Alpha and Omega Semiconductor (NASDAQ:AOSL) Q4 2019 Earnings Call

0:00 Good afternoon. My name is Christine, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Alpha and Omega Semiconductor Fiscal Year and Q4 2019 conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star and the number 1 on your telephone keypad. If you would like to withdraw your question, press the pound key. Thank you. Soyeon Jeong, Investor Relations, you may begin your conference. Thank you, Christine. Good afternoon, everyone, and welcome to Alpha and Omega Semiconductor's conference call to discuss fiscal 2019 fourth quarter and year-end financial results. I am Soyeon Jeong, Investor Relations representative for the company.

0:52 With me today are Dr. Mike Chang, our CEO, Yifan Liang, our CFO, and Stephen Cheng, our Senior VP of Marketing. This call is being recorded and broadcasted live over the web and can be accessed for seven days following the call via the LinkedIn Investor Relations section of our website at www.aosmd.com. Yifan will begin with a review of financial results for the fourth quarter and the fiscal year. Then, Mike will review the business highlights, followed by Stephen, who will provide a detailed segment report. After that, Yifan will conclude what guidance for the next quarter. Then we'll have the questions and answer sessions.

1:38 The earnings release was distributed by Business Wire today, August 7, 2019, after the close of market. The release is also posted on the company's website. Our earnings release and this presentation include certain 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 that we provide. A reconciliation of these non-GAAP measures to comparable GAAP measures is included in our earnings release. We remind you that during the course of the conference call, we'll make certain forward-looking statements including discussion of business outlook and financial projections.

2:24 These forward-looking statements are based on management's current expectations and involve risks and uncertainties that could cause actual results to differ materially from such expectations. For 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. Now, I'll turn the call over to our CFO, Yifan, to provide an overview of the fourth fiscal quarter and the fiscal year 2019 financial results. Yifan? Thank you, Sohyang. Good afternoon, everyone, and thank you for joining us. Revenue for the June quarter was $111.9 million, up two point six percent when compared to the prior quarter and up one point eight percent from the same quarter last year.

3:21 In terms of product mix, MOSFET revenue was ninety six point four million dollars, up seven point one percent sequentially and up seven point eight percent year over year. PowerAC revenue was thirteen point eight million dollars, down twenty one point eight percent from the prior quarter and down 21.4% from a year ago. Assembly service revenue was $1.7 million as compared to $1.6 million for the prior quarter and $3 million for the same quarter last year. Regarding the segment mix, computer represented 44% of the total revenue, consumer 18.7%, power supply and industrial 20.5%, communications 15.3%, and service 1.5%. For the fiscal year 2019, revenue was $450.9 million, up 7% year over year.

4:33 Non-GAAP gross margin for the June quarter was 27.4%, as compared to 27% for the prior quarter, and for the same quarter last year. The quarter-over-quarter increase in non-GAAP growth margin was mainly driven by the improved product mix. Non-GAAP growth margin excluded $0.4 million share-based compensation charge for the June quarter as compared to $0.5 million for the prior quarter and for the same quarter last year. Non-GAAP gross margin also excluded $2.6 million of production ramp-up costs related to the Chongqing joint venture for the June quarter as compared to $3.4 million for the prior quarter.

5:28 For the fiscal year 2019, Non-GAAP gross margin was 28.4% as compared to 26.9% for the last fiscal year, representing an increase of 150 basis points driven mainly by the improved product mix. Non-GAAP operating expenses for the June quarter were $22.6 million compared to $23.2 million for the prior quarter and $21.8 million for the same quarter last year. The quarter-over-quarter decrease in non-GAAP operating expenses was primarily due to the fluctuation of R&D engineering expenses.

6:18 Non-GAAP operating expenses excluded $2.1 million of share-based compensation charge as compared to $2.6 million for the prior quarter and $2.5 million for the same quarter last year. Non-GAAP operating expenses also excluded $3.9 million of pre-production expenses related to our JV company as compared to $3.6 million in the prior quarter and $5 million for the same quarter last year. Both GAAP and non-GAAP operating expenses included $2.3 million of digital power controller team expenses for the quarter as compared to $2.3 million for the prior quarter and $1.3 million for the same quarter last year.

7:12 Our digital power controller team continues to engage with customers in product designs and is making steady progress toward our product roadmap. Non-GAAP operating expenses for the fiscal year 2019 were $95.3 million compared to $86 million for the prior fiscal year. Non-GAAP operating expenses excluded $11.2 million of share-based compensation charge and $15.8 million of pre-production expenses related to our JV company in the current fiscal year. as compared to $9.8 million of share-based compensation charge and $7.8 million pre-production expenses in the prior fiscal year.

8:09 Income tax benefits for the quarter were $.6 million as compared to tax expense of $.6 million for the prior quarter and $.7 million for the same quarter last year. The tax expense for the quarter was offset by the benefits of $1.1 million. This included a $.3 million benefit from the true-up of subsidiary tax provisions to the actual tax returns. We also had a $.8 million benefit from electing the IRS directive method for the R&D credit. Income tax expense for the Fiscal year was $1.3 million.

8:57 Income tax expense for last fiscal year was $0.7 million, which included $2.7 million of one-time tax benefit from the impact of the US tax reform. Non-GAAP EPS attributable to AOS for the quarter was $0.35 per share, as compared to $0.22 earnings per share for the prior quarter and $0.31 earnings per share for the same quarter last year. Non-GAAP EPS attributable to AOS for the fiscal year was $1.23 as compared to $1.14 earnings per share for the prior fiscal year.

9:45 AOS continued to generate positive operating cash flow. In the June quarter, We generated $15.2 million operating cash flow attributable to AOS as compared to $9.5 million for the prior quarter and $8.7 million for the same quarter last year. Cash flow used in operations attributable to our JV company was $6.9 million for the June quarter compared to $17.5 million for the prior quarter and $19.5 million for the same quarter last year. Cash flow from operations attributable to AOS for the fiscal year was $65.3 million as compared to $36.9 million for the prior year. Cash flow used in operations attributable to the JV company was $33.9 million for the year compared to $33.4 million for the prior fiscal year.

10:56 Consolidated EBITDAs for the June quarter was $14.2 million compared to $11.8 million for the prior quarter and $12.8 million for the same quarter last year. EBITDAs attributable to AOS for the quarter was $15.1 million as compared to $13.5 million for the prior quarter and $15.3 million for the same quarter last year. Consolidated EBITDAs for the full fiscal year was $55 million as compared to $56.1 million in the fiscal year 2018. EBITDAs attributable to AOS for the year was $61 million as compared to $58.4 million a year ago.

11:49 Now let's look at the balance sheet. We completed June quarters with cash and cash equivalent balance of $121.9 million, including $100.7 million at AOS and $21.2 million at our JV company. This compares to $139.1 million at the end of last quarter, which included $90.9 million at AOS and $48.2 million at the JV company. Our cash balance a year ago was $131.5 million, including $88.2 million at AOS and $43.3 million at the JV company. The bank borrowing balance at the end of the June quarter was $140.9 million, including $41 million at AOS and $99.9 million at the JV company.

12:51 During the June quarter, AOS paid down $2.1 million of loans, and our JV company paid down $1.7 million of its financing lease. During the fiscal year 2019, AOS borrowed a total of $21.7 million of loans and repaid $11.5 million. The JV Company borrowed a total of $45.8 million and repaid $3.5 million. Net treat receivables were for the same quarter last year. Day sales outstanding for the quarter was 24 days compared to 23 days in the prior quarter. Net inventory was $111.6 million at the quarter end, up from from $107.9 million last quarter and from $90.2 million in the prior year.

14:09 Average days in inventory were 117 days for the quarter as compared to 114 days in the prior quarter. Net property plant and equipment was $409.7 million as compared to $391.6 million last quarter and $331.7 million last year. Capital expenditures were $22.1 million for the quarter, including $4.6 million at AOS and $17.5 million at the JBE company. Capital expenditures for the fiscal year were $112.1 million, including $36 million for AOS, and $76.1 million for the JVE company.

15:06 Before I turn the call over to Mike, I would like to share the progress at our JVE company. During the June quarter, assembly and test production continued to ramp and the 12-inch fab's product sampling and customer qualification process went well. In July, the 12-inch fab started small mass production. We expect to continue to ramp up phase one in the next 12 months or so. With that, now I would like to turn the call over to our CEO, Dr. Mac Chen, who will provide the business highlights for the quarter. Mike. Thanks, Yifan, and good afternoon to everyone.

15:52 Our team executed well and delivered a sound quarter. Revenue of approximately $100 and Yifan Liang, Yifan Liang. generated healthy operating cash flow of $15 million and free cash flow of $10 million.

16:40 In addition to solid financial results, we made good operational progress in the quarter. Shipments grew rapidly for our new products in mobile and home appliance applications. Meanwhile, We optimized the production and inventory in order to manage the dynamics of our computing business. We also launched several new products including 600V and 700V AlphaMOS5 Super Junction MOSFET families in 12-inch technologies from our Chongqing joint venture. We finished fiscal year 2019 with healthy top and bottom line growth, another record year on top of a very strong 2018.

17:37 This was encouraging considering the backdrop of escalating trade tension, economic uncertainty, and the CPU shortage. Our results clearly demonstrated strength of our business strategy operating excellently, as well as our diversified product portfolio and expanded customer base. Looking ahead, despite the challenges of current market conditions and the geopolitical environment, we are making solid progress toward our calendar year 2021 target of $600 million in annual revenue. Our customer design in pipeline is robust and the design wins are strong, especially in our focus applications.

18:33 This drives a healthy level of fresh bookings and solid backlog. As I mentioned on our last call, with some of the multi-year growth drivers beginning to run, we believe that we are well positioned to achieve sustainable and scalable growth. Additionally, we are extending our leadership as a top tier supplier in a broad range of applications, particularly in mobile and home appliance. We expect this ongoing diversification to further strengthen in the coming quarters as we run production for multiple global brand OEM customers in China, and the United States.

19:27 With a solid foundation of customer demand, the production ramp of Chongqing Joint Venture is well-timed. In July, we initiated production at the top-inch flap, and we are gradually ramping according to our plan. Around this time next year, we expect to be approaching our phase one target run great. In conclusion, we continue to execute our long-term business strategy with focus and dedication. We believe the success of our new product initiatives, diversification in product portfolio and customer base, as well as disciplined and timely investment in capacity over the past several years will further prepare our growth.

20:24 And now I will turn the call over to Stephen for a detailed segment report. Stephen. Thank you, Mike, and good afternoon. Let me start with computing. It represented 44% of our total revenue in the June quarter. Revenue was down 5.1% sequentially and up 2.3% year over year. As I mentioned on our last call, we prioritized our production plan for commercial PC, which received a higher allocation amid the ongoing CPU shortage. With both channel and internal inventories on hand to support our computing customers, we were able to allocate more capacity to other high growth areas that already started ramping in the June quarter, and we expect this to continue into the September quarter.

21:20 Our computing segment remains an important component of our business. As a market leader and strategic partner to leading PC OEMs and ODMs, we continue to work closely with our customers to provide innovative products and superior customer support. In the September quarter, while we anticipate strong sell-through, our sell-in revenue is expected to be down mid-single digits as we continue to manage the computing inventory. Now let's discuss the consumer segment, which was 18.7% of total revenue in the June quarter. Revenue increased 1.3% sequentially, but stayed flat year over year.

22:05 Strong growth in home appliance offset softness in other consumer applications in the June quarter. The new design wins we announced last quarter in home appliances with Chinese and Korean customers further ramped during the June quarter. Our home appliance customers value the reliability and energy savings that our IGBT technology offers through better efficiency, robustness, and smaller size. We are encouraged by the fast adoption of our technology at global OEM customers, and we will continue to sharpen our technology to gain greater share and add more content. We are on track to increase our IGBT product line by over 40% in calendar year 2019.

22:54 Looking to the September quarter, we expect a modest growth in the overall consumer segment led by continued expansion of our home appliance business as well as seasonal growth of our TV business. Next, let's turn to the power supply and industrial segment. This segment accounted for 20.5% of total revenue, up 8.1% sequentially and up 3.7% year over year. While our ACDC power supply business remained soft, our quick charger business rapidly grew as it further expanded at top smartphone customers. Overall quick charger adoption has grown in recent years as battery capacity has increased in order to meet the ever-increasing power requirements of demanding smartphone applications.

23:47 This trend requires high performance medium voltage MOSFETs and this bodes well for AOS as our June quarter's quick charger revenue more than doubled from the same quarter last year. With an expanded allocation for medium voltage products, we expect a strong revenue increase for this segment in the September quarter. Finally, let's discuss the communications segment, which was 15.3% of revenue in the quarter, up 25.4% sequentially, and up 10.4% year-over-year. The growth was driven mainly by the rising demand for battery protection products at our smartphone customers. As mentioned before, smartphone battery capacity is increasing and requires higher efficiency to prolong battery life. Our expertise in low voltage MOSFET technology coupled with advanced chip scale packaging allows us to deliver compact, high power density products that protect the latest generation of smartphone batteries.

24:53 Looking into the September quarter, we anticipate another double digit growth in this segment as all major smartphone players in China, Korea, and the US are entering peak production. With that, I will now turn the call over to Yifan for the guidance. As we look forward to the first quarter of fiscal year 2020, we expect revenue to be between $115 million and $119 million. gross margin to be approximately 20% plus or minus 1%. Non-GAAP gross margin is expected to be approximately 27.3% plus or minus 1%. Note that non-GAAP gross margin excludes $0.5 million of estimated share-based compensation and $8.1 million of estimated production ramp-up costs relating to the Chongqing joint venture as the 12-inch fab starts production in July 2019.

26:05 Operating expenses to be in the range of $27 million plus or minus $1 million. Non-GAAP operating expenses are expected to be in the range of $24.6 million plus or minus $1 million. Both GAAP and non-GAAP operating expenses include $2.9 million to $3.1 million of estimated expenses relating to the development of our digital power controller business. Non-GAAP operating expenses exclude an estimated share-based compensation charge of approximately $2.4 million. Tax expense to be approximately $0.5 million to $0.7 million.

26:57 lost attributable to non-controlling interest to be around $5.4 million. On a non-GAAP basis, excluding estimated production ramp-up costs relating to the JV company, this item is expected to be approximately $0.9 million. As part of our normal practice, we're not assuming any obligations to update this information. With that, we will open up the floor for questioning. Operator. Thank you. At this time, I would like to remind everyone, in order to ask a question, please press star, then the number one on your telephone keypad.

27:42 We'll pause for just a moment to compile the Q&A roster. Your first question comes from the line of Jeremy Kwan from Stifel. Your line is open. Yes, thank you. and congratulations on the strong communications ramp. It's nice to see that coming on. Mike, just a question on the calendar 21 $600 million target. You mentioned something about hitting that run rate in the June 2020 quarter. Did I hear that correctly? Yes. Okay. And can you give us maybe more color in terms of how you see that ramping? Are these basically design wins that you already have already won, and it's just a matter of ramping up the fab to meet that demand?

28:37 Or are there some other things that need to take place between now and then? Jeremy, this is... I want to correct a little bit on the comments regarding the June quarter 2020 run rate of $600 million target. What we said in our prepared remark is by close to the June quarter 2020, we will approaching the target run rate of Chongqing Joint Ventures Phase 1 12-inch fab. So not the $600 million run rate.

29:22 Okay. So on a quarterly basis, what would that work out to then for the June quarter? I'm just trying to get a sense of what was meant by that. Well, that means that... approaching to the target run rate. So the one closing. Yeah, it's the capacity run rate. Yeah. Got it. Okay. And that's for phase one. Yeah. I think for the, your question is for 2021 calendar year, right? Yes. Okay. Yes. That's a very good question. First, thank you for the question. Okay. Now, we have to prepare everything. First, we make sure our technology and new product got it. That's very helpful. I guess if we look at the JV ramp itself.

30:38 Can you give us a sense of where the, you know, it looks like the operating cash flow is improving each quarter. Do you have an internal projection for where it might turn to break even? I also remember you mentioning the need for maybe a working capital loan last quarter. Is that something also still in the plans and how much that might be? Okay, sure, Jeremy. Yes, we are still under negotiation for a working capital loan at this point, so we'll see. At this point, yes, joint venture still has the cash balance right now to support their ramp. In terms of cash flow break-even, When we ramp up to the phase one stage, I would expect at that time we can be cash flow neutral at the joint venture.

31:44 Great, thank you. And maybe just one final question before I give up to the queue. It looks like the OpEx has been pretty nicely controlled the last few quarters. Is this the September quarter guidance? It's up a little bit. Is that the new run rate that we can expect for fiscal 21? Or sorry, for fiscal 20? Yes, I would think that you can use that as a reference. Because in the last couple of quarters, those OPEX kind of maintained at a relatively lower than normal rate. Thank you very much. Jeremy. Before you hand up, can I just add up a little bit for your first question?

32:54 Because this answer should be pretty big there because it's so complicated, right? But actually, on top of what we talked about, the technology portfolio and product line there, and even more important is that the customers start to recognize AOS as a a brand name. So right now, our design, our engagement with the Tier 1 customer is a really capable role towards the direction. So everywhere is on that direction. That's why we are confident to say that we are pushing that direction. Thank you. That's very helpful. Yeah, thank you. Okay, thank you. Your next question comes from the line of David Williams from Loop Capital. Your line is open. Hey, good afternoon and thanks for taking my question.

33:40 Congrats on the solid finish to the year and the progress that's being made. First of all, I just wanted to see if you could maybe give us an update or maybe your thoughts on channel inventory health and if you're seeing anything concerning there. It sounds like a lot of those areas are seeing some nice digestion of the overstock. Are you seeing that? And any concerns, I guess, any particular areas of weakness or maybe too much inventory that remains? Sure, David. There are quite a bit of dynamics in that area. And I mean, this overall, you know, our channel inventory is healthy within our target of two to three months. I mean, this right now, you know, in the June quarter, or even including the quarter before, we have been optimizing our productions and internal inventory and channel inventory to manage this dynamics of computing and smartphone business.

34:48 So we manage our productions to support our customer demand. Our overall goal is to support our customer demand according to their production schedules. So, you know, there are some different customers and they have different ramping schedules, so we have to manage that. Also, recent market conditions and trade tensions, I mean, those things complicated this whole thing. There have been more pull-ins and push-outs and adjustments. This whole thing is, we have to manage it diligently.

35:42 Right now, we're using our inventory to support our portion of the customers and then ramping our productions to support the other and a little bit more on other customers ramp up in the June quarter and September quarter. So it's quite dynamic. But overall, with an additional capacity came online at our Chongqing joint venture, we expect our supply constraint situation gradually ease. But like what Mike said, it will take some time for customers to go through those qualifications, design-in, design-win, and their production ramp-up. So right now, we're kind of diligently managing those situations. But overall, our channel inventory is very healthy.

36:47 Okay, very good. Thank you. And I realize that you guys have a little different dynamic, what's really driving your business today. But if you're kind of looking out at China overall, how do you see that demand environment today? And what are you hearing maybe from your customers in terms of their view? Are they becoming more cautious? Are they easing a bit? What do you think, I guess, are your customers seeing? are the order trends as you would expect? Do you think there's anything that's really being pulled in ahead of maybe concern for tariffs or further trade issues? Yeah, definitely. I mean, there are a lot of moving parts and dynamics in those areas. I mean, this thing is depending on which way the and others.

37:35 I mean, tomorrow if there's another tweet, people may react differently. I mean, that's the situation at this point. I mean, yes, we do see some pull-ins ahead of whatever the tweet tension situation, and we also see some adjustment pushing out. quite dynamic, I would say, at this point. Okay, very good. Thank you. And then maybe in terms of the server demand, is there anything there that you're seeing, softness, weakness, or maybe any progress that's being made? Just any color you can give on the server side would be helpful.

38:22 Sure. I think you're asking regarding our digital power initiative. So regarding that space, we're still on track. Our next target, right now we're getting our final products out of development, and we're already engaging with customers. Right now we're treating this current year as a design end phase. Our model all along has been to chase and target meaningful revenue in 2020, and on that regard, we believe we are on track. Just any sense on the magnitude of that revenue contribution next year? It's five to ten is what we've been saying. Okay, very good. Well, thank you. Let me just add up a little bit. You know, this area, the business, normally people are very careful to design you in. And it takes some time to grow, but once you grow, it will be very solid because there's a lot of strong adhesion in this business there. So we are pretty excited about that.

39:26 Thank you. Thank you. Your next question comes from the line of Craig Ellis from B Reilly FBR. The line is open. Hey guys, it's Carlin on for Craig. Thanks for taking my question and congratulations on the good results in the quarter. I just had a quick question and I apologize because I think I might have missed it, but regarding the compute September quarter guidance, How has the, obviously tariffs have made things more dynamic, but how has the CPU supply ramp and this latest round of tariffs impacted what would be a normal seasonal ramp through the back half of the year? What we've seen overall in the CPU situation, overall as an industry, it is beginning to ease up in terms of the shortage. We see both the two major chip makers combined are catching up their supply to the demand.

40:25 So we saw that already happening in the second quarter. Of course, with these trade tensions and the threat of additional tariffs, that happened back in Q2 and it's happening now also in the September quarter. So there is some dynamic to that in terms of some customers if they are able to pull in production for that. but overall I think what we've guided is that because we have some inventory in the computing area and we've also allocated we've had to allocate our capacity to support other growing business especially in the communications and quick charger area we are expecting for computing our sell-through to be higher than our sell-in in the September quarter.

41:10 Okay, so just to clarify what the actual guidance was for the September quarter, does that mean it was going to be down sequentially or kind of up sequentially? It will be down sequentially for sell-in. Got it. and then if I could ask a follow-up. So I think last quarter, and feel free to correct me if I'm wrong, you had said that the digital power initiatives would be at the joint venture would be ramping kind of closer to the March quarter of last year, but now it seems as though you guys said June quarter. Did I have that wrong or did something change in the way you're thinking about how that business is ramping through this year? First of all, digital power when not in the joint venture. I mean, that's the first thing.

42:00 Second thing is regarding the joint ventures ramp up. Yeah, I mean, this 12-inch fab started in a small mass production in July. You know, as I said previously, you know, we expect and we ramp this fab in, in the 12-month period also. So, I mean, that's pretty much lead to same time next year. So, we're targeting to get to the phase one run-up. Okay. And one more from me and then I'll hop back in the queue. Once we get to that kind of joint venture full capacity in the June quarter, how do we expect gross margins to track towards that 30% target moving forward.

42:51 Will it be kind of by the June quarter we would expect upward pressure towards 29% and 30% because of the new product coming online? Or is that going to be by more end of calendar 20? Yeah, calendar 20. Just any color you can give around how you're thinking about gross margins tracking towards the target. Okay, first of all, you know, what we said was, you know, we're targeting, you know, the phase one 12-inch fab run rate, you know, in about 12 months or so. So that translates to, you know, September quarter of next year, calendar year.

43:40 Second thing is, you know, it's what we, estimated, you know, when we ramp up to phase one 12-inch fab, our 12-inch wafer cost on the per die basis will be on par with our 8-inch wafer cost. So that neutralizes the cost and impact at that time. So our overall target model is to target the 30% margin when we get to $600 million in revenue. So that's our target model in calendar year 2021. Okay, got it. Thanks so much. I'll hop back in. Okay, thank you.

44:31 Your next question comes from the line of Jeremy Kwan from Stifel. Your line is open. Yes, thank you. Maybe just a follow-up on that previous question. So understanding that 30% is the overall target model at $600 million, how about in terms of the progression between now and then? From what I understand, as the JV ramps up, there's actually a little bit of a negative impact to gross margin, and it looks like we saw a little bit of that in the September quarter. Is that 27%, 27.3, is that kind of a baseline that it might Where can we see gross margin trend, I guess, in the next 12 months as the JV ramps? I would expect in the recent couple quarters, it's in the state, in that neighborhood, you know, 27, 28. And I would expect that gradually we'll get up to 28, 29 range. So that's primarily from the New products, you know, all those product mix along with it. So another factor is, you know, this year and onward will factor in some, you know, ASP pressures because the system right now, the market dynamic is different than last year's, you know, space. So, you know, last year's shortage

46:02 has been easing up. And so right now, I would build in some modest ASP erosion. And is that a change from maybe three or six months ago, where I think you mentioned ASPs kind of stabilizing versus having some uplift last year? Is the modest ASP erosion, is that a little bit of a shift there, or is it A little bit modest shift. Maybe switching gears a little bit to the CAPEX side of things, with the fiscal year behind us, can you give us an update on your CAPEX plans both for AOS internal and then the JV for fiscal 20?

46:55 For fiscal 20, AOS side targeting like still 6% to 8% of revenue type of things. I would think that right now it's more toward low end of that range for AWS. For the JV, yeah, they will continue to spend some remaining portion of the phase one equipment purchase payment. And mainly the payment, the equipment's pretty much all in. will fine-tune some production lines and what we may need here and there. Primarily is the one remaining payment. So once we have the current cash plus the loans under negotiation, we would expect that will be sufficient for the phase one ramp-up.

47:53 Great. That's very helpful. And one last question. In terms of the overall end market mix, You've got communications ramping up quite strongly last quarter. It looks like it's going to be strong again this quarter. And then power supply industrials doing pretty nicely too. Do you see an overall shift in the end market mix in 12 months? And if so, is it significant enough to shift your seasonality from I think right now you guys have your fiscal Q2 and Q3 a little bit on the more flattish to downish a little bit and stronger periods being fiscal Q1 and Q4? Do you see that holding true, or as your JBRAMs, are there different things to consider in terms of seasonality? I think in the short term, it probably won't change too much.

48:40 In the longer term, we are moving towards diversifying our segment base. In the past, we've been more computing heavy. Of course, we'll continue to invest and grow our computing business, but right now we are seeing our other segments grow faster, right now tied to the smartphone, whether it's battery protection in communications, or a quick charger in the power supply. Some of these can help to smooth out the seasonality a bit. But I think overall, we're still going to see some seasonal pattern, just like we have in the past. Great. Thank you very much. But in general, we also, it's our goal to diversify our technology into all the area of graduate growth. So that's our company strategy and policy.

49:29 Thank you, Mike. Appreciate that. You're welcome. Your next question comes from the line of Craig Ellis from B. Reilly FBR. Your line is open. Hey, guys. Just a quick follow-up. So free cash flow in the quarter was, for AOSL, was strong. And I'm just trying to think about how, what the plans are for free cash flow kind of moving through calendar 20 and calendar 21 once phase one of the joint venture ramp kind of gets are meaningfully behind you guys. How do you guys think about pre-cash flow usage? And then also, is there anything that you guys need to do to prep for phase two and phase three to kind of track towards the calendar 24 target financial model of a billion?

50:18 Okay, sure. Overall, I mean, this fiscal year 19, AWS generated the healthy, free cash flows. Going forward, fiscal year 2020, I would expect we can do similar level of free cash flow depending on the cash flow needs. I would not expect too much, too heavy capex investment from the AOS side. We're now more like maintaining and fine-tuning our and other product mix production lines deep bottlenecking some areas. So for AOS alone, I would expect to continue to generate healthy operating free cash flow.

51:18 For the joint venture, I mean, that, you know, for them, you know, We are a separate entity. Other than the contributions we have made, joint venture company has its own capacity to borrow money. They own the land and the buildings and the equipment. They can mortgage it out and then get financing from there to support their ramp. So for AWS, they are one of our major suppliers in that way. So for the joint venture, for phase two, three, when we ramp up, I would say halfway through phase one, and then we'll start considering phase two.

52:22 You know, for Phase 2, I mean, the incremental investment will be much less than Phase 1 because some infrastructures and buildings and all those things, CapEx, are down. So, you know, overall, you know, we need to purchase some equipment, tools, and then maybe, you know, the small incremental cleanroom expansions and so on. Thank you very much. You know, 5G handsets can start to more meaningfully roll out. How should we think about your content increases on the battery protection side in that business? And how much was this year's kind of banner performance more customer diversification?

53:34 and rather than kind of unit dependence because, you know, obviously units are not having a great year. So what's the potential like upside next year to what was a really strong quarter this quarter and is shaping up to be a really strong quarter next year, next quarter, sorry? Sure. For us, just looking at the application first, the 5G would definitely drive more content and with regards to battery protection, which is where we play, Right now, you can see the latest smartphones not only are they getting bigger, but especially with the 5G, it's much more demanding on power. With 5G, you have additional capability for video streaming or gaming or even virtual reality. That's very taxing on the battery itself.

54:22 So the need for efficient battery protection is very keen. and so definitely on the client side we expect to see growth. The growth that we saw this year has a lot to do with the customer expansion. As we shared with you guys, we added the major global smartphone makers at the end of last year and this year we're beginning to enjoy that. We expect that to continue going into next year on the client side. The area of growth for us is also going to be on the infrastructure side with telecom. The 5G not only is going to benefit handsets, but all the infrastructure will have to be replaced over the course of the next few years. And AOS has strong products covering a wide variety of applications within the telecom system.

55:15 This includes discrete MOSFETs that go into the DC-DC conversion as well as our digital power are solutions for telecom for the point of loads. So at AWS, we believe we have a very good opportunity to grow even further beyond just client-side battery protection, but moving also into the infrastructure side. Got it. And do you know, like, what the – do you guys have any sense on what perhaps maybe your long-term mix would be in terms of smartphones versus telecom in that – in that end market. Is it going to be eventually 50-50? Is it going to be 75-25? I'm just trying to think about, because I know it's so small right now, and how that's going to ramp once you start really kind of getting that business underway.

56:02 I think getting to 50-50 in the midterm is probably about right. Obviously, the battery protection has a big head start in that market, but the digital power is something that's much more longer sustaining The amount of content going into base stations is quite large for digital power as well, too. So in the longer run, I believe the digital power can catch up to the battery protection portion of the client side. Got it. All right. Thanks, guys. There are no further questions at this time. I turn the call back over to the management team. concludes our earnings call today. Thank you for your interest in AOS and we look forward to talking with you again next quarter.

56:48 Thank you.