Alpha and Omega Semiconductor Limited — Q1 FY2012 Form 10-Q
Reporting period: Three months ended September 30, 2011; comparative period is the three months ended September 30, 2010 unless otherwise noted. The company designs and supplies power semiconductors. Figures below are in U.S. dollars; financial statement amounts are in millions unless stated otherwise.
Financial performance
| Metric | Q1 FY2012 | Q1 FY2011 | Change |
|---|---|---|---|
| Revenue | $83.4 | $89.4 | Down 6.7% |
| Gross profit / margin | $20.6 / 24.7% | $24.1 / 27.0% | Margin down 2.3 percentage points |
| Operating expenses | $17.7 | $15.5 | Up 14.4% |
| Operating income / margin | $2.9 / 3.5% | $8.7 / 9.7% | Lower |
| Net income | $2.1 | $8.8 | Down 75.7% |
| Diluted EPS | $0.08 | $0.37 | Lower |
| Cash from operations | $11.9 | $18.3 | Lower |
| Capital expenditures | $12.6 | $11.6 | Higher |
Revenue declined as average selling prices fell 17.3%, primarily from product mix and pricing pressure amid softer computing and consumer demand; unit shipments rose 3.5%. Power discrete revenue fell 11.7% to $63.7 million and power IC revenue fell 22.9% to $13.3 million. Packaging and testing services contributed $6.4 million, compared with none in the year-earlier quarter, reflecting APM consolidation following its acquisition in December 2010.
Gross margin weakened because of lower factory utilization and selling-price erosion. R&D expense rose 34.1% to $8.4 million, chiefly from prototyping and engineering to qualify the planned IDT fabrication facility. The prior-year quarter included $0.9 million of equity-method income from APM, which did not recur. The effective tax rate was 26.5%, versus 7.9%, mainly due to a different geographic mix of earnings.
Financial position and liquidity
- Cash and cash equivalents were $88.4 million at September 30, 2011, versus $86.7 million at June 30, 2011. Operating cash flow was $11.9 million; investing used $12.7 million and financing provided $2.4 million, resulting in a $1.7 million net cash increase.
- Current assets were $172.7 million and current liabilities $55.0 million, implying working capital of $117.7 million and a current ratio of approximately 3.1x.
- Total liabilities were $59.3 million, including $4.0 million in bank borrowings and $0.3 million in capital leases. The borrowing was under a China subsidiary’s receivables-backed revolving facility, at a reported 3.6% effective rate; no bank borrowing was outstanding at June 30, 2011.
- Accounts receivable declined to $25.4 million from $42.5 million, and inventory to $53.3 million from $65.3 million. Management attributed the working-capital movements to fewer shipments and reduced production and inventory purchases; accounts payable also fell to $37.8 million from $64.7 million.
Material developments, outlook, and risks
- Management said global economic slowdown, particularly in computing and consumer markets, had adversely affected results since June 2011. Distributor forecasts and channel inventory changes can cause substantial quarterly revenue swings; established-product pricing is expected to continue eroding.
- The company planned to acquire certain assets of IDT’s 200mm wafer fabrication facility in Hillsboro, Oregon, for $26 million, including a previously paid $5 million prepayment credited toward the price. It expected to sign a definitive agreement by calendar year-end 2011 and close by January 2012. Management anticipated a two-to-three-quarter ramp-up and an initial gross-margin headwind of as much as 5%, with potential longer-term cost and product-development benefits. These were expectations, not completed results.
- Purchase commitments for materials, wafers, and packaging/testing services totaled $22.5 million; capital commitments were $2.7 million. The company reported no material off-balance-sheet arrangements and no material legal proceedings.
- Unrecognized tax benefits were approximately $6.6 million; management did not anticipate material changes in uncertain tax positions over the next 12 months. No specific revenue or earnings guidance was provided.
- Customer concentration was significant: Customer B accounted for 44.9% of quarterly revenue, Customer A 17.3%, and Customer C 14.4%. The filing identifies customers by letter, not name.
- Management stated that disclosure controls were effective and that there were no material changes in internal control over financial reporting. No material changes to previously disclosed risk factors or market risks were reported.
Important facts for investors to verify
- Progress, final terms, funding, and timing of the proposed IDT facility acquisition, including the expected ramp costs and margin impact.
- Whether demand, selling-price erosion, factory utilization, and distributor inventory trends improve or worsen, and their effect on gross margin and cash generation.
- Customer concentration and receivable exposure, including the shift in major receivable balances between June and September.
- Capital spending, purchase commitments, and the company’s ability to sustain liquidity while expanding manufacturing capacity and repurchasing shares.
- Resolution of tax examinations and the potential consequences of the approximately $6.6 million in unrecognized tax benefits.