Alpha and Omega Semiconductor Limited — Form 10-Q Summary
Reporting period: Quarter ended December 31, 2011, the company’s fiscal second quarter, and six months ended December 31, 2011. Financial figures below are in U.S. dollars; amounts are in millions unless noted.
Financial performance
| Metric | Quarter | Six months |
|---|---|---|
| Revenue | $80.7, down 3.9% year over year | $164.2, down 5.3% |
| Gross profit / margin | $18.3 / 22.6%, versus $23.2 / 27.6% | $38.9 / 23.7%, versus $47.3 / 27.3% |
| Operating income / margin | $2.3 / 2.9%, versus $7.5 / 9.0% | $5.2 / 3.2%, versus $16.2 / 9.4% |
| Net income | $1.5, versus $8.7; diluted EPS $0.06 versus $0.36 | $3.6, versus $17.5; diluted EPS $0.14 versus $0.73 |
| Operating cash flow | $22.8 for six months, versus $23.2 | |
| Capital expenditures | $21.9 for six months, versus $20.7 |
Revenue from power discretes fell 6.0% for the quarter and power IC revenue fell 17.1%; packaging and testing services revenue rose $3.4 million. For the six months, the respective product declines were 9.0% and 20.1%, while packaging and testing services revenue increased $9.8 million. Management attributed weaker product revenue chiefly to lower average selling prices and softened computing and consumer demand, partly offset by higher unit shipments and services revenue.
Quarterly cost of goods sold increased 2.7% despite lower revenue; management cited lower factory utilization and higher raw-material prices. Research and development spending rose 22.7% for the quarter, principally from product prototyping and engineering to qualify the IDT facility. SG&A fell 13.4%. Prior-year results included APM equity income and a gain on the APM equity interest—$1.7 million combined in the quarter and $2.6 million for the six months—which did not recur after APM was acquired and consolidated in December 2010.
Financial position and liquidity
At December 31, cash and cash equivalents were $97.3 million, up from $86.7 million at June 30. Current assets were $182.3 million and current liabilities $61.4 million. Bank borrowings were $10.7 million, versus none at June 30; the revolving borrowings carried effective rates of 3.8%–4.3% during the six-month period. Total liabilities were $65.8 million and shareholders’ equity $265.9 million.
Operating cash flow was supported by lower receivables and inventory, partly offset by a $21.8 million reduction in accounts payable. Inventory declined to $46.1 million from $65.3 million. Cash used in investing was $22.0 million; financing provided $9.8 million, including $14.7 million of revolving-credit proceeds and $1.6 million used for share repurchases.
Outlook, developments and risks
No quantified revenue or earnings guidance is provided. Management said cash and operating cash flows should meet anticipated needs, including working capital and capital expenditures, for at least 12 months. It expects established-product selling prices to continue eroding and margins to fluctuate with product mix, utilization, input costs and economic conditions.
The company completed its $26 million acquisition of IDT’s Hillsboro, Oregon wafer-fabrication assets on January 31, 2012, after the reporting date; it had paid a $5 million deposit and paid the remaining $21 million at closing. Management expects a two-quarter initial ramp-up and an approximately 3-percentage-point gross-margin impact during that period, followed by gradual improvement as production ramps. Longer term, management expects the fab-lite strategy to support faster product development and lower manufacturing costs. The acquisition also brings integration, utilization, yield, quality, capital-spending and demand-forecast risks; the company expects to continue using third-party foundries.
Other notable exposures include substantial customer concentration: three customers represented 78.4% of quarterly revenue and 77.5% of six-month revenue. Gross unrecognized tax benefits were $6.6 million; tax authorities were examining returns, although management did not anticipate material changes to uncertain tax positions over the next 12 months. Purchase commitments were $23.0 million for materials, wafers and services, and capital commitments were $1.8 million. The company reported no material legal proceedings and said disclosure controls were effective.
Most important facts to verify
- Whether demand and pricing in the computing and consumer markets recover, and whether the three-customer concentration changes.
- Actual IDT facility ramp costs, the expected margin impact and whether production yields and utilization meet expectations.
- Post-acquisition cash, borrowing needs and capital spending, given the $21 million closing payment and ongoing commitments.
- Whether inventory reductions and working-capital movements are sustainable without constraining shipments.
- Developments in tax examinations and the $6.6 million of unrecognized tax benefits.