Chip Demand to Remain Stronger Than Industry’s ‘Ability to Meet It’: AOS

Though Alpha and Omega Semiconductor sees signs that “historical seasonal patterns are beginning to return,” which is healthy, at least for the remainder of this year, “we expect global demand for semiconductors to remain stronger than the industry's ability to meet it,” said President Stephen Chang on an earnings call Monday for fiscal Q2 ended Dec. 31. The company draws most of its revenue from sales of power semiconductors and other components to tier 1 OEMs in smartphones, PCs and game consoles.

AOS continues to focus on “strategically strengthening and diversifying our production capacity,” said Chang. Its Oregon fab in suburban Portland is undergoing a $100 million “R&D facilities upgrade and capacity expansion project,” which AOS expects to complete in the December quarter, he said. “Equipment has already been ordered and the clean room expansion is already in progress. When completed, we estimate the incremental revenue based on this new capacity to be approximately $70 million annually.”

Q2 revenue in the AOS consumer segment grew 9.9% year over year, but declined 4.6% sequentially from fiscal Q1, said Chang. Strong demand and “share gains” from sales to a tier 1 gaming OEM helped drive the year-over-year increase, he said.

The sequential results in Q2 “were lower than our original target, primarily due to timing of shipments in gaming,” because a major gaming customer “pushed out” component orders to the March quarter “due to component delays from another supplier,” said Chang. Total company revenue wasn't affected, “as we were able to quickly shift wafer capacity to other parts of the business,” he said. “We expect our consumer segment will achieve strong double-digit sequential growth in the March quarter as we reaccelerate shipment to this particular gaming customer after they resolve their other supply shortages.”

Gaming consoles are “a good business” for AOS, said Chang. “We have been prioritizing that, and unfortunately, our customer has been having production issues.” It’s a “pretty common story” in the consumer tech category, even among the “leading tier 1 customers,” he said. They have difficulty “procuring all the materials they need to produce these consoles, so this is not new to us,” he said.

The challenges were prevalent “throughout most of last year,” said Chang. “We've always been kind of watching the demand situation and their production schedules very closely so that we can internally make sure that we position our production accordingly and shift into other places.”