Title

Presentation

Operator: Ladies and gentlemen, hello. And welcome to the Alpha and Omega Semiconductor Fiscal Q3 2023 Earnings Call. My name is Maxine, and I will be coordinating today’s call. I will now hand you over to Yujia Zhai of The Blueshirt Group to begin. Yujia, please go ahead when you are ready.

Yujia Zhai: Good afternoon, everyone. And welcome to Alpha and Omega Semiconductor’s conference call to discuss fiscal 2023 third quarter financial results. 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 and can be found in the Investor Relations section of our website. Today’s call will proceed as follows. Stephen will begin with business updates, provide 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 the Q&A session. The earnings release was distributed over the wire today, May 4, 2023, after the market close.

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 the GAAP measures. A reconciliation of these non-GAAP measures to the 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 obligations to update the information provided in today’s call. With that, I will now turn the call over to our CEO, Stephen Chang. Stephen?

Stephen Chang: Thank you, Yujia, and good afternoon, everyone. I will begin today with a high level overview of our results and then jump into segment details. Our fiscal Q3 results were near the high end of our revenue and gross margin guidance. Revenue was $132.6 million, non-GAAP gross margin was 25.1% and non-GAAP EPS was negative $0.21. As we indicated last quarter, our performance this quarter reflects our effort to bring customer inventory levels back into balance as quickly as possible in response to the sharp industry-wide inventory correction, particularly in PC and smartphones. As for the broader market environment, end consumer demand continues to be weak. However, we are optimistic that the worst is behind us, given the intensity of the inventory correction, coupled with our proactive measures.

Looking into the rest of the year, we expect to recover a good portion of the revenue decline in the upcoming June quarter, with further improvement expected in our seasonally strongest September quarter. In terms of our operations, our near-term focus is continuing to work with our customers through the inventory correction and preparing for peak season. We are looking forward to the upcoming fall flagship phone launches, and the holidays, all of which are big opportunities for us, given our leading share with the leading OEMs in each of these end markets. As I look to the long-term, as the newly appointed CEO of AOS, I am positioning the company towards growth beyond our near-term $1 billion revenue target. Over the years, AOS has grown to be a major global power semiconductor supplier to Tier 1 players across PCs, Graphics, Gaming, Smartphones, Appliances and Power Tools to name a few.

However, we are just scratching the surface of potential opportunities in front of us. In the coming decade, the Electrification of Everything trend is set to accelerate and will shape our lives in profound ways. Growing concerns over climate change and the need to reduce dependence on fossil fuels will continue to drive the transition towards electric vehicles and clean energy. Advancement in generative AI will drive exponentially higher demand for high performance computing data centers and spur advancements in robotics. Rapid progress in battery technology will likely usher in a growing array of higher voltage portable electronics, similar to recent developments in Power Tools. Moreover, continued advancements in IoT and high performance computing will pave the way for widespread adoption of new cutting-edge products such as smart devices for the home and work.

All of these new use cases will drive more demand for power management solutions and significantly expand the market opportunity from the $50 billion TAM today. Power semiconductors have become an essential part of our daily lives in our homes, in our workplaces, and in our communities. AOS’ comprehensive range of products, which covers a wide voltage spectrum, positions us at the epicenter of this monumental trend that is set to transform every facet of our lives and the industries we know today. I am determined to drive AOS towards even greater success and capitalize on this exciting future, and have my sights set on AOS becoming a multi-billion-dollar business by the end of this decade. We plan to take our products deeper into our existing core markets like PCs and Smartphones with more integrated solutions and drive higher BOM content.

We will leverage our core technology IP and strengths in advanced computing, battery, motor and power supply, and continue to invest R&D in new adjacent markets like datacenters for AI, automotive and energy generation. Our supply chain strategy is another key piece of that puzzle that is critical to us reaching new heights over the coming decade. As we look towards our future, we remain committed to optimizing our supply chain strategy. We understand that diversification is key to maintaining reliability of supply and that’s why we are exploring additional foundry partnerships in new geographical locations to expand our production capabilities. Further, we will continue to balance between internal manufacturing and third-party foundries to ensure a more robust supply chain that delivers top-notch products to our customers.

Our success in attaining a record number of Tier 1 customers is no coincidence. It is a direct result of our unwavering focus on providing products that are both compelling and reliable, backed by unparalleled customer service and engineering support. We strive to solve our customer’s power problems with a user-friendly system approach by providing a total solution. As CEO, I will continue to make sure this commitment to excellence remains one of our core values and constantly strives to exceed our customer’s expectations with every product and service we deliver. Lastly, our talented and dedicated employees are who make this success possible. As we build upon our strong foundation and momentum, I will continue to foster a work environment and culture in which our employees can fully unleash their talents with respect and care.

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 down 57.7% year-over-year and 40.4% sequentially and represented 28.7% of total revenue. These results were driven by lower shipments across all Computing applications, magnified by March quarter being our seasonally weakest quarter. However, we believe inventory at some of our customers has been depleting and we are seeing a resumption of orders for the June quarter. Our current visibility sees encouraging demand recovery in some applications. For the June quarter, we expect total Computing segment revenue to be up about 40% sequentially. Turning to the Consumer segment, March quarter revenue was up slightly year-over-year and decreased 5.5% sequentially and represented 33.6% of total revenue.

These results were in line with our expectations driven by strong Gaming volumes, which grew 68.2% year-over-year and decreased 11.3% sequentially. In addition, we saw a 30% sequential recovery from both home appliances and e-mobility, which includes e-bikes and e-scooters, another application that AOS is addressing with our medium voltage solutions for motor and battery management. Looking ahead, we anticipate our Consumer segment revenue to be flattish or slightly drop sequentially. Next, let’s discuss the Communications segment, revenue in the March quarter experienced a considerable decline of 33.7% year-over-year and 45.4% sequentially, making up only 14.5% of total revenue. The drop in revenue was primarily attributable to weak consumer demand and the ongoing inventory correction in smartphones across all regions.

The correction seems to be taking longer than we initially expected, which will cause this segment to remain weak and we currently expect single-digit percentage decline in the June quarter. Despite these challenges, we remain optimistic about a rebound in the second half of the year in our seasonally strongest quarters for the fall launches and ahead of holiday sales. Now, let’s talk about our last segment, Power Supply and Industrial, which accounted for 20% of total revenue. March quarter revenue decreased 29.6% year-over-year and 35.7% sequentially. The performance by applications in this segment was mixed. PC power supplies and quick chargers for smartphones were weak, consistent with the declining trend in PC and smartphone sales, but Power Tools exhibited positive signs of recovery, growing 65% sequentially.

For the June quarter, we anticipate this segment will rebound with about 50% sequential growth, primarily driven by increased demand by our Tier 1 U.S. smartphone customer and China’s high end quick charger demand. Additionally, we anticipate continued strength in the Power Tools category. In closing, as we stated last quarter, our business is affected by the economic environment and industry cycles. But given our strong fundamentals, leading technology, more diversified product portfolio, Tier 1 customer base in all our business segments, expanding manufacturing capability and supply chain and robust balance sheet, we are in the best position we have ever been to continue our growth momentum once this downturn is past us. Moreover, the encouraging data from our backlog and constructive conversations with our customers leads us to believe that the March quarter was the bottom and that the worst is now behind us.

As such, we are optimistic about the future and look towards executing on the opportunities ahead of us. 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 Liang: Thank you, Stephen. Good afternoon, everyone, and thank you for joining us. Revenue for the quarter was $132.6 million, down 29.8% sequentially and 34.8% year-over-year, reflecting the current industry-wide inventory correction. In terms of product mix, DMOS revenue was $81 million, down 41.2% sequentially and 42.2% over last year. Power IC revenue was $47.4 million, down 5.1% from the prior quarter and 22.1% from a year ago. Assembly service revenue was $0.6 million, as compared to $1.2 million last quarter and $2.3 million for the same quarter last year. License and engineering service revenue was $3.6 million for the quarter. In February 2023, we entered into a license and engineering service agreement with a leading power semiconductor automotive supplier related to our Silicon Carbide technology for a total amount of $45 million.

This contract further validates the technical leadership of our Silicon Carbide technology. In the agreement, besides the license, we will also provide product development and engineering services over the next 24 months. The revenue related to this agreement is recognized over the contract period. Non-GAAP gross margin was 25.1%, compared to 29.5% in the prior quarter and 36.7% a year ago. The quarter-over-quarter decrease in non-GAAP gross margin was mainly driven by less favorable mix and lower manufacturing efficiency. Non-GAAP operating expenses were $36.2 million, compared to $32.8 million for the prior quarter and $34 million last year. The quarter-over-quarter increase was primarily due to last quarter’s reversal true-up in variable compensation accruals.

Non-GAAP tax expense was $2.5 million versus $1.5 million last quarter and $2.2 million in the prior year. The quarter-over-quarter increase was due to the withholding tax on the $18 million payment received under the Silicon Carbide license agreement mentioned previously. Non-GAAP quarterly EPS was negative $0.21, compared to $0.67 last quarter and $1.34 a year ago. Moving on to cash flow. Operating cash flow was $11.6 million, which included $18 million first tranche payment received from our licensing deal and $8.9 million repayments of customer deposits. By comparison, operating cash flow in the prior quarter was $0.3 million, which included $12.2 million net repayments of customer deposits. Operating cash flow a year ago was $61.8 million, which included $6.4 million net customer deposits.

We expect to refund around a total of $30 million customer deposits in calendar year 2023. Consolidated EBITDAS was $6.5 million, compared to $31.8 million last quarter and $48.4 million last year. During the quarter, we repurchased 107,000 shares of our stock for $2.7 million through our existing share repurchase program that was previously approved by the Board. We also purchased 217,000 shares of employee restricted stock units vested during the quarter by paying $5.5 million withholding tax on behalf of employees. Now let me turn to our balance sheet. We completed the March quarter with a cash balance of $265.9 million, compared to $287.8 million at the end of last quarter. The cash balance a year ago was $323.1 million. Net trade receivables were reduced to $19.4 million, compared to $53.2 million at the end of the prior quarter.

Days sales outstanding were 30 days for both this and the prior quarter. Net inventory was $179.8 million at quarter end, compared to $163.8 million at the end of the prior quarter and $143.5 million last year. Average days in inventory were 152 days, compared to 109 days in the prior quarter. We expect average days in inventory to improve along with our revenue recovery. CapEx for the quarter was $22.7 million. We expect CapEx for the June quarter to range from $15 million to $20 million. Our Oregon fab expansion is complete and started ramping in March 2023. Now, I would like to discuss June quarter guidance. We expect revenue to be approximately $160 million plus or minus $5 million. GAAP gross margin to be 24% plus or minus 1%. We anticipate non-GAAP gross margin to be 25.8% plus or minus 1%.

GAAP operating expenses to be in the range of $45.5 million plus or minus $1 million. Non-GAAP operating expenses are expected to be in the range of $36.5 million plus or minus $1 million. Interest expense to be approximately $1.2 million and income tax expense to be in the range of $1.3 million to $1.5 million. With that, we will now open the call for questions. Operator, please start the Q&A session.

Operator: Thank you. Our first question today comes from David Williams from Benchmark. Please go ahead, David. Your line is now open.

David Williams: Hey. Good afternoon. Thanks for letting me ask the question, and Stephen, congrats to you on the position and just here finding the bottom. So it’s good to see.

Stephen Chang: Thanks, David. Appreciate it.

David Williams: Yeah. So, first, I want to ask Yifan on the gross margin. Obviously, you had some pressure last quarter and understanding a little bit of mix and the utilization. But just kind of curious how we should be thinking about the margin, as you get back up to more normalized revenue levels and a typical run rate? Can we see this return to where we were previously in the mid-30s range or is there anything structural that’s going to keep you maybe a little bit below the 30% longer term?

Yifan Liang: Now for us our target model is still to move towards that mid-30% range. Right now, the market has flipped from a sellers’ market to a buyers’ market. So we do have to be competitive in order to protect our business and also to grow share. So in the time being, before the market recovers, we will be shy of that target. But that doesn’t change, nothing structurally changes our model for when we get out of this — the market situation we are in now.

David Williams: Okay. That’s fair. So is it — should we think about this as you are competing on price and so you are giving margin to get the business or are you able to maintain kind of your pricing just from a competitive — maybe a performance competitive stance?

Yifan Liang: Certainly, we will compete on performance. It’s more that in the last few years during the supply shortage, we didn’t touch price, and in some cases, we have increased prices in that environment, which is very, very unusual, right, in our market. But our products continue to compete on our performance, but we also need to price accordingly in the market.

David Williams: Okay. Fair. Thanks for the color. And then, Stephen, just maybe your strategy and maybe I missed this in your opening remarks, but how do you think about the IC business and just the opportunity there? I know you have been in a component of that and just kind of curious how maybe what’s your strategy as you go forward?

Stephen Chang: Sure. IC is a key part of business. It’s been one area that we have been broadening our product portfolio in order to address higher margin content. At the same time, we recognize that in some of our applications, especially in PCs, there’s already been a move towards more integration, meaning using ICs to replace MOSFETs in certain sockets. So for us, it’s a necessary part of being a part of that BOM content and going forward. And with that, we are seeing BOM content increase in some of our applications. So we continue to invest more in our ICs, in order to bring up more Power IC products. These products tend to be more application specific. So as we come out with more products, they will be tackling sockets that we weren’t able to address before.

David Williams: Okay. Fantastic. And just one more, if I may. Just on the licensing and engineering agreement, that sounds very interesting around your Silicon Carbide. Just wonder if you could give us any more color around that and then maybe what segment or end market you expect that product will be shipping into just automotive or what market that might be serving? S Sure. Certainly, we are definitely excited about the — closing that licensing deal. It’s a great validation of our technology that another of our peers and recognizes that. Our technology can compete in the global space. So for us, we are — this is actually going to help us and fund our ability to grow this business. This business does take a lot of investment in terms of the R&D, as well as to secure the supply chain.

But it is going to help us to enter into markets that we haven’t been into before such as Automotive or Industrial Power Supplies. So we are excited about the new — this new extension or new of our product portfolio.

David Williams: Thank you. Best of luck on the quarter guys.

Stephen Chang: Thank you.

Operator: Thank you. The next question comes from Craig Ellis from B. Riley Securities. Please go ahead. Your line is now open.

Craig Ellis: Yeah. Thanks for taking the questions and I will echo the congratulations, Stephen. It’s great. I look forward to working with you. I wanted to follow up on the last question. This may be more for Yifan. Yifan, can you just talk about how much revenue associated with the new Silicon Carbide deal rev rec in fiscal 3Q and how much revenue is baked into the guide for fiscal 4Q?

Yifan Liang: Sure. We recognize $3.6 million revenue from this licensing deal. This agreement is for 24-month period. So the revenue recognition is going to be spread out over this contract period. So, yes, we already baked in some estimated revenue in our June quarter guidance.

Craig Ellis: And should it be about $5 million to $6 million a quarter, Yifan, if we just do the high level math that $45 million over a couple of years, so $2 million amount or is there something related either technology development milestones or other that would cause revenue to be lumpier?

Yifan Liang: It’s in that ballpark number, but it’s more depends on the engineering service hours our team spent relatively to the overall total expected engineering hours. So it’s more like go with the progression of this engineering service.

Craig Ellis: Yeah. And then just a clarification on that before I flip it to, Stephen. So with that being the revenue impact $3.6 million in the quarter, something greater than that and closer to $5 million to $6 million in the fiscal fourth quarter. How do we think about the gross margin impact of this contribution? Does it come in near a corporate average level or does it come in either materially lower or higher?

Yifan Liang: For the licensing engineering service portion of the revenue, yeah, that they carry at a higher gross margin for us.

Craig Ellis: Okay. And that was baked into the gross margin color for the fiscal fourth quarter, I take it. Okay. So, Stephen, so nice to see that some of the businesses are rebounding strongly with the color that PC is up 40% quarter-on-quarter and Industrial up 50%. So it’s your point in the prepared remarks that there are some places where inventory is better. Can you just elaborate in more detail where in PCs are you seeing good inventories? Is it across the Board or just in some products like Chromebooks or Gaming PCs, which we have heard are stronger. And Industrial, can you characterize that and then if you could characterize maybe how bad things are in the Communications market, given it seems like we are seeing lower expectations now than maybe three months ago, that would be helpful as well?

Stephen Chang: Sure. Yes. I wouldn’t say there’s a necessary pattern to — it’s tied to certain types of PCs. We know that overall the end demand is still a bit soft in terms of, because both consumers and corporate buyers are delaying their refresh cycles. That said, that’s — at the component level, this is where we saw the sharper inventory correction, which led to our March quarter results. And going into the June quarter, we are starting to see some signs of that inventory correction abating in certain sockets. I can’t really see a clear pattern out of that asset that we are getting — starting to get — getting orders again. Part of this is also dependent upon which customer you are engaging with, because based on their inventory policy during the shortest time, some ordered a lot more and ordered a lot more components during that time for as others were hand to mouth.

So they don’t really have as much of an inventory correction problem. So it’s more of a kind of customer-by-customer in terms of their inventory levels and some are exiting more out of that, whereas others will still take longer to get through that.

Craig Ellis: Got it. And then could you just provide some commentary on Communications. How do you feel about inventory levels in that end market?

Stephen Chang: Sure. So the smartphone market we are seeing it was — starting the correction even at the end of last year. And we still see the first, sorry, I just say that March and June quarter is still relatively soft when it comes to battery protection. In general, also, those two quarters are usually the lower quarters, because of just when our customers go through their phone launches. So we are still preparing and anticipating that the second half will be stronger, but that will be seen as they — as our customers release their fall refreshes.

Craig Ellis: And that leads me to my last question before I hop back in the queue. I think you commented in your prepared remarks, you saw — I believe it was a potential for growth in the fiscal first quarter, which is typically a seasonally strong quarter for the company. Can you just elaborate on that in more detail? Do you expect that across the business for select segments? Just any indications that you are getting about how the fiscal first quarter can play out for the company would be quite helpful? Thanks, Stephen. Thanks, Yifan.

Stephen Chang: Sure. So, overall, we — our eyes are definitely looking at that second half to see, will there be a rebound, what degree it can recover. Right now, it’s still a bit murky in terms of the visibility of the end demand. But that said, we are expecting the component level inventory correction to continue to improve going into the September quarter. I don’t think that the demand will be back to what it was originally, and typically, that September quarter is a peak season. But the end demand, I think, isn’t quite there yet. I think it’s still be more of the impact of the relief from the inventory control abating.

Craig Ellis: Got it. Thank you.

Operator: Thank you. Our next question comes from Jeremy Kwan from Stifel, Nicolaus. Please go ahead. Your line is now open.

Jeremy Kwan: Yes. Thank you and let me also add my congrats on both the appointment to CEO for first full year and also on calling the bottom here. I guess, first question on the inventory correction appearing to abate and in terms of the end demand that you are seeing. Can you give us how much of the — how much of this is currently the inventory replenishment that you are seeing in the June quarter and how much is maybe the underlying sell-through or end demand? Any kind of color you can provide on that would be very helpful.

Stephen Chang: Sure. I would say most of the impact is still coming from the inventory correction getting back to more normal. That’s probably the bigger contributor of that. We are hoping for a bigger, stronger September end demand, but that, I would say, it still remains to be seen. But the inventory correction — inventory levels are improving. And so on that front, we are seeing that in the backlog in the orders that are being placed.

Jeremy Kwan: Great. And then maybe a follow-up on the licensing agreement. Can you just maybe walk us a little bit through more how that came about? Is this a customer that you have been working with maybe on a product side and is that partner up in doing a license? And also any other details you can provide on the terms, is it exclusive, are you still working on your own products? Just any more detail, oh, and also on the manufacturing, any details on that would be great?

Stephen Chang: Sure. So this partner, they are basically behind in their Silicon Carbide technology. They didn’t have anything going and we basically — they are basically looking for a jump start to that. So we — they approached us and we came to an agreement for that for them to license our products and technology for that. It is an exclusive license, but at the same time, it doesn’t prevent us from continuing our own development like we have been doing. If anything, as I mentioned before, this is — this deal is helping to fund and help us to speed up our own Silicon Carbide initiatives in order to expand the product portfolio, the marketing and sales needed to promote the products, as well as secure the supply chain.

Jeremy Kwan: And are there — once this customer develops an own product, is there an ongoing potential royalty or any kind of ongoing revenue stream from that? And also, when can we expect first products from that partnership and also from your own internal development?

Stephen Chang: Yes. So we already have released products from our — for our Silicon Carbide even before this licensing agreement. And there is — as part of the contract — in the contract period, they — we will have benefits through supplying these products to them for the period of the agreement. So, and again, we will still, at the same time, continue to grow and our own Silicon Carbide business.

Jeremy Kwan: Great. And then, I guess, turning to the power management, the integrate — integration that you are talking about longer term. Can you give us an update maybe on this coming from the digital control Power ICs that you have been working on? Can you give us maybe an update there in terms of your progress in penetrating beyond the graphics cards? Thank you.

Stephen Chang: Sure. So our biggest and most immediate intact is still going to be in the client computing area. And because we are addressing not only the MOSFET and the driver less IC side, we are also developing controllers in that space, which is helping us to expand the BOM content there quite significantly, going somewhere from what used to be $2 sort of approaching $4 to $5, because of the integration that we are seeing, the additional sockets that we can address, because of our power management IC technologies that have been deployed there. So in the near-term, I think, that’s kind of the biggest impact for us, it takes — because — significantly increasing the BOM content in the client computing. We will move onwards from there to other areas, but I think most immediately, that’s what’s going to move the needle for us.

Jeremy Kwan: Great. And I guess, maybe in terms of the — maybe going back to the pricing question, it sounds like the environment has kind of shifted back over to more balanced and maybe a more normalized environment. Can you give us maybe an update in terms of the competitive landscape? I remember you mentioned a couple of quarters ago kind of seeing some increased competition as the supply capacity has eased up in other areas and in certain regions. Can you just give us an update there in terms of expectations for pricing in fiscal 2024 versus the past — the fiscal 2023? Thank you.

Stephen Chang: Sure. I think during the — as we are in the correction period for inventory correction, the pricing is going to be tougher in terms of, because our competitors, as we mentioned before, they do have access to supply, whereas during the shorter time, they didn’t. So it’s been getting back to kind of normal competitive type of market. Again, but cycles come and go as well, too. So as we exited out of inventory correction, it will approach more of a normal pricing situation environment regarding the relationship between us and our customers.

Jeremy Kwan: Great. And with — just one final question maybe for Yifan, the cash flow looked pretty nice, I guess, relative to the operating results and I noticed the accounts receivable was down quite a bit, DSOs were roughly flat. But do you see — where do you see accounts receivables going, is this — and then where do you see kind of cash flows going over the next couple of quarters? Thank you.

Yifan Liang: Sure. Yeah. I mean in terms of day sales outstanding, yeah, it has been around 30 days. So we don’t see any collection issues. Receivable balance down that was mainly because of the shipment and the revenue was kind of exceptionally low for the March quarter and the timing of the collections and the shipment. So, going forward, I would expect our — as our revenue recovers, and again, I would expect our cash flow would continue to improve.

Jeremy Kwan: Sorry, just another follow-up on that. With the Oregon fab expansion mostly complete and you provide us with your outlook for CapEx. Can you give us maybe a longer time horizon, like, where do you see your manufacturing needs? I know you mentioned even I think it was looking at other geographical locations. Is there a CapEx outlook associated with that and also what kind of activity can you — are you looking — would you be able to get from potentially the CHIPS Act and government subsidies and things of that nature? Thank you.

Yifan Liang: Okay. And yes, our Oregon fab expansion is complete. And so from the cash flow perspective, it will still happen a little bit lingering payments. So that’s why you see in the June quarter, we guided $15 million to $20 million level CapEx. From there I would expect our CapEx gradually to come down a little bit. Then at the same time, yes, we are working with other foundries to develop our capacity and right now we don’t have a concrete plan for our internal foundry — internal fab expansion. So in terms of CHIPS Act, yeah, we are actually working with the state government and the federal government and with our consultants. And so right now this — we still have a lot of work to do in terms of getting some potential funding from the CHIPS Act.

Jeremy Kwan: And one final question. In terms of the — your utilization rates and lead times, can you give us an update there? I would imagine utilization were bit lower and could — is this kind of the lowest level you can anticipate over the next couple of quarters?

Yifan Liang: Yeah. Utilization, right now it is relatively low and then especially for the back end. For the Oregon fab and since we are ramping up our expansion. So actually, those — that expansion capacity actually is what we need right now. So our Oregon fab utilization is relatively better. Again, I would expect that we can improve on the factory utilization once our revenue started growing.

Jeremy Kwan: Thank you very much.

Yifan Liang: Thank you.

Operator: Our final question today come — is a follow-up from David Williams from Benchmark. Please go ahead. Your line is now open.

David Williams: Hey, gentlemen. Thanks for let me just back on. I just wanted to ask quickly on the JV and the disposition there. We know you have got a healthy equity stake, and anything, I guess, changed or any different there that, that we should be thinking about or maybe timing?

Yifan Liang: Right now they are in the process of raising additional funds from our side. So we will see, and I mean, right now the market it is tough right now.

David Williams: Yeah.

Yifan Liang: So, other than that, we don’t have any other information. Yeah.

David Williams: Okay. And on the Oregon fab, can you remind us of what that the magnitude of the capacity expansion was in terms of maybe annual revenue?

Yifan Liang: It’s relatively expanded about additional 15% also. Yeah.

David Williams: 15% in terms of wafers or revenue?

Yifan Liang: Yeah. Wafer. Wafer. Wafer.

David Williams: Okay.

Yifan Liang: 15% in in-house wafer.

David Williams: Okay. Thanks very much. I appreciate it.

Yifan Liang: Thank you.

David Williams: That’s all for me.

Operator: Thank you. We have a follow-up question from Jeremy Kwan from Stifel, Nicolaus. Please go ahead. Your line is now open.

Jeremy Kwan: Yes. Just a quick follow-up on the JV. It looks like the equity method investment that went up by a couple of million. It has been going down previously. Is there — and then I think the minority interest, the loss kind of went up a bit there on the income statement side. Can you help us understand what’s going on there? Is there — is the JV kind of running a little bit lower than before and has there been kind of an increase in investment in that? Thank you.

Yifan Liang: Sure. Yes. In the March quarter, we recorded our portion of JV’s December quarter’s — December 2022 quarter’s results. So we always have a one quarter lag there. So in the December quarter last year, the JV incurred a loss, so compared to the September 2022 quarter, which where they had a small income. So we recorded 42% of their December quarter’s loss in our March quarter’s financials.

Jeremy Kwan: Got it. And then the — on the balance sheet side, that going up a little bit. What was the driver there?

Yifan Liang: That’s mainly that — because of the exchange rate change, the translation, because their financials is on the RMB, not U.S. dollar.

Jeremy Kwan: Yeah.

Yifan Liang: Yeah.

Jeremy Kwan: Great. Thank you for that clarification.

Yifan Liang: Thank you.

Operator: Thank you. We have no further questions, so I will hand back over to the management team for any closing remarks.

Yifan Liang: So this concludes our earnings call today. Thank you for your interest in AOS and we are looking forward to talking to you again next quarter. Thank you.

Stephen Chang: Thank you.

Yifan Liang: Thank you.

Operator: Ladies and gentlemen, that concludes today’s call. Thank you for joining. You may now disconnect your lines.