Business context and reporting period
Alpha and Omega Semiconductor Limited designs and supplies power semiconductors for computing, consumer electronics, communications and industrial applications. This unaudited Form 10-Q covers the fiscal second quarter and six months ended December 31, 2020, compared with the corresponding 2019 periods. Unless noted, amounts below are in U.S. dollars.
Financial results and liquidity
| Metric | Quarter ended Dec. 31, 2020 | Prior-year quarter | Six months ended Dec. 31, 2020 | Prior-year six months |
|---|---|---|---|---|
| Revenue | $158.8 million | $117.9 million | $310.4 million | $235.7 million |
| Gross profit / margin | $48.7 million / 30.7% | $24.4 million / 20.7% | $91.3 million / 29.4% | $51.3 million / 21.8% |
| Operating income (loss) | $13.6 million | $(3.4) million | $23.9 million | $(4.0) million |
| Net income attributable to AOS | $12.9 million | $(1.0) million | $22.5 million | $0.004 million |
| Diluted earnings per share | $0.47 | $(0.04) | $0.84 | $0.00 |
- Quarterly revenue rose 34.8% year over year; six-month revenue rose 31.7%. Management attributed growth to higher shipments and a more favorable product mix. Quarterly unit shipments increased 16.6% and average selling price increased 14.7%; for the six-month period, those increases were 27.7% and 2.8%, respectively.
- Power IC revenue grew 122.2% in the quarter and 108.8% for six months; power discrete revenue grew 19.3% and 17.6%, respectively.
- Operating cash flow was $45.9 million for six months, compared with $7.7 million a year earlier. Investing cash outflow was $24.6 million, mainly for property and equipment; financing cash outflow was $4.8 million. Cash, cash equivalents and restricted cash increased $20.6 million to $183.3 million.
- At December 31, cash and cash equivalents were $181.0 million; restricted cash was $2.4 million. Current assets were $361.3 million and current liabilities $211.5 million. Cash and cash equivalents include funds held by the consolidated joint venture; management says AOS does not have direct access to the JV’s borrowing proceeds.
- Short- and long-term debt, net of issuance costs, totaled $136.7 million, versus $129.9 million at June 30, 2020. Finance lease liabilities totaled $37.4 million. The JV’s debt is incurred by the JV and is not guaranteed or secured by AOS parent or other subsidiaries. AOS reported compliance with applicable financial covenants.
Material changes versus the prior comparable period
- Profitability improved substantially: quarterly gross margin increased 10.0 percentage points and six-month gross margin increased 7.6 points. Management cited JV ramp-up and lower JV production ramp costs; the Oregon fab operated at full capacity in the quarter.
- Operating expenses increased: quarterly R&D rose 27.0% and SG&A 26.3%; six-month R&D rose 22.8% and SG&A 20.9%. Higher compensation, engineering activity and legal costs contributed.
- Two customers each represented at least 10% of revenue: together they accounted for 64.8% of quarterly revenue and 63.4% of six-month revenue. The filing identifies them only as Customer A and Customer B.
- Accounts receivable rose to $24.9 million from $13.3 million at June 30, and inventories rose to $144.3 million from $135.5 million.
Outlook, commentary, risks and unusual items
- Management said existing cash and operating cash flows should cover anticipated needs, including working capital and capital expenditures, for at least the next 12 months. No specific revenue or earnings guidance is provided.
- The Chongqing JV had reached targeted assembly-and-test production and was ramping Phase I of its 12-inch wafer fab. Management’s goal was to reach Phase I target run rate in the quarter ending September 30, 2021; COVID-19, geopolitical tensions, logistics and other factors could delay that goal.
- COVID-19 shifted demand toward notebooks, PCs and gaming devices and away from mobile phones and industrial products. Management cautioned that PC demand could weaken as restrictions ease or consumer spending slows; the pandemic also disrupted operations and JV ramp activities.
- The DOJ investigation into export-control compliance concerning Huawei remained ongoing. At DOC’s request, AOS stopped Huawei shipments after December 31, 2019 and was seeking permission to resume them. The company could not estimate a potential loss or the investigation’s timing, outcome or penalties, and expected further professional costs.
- A putative securities class action concerning alleged misstatements, including about Huawei-related export controls, was pending; defendants had moved to dismiss. AOS said it considered the claims without merit and intended to defend them. Potential loss was not estimable.
- Other items: AOS recorded $3.6 million of government grants as reductions to operating expenses for the six months and $1.5 million as reductions to interest expense. Unrecognized tax benefits were approximately $7.2 million; $4.3 million could reduce future effective tax rates if recognized.
Important facts for investors to verify
- Whether elevated PC-related demand and the favorable product mix persist, and how customer concentration affects future orders.
- Progress toward the JV’s September 2021 Phase I run-rate goal, including capital needs, ramp costs and financing obligations.
- Developments in the DOJ/DOC Huawei matter and securities litigation, including potential costs, restrictions or financial exposure.
- Cash availability and location, given that a substantial portion of cash was held outside the United States and JV cash is not directly accessible to the parent.
- Working-capital trends, including receivables and inventory growth, and the effect of customer deposits and purchase and capital commitments.