Alpha and Omega Semiconductor Q2 2025 Earnings Call Transcript

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February 5, 2025

Key Takeaways

  • AOS reported Q2 revenue of $173.2 million and non‐GAAP EPS of $0.09, in line with guidance, representing 4.8% YoY growth despite a 4.8% sequential decline.
  • The company’s strategic shift to a total solutions provider drove over 25% YoY growth in both Computing and Communications segments in calendar 2024, boosting market share and BOM content in motherboards, AI, graphics cards and tablets.
  • Emerging opportunities in AI and advanced computing are expected to ramp mid‐year, with multi‐phase controllers and power stages designed into new data center platforms offering significant TAM expansion.
  • For Q3, AOS expects revenue of approximately $158 million (±$10M) and non‐GAAP gross margin of ~22.5% (±1%), pressured by the end of a licensing contract, Lunar New Year manufacturing costs and seasonal softness.
  • AOS noted headwinds from gaming platform transitions, notebooks, tablets and tariff uncertainty but sees potential pull‐ins in PCs and smartphones due to fast‐charging demand and tariff‐related ordering.
AI Generated. May Contain Errors.
Earnings Conference Call
Alpha and Omega Semiconductor Q2 2025
00:00 / 00:00

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Operator

Good afternoon. Thank you for attending today's Alpha and Omega Semiconductor Fiscal Q2 2025 earnings call. My name is Jaylen. I'll be your moderator for today. All lines will be muted during the presentation portion of the call, with an opportunity for questions and answers at the end. I'll now let you turn the conference over to our host, Steven Pelayo. Steven, you may proceed.

Steven Pelayo
Steven Pelayo
Investor Relations Representative at Alpha and Omega Semiconductor

Good afternoon, everyone, and welcome to Alpha and Omega Semiconductor's conference call to discuss Fiscal 2025 second-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 business updates, including strategic highlights and a detailed segment report. After that, Yifan will review the financial results and provide guidance for the March quarter. Finally, we will have a Q&A session. The earnings release was distributed over the wire today, February 5th, 2025, after the market closed. The release is also posted on the company's website. Our earnings release and this presentation include non-GAAP financial measures.

Steven Pelayo
Steven Pelayo
Investor Relations Representative at Alpha and Omega Semiconductor

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 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 more detailed descriptions 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. Now, I'll turn the call over to our CEO, Stephen Chang. Stephen.

Stephen Chang
CEO at Alpha and Omega Semiconductor

Thank you, Stephen. Welcome to Alpha and Omega's Fiscal Q2 earnings call. I will begin with a high-level overview of our results and then jump into segment details. We delivered Fiscal Q2 revenue and EPS results in line with our guidance. Revenue was $173.2 million. Non-GAAP gross margin was 24.2%. Non-GAAP EPS was $0.09. While we saw seasonal sequential declines in Fiscal Q2 from each of our major segments, the Communications and Industrial segments outperformed our initial forecast, and we saw sequential growth in graphics cards, quick chargers, PC desktops, and power tools. These increases were offset by seasonal declines in gaming, notebooks, tablets, and wearables. With the December quarter now complete, we can reflect on our performance in calendar 2024, where AOS revenue increased 4.1% year-over-year.

Stephen Chang
CEO at Alpha and Omega Semiconductor

While this modest overall growth might not seem overwhelming, the recovery in our segment suggests the inventory correction is clearly behind us. Further, a closer examination by segment validates AOS's strategic shift from a component supplier to a total solutions provider. This transition is enabling us to tap into new opportunities, gain market share, and increase BOM content. Most notably, our Computing and Communications segments each grew more than 25% in calendar 2024, driven by market share gains and BOM content growth in motherboards, AI, graphics cards, and tablets. In smartphones, our battery PCM product line contributed the largest incremental dollar growth to the company in calendar year 2024. We now believe AOS is the industry leader in smartphone battery PCM. We also saw strong growth in wearables and e-mobility in calendar 2024, further proving our ability to build on existing customer relationships while broadening into new and adjacent markets.

Stephen Chang
CEO at Alpha and Omega Semiconductor

The primary headwinds to calendar 2024 growth were mostly concentrated in gaming and quick chargers, yet both markets have now digested excess inventories and returned to growth in the past few quarters. As we look ahead, we are delivering on our commitments and advancing our transformation from a component supplier to a total solutions provider. Our strategic focus is to go deeper by leveraging strengths in high-performance silicon packaging and intelligent ICs. Our goal is to leverage premier customer relationships to expand market share and increase BOM content with a broader portfolio. With that, let me now cover our segment results and provide some guidance by segment for the next quarter. Starting with Computing, December quarter revenue was up 6% year-over-year, but down slightly, -0.5% sequentially, and represented 43.9% of total revenue.

Stephen Chang
CEO at Alpha and Omega Semiconductor

These results were better than typical seasonality, but slightly worse than our original expectation for slight sequential growth. We saw relative strength from PC desktops and graphics cards offset by the seasonal decline in notebooks and tablets. Servers and AI accelerator cards were also softer as the industry prepares for the next platform transition. We continue to see a good opportunity in advanced Computing, and we are encouraged by the progress we have made thus far. Within AI for large data centers, we are a contender in the middle stages of the design-in phase, and we see potential for these products to contribute to revenue in the middle of the calendar year. On graphics cards, the next generation platform is ramping up to mass production.

Stephen Chang
CEO at Alpha and Omega Semiconductor

With this new platform, we expect BOM content to increase as more power stage ICs paired with our controller are being used to power the GPU. Looking forward into the March quarter, the Computing segment will likely decline due to seasonality. However, the PC market is expected to be flat as tariff uncertainty is leading to demand pull-ins with PC makers. Turning to the Consumer segment, December revenue was down 3.9% year-over-year and down 28.8% sequentially and represented 13% of total revenue. The results were in line with our forecast, driven by seasonality in gaming and home appliances, as well as a pullback in wearables following a record level achieved in the third calendar quarter. As a reminder, we don't expect gaming to return to meaningful growth until the customer transitions to the next platform.

Stephen Chang
CEO at Alpha and Omega Semiconductor

For the March quarter, we forecast a low single-digit sequential decline in the Consumer segment, driven by continued seasonality in gaming, TVs, and softness in home appliances. Next, let's discuss the Communications segment. Revenue in the December quarter was up 14.5% year-over-year, but down 6.4% sequentially and represented 19.2% of total revenue. These results were above our initial expectations for a double-digit sequential decline, as broad-based demand from our Tier 1 U.S. smartphone customer and China OEMs moderated only slightly, while Korea saw an increase in preparation for product launches in the first calendar quarter. We believe the better-than-expected results are due to a combination of market share gains, a mix shift to higher-end phones in China, and generally higher charging currents driving increased BOM content. Looking ahead, we anticipate a low-teens sequential decline in the March quarter for the Communications segment, mostly due to seasonality.

Stephen Chang
CEO at Alpha and Omega Semiconductor

Now, let's talk about our last segment, Power Supply and Industrial, which accounted for 20.2% of total revenue and was flat year-over-year and up 9.6% sequentially. The results were ahead of our forecast for low single-digit sequential growth, driven by seasonal strength in quick chargers, as well as an increase in power tools. Demand also held relatively steady quarter over quarter in AC/DC power supplies and e-mobility. As we stated before, we see additional opportunities in 2025 for quick chargers due to increased BOM content driven by higher charging currents. Further, we are leveraging relationships in Taiwan to partner on DC fans for server racks. For the March quarter, we expect a low-teens sequential decline for the Power Supply and Industrial Segment, primarily driven by seasonal decline in quick chargers. This decline will be partially offset by some sequential growth in e-mobility and AC/DC power supplies.

Stephen Chang
CEO at Alpha and Omega Semiconductor

In closing, December quarter revenue was slightly ahead of our expectations, while gross margin was a bit softer. The continued year-over-year revenue growth confirms the inventory corrections we experienced over the past year are complete. Seasonality has returned, and new markets like AI and advanced Computing are emerging. As we look ahead to 2025, visibility remains limited, and the first quarter is typically affected by seasonal softness. The subdued market environment will likely pressure pricing, and wind down of licensing and engineering revenue will further impact gross margin. We expect both revenue and margin to recover beyond the March quarter, with incremental growth likely from smartphones, graphics cards, and AI. AOS is well-positioned for growth, supported by our advanced technology, a broad product range, and a premier customer base across various industries.

Stephen Chang
CEO at Alpha and Omega Semiconductor

Strategic initiatives over the past few years are yielding results, with successful design integration of controllers and power stages into PCs, graphics cards, and AI applications. We are poised to accelerate this expansion, capturing new opportunities and increasing our BOM content. Power management remains at the core of major industry trends, including AI, digitalization, connectivity, and electrification, critical to achieving a low-carbon sustainable future. We anticipate continued growth driven by advanced Computing and data centers, AI integration in PCs and smartphones, and higher charging currents in smartphones. Beyond Computing and Communications, we see many opportunities in solar, motors, and e-mobility, gaming, home appliances, and power tools. With that, I will now turn the call over to Yifan for a discussion of our Fiscal second quarter financial results and our outlook for the next quarter. Yifan.

Yifan Liang
CFO at Alpha and Omega Semiconductor

Thank you, Stephen. Good afternoon, everyone, and thank you for joining us. Revenue for the quarter was $173.2 million, down 4.8% sequentially and up 4.8% year-over-year. In terms of product mix, DMOS revenue was $113 million, down 7.8% sequentially and up 3.8% over last year. Power IC revenue was $53.7 million, up 1.5% from the prior quarter and 6.8% from a year ago. Assembly service and other revenue was $1.1 million as compared to $0.9 million last quarter and $0.7 million for the same quarter last year. License and engineering service revenue was $5.4 million for the quarter versus $5.6 million in the prior quarter and $5.5 million for the same quarter a year ago. License and engineering service revenue will end in mid-February after the 24-month contract expires. Non-GAAP gross margin was 24.2% compared to 25.5% last quarter and 28% a year ago.

Yifan Liang
CFO at Alpha and Omega Semiconductor

The quarter-over-quarter decrease was mainly impacted by ASP erosion and mix changes. Non-GAAP operating expenses were $39 million compared to $38.5 million from the prior quarter and $37.9 million last year. The slight quarter-over-quarter increase was primarily due to higher R&D expenses. Non-GAAP quarterly EPS was $0.09 compared to $0.21 per share last quarter and $0.24 per share a year ago. Moving on to cash flow. Operating cash flow was $14.1 million, including $5 million of repayment of customer deposits. By comparison, operating cash flow was $11 million in the prior quarter and negative $23.5 million last year. We expect to refund $11.1 million customer deposits in the March quarter. EBITDA for the quarter was $16.8 million compared to $20.6 million last quarter and $20.7 million for the same quarter a year ago. Now, let me turn to balance sheet.

Yifan Liang
CFO at Alpha and Omega Semiconductor

We completed December quarter with a cash balance of $182.6 million compared to $176 million at the end of last quarter. Net trade receivables decreased by $4.7 million sequentially. Days Sales Outstanding were 12 days for the quarter compared to 15 days for the prior quarter. Net inventory decreased by $1.2 million quarter-over-quarter. Average days in inventory remained at 125 days for the quarter. CapEx for the quarter was $7.4 million compared to $6.7 million for the prior quarter, and we expect CapEx for the March quarter to range from $7 million-$9 million. Now, I would like to discuss March quarter guidance. We expect revenue to be approximately $158 million plus or minus $10 million. GAAP gross margin to be 21.5% plus or minus 1%. We anticipate non-GAAP gross margin to be 22.5% plus or minus 1%.

Yifan Liang
CFO at Alpha and Omega Semiconductor

The expected quarter-over-quarter decline is largely due to the decrease in license and engineering service revenue, and to a lesser extent, the anticipated increase in manufacturing costs during the Lunar New Year period. GAAP operating expenses to be $46.5 million plus or minus $1 million. Non-GAAP operating expenses are expected to be $39.5 million plus or minus $1 million. Interest expense to be approximately equal to interest income, and income tax expense to be in the range of $1.1 million-$1.3 million. With that, we will now open the call for questions. Operator, please start a Q&A session.

Operator

At this time, if you would like to ask a question, it is star followed by one on your telephone keypad. If for any reason you would like to remove that question, it is star followed by two. Again, to ask a question, it is star one. As a reminder, if you're using a speakerphone, please remember to pick up your headset before asking a question. I'll pause briefly here as questions are registered. Our first question comes from Craig Ellis with the company B. Riley Securities. Craig, your line is now open.

Craig Ellis
Craig Ellis
Senior Managing Director and Director of Research at B. Riley Securities

Yeah, thanks for taking the question, guys, and congratulations on the areas of year-on-year growth in calendar 2024. I wanted to go back to the prepared comments on performance versus expectations in fiscal 2Q in the AI accelerator market. You commented that revenues were a little bit below what you had expected. Can you provide more detail? Was the issue either an AOSL product issue or share into a platform, or was it just the pace at which the platform is ramping up?

Stephen Chang
CEO at Alpha and Omega Semiconductor

No, it's simply the transition from our customers' old program moving into the new program. We're continuing to be working with them in their ramp-up, but this is their transition phase. So just remember that we have been shipping into, especially the accelerator cards, throughout the past 2024 calendar, 2024, and now that they've launched, the projects are transitioning to the new platform. So we expect a bit of a transition, and the new models we are starting to ship already, and that's going to continue to grow throughout this current calendar year.

Craig Ellis
Craig Ellis
Senior Managing Director and Director of Research at B. Riley Securities

And then a follow-up to that, Stephen, and thanks for that color. There had been reports in the mid-December timeframe around some thermal issues associated with AOSL's products. Can you speak to whether that was the case and to the extent that it was, whether those issues, as reported, accurately or potentially inaccurately, have been resolved?

Stephen Chang
CEO at Alpha and Omega Semiconductor

Yeah, so we're actually not going to comment. We never offered any comments regarding the article that was put out about us. Our general practice isn't to go into details about our designs at our customers out of respect for our customers. But we did say in our remarks and what's actually going on is that we continue to be one of the main contenders in this upcoming design for data centers. So we're pretty excited about that. We are giving guidance that we expect this program to, well, their program to launch in the middle of the year, and this is something that we are excited and looking forward to.

Craig Ellis
Craig Ellis
Senior Managing Director and Director of Research at B. Riley Securities

If I could, and it's along the same thing because that's where all the investor questions are. I think there are, generally speaking, multiple opportunities for the company. One would be more card-centric and somewhat similar to a long shipment history you've had with the customer. One would be more on server system board. Can you talk about the extent to which each of those and the magnitude would contribute to growth? And how should we think about the growth potential from this platform? How material can it be as we think about revenues ramping mid-year? Thank you, Stephen.

Stephen Chang
CEO at Alpha and Omega Semiconductor

Sure. Thanks, Craig. Certainly, our opportunity in AI falls into two categories. The first is continuing what we've been doing already, which is getting our products, shipping our products into both graphics cards as well as accelerator cards. And with our target and customer, it's pretty much a similar solution that's being used there for both graphics as well as AI acceleration in these daughter cards. This portion, as I mentioned, is undergoing the transition. Our customer is ramping up. We are ramping with them. And we do expect to see content increase also because I believe these cards are more powerful. They can do a lot more, but they also require more power, which is a good fit for our solutions. We are shipping. One big change from last generation to this generation is that we're also now shipping the multi-phase controller in addition to our power stage.

Stephen Chang
CEO at Alpha and Omega Semiconductor

And so that's helping us to provide the total solution to the customer for this application. So that's the first category of business. And as I mentioned, we are continuing to ramp with them as they bring up production fully and going throughout this quarter and then throughout the next few quarters. The second category of projects that we are targeting is the AI data center portion. And this is where our solutions are being used onboard to power GPUs, and these go into their server solutions. And this is something that we are very excited to take part in, to be able to design into. And we are right now still in the middle of that design phase. We're closely working with that customer in bringing up boards and working with them.

Stephen Chang
CEO at Alpha and Omega Semiconductor

I'm not going to go into details about the design, but we did already indicate that this is something targeting mid-year for launch.

Craig Ellis
Craig Ellis
Senior Managing Director and Director of Research at B. Riley Securities

That's very helpful. Thank you, Stephen.

Operator

Thanks. I'll bring David Williams with the company Benchmark Company. David, your line is now open.

David Williams
David Williams
Equity Research Analyst at Benchmark Company

Hey, good afternoon, gentlemen. It's good to talk with you, and thanks for letting me ask a question here.

Stephen Chang
CEO at Alpha and Omega Semiconductor

Yep. Hey, David.

David Williams
David Williams
Equity Research Analyst at Benchmark Company

I guess, Stephen, first, hey, not to beat the proverbial dead horse here, but as we kind of think about the AI opportunity for you, and you talked about being in the middle of this design phase here, how do you think, obviously, mid kind of your launch, but when do you think you'll have a better indication on your content that you have and if you've won that slot and what you've won? When do you think you would kind of get that indication? And then when should we begin to really think about those revenues coming in? And given that that's kind of a new area for you, it seems like that should be a fairly sizable step up in the revenue. Is that fair to think about that way?

Stephen Chang
CEO at Alpha and Omega Semiconductor

Yes. We certainly think the potential for our business in data center to be much bigger than that of the graphics portion, simply because the usage goes up much more. As you can imagine, in these data centers, the power levels are significantly bigger. So it simply requires more power stages to power each of these GPUs. I don't want to quantify that at the moment, but basically, it is something that is multiples bigger, you can say, in terms of the total attempt that we can go after. We know that we're not the only one players going after this. So the share is still to be determined. The final design, everything is still to be finalized as well, too. So we're working closely with the customer. Again, at this point, we can say that we're targeting for a mid-year launch.

David Williams
David Williams
Equity Research Analyst at Benchmark Company

Fantastic. Well, congratulations on the progress there. I know it's an area you've been really working to get into, so fantastic. And then maybe, Yifan, if you kind of think about the gross margin profile, we knew it would come down here a bit. I think actually performed a little bit better than we anticipated. But how do you think about the margin profile as we get into next year? And as you kind of get this ramp coming back in, seems like some higher margin products potentially in the volumes. Should we begin to see that utilization snap back? And where do you think margins can genuinely go over the next 12-18 months?

Yifan Liang
CFO at Alpha and Omega Semiconductor

Sure. I mean, generally, I mean, yeah, for the next 12 and 18 months, I would expect that, yeah, the product mix probably will improve from this March quarter low point of margin. Then I would expect that probably in the June quarter, we can expect the gross margin on a Non-GAAP basis to get back to the December quarter level. So March quarter was mainly some product mix and also the decrease in license and engineering service revenue, and along with the Lunar New Year period, which is not going to help on the margin side. So then, I mean, I would expect that, yeah, we can bounce back and recover from there.

David Williams
David Williams
Equity Research Analyst at Benchmark Company

Okay. Great. And then maybe just last one for me. I guess, Stephen, as you look across the landscape and you see the inventory digestion complete, but we've got the tariff issues that are kind of settling in, and you pointed to some of that being pulled in this quarter. Is there a way for us maybe to think about the magnitude of pull-ins you saw? And then what maybe are you hearing thus far from your customers, just given your base in China? How are you hearing from them, or what are you hearing, and how are you positioned for the tariffs as we move forward? Thank you.

Stephen Chang
CEO at Alpha and Omega Semiconductor

I think it's not a huge amount, but I think it makes it that right now we're guiding Computing just to be slightly down, whereas in a normal year, it'll have more of a pronounced effect there, and I think there's still a lot of uncertainty about how that's going to play out in terms of what the new administration is doing and what the impacts will be on trade, you can say, but right now, I think because of the anticipation of tariffs, yeah, we saw a little bit of pull-ins coming because of that.

David Williams
David Williams
Equity Research Analyst at Benchmark Company

Great. Thanks so much.

Operator

Our next question comes from Jeremy Kwan with the company Stifel. Jeremy, your line is now open.

Jeremy Kwan
Jeremy Kwan
Associate Vice President of Equity Research at Stifel

Yes, thank you. Just wanted to circle back on the gross margin question. You mentioned, I think, it being impacted by ASP erosion and mix changes. Can you quantify that? I do recall, I think you talked about pricing declines in the high single digits kind of being above maybe typical. Can you kind of level set us where things are now and how you see it shaping up over the next 12 months?

Yifan Liang
CFO at Alpha and Omega Semiconductor

Okay. Sure. Yeah. I mean, for the whole year, ASP erosion was in the range of mid- to high-single-digit range, and on the same product basis. So going forward, for this calendar year, 2025, we continue to expect the mid- to single-digit type of ASP erosion. And what we do here is we will accelerate our new product rollout to counter the ASP erosion.

Yifan Liang
CFO at Alpha and Omega Semiconductor

So with some good design-in opportunities here, yeah, we expect beyond March quarter that our gross margin can bounce back and recover.

Jeremy Kwan
Jeremy Kwan
Associate Vice President of Equity Research at Stifel

Great. And can you remind us again what your current utilization levels are, both internally and also maybe potentially at your foundry partners, including the JV, and how you kind of expect that to look as we look ahead throughout the rest of the year?

Yifan Liang
CFO at Alpha and Omega Semiconductor

Okay. Sure. For our internal utilization right now, it's around 80% also. So for foundry and JV, they're on their own. So yeah, they can provide and meet our expectations on the purchase, so.

Jeremy Kwan
Jeremy Kwan
Associate Vice President of Equity Research at Stifel

Got it. And maybe one last question on the gross margin side. With margins expected to bottom at the 22.5% level, you talked about bouncing back to December quarter levels in June. How do you see your long-term targets, and what kind of revenue level do you need to get to kind of maybe get back to that 30% gross margin that you experienced in the past? Thanks.

Yifan Liang
CFO at Alpha and Omega Semiconductor

Yeah. Our midterm target model is revenue reaches $1 billion, and then at that time, we expect the non-GAAP gross margin to be around 30%, about 30% range. So that's our midterm target.

Jeremy Kwan
Jeremy Kwan
Associate Vice President of Equity Research at Stifel

That contemplates price erosion in the mid-single digits?

Yifan Liang
CFO at Alpha and Omega Semiconductor

Yes. Yes.

Jeremy Kwan
Jeremy Kwan
Associate Vice President of Equity Research at Stifel

Got it. I guess turning to the end markets, Stephen, you mentioned on the Consumer side that there's a transition going on in terms of the gaming. Can you kind of walk us through the dynamics of that? When do you see the transition inflecting so that the next gen is contributing more meaningfully, and how long is that expected to be a headwind before it turns into more of a tailwind?

Stephen Chang
CEO at Alpha and Omega Semiconductor

Sure. So the gaming platform cycles tend to last somewhere around six to seven to eight years. It really depends on our customer's cadence. Right now, we're around year five of the launch. So it is expected that their production volumes are starting to tail off. So for now, we aren't expecting this to be a huge part of the Consumer portion. Our sights are set on getting ready for the next platform, which is still kind of early stages for. So in the meantime, we're putting our attention in the other areas that are growing, especially AI. Smartphones is also something that we continue to grow in as well, too. So we'll shift to addressing the other markets. And of course, we're going to be preparing ourselves for the next major gaming platform launch.

Jeremy Kwan
Jeremy Kwan
Associate Vice President of Equity Research at Stifel

Got it. And I guess maybe kind of going off those comments, as you look ahead to the rest of this year, which end markets are you most excited about in terms of growth contributors? And if we could get a little bit more insight within Computing, can you give us a rough split between graphics cards, PCs, and AI accelerator cards? Thank you.

Stephen Chang
CEO at Alpha and Omega Semiconductor

Sure. Yeah. We're certainly excited about AI, and that's certainly going to help to strengthen our overall Computing segment. In the past, we thought that this segment would start to reduce in terms of proportion of revenue, but because of our efforts into AI data center and graphics, this is something I think, this is actually going to continue to grow. This is actually a natural evolution of us focusing on PCs first and then moving to graphics and now moving to AI, and that pairs well with our solutions that we've been offering from discrete to ICs for the power stages and now selling the total solutions for that. Right now, AI is really just starting, so it's a small portion of our Computing business.

Stephen Chang
CEO at Alpha and Omega Semiconductor

Our core PC business is still mainstream, and we still expect that to be steady, and we're still waiting for that ultimate recovery to happen for the PC market. But over time, actually, we expect to see acceleration and growth for our AI and graphics business. I don't want to size it at this point, but this is definitely going to be probably the biggest growth area for us in this calendar year.

Jeremy Kwan
Jeremy Kwan
Associate Vice President of Equity Research at Stifel

Great. Thank you. I'll hand it back over.

Stephen Chang
CEO at Alpha and Omega Semiconductor

Sure. Yeah. I want to.

Jeremy Kwan
Jeremy Kwan
Associate Vice President of Equity Research at Stifel

Oh, sorry. Go ahead.

Stephen Chang
CEO at Alpha and Omega Semiconductor

The other area that, just to finish your question, it wasn't only on AI. We also see that smartphone will be an area that will continue to be strong for us. We continue to be a market share leader in all the three core markets that we're in when it comes to battery protection packs. And for these customers, especially the leading brand, we are continuing to expand our footprint into the other products too. So that will also continue to be a growth area and a focus for us. And we still see other sub-segments also emerging that can help us to grow as well. We're still excited about e-mobility. That's a newer area when it comes to e-bikes, e-scooters. And we'll continue to invest in other motor applications as well.

Jeremy Kwan
Jeremy Kwan
Associate Vice President of Equity Research at Stifel

Great. Thank you very much.

Stephen Chang
CEO at Alpha and Omega Semiconductor

Thanks, Jeremy.

Operator

Our next question comes from Craig Ellis with the company B. Riley Securities. Craig, your line is now open.

Craig Ellis
Craig Ellis
Senior Managing Director and Director of Research at B. Riley Securities

Yeah. Thanks for taking the follow-up questions. And in fact, my first question is right where I think Jeremy and Steven, you ended the conversation there. And it was really framing up the things you're most confident in in driving calendar 2025. You're going to go setting aside anything that's unit growth related, whether smartphones, PCs, whatever, but either accruing from content gain, share gain, or just SAM expansion into a new application. Stephen, I think what I heard you say is that AI would be the biggest. After that, you've still got a lot of headroom with smartphone content. And then there are other areas like e-mobility. Is that the right prioritization, and is there anything else that would go on that list?

Stephen Chang
CEO at Alpha and Omega Semiconductor

Yeah. I would put those. That's about right. For sure, AI is the top one. We talked quite a bit about the potential there. Smartphones is exciting, again, because we are seeing charging currents increase. There is generally a demand for fast charging, and we see phone makers advertising that. And this is something that's directly tied to the usage of our products in those battery packs. So with the new charging currents going up, the performance requirements for our solutions also go up, and thereby the BOM content is expected to increase in each forthcoming generation. And this is something that I think will continue to be rolled in going forward across various models at our customers.

Craig Ellis
Craig Ellis
Senior Managing Director and Director of Research at B. Riley Securities

Thank you. That's very helpful. The follow-up is a little bit further on intermediate to longer-term gross margins. Clearly, there's been a lot of competitor pricing pressure in the market at volume levels that are this low, and it's had a negative impact on gross margins. Here we are back down in the low 20s. As the company looks at things it can do to move back to that mid-20s range and then to the 30% range, are there things other than the new product release cadence and higher value, higher ASP products like we've seen UPR multiple times in the last couple of months that get you back there? How do we think about things that you're doing differently amidst recent pricing pressure to re-accelerate margins? Thank you.

Yifan Liang
CFO at Alpha and Omega Semiconductor

Sure. I mean, yes. And then new products and higher margin products and the roll-out, yes, definitely is a major factor to improve gross margin. On top of that, yes. And then, I mean, as we continue to grow our business, we would expect our utilization to go up. So I mean, internally, we also focus on the cost reduction. So all those aspects, we expect to grow our gross margin.

Craig Ellis
Craig Ellis
Senior Managing Director and Director of Research at B. Riley Securities

Got it. And Yifan, would you expect a fairly steady climb back? I know that's in part trying to put a prediction on end demand, but maybe the different way to ask it is, are there any discontinuities coming either in new products and pricing and gross margin or cost reduction that would give us a particular step up as we look out over 2025 and 2026?

Yifan Liang
CFO at Alpha and Omega Semiconductor

I mean, for that long, it's hard to say. I mean, there are a lot of factors that would intertwine there. But what I expect is in the June quarter, we can expect our non-GAAP margin to get back to the December non-GAAP margin level, so.

Craig Ellis
Craig Ellis
Senior Managing Director and Director of Research at B. Riley Securities

Got it. Okay. Well, that'll be a nice step forward. Okay. Thanks very much, team.

Yifan Liang
CFO at Alpha and Omega Semiconductor

Okay. Thank you.

Stephen Chang
CEO at Alpha and Omega Semiconductor

Thank you.

Operator

Our next question comes from Jeremy Kwan with Stifel. Jeremy, your line is now open.

Jeremy Kwan
Jeremy Kwan
Associate Vice President of Equity Research at Stifel

Thank you. Just a quick clarification follow-up on the customer deposits. I think in the past, you've broken out short-term versus long-term. And your total deposits, I believe it's $42.3 million last quarter, with the $5 million down of $37 million. But can you break that out between short-term and long-term deposits and how you see that shaping up? And one follow-up to that would be, are there any license payments that you might need to make in terms of the silicon carbide agreement, or is that pretty much locked in at this point?

Yifan Liang
CFO at Alpha and Omega Semiconductor

Okay. Sure.

Jeremy Kwan
Jeremy Kwan
Associate Vice President of Equity Research at Stifel

Or not license deposits. I'm sorry. The deposits.

Yifan Liang
CFO at Alpha and Omega Semiconductor

Okay. In terms of customer deposits, yeah, there are $30-some million balanced right now on our balance sheet. In calendar year 2025, we expect to return about $25 million-ish. So most of that $30-some million are already classified to short-term within the next 12 months. So after that, and I mean, in calendar year 2026, there will be a few million dollars left over there. So that'll be done by 2026. So what else on the?

Jeremy Kwan
Jeremy Kwan
Associate Vice President of Equity Research at Stifel

Oh, there was, I think in the past, you had a silicon carbide supply agreement. Is there any kind of payment that's anticipated for that?

Yifan Liang
CFO at Alpha and Omega Semiconductor

No. That's it. Yes.

Jeremy Kwan
Jeremy Kwan
Associate Vice President of Equity Research at Stifel

Okay. Great. Thank you very much.

Yifan Liang
CFO at Alpha and Omega Semiconductor

All right. Thank you.

Operator

At this time, there are no more questions registered in queue. Again, if you would like to ask a question, it is star followed by one. There are no more questions registered in queue. I'd like to pass the conference back over to our hosting team for closing remarks.

Steven Pelayo
Steven Pelayo
Investor Relations Representative at Alpha and Omega Semiconductor

Okay. Great. This is Steven Pelayo, and this concludes our earnings call today. Thank you for your interest in AOS. We look forward to talking to you again next quarter. Take care.

Yifan Liang
CFO at Alpha and Omega Semiconductor

Thank you.

Stephen Chang
CEO at Alpha and Omega Semiconductor

Thank you.

Operator

That will conclude today's conference call. Thank you for your participation, and enjoy the rest of your day.

Executives
    • Steven Pelayo
      Steven Pelayo
      Investor Relations Representative
Analysts
    • David Williams
      Equity Research Analyst at Benchmark Company
    • Craig Ellis
      Senior Managing Director and Director of Research at B. Riley Securities
    • Stephen Chang
      CEO at Alpha and Omega Semiconductor
    • Yifan Liang
      CFO at Alpha and Omega Semiconductor
    • Jeremy Kwan
      Associate Vice President of Equity Research at Stifel
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