Good day and thank you for standing by. Welcome to the Alpha and Omega Semiconductor Fiscal Quarter Four 2021 Earning Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ remarks, there will be a question-and-answer session. Please be advise that today’s conference is being recorded. I would now like to turn the conference over to your first speaker today, Mr. Gary Dvorchak. Please go ahead.

Good afternoon, everyone. And welcome to Alpha and Omega Semiconductor’s conference call to discuss fiscal 2021 fourth quarter and year-end financial results. I am Gary Dvorchak, Investor Relations representative for AOS. With me today are Dr. 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. Mike will begin with strategic highlights. Then, Stephen will provide business updates and a detailed segment report. After that, Yifan will review the financial results and provide guidance for the September quarter. Finally, we will have the question-and-answer session. The earnings release was distributed over wire services today, August 11, 2021, after the close of market. The release is also posted on the company’s website. Our earnings release and this presentation include certain non-GAAP financial measures. We use non-GAAP measures because we believe they provide useful information about our operating performance that should be considered by investors in conjunction with the GAAP measures that we provide. A reconciliation of these non-GAAP measures to comparable GAAP measures is included in the earnings release. We remind you that during this conference call, we will make certain forward-looking statements, including 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 obligations to update the information provided in today’s call. Now, I will turn the call over to our CEO, Mike, to provide strategic highlights. Mike?

Thanks, Gary. I would like to welcome everyone to today’s call. I am excited to be speaking with all of you again today. We have been dealing with the COVID-19 pandemic for over one and a half years and we continue to take strict precautions to ensure the safety and well being of all our employees and their families. Our fourth fiscal quarter continued the strength and momentum we saw throughout the year. We once again delivered strong year-over-year performance in each of our market segments with record revenue and excellent profitability. We benefited from strong end market demand enabling us to optimize our product mix. Fourth quarter results demonstrate the strength of our market diversification strategy, broadening product portfolio, deepening customer relationships and the growing production scale. Total revenue for the fourth quarter grew 40% year-over-year to $177 million, as we continue to see profit strength across our business. Non-GAAP gross margin was 34.9%, up 300 basis points from last quarter and the 740 basis points higher than the same quarter year ago. Non-GAAP EPS for the fourth quarter was $0.95, which more than tripled year-over-year. Yifan will go into more detail on our financial performance later. The strong fourth quarter kept an outstanding fiscal year 2021. Revenue grew 41% year-over-year to $657 million. On the bottomline, we achieved non-GAAP EPS of $2.93, up from $0.88 last year. Previously, we have set a target of $600 million in annual revenue for calendar year 2021 and I am pleased that we successfully surpassed that target ahead of plan. While we are not immune to some of the supply chain constraints in the broader semiconductor industry, we are doing a good job managing them to mitigate any interruptions to all customers. First, we are making investment to expand the capacity and…

Thank you, Mike, and good afternoon, everyone. I will start with an update on our business and then provide detailed segments highlights for the June quarter. As we have stated all along, the core of our business strategy is technology and volume. Technology and innovation in our business derives from repetitive volume manufacturing, which often inspires opportunity for improvement. This is the origin of technology development. We invest in core competencies of silicon, packaging and ICS, as the foundation of our product technology, best-in-class technology leads to competitive advantage in our products, as assessed in the market to be addressed. Our product strategy is to create advanced total solution products in close partnership with our customers. These products demonstrate our expertise in power and move beyond commodity parts into multi-socket optimized solutions that make our customer and products more reliable and efficient. We continue to accelerate growth by winning new customer engagements with an expanding pipeline of new products and increasing BOM content with our application specific solutions. An example of this is our Intelligent Power Modules designed specifically to address in motor drives used in home appliance applications. The module is combined the function of up to 17 discrete devices into a single solution to provide performance and ease-of-use to our customers. Another example is a series of driver MOS products, where we optimize the IC to bring the best out of the co-packaged MOSFET to deliver high efficiency in Vcore and graphics applications. Even our advanced discrete MOSFET are built on specialized platforms that address the performance needs a target applications such as battery protection and graphics. Supply remains tight in the marketplace, while demand continues to be strong across all our core market segments. In times like these, supporting customers through uninterrupted supply of our products is…

Thank you, Stephen. Good afternoon everyone and thank you for joining us. Revenue for the June quarter was $177.3 million, up 4.8% from the prior quarter and up 44.9% from the same quarter last year. In terms of product mix, DMOS revenue was $127.2 million, up 3.8% sequentially and up 31.2% year-over-year. Power IC revenue was $46.5 million, up 7.2% from the prior quarter and up 99.7% from a year ago. Assembly service revenue was $3.6 million, as compared to $3.2 million last quarter and $2.1 million for the same quarter last year. For the fiscal year 2021, revenue was $656.9 million, up 41.3% from last year. Non-GAAP gross margin for the June quarter was 34.9%, up from 31.9% in the prior quarter and up from 27.5% in the same quarter last year. The quarter-over-quarter increase in non-GAAP gross margin was mainly driven by better product mix. Non-GAAP gross margin excluded $0.8 million of amortization of purchased IP for both the June quarter and the prior quarter and $4.4 million of production ramp-up costs related to the JV Company for the same quarter last year. In addition, non-GAAP gross margin excluded $0.6 million of share-based compensation charges for the June quarter, as compared to $0.4 million for the prior quarter and $0.3 million for the same quarter last year. For the fiscal year 2021, non-GAAP gross margin was $31.9%, as compared to 27.9% for the prior year. Non-GAAP operating expenses for the June quarter were $32.8 million, compared to $30.9 million for the prior quarter and $25.3 million for the same quarter last year. The quarter-over-quarter increase was primarily due to higher variable compensation accruals this quarter. Non-GAAP operating expenses for the quarter excluded $4.8 million of share-based compensation charges and $0.6 million of legal expenses related to the government…

Thank you. Your first question comes from the line of Craig Ellis from B. Riley Securities. Sir, your lines open.

Yeah. Thanks for taking the question and congratulations on the very robust results and outlook. I want to ask two part question. In part based on a comment that you made Mike Chang and so if I look at the first quarters’ guidance annualizes to $720 million in revenues and down the line items would imply EPS would annualize $3.88. So you had indicated Mike that, you were shooting $1 billion in sales in the next few years. I know that’s historically been the calendar 2024 target, but just Mike decoder ring mean that a few years is really two years or three years, because it seems like you’ve been on a very aggressive growth trajectory and maybe we are pulling in that $1 billion target? And then the second half of the question, given the profitability levels that were achieving this far below the $1 billion target, if we’ve got call it 40% upside to target revenues. Is it fair to think there is another 40% upside in earnings coming if we can grow revenues from $720 million to a $1 billion over the next few years?

Well, thank you for the question. Thank you, for your kind words. $1 billion is for sure. We are pursuing with the three years or some will be there. I think the earning was there. I will rather have Yifan give you the answer. Yifan can you do it?

Yeah. Sure. Sure. Yeah. Our target, Craig, right now for $1 billion was remains at around 2024, 2025 timeframe at this point. In terms of profitability, yeah, we have been pleased with our gross margin improvement and the bottomline even more significant improvement. Yeah and that’s -- our overall business model is to grow our business and grow topline with reasonable margins, we leverage our scales to grow bottomline EPS even faster. So, I mean, yes, I would expect and as we grow our topline toward $1 billion and then our bottomline would continue to improve. This is our business model for the near-term, mid-term and long-term. I think we can continue to grow our profitability. I mean then our two quarters results already demonstrated this business model.

Yeah. That’s very helpful. My next question is regarding gross margins. So great to see the surge in gross margins in the quarter and in the outlook, you guided down, I believe, by 50 basis points sequentially. So the question is this, given that there’s been a very strong new product contribution to gross margins over the last few quarters, is that still expected or is there something about mix that’s changing sequentially, that would they press margins a little bit lower or is it more just the mix of the end markets and some of the things that are happening there, that’s causing the change in gross margin? If we look at gross margin, just beyond the current quarter, can you talk about some of the things that are happening with gross margins and the degree to which current levels are sustainable or can even be expanded upon, can we now think about 35% gross margins or even higher given that we’re so close to that level?

Well, sure, we are pleased with our gross margin improvement, which was mainly driven by the better mix. A couple factors contributed to the mix improvement. One is, since we are on allocation right now, so we are optimizing on the mix, product mix, as well as customer mix. Another contributing factor was the growth from our new products. For example, you saw our power IC products grew quite a bit, almost 100% year-over-year in the June quarter. Those new products generally carry at a higher margin for us. So, fundamentally, we are selling more and more higher margin products. So, I would expect that our margin stay around this level for the near-term. Of course, it may fluctuate and I would expect that at this point and the -- will be even is fluctuating probably around this level.

That’s helpful, Yifan. And then last one to Stephen organic number before I jump back into the queue. So I just wanted to follow up on the company’s decision to add capacity at the Oregon fab. So the $70 million seems like that might give you an incremental 10% to 15% of incremental output there. But the question is really about why you’re adding capacity in Oregon versus doing something more at a quicker pace in CQ, and are the drivers related some of the deposits that you’ve taken in which I think now total $30 million over the last two quarters? Is it a mix issue, I think, Oregon does more of the power ICs versus MOSFET. So what are the reasons you are moving ahead with an expansion of that fab versus being more reliant on CQ?

Sure. For us we’ve been growing fairly quickly in the last year and a half, and it’s pretty obvious that we are out of capacity in the shortest time. And we -- I want to make sure that our supply can keep up with our demand. So that includes expanding in-house at Oregon fab. It also includes working with our joint venture, as well as other talent for us to extend capacity. So our decision to expand in Oregon is not, no, not a decision only Oregon, we are expanding on all those fronts to make sure that we can keep up with demand. So it’s not necessarily due to mix and we have demand that’s growing in several of our segments. So it doesn’t make sense for us to continue to expand where we can.

Okay. That’s helpful, Stephen. Just a clarification related to capacity and capacity planning. I know you set the expectation that that auto should be a -- an end market that that doesn’t have a material ramp for a couple of years. It’s just the nature of that application area. But can you talk a little bit about of the three sources that you mentioned, where you’d expect to be sourcing supply for that initiative?

Right now, we’re not restricting automotive to any particular facility yet and I think we will be using whichever -- whatever outlet we have, that we can count up in the long-term. That, of course, automotive, they are looking for suppliers that will not change in the next 10 years, right, and that will not change…

Yeah.

… the materials on that, they can count on that they have to go through requalification. So for us we’re not fixed in the automotive, can only come from certain areas. Yes, for each of those things we’ll plan specifically, some maybe in-house, some might be outside, but it’s not fixed that only, like, it’s only gave that for automotive, for example.

Got it. Great results, guys. I’ll get back in the queue.

Thank you, Craig.

Thank you.

Thank you. Your next question comes from the line of David Williams from Benchmark. Sir, your line is open.

Hey. Good afternoon. Thanks for taking my questions and congrats on the solid quarter.

Thank you.

Thank you.

I guess first I wanted to ask around the gross margin and some of this has already been asked, but I wanted to ask it maybe a little bit different way. And just kind of thinking about the higher IC business, that’s clearly been a part of the business, it’s been expanding and it’s been a nice contributor. But how do you think about that mix overtime? And what do you think is the right percentage of IC business versus your other business? And how do you think maybe about the margin differential between those two different segments there?

Sure. For us, no, we’re happy to see as Yifan was mentioning just now that our IC business is definitely growing along with our module solutions. Our module solutions are the ones that we’re selling into the home appliance market. So this is a great way for us to sell more, to sell a better profit, that addresses the customer needs and then lost it in a little bit more tightly. We will continue to expand in those areas. But at the same time our discrete business isn’t been a standstill either too. Just a reminder that many of our Power IC products and our a module solutions based on side sweep inside. we use co-packaging and it’s built on top of our silicon technology platforms. So, we will still continue to see growth in our discrete business simply because we need good and discrete that’s in order and more IGBC’s in order to meet good power IC and module solutions. So in terms of mix, and I would say the percentage of IC, the module will certainly grow overtime. First I think -- and a rough target that we’re looking at is about one-third from IC and modules and two-third is still going from discrete business.

Okay. Great color there. Thanks so much. Steve, maybe another one for you, but on the $20 million of OpEx that you talked about and expanding the technology in Oregon, how much of that, I guess, is there any process there expansion or maybe if you could give us any color about what that is. But I also just want to say it speaks to the confidence that you have in the demand sustainability and so I guess if you look-out in the next year when the capacity comes online, how, I guess to what level is your confidence that your demand that you’re seeing today is not necessarily being pulled in by the macro but more sustainable and can continue long term, and that we’re not -- we’re building here capacity that could fall off base in next year?

Sure. Of course. Certainly, we do need capacity now and that’s not just -- it definitely we benefited from some of the work from home and the shortage situation, but our fundamental growth areas are certainly continued to move forward. What PC is kind of, get in today’s environment, but also smartphones and home appliances. Our business is pretty solid and making -- this is company specific growth that seems to move forward. And addressing the expanding capacity, we are doing this definitely for capacity, but also for capability as well. It is going to give us more advanced equipment that allows us to improve our technology further. So much of the technology, for example, our low voltage is probably on the fifth-or sixth generation of technology platform and we do need newer equipment in order to keep that engine going and to continue to come out with leading platforms that we can face both our Discrete and as well as our IC products on top it.

Okay. Okay. And then maybe one just last before moving here. Anything unusual in the inventory build, you saw this quarter, obviously up a bit. How much of that was just inventory bill that could you put and how much that, are you seeing anything in any particular market slowdowns or maybe nothing unusual there?

David, inventory increased a little bit yet compared to last quarter, but partially it was because of the joint venture, continue to ramp up and so they have some inventory materials and some -- there. Another thing is for AOS side and we also increased the fam on that materials, raw materials like those substrate and in those areas. So given uncertainty of call, David, as you know, I mean, there are some countries started lockdown again. So we kind of intentionally increased some purchases. Actually our finished goods inventory actually did went down.

Okay. Very good. And Yifan, now that I have you online. Let me ask one more there. Just in terms of the OpEx, it’s kind of bumped up a little more than we would have expected in the June quarter, anything unusual there that we should be thinking about and does that come carry forward? Is this a good base that you kind of grow from?

Go ahead.

I mean, if you don’t mind, I add some color on it. Now, this year, everybody know it’s the shortage year. Anything you produce, it will be hard to sale, supply. Yifan mentioned to you very clearly that we can take advantage that we have a product mix. However, everyone know such kind of thing were not forever. So eventually we spent on your competitive average. So while this year we invest in the capital equipment area to further enhance our advance capability, so that we will capable or enhance our competitive average, just in case the time go back to normal.

Okay. Okay,

All right. David, regarding the OpEx and yes in the June quarter, the increase was primarily due to the increased variable compensation accruals because of the better than expected financial results. So I would expect, again, going forward probably it will stay around that level.

Great. Thanks so much and appreciate the time and best of luck on the quarter.

Thank you.

Thank you. Your next question comes from the line of Jeremy Kwan from Stifel. Your line is open.

Yes. Good afternoon. And let me add my congratulations on the higher gross margin and seems the JV turned free cash flow positive. And I guess, first question on the backlog. You mentioned very strong. Can you give us an idea of where lead times have gone and where they were maybe 12 months ago and where they are today?

Lead time. I mean, right now it is on a bit longer than 12 months ago. Yes. And that, I mean our backlog and I would say stronger than 12 months ago as well and I mean for us -- I mean this -- we saw some customers placing more POs for the longer-range. Then I mean -- so we are closely monitored activities and the work, communicated closely with our customers. So we know their true demand. So -- and then for us, we are also triangulate with our own design wins at a customers and then we monitor our shipment. So overall net, I mean -- if we cannot ship -- if we cannot fulfill customer orders, then we will tell them upfront. So we don’t want to drag them out.

Got it. So you’re not doing anything like your other semiconductor peers, where -- you’re trying to get customers to place longer lead-time orders or things like that. I mean like non-cancelable or non-refundable type arrangements?

No. That’s pretty much same throughout the years.

Okay. Great. And then I guess can you give us any indication of where you see pricing both in terms of your own products. Given the tightness in the whole supply chain, it seems like, I know you’ve been pretty judicious about raising prices on your customers, but I was wondering what maybe competitors are doing and drop is seeing in terms of the input prices, those are going up and if you’re planning passing, it will go on to your customers.

Sure. I mean, yes, and we do see some input cost increases and yes, in terms of our own pricing that, yes, I mean, there is no formula in this area. And I mean there are several factors we consider and -- the relationship with customers and the strategic initiatives and we want to push and then a product mix, I mean capacity -- I mean, optimize revenue or margin for us. And that, I mean overall, we’ve selectively increased in some of ASPs. So we don’t want to gauge customers, so we overall -- we want to use this opportunity to deepening our relationship with key customers and then promote our new products.

Got it. Okay. And if I could just turn to some comments that Stephen you made on the graphics market that it seemed like there were large customer pulling some orders from the June quarter into the March quarter. And so things like that, can you help us square that with, it seems like everything is in shortage and particularly graphics cards, it’s -- everything is flying off the shelves. Can you help us understand a little bit what’s going on? Thanks.

Sure. It’s also to do with allocation also and finding ways to support our customers in their time of need. For graphics, we’re talking about something in power IC drive the most products. And yes, we have a need in the March quarter for more support. So we helped the customer out, but that was pulling in from the June quarter. We are expecting that to rebound as we go into the September quarter. But, overall, we are on allocation also to, now the same -- similar type of products, driver MOS products are also being sold into gaming and as well as Computing applications. So it’s been a challenge for us to choose and to figure out who to support, what is the best interest for us, what the best interest for the customer. So overall, you see that the overall power IC business has grown pretty tremendously year-over-year, but we do have to move things around from quarter to quarter to support the customers as well as support our strategic initiatives.

Great. Thanks, Stephen. And just last question regards and jump back in. We find in terms of the $100 million spend is the $25 million that you spent this quarter, is that part of the $100 million or is that in addition to the $25 million and also if you can give us a rough timeframe that when we expect that’s $100 million to be phased in?

Okay. Sure. On the $25 million CapEx and spend in the June quarter, that was including some down payment for this $100 million project, I mean we already placed order and then some of them required down payment. But the majority of it was not related to this $100 million project. So this $100 million project, that probably will spread out and -- throughout in this fiscal year 2022. So from now on, pretty much through the first half of calendar year 2022. So in order to get machines in -- get facilities up.

Great. Thank you.

Thank you.

Our next question comes from the line of Peter Vogel from JNK Securities. Your line is open.

Thanks for taking my question. I’d like to ask about the environment and understand, obviously things are tight, you’re taking deposits, but then you’re also trying to get more capacity. So how are you thinking about the potential for over-ordering because everybody seems to be jockeying for position right now. And so I would think that you guys are trying to scrub your books a little bit, make sure orders are real. Would love to just understand how you’re thinking about that conceptually, please?

Just on the...

Go ahead.

I will start and Stephen can certainly add on more. Certainly, when you look at the orders in the backlog, it is definitely much stronger and more than we can handle, and we don’t doubt that are double orders in there. But I’m -- there are reorders. So if we can supply, they will take them and the best thing for us to do is to do our homework. So we work very closely with our customers. Keep in mind that most of our design win revenue comes from design in our team, actually personally designing. So we have close contact with their procurement and we know what the actual needs are. We know what, when it goes above and beyond and when things were at normal. So we will question often, because we want to make sure that it goes to -- the supply into products that are really -- are actually being produced and not just not being quoted somewhere. So we are working in close partnership with our customers. This is a great opportunity for us to go closer to them, understand their need, understand of what’s going on and where to position us for in the future growth with these customers. So comes down…

Right. And to that, on the design and how much of your business is going through the distribution channel versus direct-to-customers and forgive me for not knowing this but the use of the channel, is that really just for fulfillment or is there some part of that, that is actually or used for sales as opposed to fulfillment?

Yes. I mean that -- this business right now, just for the two-third of our business or 70% range product. Peter, you are right, I mean this is for us, pretty much serve as a -- like a largest fulfillment purposes and then -- people, our engineers and sales people that they work directly with our key customers and so for designing, so basically we -- no matter is a channel business or direct business, we pretty much serve all of the key customers directly.

That’s helpful. And then maybe the last question, I know this is asked few times and you guys have done a good job of not answering it directly, but it’s a tight environment. You don’t have capacity. You’re on allocation. Mix is helping your margins and you’ve given out a $1 billion sales target. What would -- help us understand what will be the new operating model, gross margin, operating margin, that $1 billion in sales? And then how much of that is going to be due to a different mix that you can envision, versus just normal revenue and utilization rates?

Our longer term business model. Peter, we put out there, we should for $1 billion revenue in the 2024, 2025 timeframe for the gross margin, non-GAAP gross margin was targeting over 30% a year. Now what we put in all there, right now I would expect that we can maintain that gross margins in this current range. So our goal is to grow top line and drop down to bottom line EPS. So EPS implied -- our model would imply for $4 -- $5 EPS.

Thank you.

Thank you.

Thank you. There are no further questions on queue. I will now turn the call back to Yifan. Please go ahead.

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.

This concludes today’s conference call. Thank you for participating. You may now disconnect.