Alpha and Omega Semiconductor Limited (AOSL) Q2 2026 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call presents a mixed picture: while there are positive developments in AI and strategic investments, the company faces declining revenues and margins. The Q&A highlights concerns about lower-than-expected AI opportunities and rising R&D expenses. Despite optimistic long-term growth projections, immediate challenges such as declining operating cash flow and EBITDA, alongside a cautious revenue outlook, balance out potential positives. Given the market cap, the stock price is likely to remain stable, resulting in a neutral sentiment.
Key Financial Performance
Total Revenue $162.3 million, down 6.3% year-over-year and down 11.1% sequentially. The decline was attributed to seasonality across several end markets, inventory digestion in AI, and shifts in GPU allocation to prioritize data centers over graphic card markets.
Non-GAAP Gross Margin 22.2%, down from 24.2% a year ago. The decrease was mainly impacted by higher input and operation costs.
Non-GAAP EPS Loss of $0.16 per share, compared to $0.09 earnings per share a year ago. The decline was due to higher input costs and operational challenges.
Share Repurchase $13.9 million worth of shares repurchased during the December quarter, representing 728,000 shares as part of a $30 million share repurchase program.
DMOS Revenue $101 million, down 10.6% year-over-year and down 6.9% sequentially. The decline was due to market softness and seasonality.
Power IC Revenue $58.8 million, up 9.5% year-over-year but down 19.1% sequentially. The sequential decline was attributed to seasonality and reduced demand in certain segments.
Assembly Service and Other Revenue $2.5 million, up from $1.1 million a year ago. The increase was due to higher service demand.
Operating Cash Flow Negative $8.1 million, compared to positive $14.1 million a year ago. The decline was due to repayment of customer deposits and income tax paid on the sale of equity interest.
EBITDA (excluding equity method investment loss) $9.7 million, down from $16.8 million a year ago. The decline was due to lower revenue and higher operational costs.
Cash Balance $196.3 million, down from $223.5 million last quarter. The decrease was due to share repurchases and operational cash outflows.
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Operating Highlights
AI and graphics: Tangible results in AI and graphics through a mix shift towards premium platforms and higher charging points. Expansion into high-performance medium-voltage MOSFETs for AI data centers.
Smartphone battery protection: Secured increased BOM content and deepened relationships with top-tier customers due to technology differentiation and industry move towards higher charging currents.
PC platforms: Increased BOM content on new platforms such as Intel's Panther Lake.
AI data centers: Expansion in demand across a broader array of AI data center applications and customers. Growth in medium-voltage solutions for 48-volt to 12-volt intermediate bus conversion.
Communications: Strong growth from Tier 1 U.S. smartphone customer and sustained high market share in premium phone segment.
Share repurchase program: Repurchased $13.9 million of shares during the December quarter, with $16 million remaining in the $30 million program.
Equity interest monetization: Sold 20% of equity interest in Chongqing joint venture for $150 million, retaining an 18.9% stake. Received $94 million in September, $11 million in December, and $30 million post-quarter end.
Application-specific total solutions: Focused on higher performance markets with system-level differentiation, expanding BOM content, and offsetting competitive pressure in lower-end markets.
R&D investments: Increased critical R&D investments in differentiated technologies and engineering resources to support higher BOM content and sustainable margins.
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Risk or Challenges
Revenue Decline: Total revenue for the December quarter was $162.3 million, down 6.3% year-over-year and 11.1% sequentially. The March quarter is also expected to see a slight sequential decline, marking a near-term low point for revenue.
Gross Margin Pressure: Non-GAAP gross margin decreased to 22.2% from 24.1% in the prior quarter, primarily due to higher input and operational costs. This trend is expected to continue into the March quarter with a projected gross margin of 21%.
PC Market Uncertainty: Visibility into the PC market remains limited due to memory shortages, which could constrain overall PC demand in 2026.
AI and Graphics Inventory Digestion: AI and graphics customers are in a digestion phase, further impacted by shifts in GPU allocation towards data centers over traditional graphics card platforms.
Consumer Segment Weakness: The consumer segment saw a 14.9% year-over-year and 18.3% sequential revenue decline, driven by gaming and home appliances. Gaming experienced a sharp inventory correction, and home appliance demand was modestly lower.
Communications Segment Seasonality: The communications segment is expected to decline mid-single digits sequentially in the March quarter due to typical seasonality from a Tier 1 U.S. smartphone customer.
Power Supply and Industrial Segment Weakness: This segment was down 22.5% year-over-year and 3% sequentially, with quick charger demand weaker than expected. While some recovery is expected, power tools and e-mobility are projected to soften in the March quarter.
Increased R&D Spending: Operating expenses are expected to grow in the March quarter due to increased R&D spending, which could pressure short-term profitability.
Cash Flow Challenges: Operating cash flow was negative $8.1 million for the December quarter, impacted by repayment of customer deposits and income tax payments on equity sales.
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Guidance & Outlook
Revenue Guidance for March Quarter: Revenue is expected to be approximately $160 million, plus or minus $10 million.
Gross Margin Guidance for March Quarter: GAAP gross margin is expected to be 20.2%, plus or minus 1%. Non-GAAP gross margin is expected to be 21%, plus or minus 1%.
Operating Expenses Guidance for March Quarter: GAAP operating expenses are expected to be $52 million, plus or minus $1 million. Non-GAAP operating expenses are expected to be $45 million, plus or minus $1 million.
Capital Expenditures (CapEx) Guidance for March Quarter: CapEx is expected to range from $15 million to $18 million.
Computing Segment Outlook: Revenue is expected to decline low single digits sequentially, reflecting softness in the PC market, mostly offset by strength in AI data center applications and growth in graphics cards and tablets.
Consumer Segment Outlook: Revenue is forecasted to grow mid-single digits sequentially, driven by a recovery in gaming after a sharp inventory correction in the December quarter.
Communications Segment Outlook: Revenue is expected to decline mid-single digits sequentially due to typical seasonality from a Tier 1 U.S. smartphone customer, partially offset by sequential growth from China smartphone.
Power Supply and Industrial Segment Outlook: Revenue is expected to increase mid-single digits sequentially, driven primarily by quick chargers and DC fans, offset by softer power tools and e-mobility.
Long-term Growth Expectations: The company expects modest growth in calendar 2026 as markets work through near-term constraints, with stronger growth anticipated in 2027 and beyond as higher-value programs move towards production.
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Shareholder Return Plan
Share Repurchase Program: In the December quarter, Alpha and Omega Semiconductor repurchased approximately $13.9 million worth of shares, representing 728,000 shares. This is part of a $30 million share repurchase program approved by the Board. Following these purchases, approximately $16 million remains available for further repurchases. The company stated that this balanced approach to capital allocation reflects the Board and management's confidence in their strategy and execution while maintaining financial strength for long-term growth and shareholder value.
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Key Q&A
Q:Can you talk about how the AI opportunities and GPU design wins are tracking?
A:The AI opportunity is less than original expectations for creating selling solutions for VRM power GPUs. However, the AI opportunity is expanding beyond total VRM solutions to include medium voltage MOSFETs used in power conversions. This expansion is already reflected in the current quarter's results.
Q:When should operating expenses normalize, and are there any one-time expenses in the next quarter?
A:Operating expenses for the March quarter are guided to be $4 million higher than the December quarter, with $3 million of that increase allocated to R&D. The company plans to spend around $20 million from the divestiture of CQJV equity share proceeds on new R&D projects this year, translating to a 25% R&D expense increase for the calendar year. The March quarter reflects a lower increase, with gradual increases expected in the June and September quarters.
Q:Are there areas within the existing footprint to add capacity or improve gross margins?
A:CapEx investment increased by $5 million in the December quarter compared to the prior quarter, with further increases in the March quarter. The company is investing in capacity to prepare for growth in calendar year 2026, including new product rollouts.
Q:Why does the March quarter revenue guide imply lower gross margins, and what is the long-term gross margin target?
A:The March quarter gross margin guidance is 1.2% lower than the December quarter due to reduced production during the Lunar New Year, impacting utilization. Gross margins are expected to rebound in the June quarter. The midterm target model remains $1 billion in revenue, 30% non-GAAP gross margin, and 20% OpEx. Margin growth will be driven by new products, better product mix, and a normalized pricing environment.
Q:What specific programs are the increased R&D investments going to, and when will they offer operating leverage?
A:Increased R&D investments are focused on areas of strength, including PCs, AI applications, and smartphone battery protection. The company is expanding its product breadth and customer base in AI, targeting the entire ecosystem, including servers and cloud service providers. Results from these investments are expected later this calendar year, with a bigger impact in 2027.
Q:What are the gating factors for investing in new opportunities, and how do they align with core competencies?
A:Investments are focused on areas aligned with core competencies, such as total solutions for PCs, AI applications, and medium voltage power conversion. The company is also preparing solutions for high-voltage applications and expanding into IC sockets. These investments leverage existing technology strengths and aim to address broader market opportunities.
Q:How big is advanced compute as a percentage of the compute segment, and what is the expected growth?
A:Advanced compute has historically accounted for 20%-25% of the compute segment. The company sees potential for this to grow to 50% or higher, driven by opportunities in VRM solutions, medium voltage power conversion, and broader market penetration.
Q:What is the pricing environment, and how does it impact gross margins?
A:The December quarter pricing was in line with historical trends and slightly better than the September quarter. The March quarter factors in normal historical price erosion. The company is monitoring the market and adjusting accordingly, with hopes for a better pricing environment to support gross margin improvement.
Q:What gives confidence in PC and smartphone growth through the end of calendar year 2026?
A:Confidence in PC growth is based on increasing BOM content and adoption of total solutions. Smartphone growth is supported by the trend toward higher charging currents, which requires advanced technology and increases BOM content and margins. The company is well-positioned with leading technology and strong market share.
Q:Review of Unclear Management Responses
A:Management avoided providing specific revenue projections for advanced compute growth, stating only that it could grow to 50% or higher of the compute segment. They also did not provide detailed numbers on the expected return on the 25% R&D increase or specific timelines for achieving the 30% gross margin target.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
AI center
AI graphic
China smartphone
MOSFETs
ODMs hyperscale
Tier smartphone
application solution
application swap
approach
battery protection
benefit
bus converter
capital allocation
communication segment
confidence
consumer
customer engagement
demand voltage
differentiation customer
equity interest
expansion
interest venture
investment silicon
market strength
memory
packaging technology
platform
power tool
purchase
silicon packaging
smartphone customer
swap bus
tablet
technology battery
AOSL Transcript
Alpha and Omega Semiconductor Limited (AOSL) Q2 2026 Earnings Call Transcript
Unknown2-5
The earnings call presents a mixed picture: while there are positive developments in AI and strategic investments, the company faces declining revenues and margins. The Q&A highlights concerns about lower-than-expected AI opportunities and rising R&D expenses. Despite optimistic long-term growth projections, immediate challenges such as declining operating cash flow and EBITDA, alongside a cautious revenue outlook, balance out potential positives. Given the market cap, the stock price is likely to remain stable, resulting in a neutral sentiment.
Alpha and Omega Semiconductor Limited (AOSL) Q1 2026 Earnings Call Transcript
Unknown11-5
The earnings call presents mixed signals: while the company shows growth potential in AI and smartphones, there are concerns about margin degradation, delayed AI revenue, and ASP erosion. The Q&A highlights management's confidence in strategic investments but also reveals uncertainties about demand and pricing. Given the small market cap, the stock may react more strongly, but the overall sentiment is balanced by both positive growth strategies and negative short-term challenges, leading to a neutral stock price prediction.
Alpha and Omega Semiconductor Limited (AOSL) Q4 2025 Earnings Call Transcript
Positive8-6
The earnings call reveals strong financial performance, with revenue and product growth exceeding expectations, particularly in AI and graphics. The company's transformation strategy and investment plans are promising, despite some concerns about gross margins and cash flow. The Q&A session highlights positive sentiment towards AI expansion and strategic cash use, but lacks long-term guidance clarity. Given the market cap, the positive outlook on AI and graphics, and strategic investments, a stock price increase between 2% to 8% is likely.
Alpha and Omega Semiconductor Limited (AOSL) Q3 2025 Earnings Call Transcript
Unknown5-7
The earnings call reveals a mixed sentiment. Financial performance shows strong revenue growth, but declining margins and EPS losses are concerning. Product development highlights potential in AI, but supply chain complexities and geopolitical risks pose threats. Market strategy is promising with AI integration and new markets, but the lack of visibility for 2025 is worrisome. Expenses are rising, impacting financial health, while shareholder returns are neutral with limited repurchases. Overall, the sentiment is balanced, with positive growth prospects offset by financial and external uncertainties, suggesting a neutral stock price movement.
AOSL Report
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