Ladies and gentlemen, thank you for standing by, and welcome to Alpha and Omega Semiconductor Financial Results for the Fiscal First Quarter of 2021 Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] I will now turn the call over to Mr. Gary Dvorchak. Sir, the floor is yours.

Good afternoon, everyone, and welcome to Alpha and Omega Semiconductor's conference call to discuss fiscal 2021 quarter financial results. I'm Gary Dvorchak, Investor Relations representative for AOS. With me today are Dr. Mike Chang, our CEO; Yifan Liang, our CFO; and Stephen Chang, our Executive Vice President. 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. Our call will proceed as follows: Mike will begin with a review of business; then Stephen will provide a detailed segment report; after that, Yifan will review the financial results and provide guidance. Finally, we will have the question-and-answer session. The earnings release was distributed over wire services today, November 5, 2020, after the close of the market. The release is also posted on the company's website. Our earnings release and this presentation includes 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 discussions with 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, to provide an overview of the business. Mike?

Thank you, Gary. Welcome, everyone, to today's call. We are off to a great start to fiscal year 2021. Business momentum accelerated in the September quarter despite the ongoing global uncertainty with COVID-19. We delivered a solid revenue growth and excellent profitability. Shipments were strong across most of our product categories, particularly computing and consumer applications. Revenue was up 29% year-over-year and at the high end of the updated guidance range we issued in earlier October. Better utilization and [indiscernible] expense control drove non-GAAP gross margin of 29%. On the bottom line, we posted non-GAAP EPS of $0.55, which more than doubled year-over-year. First fiscal quarter results continue to demonstrate the competitive strengths of our business strategy, technical expertise, diversified product portfolio and expanded customer base. While we start our business in the computing market, we have successfully diversified our business by expanding into other market segments, including consumer, communications, power supply and industrial. Our mission is to become the leading designer, developer and a global supplier of a broad portfolio of power semiconductors. Our technical expertise enables us to develop a broader variety of power discrete and Power IC technology platforms. This enables us to expand our product offerings and deliver complete power solutions for more target applications. Over the years, we have evolved from a component supplier to a solution provider. We have engaged more deeply with our customers, strengthening the relationships and have become their trusted strategic partner. Our modern structure design wins, with the recently launched gaming system and new PC graphics car platforms, as well as our continuing high growth in home appliance applications, are some examples of how we have deepened strategic partnerships with Tier 1 OEM customers. We will continue to drive growth by winning new ODM and OEM customer engagement with an…

Thank you, Mike, and good afternoon. Let me start with computing. It represented 44.1% of our total revenue in the September quarter. Revenue was up 35.9% sequentially and up 44.7% year-over-year. And demand was stronger than expected, which we fulfilled with the ramping supply from our JV fab. The work-from-home trend drove high demand for PC-related products. Our graphics card business was exceptionally strong driven by demand in the gaming application. We remain excited about ramping sales of high-performance driver MOS and digital power solutions in the launch of key customers' graphic card platforms. We expect this to continue in the December quarter. Looking ahead, we expect overall computing revenue to be down mid-single digits in the next quarter, as the sequential growth in the graphics card business is expected to be offset by the usual seasonal declines in PC. Now turning to the consumer segment. It represented 24.2% of total revenue in the September quarter. Revenue increased 33% sequentially and was up 70.8% year-over-year. Similar to PCs, the pandemic-driven stay-at-home effect boosted sales of gaming, TVs and home appliances, propelling the strong growth. Gaming grew significantly as a major game console win started to ramp. Preproduction for the new gaming console started in the June quarter, and ramped further in the September quarter. We are thrilled to have multiple sockets across several of our product lines, including Power IC and MOSFET, designed into this gaming console system. Home appliances continued to expand in the September quarter primarily driven by sales of intelligent power modules. Our co-packaged IGBT and MOSFET-based motor drive modules with built-in safety features offer our customers a co-package solution for ease of design and robust performance. We have been expanding our module product offering, and we are pleased to see business ramping with a new series…

Thank you, Stephen. Good afternoon, everyone, and thank you for joining us. Revenue for the December quarter was $151.6 million, up 23.8% from the prior quarter and up 28.6% from the same quarter last year. In terms of product mix, MOSFET revenue was $119.4 million, up 19.4% sequentially and up 18.7% year-over-year. Our IC revenue was $29.5 million, up 45.2% from the prior quarter and up 87.3% from a year ago. Assembly service revenue was $2.7 million as compared to $2.1 million last quarter, and $1.5 million for the same quarter last year. Non-GAAP gross margin for the September quarter was 29%, up from 27.5% in the prior quarter and up from 28.3% in the same quarter last year. The increase in non-GAAP gross margin was mainly driven by favorable product mix and higher factory utilization. Non-GAAP gross margin excluded $0.8 million of amortization of purchased IP-related to digital power for the quarter. In addition, non-GAAP gross margin excluded $0.4 million of share-based compensation charges for the September quarter as compared to $0.3 million and $0.4 million for the prior quarter and for the same quarter last year, respectively. Non-GAAP gross margin also excluded $0.3 million of production run-off costs related to the JV Company for the quarter as compared to $4.4 million for the prior quarter and $6 million for the same quarter last year. Non-GAAP operating expenses for the September quarter were $28.6 million compared to $25.3 million for the prior quarter and $25.6 million for the same quarter last year. The quarter-over-quarter increase primarily related to higher R&D engineering expenses and variable compensation accruals. Non-GAAP operating expenses for the quarter excluded $2.5 million of share-based compensation charges and $1.1 million of legal expenses related to the government investigation. This compares to $2.4 million of share-based compensation charges…

[Operator Instructions] You first question comes from the line of David Williams.

Congrats on the solid quarter and the guide. As we kind of look out and kind of think about the revenue stream, obviously, it sounds like you're targeting $600 million this year, so a very nice run rate. So it feels like most of this is fairly sticky. But can you talk maybe a little bit about where you're seeing the demand coming from in terms of design wins and new products versus just backfilling demand that you previously couldn't just with lack of capacity?

Sure. Let me take that. And we're definitely excited to see the growth this year. And this year definitely started off a bit unpredictable and uncertain, but we are pleased to see the results in the past couple of quarters. In terms of the traction that we're getting in the market, the current growth that we've seen in the past has further grown, especially in the PC area. We continue to expand our bond content. And as we talked about, we've also broken into the graphics card business with the major launch that happened this quarter. And additionally, our home appliance business also continues to -- continue to expand. We've started with our IGBT business, our discrete business, and we've expanded with our module business and we're starting to see results, especially the module business, this September quarter and going into the December quarter. Smartphones overall has been a bit of a rocky start, just like in many of the markets. And we saw a push out of the peak season and spreading into the next couple of quarters. But our position there is still strong, and we have a good placement at the key global smartphone makers. And layering on top of that, we've also opened the market for gaming for AOS, and going on to one of the gaming consoles that's launching this quarter. So we're pretty happy to see the growth of our existing applications as well as some of the new growth areas that we've just recently expanded into.

Great. And then just kind of thinking about the digital controller and the digital power of solution. How much did that contribute to the quarter? And then as you kind of think about next year, what do you think that contribution -- or excuse me, this year? What do you think that contribution could be? What are the expected kind of ramps or targets for the year?

Sure. So our digital power as part of our multiphase initiative. We started -- the early revenue came in graphic card and going into a high-end card, where our [ SPS ] is being -- is already starting to ramp in the September quarter. This is more at a smaller ramp compared to the other graphics card ramp that we're doing right now. This is going into a very high-end card for that vendor. So we see some small business this quarter. It will ramp a little more going into the December quarter. And -- but our heart is still set out to go after the core server and telecom market. And with that, we're still expecting that to be a little further out and more like in 2021, 2022, type of time frame for that business. In the meanwhile, we will continue to -- we expect this graphics card business to gradually increase over time, as they roll out their production and hopefully seeing our part also proliferate into more models within that card maker.

Okay. And one more, if you don't mind. But you talked even a little bit about the factory loadings and that's helping the gross margin a bit. But can you maybe give us a little bit of color around what your utilization rates are looking like really particularly in JV? And then maybe where your capacity stands there. You talk about getting to that run rate in the next year. Can you maybe qualify that in terms of when you expect that and just kind of in terms of gross margin, maybe that contribution that you expect to see just from all of the moving pieces that are really moving in the right direction here? If you kind of combine those together. So just any color you could provide would be helpful.

Okay. Sure, David. In terms of gross margin, yes, September quarter's gross margin increased by 150 basis points compared to the June quarter. That was primarily due to the combination of better product mix and our factory utilization. So product mix and factory utilization, I would say, half and half, maybe slightly higher on the factory utilization side. Product mix definitely improved. Example, you can see as a Power IC product line will grow like 45-some percent quarter-over-quarter and 87% year-over-year. And then I mean the Power IC product line carries a higher product margin for us. In terms of factory utilization, our own factories are like an organ fab and the Shanghai back-end facilities pretty much operate at a full scale right now. We can squeeze out here and there, some are -- the JV Company continued its ramp during the September quarter, contributed to our revenue growth. So this -- I mean, right now, this do not run -- fully ramped up to its Phase 1 run rate yet. So as Mike mentioned in we're targeting next year, the September quarter, then we can fully ramp up that place. But as that said, actually, to me, it's actually a better outcome for us at $130 million quarterly revenue level. And our JV Company, they still have some room to support us for further growth. So I view that actually is a positive factor. The JV Company also, I mean, during the September quarter, improved its performance. You can see from the production ramp-up cost that in the June quarter, I remember, it was $6.6 million also. And now this, in the September quarter, it's like $0.3 million also. So we're further rounding up on this joint venture 12-inch fab.

Your next question comes from the line of Craig Ellis from B. Riley FBR.

Congratulations on the real strong execution team. Great to see the strong revenues and margins and earnings in the quarter. So I'll start with that as a follow-up to David's question. Yifan, thanks for the color on utilization and mix in the significant increase in gross margin in fiscal 1Q. But in fiscal 2Q, you're guiding revenues a little bit higher, but it looks like the gross margin midpoint is lower. So what accounts for the lower gross margin on higher volume?

We guided actually about the flattish gross margin for the December quarter, slightly increased in revenue. I mean that would not change a whole lot of things. Right now, it's the factories utilizations. Our own factories are running at a pretty full level. Then product mix is about the same, so similar product margin profile. So I would think in this December quarter, we are expecting similar gross margin at this point.

Okay. Got it. And then moving on to some of the product trends and some of the seasonal dynamics in the business. So great to see the execution on the gaming system program and all the design wins there and the gaming card, digital power strength that -- how should investors think about the seasonal dynamics of those types of applications? Are they seasonally stronger in your fiscal 1Q and 2Q and then weaker in 3Q and 4Q? Or what's the seasonal profile of those 2 businesses?

Sure. All of these businesses are a great new business for us. We're pretty excited about that. And they also have different types of, I guess, lifetimes or lifetimes' product life cycles. On the graphics card, typically, a new platform is released every 2 years. And this is another new refresh year for the main 2 guys. And the gaming systems and the life cycle is typically around 7 years. And for the game system, they also, throughout that 7 years, they also come up with new refreshed models, whether it's cost down or some other combination of what they want to offer. So there's usually kind of new builds been going on each year. But it's continuously sold throughout that 7-year period. Seasonality is probably a little difficult to read into, especially at the beginning of the quarter, even for us, it's a little bit unpredictable because we're still right at launch. And as far as we see, reception has been good. But the production side also is a little bit unpredictable as well, too. So we -- right now, what we see is that December quarter is still pretty strong. And going into the calendar Q -- I guess, Q1 calendar for next year, it's a little hard to tell still, and we're still just tracking our production to match our customers' production. Generally, there is a surge in production, overall, in the first few quarters. And then there tends to be some kind of inventory correction once they -- once our customer sees the reception and then adjust our production. But right at this moment, it's a little too early to tell.

Okay. That's really helpful. I appreciate it, Stephen. Moving on and just looking at the broader supply landscape. So it seems like there was just very good manufacturing execution between the Oregon fab and the JV fab in the quarter. It seems like you're getting that again in the outlook. But can you confirm if you're able to meet all orders? And given some of the things that we've seen with regards to supply constraint, Yifan, can you talk about your comfort that there aren't double ordering issues out there that would be over inflating activity versus end demand?

Sure. Our backlog has been healthy and steady throughout the quarter, which reflected in our guidance for the December quarter. Right now, the overall market supply is tight. So at least in our field, I would not rule out some double orders. Internally, we look at backlogs and orders and also we triangulate it with our design wins at each customer. So that we are monitoring how much we ship to each customer. The overall, we think our December quarter guidance is achievable. And I mean, it's off a pretty high base from the September quarter. So we're happy to see December quarter continue to increase, not dropping.

Yes. Indeed, nice to see the strength there. The next question, maybe for Mike, perhaps, or maybe for you, Yifan. But if I look ahead a couple of quarters and think about the seasonally stronger period of the year, which typically occurs in the June and September quarter, given the exit velocity of the business out of calendar '21 here of $153 million, which is very strong, it would seem if you saw something like seasonal growth in the June and September quarter, that potentially the revenue profile of the business could move well up into the $165 million to $175 million range, which I believe would really be a level where either, a, you'd have to increase external supply or accelerate the ramp of Phase 2 of the JV fab. Can you just talk about how you're thinking about moving into fab Phase 2 versus external supply, given that the demand is so strong and your design wins are performing so well?

I'll take it first, and Mike, maybe you can add in. Overall, I mean next year, I mean, as Mike mentioned, was targeting $600 million for the calendar year 2021 annual revenue. That's our goal. In terms of each quarter, I mean, right now, the COVID is kind of altered and typical seasonality this year, we'll see -- I mean maybe some fluctuations between the quarters, and it's hard to tell at this point. But overall, I mean, as Stephen mentioned, we do have some company-specific growth areas and those are growth points. So we were pretty excited about next year's opportunities. In terms of -- on supply side, yes, and I mean we are continuing to ramp JV fab. And then on the other hand, yes, we are planning for the next phase and looking at our business growth opportunities. And so it is on our agenda right now to consider another year out. So we will see. I mean the overall market and the business development right now, the momentum is relatively strong. Mike, you want to add in some?

Thank you, Yifan. I think you covered pretty much about the business side here, okay? Of course, even all analysts could -- they, okay -- the macro economy, nobody can predict that, so we have to prepare for that. Talk about the price side on the [ CQ ], I have be honest with you, okay. Whatever capacity is in there, was prepared or planned about a few years ago, at that time of cost, you don't have a clear crystal ball, so just whatever you can. And the [indiscernible] question, what's your loading rate? Okay, I will say right now it's pretty tight not because of all equipment used out, not because of some efficiency there. So we're going to adjust the mine adjustment there because of the mix, kind of to respond to the current demand. So there will be some room to go to fulfill our first phase next year. Of course, from there, we're going to be looking for the Phase 2, which definitely was a follow-up there. I wonder whether this answer your question or not.

Yes, I think it does, Mike. I think one of your points is there should debottlenecking and efficiency gains you can get to squeeze some extra capacity out of Phase 1. So you've got some time to do that, yes.

Move around a bit to just open up with the tier, yes.

[Operator Instructions] Your next question from the line of Jeremy Kwan from Stifel Nicholas.

And let me add my congratulations on the strong results and outlook and hitting that $150 million quarterly revenue ahead of plan. I had a question on the -- maybe, Stephen, in terms of the end markets. I don't think I caught the consumer guidance. Is there -- do you guys have a formal expectations for that side of the business?

Yes. So consumer was very strong for us in the Q3 and -- sorry, in the September quarter and due to a lot of things tied to the state-at-home. TV was up seasonally. And the new gaming console, the preproduction was going on as well as the continued growth in home appliances. Looking to Q4, and we're expecting a slight drop in the outlook, mainly because of some seasonality coming back into play, TV market typically starts to drop in the December quarter because most of the holiday shipments have been already done in the September quarter. We do expect to see continued growth in home appliances. This has been, again, a pretty small part of the overall market. And this is an area that we've been growing, especially with our IPM modules going into home appliances like refrigerators and washing machines. And we also mentioned in the script that gaming is expected to see a little bit of a pushout because our customer, they're having some production supply issues. But we expect that to resume in the following quarter. So overall, we're predicting a slight drop going into the December quarter.

Great. So it does sound like the Communications segment is what's kind of driving the better-than-seasonal outlook for December, especially off of strong September. Can you walk us through again what's -- just give me the confidence behind that? Is it just the delay in smartphone ramp that's continuing into December? Or is there something else going on there that's losing this business?

Yes. You got it. By far and the biggest news there is the smartphone side. Normally, we will see a big jump up in the September quarter because there's a few phone makers doing launches at that time. This year, we've seen some pushouts, some small pushouts of launches, even though they still happened. And therefore, our December quarter is expected to be the peak for us and with regards to the sell-in for battery protection assets. So we've -- so the main -- the guidance for December quarter is a strong Q4, for calendar Q4, for Communications led because of the battery PCM that going to be peaked in that quarter.

Got it. And I guess turning to the JV. So maybe if I can try to get at this another way. Originally, the plan was to -- the JV Phase 1 was going to help you hit $150 million and you guys are already there now. Can you give us what the new venue level would suggest to us like that the JV's at a full Phase 1 for the combined company?

Sure. Yes, right now, our quarterly revenue is at $150 million level. So at this point, the JV 12-inch fab is not fully ramped, but then run quite a bit already. So in -- the thing is, and there are a couple of factors here, elements here. One is, yes, in the September quarter, JV continued to ramp, supported a portion of our revenue growth. On the other hand, our product mix improved in the last couple of quarters. So now this revenue per wafer actually increased some. So in that way, our own organ fab and then also foundry -- foundries actually, supported more revenue for us. So that's the dynamic in there. So actually, as I said, and actually, I view this as a better outcome for us. So that means the JV Company can still support our further growth. So in terms of how high it can support, I wouldn't expect another [indiscernible] also and then that's durable from there, so that's the current estimate.

Great. That's very helpful. Is there -- can you give us any indication of the timing that you might start the Phase 2 and maybe the different options you have in terms of like the magnitude of that? I understand the shell has been built out already. So a lot of the CapEx is already spent. So yes, can you give us what type of plans you might have in terms of adding incremental capacity for Phase 2?

Sure. Right now, actually, we are planning for the next phase. Whether or not it's another full phase or some incremental expansion, we'll see. As Mike just mentioned, the Phase 1, the clean room and the equipment, there are still some rooms to adjust, to resolve some bottleneck areas and so that can give us more output. And also the Phase 1 clean room is still not as [ quite ] as our organ fab clean room. So by incrementally, install some equipment that can also help lift up some capacity. So overall, yes, we'll do more planning. We'll see that adjusted in terms of the next phase of the JV expansion.

This planning, one, we are not in a hurry because as we report okay, next year, we should still be comfortable. So we will take time do -- to plan it because this planning is very crucial. If you plan aggressively, you're going to wind up losing money. If you plan not enough there, you're going to miss the opportunity. So we do want to spend time and effort to carefully come out in our best calculation or whatever to do that. So this moment, we're still in a planning stage, and it's not firm yet, I mean the detail yet.

[Operator Instructions] And I show no further questions at this time. I would now turn the call back to management for any closing remarks.

This concludes our earnings call today. Thank you for your interest in AOS, and we look forward to talking to you again. Thank you.

Thank you.

Thank you.

God bless you. Bye.

Ladies and gentlemen, this does conclude today's conference. We thank you for your participation. You may now all disconnect.