Alpha and Omega Semiconductor Limited — Fiscal Q1 2014 Form 10-Q
Reporting period: Three months ended September 30, 2013; comparisons are with the three months ended September 30, 2012 unless otherwise noted. The company designs and supplies power semiconductors for computing, consumer electronics, communications and industrial applications. Financial statements are unaudited.
Financial performance
| Metric | Q1 FY2014 | Q1 FY2013 | Change |
|---|---|---|---|
| Revenue | $84.1 million | $95.8 million | Down 12.2% |
| Gross profit / margin | $17.2 million / 20.4% | $25.5 million / 26.7% | Profit down 32.8%; margin down 6.3 percentage points |
| Operating income / margin | $1.4 million / 1.7% | $9.8 million / 10.3% | Down 86.1% |
| Net income / diluted EPS | $0.3 million / $0.01 | $7.9 million / $0.31 | Net income down 96.1% |
| Operating cash flow | $6.7 million | $23.6 million | Down $16.9 million |
| Capital expenditures | $1.6 million | $10.2 million | Down $8.6 million |
Revenue from power discretes fell 13.7% to $65.1 million; power IC revenue fell 6.3% to $13.6 million; packaging and testing revenue fell 6.3% to $5.4 million. Management attributed the product revenue decline mainly to 4.0% lower unit shipments and 8.5% lower average selling prices.
Financial position and liquidity
- At September 30, 2013, cash and cash equivalents were $96.0 million, versus $92.4 million at June 30, 2013. Current assets were $211.3 million and current liabilities were $54.2 million.
- Total debt was approximately $16.0 million: $3.1 million short-term and $12.9 million long-term. The company also reported $1.1 million in current and long-term capital lease obligations. The $15.7 million term loan is due in May 2015 and secured by assets of two subsidiaries, including Oregon fab property.
- Net cash provided by operations was $6.7 million; investing activities used $1.4 million and financing activities used $1.7 million. Cash increased by $3.6 million during the quarter.
- Management said cash and operating cash flows were expected to cover anticipated needs, including working capital and capital expenditures, for at least the next 12 months. The company was in compliance with its debt covenants at quarter-end.
Material changes, outlook and risks
- Management attributed lower revenue and margins chiefly to continued weakness in PC-related demand, selling-price erosion and lower factory utilization. PC markets represented 45.2% of revenue, versus 53.4% a year earlier. The company is pursuing product and market diversification, while noting that faster PC-market declines or unsuccessful diversification could further hurt results.
- The effective tax rate rose to 76.5% from 18.6%, primarily because the geographic mix of earnings changed. The filing reports $7.6 million of gross unrecognized tax benefits and no anticipated material change in uncertain tax positions over the next 12 months.
- Customer concentration is substantial: three customers accounted for 20.6%, 44.3% and 11.8% of quarterly revenue, respectively. The filing identifies them only as Customers A, B and C.
- Management introduced 57 new products during the quarter and expects to continue investing in product development. It provided no specific revenue or earnings guidance. It noted ongoing risks from PC-market and economic conditions, manufacturing utilization and costs, average selling-price erosion, product compatibility, distributor ordering patterns and seasonality.
- Outstanding purchase commitments were approximately $18.9 million, down from $25.8 million at June 30; capital commitments were $1.9 million, up from $0.4 million. The company reported no material legal proceedings or material off-balance-sheet arrangements. A prior-period $7.7 million inventory valuation charge related primarily to product compatibility issues; management said that issue had been resolved, while cautioning similar issues could recur.
Important facts for investors to verify
- Whether PC-market weakness, lower selling prices and reduced factory utilization persist, and how they affect gross margin.
- Whether diversification and new-product introductions offset declining PC-related demand.
- The scale and terms of revenue exposure to the three major customers and the changing receivables concentration.
- The drivers and sustainability of the unusually high effective tax rate, including potential outcomes of open tax examinations.
- Debt repayment, covenant compliance, purchase commitments and the company’s liquidity assumptions for the next 12 months.