ALPHA & OMEGA Semiconductor (AOSL) Q1 2027 earnings call transcript

Good afternoon, everyone, and welcome to Alpha and Omega semiconductors conference call to discuss fiscal 2027 first quarter financial results. I'm Stephen Palleo, investor relations representative for AOS. With me today are Stephen Chang, our CEO, and Ephon Leong, 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. Stephen will begin with business updates, including strategic highlights and a detailed segment report. After that, Ephon will review the financial results and provide guidance for the December quarter.

Finally, we will have a Q&A session. The earnings release was distributed over the wire today, November 5th, 2026, after the market close. The release is also posted on the company's website. Our earnings release and this presentation include non-gap financial measures. We use these non-gap measures because we believe they provide useful information about our operating performance that should be considered by investors in conjunction with the gap measures.

A reconciliation of these non-gap measures, two comparable gap 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.

For more detailed description of these risks and uncertainties, please refer to our recent and subsequent filings with the SEC. We assume no obligations to update the information provided in today's call.

Now I'll turn the call over to our CEO, Stephen Chang. Stephen?

Thank you, Stephen. Welcome to Alpha and Omega's fiscal 2027 first quarter earnings call. I will begin with a high-level overview of our results and then discuss performance across our end market segments. We delivered September quarter revenue of $177.8 million, up 4.3% sequentially and down 2.6% year over year, slightly above the midpoint of our guidance. Non-gap gross margin improved to 25.2%, compared with 23.7% in the June quarter and our non-gap loss narrowed to 7 cents per share.

Our results reflect the accelerating momentum in AI infrastructure, even as traditional PC and consumer markets face increasing headwinds. Advanced computing revenue, which includes AI servers and graphics cards, increased more than 50% sequentially and 80% year over year, reaching nearly 23% of total company revenue ahead of our expectations. Importantly, AI and server applications accounted for nearly 90% of advanced computing revenue and approximately 20% of total company revenue, compared with just 5.5% a year ago. This rapid expansion underscores the tangible progress we are making in transforming AOS into a higher performance power semiconductor company.

Meanwhile, elevated memory costs and growing component shortages continue to weigh on traditional PC demand, contributing to a sharper than expected decline in that market. Consumer electronics also remain weak. Despite these headwinds, strong growth in AI and servers, along with increased shipments of premium smartphone battery protection solutions, power tools, DC fans and power supplies, helped offset much of the weakness in our traditional markets and supported sequential revenue growth and improved growth margins.

With that, let me cover our September quarter segment results and preliminary outlook for December. Starting with computing, September quarter revenue was 83.2 million, down 2% sequentially and 14.3% a year over a year, representing 46.8% of total revenue. The headline results mass a significant shift in mix. Led by our strong AI and server business, advanced computing grew more than 50% sequentially, nicely ahead of our guidance for growth of more than 40%, while traditional PC related revenue declined approximately 30% sequentially.

We are seeing growing adoption of our power solutions across AI infrastructure, including robust median voltage MOSFETs for intermediate bus cover applications. These opportunities broaden our bomb content and customer relationships as our portfolio evolves towards higher performance solutions. Within advanced computing, AI and server related revenue grew more than 65% sequentially and more than 250% year over year. We continue to expand our presence across major cloud and hyperscale ecosystems, supported by targeted investments in manufacturing capacity, product development, and customer qualifications.

These efforts are broadening our opportunities across increasingly complex power conversion architectures and position us for sustained growth. Looking ahead to the December quarter, we expect advanced computing to reach another quarterly revenue record, led by continued strength and AI and server applications. However, worsening demand for traditional PCs compounded by elevated memory costs and broader component shortages is expected to more than offset this growth. As a result, we anticipate total computing revenue will decline mid to high single digits sequentially.

Turning to the consumer segment, September quarter revenue was down $16.1 million, down 22.9% sequentially, and 31.4% year over year, representing 9.1% of total revenue. Results were slightly better than our guidance, with broad-based declines led by lower shipments in home appliances, gaming, and wearables. Gaming continue to reflect the maturity of the current console cycle, while wearable demand also remains soft.

For the December quarter, our planning assumptions suggest consumer revenue will be flattish sequentially, although the outlook varies by application.

Next, let's discuss the communication segment. September quarter revenue was $37.8 million, of 15% sequentially, and 15.8% year over year, representing 21.3% of total revenue. Results were above our guidance for growth of approximately 10%. The sequential increase was primarily driven by a strong ramp in battery protection solutions for our tier one US smartphone customer. Battery PCM revenue increased more than 50% sequentially, benefiting from new flagship smartphone production ramps.

Our differentiated and battery protection technologies continue to address increasing charging currents and higher performance platforms, driving higher bond content per device. Looking ahead, we see additional content expansion opportunities as smartphone designs evolve, particularly with the growing adoption of foldable and multi-screen devices that incorporate multiple batteries, each requiring dedicated protection circuitry. However, these gains were partially offset by softer demand in other regions, particularly China who are rising memory costs are pressuring smartphone affordability and prompting some manufacturers to reduce component specifications and overall bond costs.

For the December quarter, we expect communications revenue to grow mid-teens sequentially, driven by continued momentum in our premium smartphone programs, particularly battery PCM. Finally, power supply and industrial revenue was $38.7 million, up 29.2% sequentially, and 38.8% year over year, representing 21.8% of total revenue. Results were in line with our guidance for sequential growth of nearly 30%, driven by strength across power supplies, power tools, motor control, and DC fans.

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

We also expect ACDC power supplies and power tools to remain resilient, supported by continued demand across their respective end markets.

In closing, our September quarter results demonstrate meaningful progress in AOS's transformation towards higher performance, higher content applications. Advanced computing now represents nearly half of our computing segment, and growing demand for AI infrastructure is creating additional opportunities in adjacent applications such as server cooling and power supplies. This momentum helps offset continued weakness in traditional PC's and consumer electronics.

More importantly, the richer product makes it showing up in our margins. Non-gap growth margin improved 150 basis points sequentially. Our expanding participation in high performance AI power applications, particularly differentiated medium voltage MOSFETs, is improving the quality of our revenue and contributing to a more attractive margin profile.

Turning to the December quarter, which is typically a seasonally softer quarter for us, we anticipate a more balanced and resilient demand profile to drive counter seasonal growth. We expect total revenue to be up slightly sequentially and up approximately 10% year over year, despite significant weakness in traditional PC's. Importantly, our growth story extends well beyond AI and advanced computing.

We expect communications revenue to increase at mid-teen sequentially and more than 20% year over year, reflecting continued strength with our tier one US smartphone customer. Similarly, power supply and industrial revenue is expected to increase by high single digits sequentially and more than 50% year over year, supported by improving demand across applications, including power tools and e-mobility. These trends demonstrate the increasing breadth of our growth drivers and the tangible progress of our business transformation.

As we leverage technology leadership, premier customer relationships, and total solution strategy to capture opportunities across a more diversified portfolio of higher value markets, while positioning us for further marginal improvement as our business scales. At the same time, we remain mindful that market conditions are uneven. Elevated memory costs and other component constraints continue to weigh on traditional PC demand, and we do not expect a near-term PC recovery.

Notwithstanding this headwind, we believe our expanding relationships across hyperscalers, ODMs, power supply manufacturers, and other ecosystem partners, combined with our disciplined investment and growing bomb content, positioned us well to capitalize on the long-term opportunities ahead.

With that, I will turn the call over to EFON for a discussion of our fiscal first quarter financial results and our outlook for December. Be fun.

Thank you, Stephen. Good afternoon, everyone, and thank you for joining us. Revenue for the September quarter was $177.8 million, up 4.3% sequentially, and down 2.6% year over year. In terms of product mix, DMOS revenue was $137.2 million, up 21.1% sequentially, and 26.4% over last year.

RSC revenue was $38.7 million, down 30.2% from the power quarter, and 46.8% from a year ago. Assembly service and other revenue was $1.9 million, as compared to $1.7 million last quarter, and $1.3 million for the same quarter last year.

Non-GAP growth margin was 25.2%, compared to 23.7% last quarter, and 24.1% a year ago. The quarter of a quarter increase was mainly impacted by better product mix.

Non-GAP operating expenses were $45.9 million, compared to $45.3 million for the power quarter, and $41.4 million last year. The slight quarter of a quarter increase was primarily driven by higher personnel-related expenses.

Non-GAP quality EPS was $0.7 loss, compared to $0.13 loss per share last quarter, and $0.13 earnings per share a year ago.

During the quarter, the majority shareholder of the JV company injected approximately $344 million of capital into the JV company, and the JV company used a portion of the proceeds to completely retire the equity interests of all shareholders whose interests were smaller than ours.

As a result, we recognize a $4 million gain, and our equity interest in the JV company, decreased from 18.9% to 15.1%. A $4 million gain from this transaction was excluded from our non-GAP EPS for the quarter.

Moving on to cash flow. Operating cash flow was $5.6 million, compared to negative $10 million in the power quarter, and $10.2 million last year. If it was $12.2 million for the quarter, compared to $10.1 million last quarter, and $19.4 million for the same quarter a year ago.

Now let me turn to our balance sheet. We completed the September quarter with a cash balance of $175.2 million, compared to $180.8 million at the end of last quarter.

Nitrate received both increased by $10.5 million sequentially. Day sales outstanding were 26 days for the quarter, compared to 23 days for the power quarter.

Net inventory decreased by $5.1 million quarter, average days in inventory were 133 days for the quarter, compared to 138 days for the power quarter.

Tap X for the quarter was $9.2 million, compared to $14.9 million for the power quarter. We expect tap X for the December quarter to range from $12 million to $14 million.

With that, now I would like to discuss December quarter guidance. We expect the revenue to be approximately $180 million plus or minus $10 million.

Gap growth margin to be 25.1% plus or minus 1%. We anticipate the non-gap growth margin to be 25.7% plus or minus 1%. Gap operating expenses to be $52 million plus or minus $1 million. Non-gap operating expenses I expected to be $46 million plus or minus $1 million.

Interest income to be $4 million higher than interest expense and income tax expense to be in the range of $1.1 million to $1.3 million.

With that, we will now open a call for questions. Officer, please start the Q&A session.

Sure. It's good to see how the gross margin continues to grow from the June quarter to the September quarter. This 150 basis point improvement in the September quarter was mainly contributed by the better product mix. So the pricing played some role to the less extent. So the overall pricing environment and now is continue to improve. So glad to see that overall then it's turned from the neutral position in the June quarter to, I would say, slightly favorable in the September quarter.

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

Sure. Thank you. I appreciate the comments. Yes. You know, advanced computing, especially the AI portion, is just definitely becoming a bigger portion of our business. We said in the call, it's a premium, it's office 23% of September revenue and AI portion alone, because it's itself 20% of revenue. So it is a question that we are discussing currently about what the timing or what it's appropriate to do that. But it is something that we can try to be more supposed to describe in our business, because it is a very important part, and it is a key reason why the margin is improving, because of that weight rate for the margin. That was the first part of your question.

The second question was on the 800 volts. That portion, yeah, we continue to work with the various partners in the ecosystem to continue to promote and design in our solutions. Still, we don't have a really major update at this point right now, and just that we are progressing along with that. And, you know, it's good to see, again, the power levels going up with 800 volts, and our entry into that middle stage conversion positions are very involved with our customers, with our products. So not only for medium voltage, but also going into upwards into our life and gap solutions as well. That color.

Sure. I think from what we see in our place in the supply chain is, you know, there's correction that happened. Our customers were building at a higher production level at the beginning, the first two quarters of the calendar year. And as we went into the September quarter, that's when we saw that, that's when they saw that they're kind of in the hand where their expected production was going to drop. So it's a correction that's happening there. That's seen in our portion of the supply chain. Yeah, we are watching closely at this, and we hope that our customers can resolve their shorter situations. And then we can get back to a little more difficult for now in the world for this Washington.

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

Thank you.

Yes. So I think as we spoke before, we are happy to see the diversification. That's both in terms of the application portions, as well as from a customer base. And especially now we're seeing the, the MOSFET, medium voltage MOSFET, especially in the high performance portion, will be gaining traction. And this is going into various types of end customers from power supply makers to model makers. And, you know, for right now, no, we've been emphasizing, especially the model makers and the base out into their, their various end customers, customers themselves. So this provides a little more diversification than simply just going after one big opportunity. So we are happy to see that part of the business grow.

We are getting more visibility into it. Some areas, you know, we are seeing, we're getting more longer term commitments or visibility of forecast. Other areas than, you know, this is also, some areas are still relatively new to. So we're not in a typical, there's no seasonality happening just yet because overall, this AI program is something that's really taken off in the beginning of this year until now.

Oh, most, most of these sockets actually didn't exist in terms of, in terms of revenue and this, this time last year. So the bulk of it, I say, I would say is relatively new for us, for us as a company. So, but that said, you know, we are continuing to secure additional design bins for to secure more business for the future. We are expecting that this business will continue to grow up going into the next calendar year, as we continue to wrap as well as to as these programs on a game for the action.

Thank you.

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