ALPHA & OMEGA SEMICONDUCTOR Ltd (AOSL) Q3 2026 Earnings Call Transcript

Hello, everyone. Thank you for joining us, and welcome to the Alpha and Omega Semiconductor Fiscal Q3 2026 Earnings Call. I will now hand the call over to Steven Pelayo, Investor Relations. Please go ahead.

Good afternoon, everyone, and welcome to Alpha and Omega Semiconductor's conference call to discuss fiscal 2026 third quarter financial results. I'm Steven Pelayo, Investor Relations representative for AOS. With me today are Stephen Chang, our CEO, 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 today. Stephen will begin with business updates, including strategic highlights and a detailed segment report. After that, Yifan will review the financial results and provide guidance for the June quarter. Finally, we will have a Q&A session. The earnings release was distributed after the market closed today, May 6, 2026, and the release is also posted on the company's website. Our earnings release and this presentation include 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 GAAP measures. 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. For a more detailed description of these risks and uncertainties, please refer to our recent and subsequent filings with the SEC. We assume no obligation to update the information provided in today's call. Now I'll turn the call over to our CEO, Stephen Chang. Stephen?

Thank you, Steven. Welcome to Alpha and Omega Semiconductor's fiscal 2026 Q3 Earnings Call. I will begin with a high-level overview of our results and then jump into segment details. We delivered fiscal Q3 revenue results slightly above the midpoint of our guidance, primarily reflecting strength in advanced computing, including AI, servers, and graphics cards, offset by softness in PC markets resulting from seasonality and memory shortage headwinds. Tablets also showed strong sequential growth. The Communications segment was also better than expected, driven by year-over-year growth from our Tier 1 U.S. smartphone customers, offset by weaker demand in China. Overall, total March quarter revenue was $163.8 million, down 0.5% year-over-year and up 0.9% sequentially. Non-GAAP gross margin was 21.7%. Non-GAAP EPS was a loss of $0.28 per share. Our strategy remains consistent, and we are executing well. As we have said, we believe the December and March quarters represent a bottom for both revenue and gross margin, reflecting the impact of near-term market conditions and supporting a more constructive outlook going forward. March marks the third anniversary of my journey as CEO of AOS. When I stepped into this role in 2023, my goal was to steer our organization from a component-level supplier towards becoming a provider of application-specific total solutions, a move designed to push us past a $1 billion milestone towards a multibillion-dollar future. At that time, we were just scratching the surface of potential opportunities in front of us. Today, those opportunities have moved to the center of our business. Over the past three years, we have successfully pivoted to higher-performance applications where we can expand BOM content and build durable competitive advantages. This strategy is translating into tangible results, particularly in advanced computing, where demand is broadening across AI data center applications. Specifically, we are gaining traction in high-performance medium-voltage MOSFETs used in hot-swap applications and intermediate bus converters with increasing customer engagement and design activity expected to accelerate and contribute more meaningfully as we progress through calendar 2026. We are actively expanding our medium-voltage capacity to support this growth, and our backlog provides us with good visibility. At the same time, we are seeing a broadening of both our solution set and customer base, extending beyond traditional GPU-centric platforms into a wider range of cloud and infrastructure deployments. This reinforces our confidence that advanced computing is becoming a more durable and increasingly important growth driver for the company. As is broadly reported, memory supply constraints and price pressures represent growing headwinds for the second half of calendar 2026. Against this backdrop, we are using three primary levers to protect our growth: steady margin expansion through improved product mix and further increases in BOM content, where our total solutions approach is enabling us to capture more value as seen in transitions to next-generation PC platforms such as Intel's Panther Lake and higher charging current requirements in smartphones; continued disciplined investment to support the opportunities ahead. We have stepped up our targeted R&D investments in areas where we are already seeing success, including power ICs, high-performance MOSFETs for AI and data center applications, and advanced solutions for smartphones. These investments are highly focused and aligned with clear customer road maps and design wins. While calendar 2026 may reflect some near-term variability, we are confident that the combination of expanding advanced computing opportunities, increased BOM content across key end markets, and our continued execution will position us well for stronger growth as we exit 2026 and accelerate into 2027 and beyond. With that, let me now cover our segment results and provide some guidance by segment for the next quarter. Starting with Computing. March quarter revenue was up 2.1% year-over-year and down 0.1% sequentially and represented 49.1% of total revenue. The segment results were slightly better than our original guidance of a low single-digit sequential decline. As I mentioned earlier, seasonal declines in PC markets were likely exacerbated by earlier pull-ins in calendar 2025 and potential demand impacts from rising memory pricing. Strength in advanced computing, including AI servers and graphics cards, more than offset such decline and combined more than doubled sequentially and increased more than 40% year-over-year. The strong growth resulted in advanced computing representing 25% of the computing segment in the March quarter. As mentioned before, we are seeing solid demand for our medium-voltage MOSFETs across an expanding list of applications and a customer base that includes power supply providers, module makers, cloud service providers, and major hyperscalers. We are shipping our high-performance MOSFET products into applications, including intermediate bus converters that are now moving into the build phase at some leading ODMs for major hyperscale customers. Looking ahead to the June quarter, we expect computing segment revenue to increase by low to mid-single digits sequentially, driven by strong AI and server demand in advanced computing. While PC-related revenue is largely stable, tablets declined mostly due to seasonality as well as increased capacity allocation to opportunities in smartphones. We acknowledge that industry forecasts for the PC market continue to be revised lower, and we generally agree with that view, expecting some decline in calendar 2026. That said, we believe our performance should outpace the broader market, supported by continued increases in BOM content driven by our total solution strategy. Near-term PC demand appears stable for the June quarter, but visibility into the second half of the calendar year remains limited given ongoing macro and component-related uncertainties. In advanced computing, we continue to see strong momentum with demand increasingly centered on our medium-voltage solutions supporting server and AI infrastructure. Importantly, we are seeing a broadening of both our customer base and application footprint with growing engagement across multiple platforms. These solutions are being deployed across both GPU and CPU-based architectures and are benefiting from the ongoing shift towards inference workloads, which are driving higher and more distributed power requirements. While we continue to view 48-volt to 12-volt intermediate bus architectures as a near-term standard that we are benefiting from today, we see this as a stepping stone towards higher voltage systems, including 800-volt architectures expected to begin emerging around 2027. In graphics, we expect a more muted environment in calendar 2026, given the current product cycle and allocation priorities, with the next major refresh opportunity tied to future platform transitions. Overall, we expect another quarter of strong sequential growth for advanced computing. Turning to the Consumer segment. March quarter revenue was down 9.8% year-over-year and up 0.8% sequentially and represented 11.8% of total revenue. The results were below expectations for mid-single-digit sequential growth as recovery in gaming following a sharp inventory correction in the December quarter was offset by softness in home appliances. On a year-on-year basis, wearables continued to see strong year-on-year growth, driven by market share gains, new customer engagements, rising BOM content, and a broader mix of end applications. For the June quarter, we expect the Consumer segment revenue to remain relatively flat sequentially. In gaming, demand is tracking in line with our expectations as the current console cycle matures. While near-term production levels reflect seasonality as well, we remain closely engaged with our leading customer on their next-generation platform. We believe our established relationship and strength in high-performance power solutions position us well to participate more meaningfully as that platform ramps, with a greater impact expected beginning in 2028. Home appliance demand remains relatively soft and continues to reflect a cautious consumer demand environment with limited signs of near-term recovery. That said, we continue to see ongoing design activity that supports longer-term opportunities, particularly in emerging markets. Wearables are progressing through their typical seasonal patterns following recent strength, and we continue to benefit from solid customer engagement and a broadening mix of applications. Next, let's discuss the Communications segment. March quarter revenue was up 18.7% year-over-year and up 1.9% sequentially and represented 20.6% of total revenue. The results were ahead of our expectations for a mid-single-digit decline, driven by strong year-over-year growth from our Tier 1 smartphone customer and BOM content expansion, offset by softness in China due to a weaker market and our prioritization towards premium models in the U.S. Looking ahead to the June quarter, we expect the Communications segment to decline slightly sequentially, but sustain the high year-over-year growth experienced in the March quarter as demand from our Tier 1 U.S. smartphone customers remains robust. As mentioned, we are prioritizing capacity for our Tier 1 U.S. smartphone customers in order to prepare for upcoming product cycles. We continue to benefit from strong positioning in premium models where our differentiated silicon and packaging technologies for battery protection are enabling higher BOM content. In particular, increasing charging currents across new smartphone platforms are driving incremental content opportunities, reinforcing our ability to capture greater value per device. At the same time, we remain mindful that rising memory pricing could impact overall smartphone demand, particularly in more price-sensitive segments and regions. However, we believe premium-tier demand will be more resilient, and our strategic focus on higher-end platforms positions us well to navigate this environment. As a result, we expect continued growth in calendar 2026, driven by both content expansion and continued engagement with leading global smartphone customers. Now let's talk about our last segment, Power Supply and Industrial, which accounted for 17.4% of total revenue and was down 13.1% year-over-year and up 5.3% sequentially. Overall, the results were in line with expectations for mid-single-digit sequential growth as sequential growth in quick chargers and DC fans more than offset continued sluggishness, both sequentially and year-on-year, in solar, power tools, and e-mobility. Looking ahead to the June quarter, we expect Power Supply and Industrial revenue to increase mid-single digits on a sequential basis, primarily driven by momentum in e-mobility, particularly in the Indian market, where we have built a solid backlog heading into the quarter. DC fans also remain an area of strength, benefiting from continued demand tied to data center and AI infrastructure build-outs. Lastly, power tools are also forecast to increase modestly in the June quarter. However, overall tool demand remains subdued. In closing, as we move into the June quarter, we expect a return to sequential growth, along with margin expansion, supported by improving product mix and a greater contribution from higher-value applications, particularly within advanced computing. We are seeing encouraging signs of traction in areas such as AI infrastructure, where demand is broadening across a wider set of applications and customers, and where our solutions are gaining adoption in both GPU and CPU-based platforms. This momentum, combined with increasing BOM content across key end markets, positions us well as we enter the second half of the year, even as overall visibility remains somewhat limited. At the same time, we are executing consistently against the strategy we have outlined. Our focus on becoming a provider of application-specific total solutions is enabling us to expand both our product portfolio and our customer reach. We are seeing tangible progress in advanced computing, where our medium-voltage and power IC solutions are addressing a growing range of use cases and where our customer base continues to broaden across hyperscalers, cloud service providers, and platform partners. In parallel, we continue to benefit from structural drivers such as rising power requirements and increasing charging currents, which are driving higher BOM content in both computing and smartphone applications. Looking across calendar 2026, we expect a dynamic environment with some uncertainty in consumer-related demand, particularly given the impact of memory pricing on end markets such as PCs and smartphones. However, we believe these pressures will be partially offset by our increasing exposure to higher performance, less price-sensitive segments, and our ability to capture greater value per system through our total solutions approach. Importantly, we are investing with discipline to support these opportunities with targeted R&D focused on areas where we have clear differentiation, strong customer alignment, and a path to sustainable margin expansion. As we look beyond 2026 and into 2027, we expect the benefits of these investments and design wins to become more pronounced as new programs ramp into production. The combination of expanding participation in advanced computing, increasing BOM content, and a broader and more diversified customer base is expected to drive stronger growth and improved profitability over time. With that, I will now turn the call over to Yifan for a discussion of our fiscal third-quarter financial results and our outlook for the next quarter. Yifan?

Thank you, Stephen. Good afternoon, everyone, and thank you for joining us. Revenue for the March quarter was $163.8 million, up 0.9% sequentially and down 0.5% year-over-year. In terms of product mix, DMOS revenue was $115.1 million, up 13.9% sequentially and up 7.7% over last year. Power IC revenue was $46.9 million, down 20.3% from the prior quarter and down 14.1% from a year ago. Assembly service and other revenue were $1.8 million as compared to $2.5 million last quarter and $0.4 million for the same quarter last year. Non-GAAP gross margin was 21.7% compared to 22.2% last quarter and 22.5% a year ago. The quarter-over-quarter decrease was mainly impacted by lower utilization and higher operational costs. Non-GAAP operating expenses were $44.3 million compared to $41.3 million for the prior quarter and $39.7 million last year. The quarter-over-quarter increase was mainly due to higher R&D expenses. Non-GAAP quarterly EPS was a loss of $0.28 compared to a loss of $0.16 per share last quarter and a loss of $0.10 per share a year ago. Moving on to cash flow. Operating cash flow was negative $8.3 million compared to negative $8.1 million in the prior quarter and positive $7.4 million last year. In the March quarter, working capital fluctuated by $14 million. EBITDA, excluding equity method investment income and loss, was $5.9 million for the quarter compared to $9.7 million last quarter and $14.7 million for the same quarter a year ago. Now, let me turn to our balance sheet. We completed the March quarter with a cash balance of $190.3 million compared to $196.3 million at the end of last quarter. In the March quarter, we repurchased 214,000 shares for $4.2 million under our share buyback program. We also repurchased 292,000 shares of employee restricted stock units vested during the quarter for $6.2 million. Net trade receivables increased by $9.3 million sequentially. Days' sales outstanding were 20 days for the quarter compared to 25 days for the prior quarter. Net inventory decreased by $1.1 million quarter-over-quarter. Average days in inventory were 139 days for the quarter compared to 140 days for the prior quarter. CapEx for the quarter was $12.1 million compared to $15 million for the prior quarter. We expect CapEx for the June quarter to range from $15 million to $17 million. With that, now I would like to discuss the June quarter guidance. We expect revenue to be approximately $168 million, plus or minus $10 million. GAAP gross margin to be 22.3%, plus or minus 1%. We anticipate non-GAAP gross margin to be 23%, plus or minus 1%. GAAP operating expenses to be $52 million, plus or minus $1 million. Non-GAAP operating expenses are expected to be $45.5 million, plus or minus $1 million. Interest income is expected to be $1 million higher than interest expense, and income tax expense to be in the range of $1 million to $1.2 million. With that, we will now open the call for questions. Operator, please start the Q&A session.

Your first question comes from the line of David Williams with Needham.

Congrats on the really solid progress there in the advanced computing side. Maybe first, just thinking about the gross margin. We bottomed here in this quarter, it seems like maybe record computing or advanced computing revenue. And my suspicion would be that you would have maybe a little more IC and maybe higher value products going into that segment. So how do you kind of square where the gross margin sits and how we should think about maybe that gross margin in terms of the data center or these AI opportunities for you?

Thanks, David, for the question. Yes, we are driving margin improvement through our advanced solutions. And those advanced solutions can come in the form of both MOSFETs and ICs. Right now, we are seeing some of our medium-voltage MOSFETs actually gaining traction. This is going into applications such as hot-swap, as well as intermediate bus conversion that go into various data center types and server-type applications. The margin here actually is quite decent, and many of these medium-voltage MOSFETs can actually be higher than some of our power IC products, too. So we are happy to see the contribution of these high-performance MOSFETs contributing as part of the margin improvement.

And then, as you kind of think about the growth opportunity within that segment specifically, you said it's about 25% of computing revenues today. Where do you think that could grow to? And what would be a good mix that you would be targeting, perhaps, in that segment? And potentially, when could you split that out and call it its own segment?

Yes, it's a good question. It is becoming a sizable portion of our computing segment. It is something that, when we look at advanced computing, just as a reminder, it includes AI, it includes servers, as well as graphics. The reason we group those together is that the solution set for those ends up being quite similar. There's quite a bit of synergy when it comes to the products and the technology, as well as the end markets and applications that we serve. So yes, we're happy to see it jump to becoming 25% of computing. This was faster than our original expectations for this because, again, of the traction that we're seeing with our medium-voltage devices. We do expect that this will continue to grow in the June quarter and in the coming quarters. This is something that we have been investing in as a company. Some of the R&D that we've been investing in, as we talked about in the previous quarter, is going into these markets. So it's for all types of high-performance solutions for AI, including these medium-voltage devices.

And maybe one more, if I may. Just thinking about the capacity, you talked about expanding that for the medium-voltage side. Can you talk, maybe about where you're putting that capacity in? Is that in your domestic facility? Or is that in your third party you're building out there on that capacity?

It's a little bit of both. We do use a mix of both internal and external. So we are investing internally, and for some of the packages that are being done internally, as well as working on expanding other options for diversifying our supply chain. So it's both.

Your next question comes from the line of Tore Svanberg with Stifel.

This is Tore Svanberg on for Tore Svanberg. Regarding the memory supply constraint you previously cited, are you seeing Tier 1 customers in PC and smartphone segments trimming a bit of the build forecast for the second half of the year in anticipation of these rising costs? Or is the headwind primarily a risk to end consumer price sensitivity? And any color on how you see this memory situation play out throughout the year, and any strategies on offsetting the situation would be great.

Sure. For us, when we say consumer-facing, we're talking mainly about PCs and smartphones. Those are the biggest impacts for us. On the PC side, they are seeing the impact of memory shortages. For now, we're seeing some of our customers trying to build out sooner just to get products out. But from market reports as well as speaking to our customers, there's a lot of uncertainty about the second half and where the PC forecast will go. So we've also had similar views on this, and that's reflected in our outlook. Our path on the PC side is still focused on how to grow share and to grow our BOM content in that application. On the smartphone side, our business tends to be more on the premium phone side. At the high end, we anticipate it will be a little more resilient to memory shortages. We are prioritizing capacity toward makers of those premium phones. We still expect to grow our business in smartphones, mainly because those premium designs are increasing charging currents. We are seeing BOM content increase because we are introducing new products to serve those sockets with higher ASPs that can help make up for challenges in lower-end smartphone markets.

As a follow-up, for next quarter, you're guiding a bit of a sequential gross margin recovery in the June quarter. And given that March utilization was a tiny bit of a headwind, how much of this sequential improvement is driven by maybe an uptick in loading versus an improvement in product mix, perhaps from higher performance applications?

Sure. Yes, we guided the June quarter margin quarter-over-quarter for about a 130 basis point improvement. I would say roughly half of it is anticipated to be utilization improvement, and the other half is from our improved product mix.

Your next question comes from the line of David Williams with Needham.

Just want to ask, maybe on the pricing side. I know a few of your peers or competitors are certainly pressing pricing on MOSFETs and resetting those prices. Just wondering what you're seeing in the marketplace and what your opportunity set is to reprice? And are you getting the benefit of maybe some more favorable tailwinds there?

Sure. In the March quarter, we saw a slower ASP erosion than in the December quarter. It looks like the pricing environment is improving. So that's definitely a positive. However, we count more on product mix improvement and our new product development to capture more high-performance and high-value sockets. Those will probably contribute more to our margin improvement.

And maybe just the last one for me. Stephen, if you think about the progress you've made, you've clearly made a lot of progress in this total solutions approach and even in driving these higher value, higher-margin products. Where do you think you are along that road map? Are you where you thought you would be? Are you maybe better or maybe not as far along? And if we look back in a year from now, how do you think we'll see that success having played out?

Sure. It can never be fast enough; I'm always eager to see results. This is why we are investing to accelerate that transition. There is a clear difference in the types of products we are shipping now compared to a few years ago. That's also reflected in our customer base, the type of applications we pursue, and the Tier 1 customers we are serving. We are building better traction with these customers because of higher performance and differentiation. The application-specific approach is working. We are investing to accelerate it. This is part of our path to the $1 billion milestone, and it's worth investing in to see the results.

Your next question comes from Craig Ellis from B. Riley Securities.

I did miss the prepared remarks, so excuse me if you covered this, but I wanted to understand some of the strength that you saw in the compute segment. It seemed like there was acceleration in the compute supply chain quarter-to-date, similar to the smartphone supply chain about where we were last year in 1Q and early 2Q. To what extent was that at play in the results? And what do you think it means for the year's linearity, first half versus second half calendar?

If we're talking about computing, we should discuss the subcomponents. The PC portion saw a correction this quarter compared to last quarter, mainly because of memory challenges. But the growth area is in advanced computing, which includes AI, servers, and graphics. In particular, our medium-voltage solutions for AI used in hot-swap applications and intermediate bus conversion are starting to take off and began ramping in the March quarter. As we commented in the prepared remarks, advanced computing represented about 25% of the computing segment, which is exciting. We expect this momentum to continue into the coming quarters as we scale the business and expand capacity to support growth.

Congratulations on the mix shift, Stephen, but that also would imply a pretty steep falloff in either the traditional compute business or the gaming card business in the quarter if mid-voltage surged. Can you speak to what happened elsewhere in the segment and how it all netted out, given the significant rise in mid-voltage, hot-swap, and other things?

Sure. The standard PC industry is undergoing challenges due to memory shortages and seasonality. We did see some correction this quarter. The graphics card business actually grew a little from last quarter, but it is not as robust as a year ago when certain graphics card launches initially occurred. We expect graphics to face procurement challenges for both memory and GPUs which can limit shipments. Overall, our share remains strong and it's still a core part of our business. We are pleased that the advanced computing portion of the business can offset drops in the PC side and some slowdown in graphics.

And just to understand the dynamics in the advanced computing side, can you speak to the OEM diversity that you have within that business? To what extent is it more GPU-related systems versus x86 systems seeing a resurgence with rising agentic workloads?

We're happy our solutions are going into a more diversified customer base. These go into data center server makers as well as cloud service providers. The solution today generally serves the 48-volt to 12-volt conversion architecture, which is common across many servers and general server applications. Our solutions can be used in many of those applications, across both GPU- and CPU-based platforms.

So traditional server applications. Got it. And then just moving on to gross margin dynamics. One of the things we're starting to hear from companies is that rising input costs are putting pressure on packaging and chip costs. As we think through the course of the year, and this is more of a question for you, Yifan, how do we think about the give and takes between what could be rising chip costs and your ability to either offset those or pass those through, and then the potential for volume to benefit overhead absorption?

Sure. The March quarter ASP erosion was a little better compared to the December quarter, so the pricing environment is improving, which is welcome. We are monitoring the market and managing our own pricing and product mix. We are focused on growing new products into high-performance, high-value sockets to improve gross margin. We are also managing costs and digesting some input cost increases while balancing pricing actions. These factors are reflected in our guidance for the June quarter.

So, Yifan, it's not clear to me if you're seeing rising input costs and to what extent. Can you speak to that point specifically and the degree to which that's something you're able to mitigate with cost pass-throughs, or if that's something we should be aware of as we think about COGS impacts later this year?

Yes. We are seeing some increases in input costs, including material costs and some foundry and subcontractor prices. We are managing product mix and pricing to mitigate these impacts. The increases in input costs and the pricing environment are already reflected in our guidance for the June quarter.

There are no further questions at this time. I will now hand the call over to Steven Pelayo for closing remarks.

Thank you. Before we conclude, I'd like to highlight a few upcoming investor events. The management team will be participating in the B. Riley Securities 27th Annual Institutional Investor Conference on May 20 in Marina Del Rey, California; the Stifel 2026 Boston Cross Sector One-on-one Conference on June 3 in Boston, Massachusetts; and the Jefferies Semiconductor IT Hardware and Communications Technology Conference on August 26 in Chicago. If you wish to request a meeting, please contact the institutional sales representative at the sponsoring bank. With that, this concludes our earnings call today. Thank you for your interest in AOS, and we look forward to speaking with you again next quarter.

This concludes today's call. You may now disconnect.