Alpha & Omega Semiconductor will release its Q1 FY2025 results today. AOSL is expected to become a new GB200 supplier for Nvidia and to start shipments by the end of this year. Although AOSL does not call out Nvidia specifically on the earnings call, the announcement in June helps us infer that it’s likely Nvidia being spoken about on the call. The other catalyst is AOSL tie-ins to Intel’s Meteor Lake CPU and possible launch on its upcoming Panther Lake platform, as well as its position in development stages for AMD’s FP11 platform, positioning it for strong growth in this space.
Analysts expect FQ1 revenue to decline (-0.3%) YoY to $180.07 million, before it accelerates to 6.3% YoY growth in the December quarter, and further accelerates to 14.7% in the March quarter. Alpha and Omega’s four key segments recorded sequential growth in FQ4, with management saying this “broad-based” rebound “confirmed the inventory correction is largely complete.” They noted that PCs are “taking longer to recover than originally expected,” though sequential growth is still expected in the September quarter due to seasonal strength. Management has guided sequential growth in the four key segments for FQ1.
Revenue
Positive revenue growth is likely from the December quarter as inventory corrections are largely resolved.
- FQ4 revenue declined by (-0.1%) YoY to $161.3 million. However, it was up 7.5% sequentially, with key segments growing sequentially. Management said that in Q4, they “saw relative strength coming from gaming, tablets, e-mobility, A.I., and home appliances, while the PC segment is taking longer to recover.”
- Analysts expect FQ1 revenue to decline (-0.3%) YoY to $180.07 million and accelerate to 6.3% YoY growth to $175.67 million in FQ2 and 14.7% to $172.13 million in FQ3.
Stephen Chang, CEO, said in the earnings call, “Looking into the September quarter, we expect PCs and servers to grow sequentially while tablets sustain the strong current run rate within Computing. The Consumer segment will likely see continued strength in gaming and a strong seasonal pick up from wearables, offset by slower home appliances. Smartphones will drive sequential growth in Communication, while AC-DC power supplies and quick chargers are relatively stronger in Industrial.”
- Analysts expect FY2025 revenue to grow 8% YoY to $709.53 million.
- For FY2026, analysts expect revenue to grow 10.1% YoY to $781.33 million.
Margins
As FY2025 progresses, management expects margin improvement with higher revenue, better product mix, and higher factory utilization. Margins are contracting, and this is one reason we consider AOSL a momentum stock for now.
- FQ4 gross margin was 25.7% compared to 27.6% in the same period last year and 23.7% in FQ3. Management guide for next quarter is 25%.
- Adjusted gross margin was 26.4% compared to 28.5% in the same period last year and 25.2% in FQ3, the sequential improvement was primarily due to improved factory utilization. Management’s adjusted gross margin guide for next quarter is 26.4% compared to 28.8% in the same period last year.
- FQ4’s operating margin was (-0.9%) compared to 1.6% in the same period last year. Management guide for the next quarter is (-1.1%).
- Adjusted operating margin was 2% compared to 4.3% in the same period last year. Management guide for next quarter is 4.2% compared to 6.2% in the same period last year.
Yifan Liang, CFO said in the earnings call Q&A, “As you know, our September quarter's margin guidance, we guided a flattish than quarter-over-quarter. This is mainly because we expect similar quarter-over-quarter factory utilization and we plan to consume some inventories and reduce inventory balance in the September quarter. So other factors impacting the margin, like product mix and ASP erosion that we expect they're similar to the June quarter. So overall, we expect a flattish margin quarter-over-quarter for the September quarter.
So going forward, yes, I mean, I would expect and as we grow our revenue and then our product mix will continue to improve and then factory utilization will be higher. So those factors will be contributing to our margin improvement.”
- Net loss was (-$2.7 million) or (-1.7%) of revenue compared to (-$1.1 million) or (-0.7%) of revenue in the same period last year. Adjusted net income was $2.6 million or 1.6% of revenue compared to $5.7 million or 3.5% of revenue in the same period last year.
EPS
The adjusted EPS estimates have been revised up from the estimates at the beginning of August, except for FY2026 adjusted EPS, which has been revised down from $1.51 to $1.28.
- FQ4 adjusted EPS was $0.09 compared to $0.19 in the same period last year.
- Analysts expect FQ1 adjusted EPS to be down (-33.3%) YoY to $0.22 and down (-13.9%) YoY to $0.21 in FQ2. However, these are higher than the estimates of $0.19 for FQ1 and $0.18 for FQ2 as of August 01st.
- Analysts expect FY2025 ending June adjusted EPS to grow 24.7% YoY to $0.77.
- For FY2026, they expect to grow 65.1% YoY to $1.28.
Cash Flow and Balance Sheet
The cash flow of this company (and most small caps) needs to be watched closely.
- FQ4 operating cash flow was $7.1 million or 4.4% of revenue compared to (-17.5%) of revenue in the same period last year. Repayment of customer deposits was $4.5 million in FQ4, and management expects to refund about $8.4 million in FQ1.
- Free cash outflow was (-$0.21 million) or (-0.1%) of revenue compared to (-29.3%) in the same period last year. Capex was $7.2 million in FQ4, and the management has guided $6 million to $8 million for FQ1.
- Inventories were $195.8 million compared to $198.1 million in FQ3.
- Cash was $175.1 million and debt of $38.36 million compared to $174.4 million and $41.2 million in FQ3. The company repaid $3.1 million of debt in FQ4.
Key Segments
Computing
Computing segment grew by 37.6% YoY and 4.4% QoQ to $71.6 million. Management said they saw “relative strength from tablets, A.I, and graphics cards in the quarter, offset by a slower PC market recovery. Notably, tablet revenue was a record high, and the contribution from A.I. and datacenter related applications continued to grow.” However, management said that the revenue was “slightly below our original expectation for mid-to-upper single digit growth,” primarily impacted by PCs.
Alpha and Omega expect FQ1 to see mid-single digit QoQ growth on a seasonal PC pickup, combined with strength from tablets, graphics cards, and AI accelerators. CEO Stephen Chang shed more light on some of the opportunities ahead: “We are working on multiple opportunities leveraging our existing relationship with a key graphics card maker, as well as our product portfolio including new multiphase Vcore controllers and power stage solutions for advanced computing. We are also seeing some ramp in September from a leading power supply maker that is a key supplier to the same A.I./graphics customer.”
Consumer
Consumer revenue declined (-35.5%) YoY but rebounded 19.7% QoQ to $28.2 million, as the segment looks to have marked a bottom in Q2. Management said it “is now clear that the inventory correction in gaming is behind us and a seasonal build is underway.”
Management guide: “For the September quarter, we forecast low double-digit sequential growth in the Consumer segment driven by strong seasonal pickup from wearables and continued strength in gaming, offset by slower home appliances.”
Communications
Communications segment revenue grew by 59% YoY and 2.1% QoQ to $27.4 million, driven by the “seasonal pick-up from a Tier 1 U.S. smartphone customer, offset by sequential declines from Korea and China OEMs.”
Management expects double-digit sequential growth in FQ1. “Looking ahead, we anticipate double-digit sequential growth in the September quarter on seasonal strength ahead of new smartphone launches in the U.S and increasing demand from China smartphone OEMs. We are benefitting from a mix shift to more premium phones and we anticipate rising growth in BOM content as phone makers increase battery charging currents.”
Power Supply and Industrial
Power Supply and Industrial revenue was down (-33.7%); however, it was up 11.3% sequentially to $27.6 million. The sequential growth was “driven by strength in the e-mobility segment for e-bikes and e-scooters and DC fans for applications in areas such as datacenters. The inventory correction in quick chargers appears complete as we also saw the beginnings of recovery in the June quarter.”
For FQ1, management expects the segment to grow sequentially 15-20% “primarily driven by a solid uptick from quick chargers, as well as strength from AC-DC power supplies tied to the seasonal build in PCs.”
Other Key Points to Watch
GB200 Supplier:
AOSL is expected to become a new GB200 supplier for Nvidia and to start shipments by the end of this year. Although AOSL does not call out Nvidia specifically on the earnings call, the announcement helps us infer that it’s likely Nvidia being spoken about on the calls. The only other option is that it’s AMD.
AOSL sells MOSFETs that go into bus converters for DC-to-DC power conversion. AOSL works with a leading power supply company that, in turn, supplies the unnamed AI/graphic customer, plus the company supplies the unnamed AI/graphic company directly. AOSL supplies the MOSFETs powering each GPU, and for the upcoming platform of this customer, AOSL will additionally sell the total solution controller and the multiphase controller. The number of MOSFETs is expected to triple from 9 to 16 up to 50 MOSFETs per GPU. We will be watching for new updates in the earnings call.
Margins
We want to see margins improve in the coming quarters. During the FQ4 earnings call Q&A, management reiterated its mid-term target of above 30% non-GAAP gross margin with a target revenue goal of $1 billion. The adjusted gross margin was 30.2% for the FY2023 ending June and dropped to 27.2% for the FY2024 due to the continued inventory correction. Management confirmed during the FQ4 results that the “inventory correction is largely complete.”
David Williams (Analyst)
“Okay. Yes, that's really a great color. If I could just ask one last thing, kind of just thinking about how margins are going to change as your business kind of picks up into this new realm, are we going to see normalization back to kind of like historic peaks at around 30-ish, or is this sort of the new normal now with 25 to 28 kind of extending forward?
Stephen Chang (Executive)
Yes, I mean, our overall midterm target model is still above 30% non-GAAP gross margin with a target revenue goal of $1 billion. So that model will still stay. So we believe in the — when we continue to grow, then incremental business, we expect we can bring in the better product mix. So that would help us improve the gross margin gradually. Also, those incremental business would help us increase our utilization at factories.”
Valuation
The company is trading at a forward P/E ratio of 42.8. The P/S ratio peaked in March 2022 when the quarterly revenue was close to $200 million, GAAP profitable, and before the PC inventory correction. The current P/S ratio is 1.45, and the forward P/S ratio is 1.35. It is trading above the five-year average P/S ratio of 1.2.
Conclusion
AOSL is a momentum stock in which we are using technical analysis to the fullest, and we plan to follow our stops. Our goal is to participate in opportunities where small-cap suppliers expand their serviceable addressable market (SAM) as AI systems increase in complexity. However, given the weakness we’ve seen in SMH, it could be a tall order for AOSL to overcome the selloff we’ve seen in the larger semis. But we also want to give AOSL an opportunity to report any progress from key customers. Therefore, anything is possible following the earnings call – we could close the position or add to it.
Royston Roche, Equity Analyst at the I/O Fund, contributed to this article.
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