product mix.
Fair enough. Can you, I guess, help us understand maybe with the utilization question here. It sounds like you're able to keep that relatively high. You know, with the new capacity adds you're seeing there, does it change anything in terms of maybe your longer-term gross margin outlook? Maybe not your targets per se, but maybe, you know, what kind of trends we might expect over the next couple quarters here as you kind of look out ahead and balance utilization with mix.
Okay. Sure. I mean, as Stephen just mentioned and, you know, our Oregon fabs expansion is more for those high-performance products. Those products are still in high demand. We're confident that, you know, we can fill up the additional capacity quite well. In terms of the margin impact, you know, at this point then we would expect, you know, similar margins and, you know, those products and would produce. Overall margin impact are probably more toward neutral at this point.
Got it. One last question if I could before I jump back. Can you just give us an update on, you know, the Chongqing JV? You know, how much flexibility do you have in maybe reallocating from the JV to Oregon as things, you know? Is that a lever that you can pull in terms of the margin and utilization as you look out on the impact of the inventory correction?
The CQ JV is still providing, you know, similar, you know, wafers and assembly and test services to us. They are in the process of raising additional capital from outside investors. In terms of pull back and you know, anything back to our Oregon fab, right now our Oregon fab is full. We don't need, we don't have room to take on more production. Right now this, you know, the JV is still producing at their previous level.
Great. Thank you very much.
Thank you.
Thank you.
Thank you. There are currently no further questions in queue, so again, to submit for a question, that's star one on your telephone keypad. As there are currently no further questions in queue, I will pass the conference back over to the management team for any additional or closing remarks.
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.
Thank you.