Alpha and Omega Semiconductor Ltd (AOSL) 2020 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by. And welcome to the Alpha and Omega Semiconductor Reports Financial Results for the Fiscal Second Quarter 2020 Conference Call. (Operator Instructions) Please be advised that today's conference is being recorded. (Operator Instructions)

I would now like to hand the conference over to your speaker today, So-Yeon Jeong. You may begin.

Thank you. Good afternoon, everyone, and welcome to Alpha and Omega Semiconductor's conference call to discuss fiscal 2020 2nd quarter financial results. I am So-Yeon Jeong, Investor Relations Representative for the company. With me today are Dr. Mike Chang, our CEO; Yifan Liang, our CFO; and Stephen Chang, our Executive Vice President. This call is being recorded and broadcasted live over the web and can be accessed for 7 days following the call via the link in the Investor Relations section of our website at www.aosmd.com.

Yifan will begin with a review of financial results for the quarter, and Mike will review the business highlights, followed by Stephen, who will provide a detailed segment report. After that, Yifan will conclude the guidance for the next quarter. Then we'll have the question-and-answer session. The earnings release was distributed by Business Wire today, February 5, 2020, after the close of the 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 discussions of 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 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 obligation 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 second fiscal quarter financial results. Yifan?

Thank you, So-Yeon. Good afternoon, everyone, and thank you for joining us. Revenue for the December quarter was $117.9 million, flat when compared to the prior quarter and up 2.6% from the same quarter last year. In terms of product mix, MOSFET revenue was $101.5 million, up 0.9% sequentially and up 8.8% year-over-year. Power IC revenue was $14.7 million, down 6.8% from the prior quarter and down 24.4% from a year ago. Assembly service revenue was $1.7 million as compared to $1.6 million for the prior quarter and $2.2 million for the same quarter last year. Regarding the segment mix: Computing represented 41.3% of the total revenue; Consumer, 18%; Power Supply / Industrial, 21.3%; Communications, 17.9%; and Service, 1.5%.

Non-GAAP gross margin for the December quarter was 28.3%, unchanged from the prior quarter and down from 29.2% for the same quarter last year. Non-GAAP gross margin excluded $0.4 million of share-based compensation charge for the December quarter as compared to $0.4 million for the prior quarter and $0.5 million for the same quarter last year. Non-GAAP gross margin also excluded $8.5 million of production ramp-up costs related to the Chongqing Joint Venture for the December quarter as compared to $6 million for the prior quarter and $3.5 million for the second quarter last year. Non-GAAP operating expenses for the December quarter were $25.7 million compared to $25.6 million for the prior quarter and $25.1 million for the same quarter last year.

Non-GAAP operating expenses excluded $2.1 million of share-based compensation charge as compared to $1.9 million for the prior quarter and $3.9 million for the same quarter last year. Both GAAP and non-GAAP operating expenses included $3 million of digital power team expenses for the quarter as compared to $2.8 million for the prior quarter and $3.1 million for the same quarter last year. Our digital power controller team continues to engage with customers in product designs and is making steady progress toward our product road map.

Non-GAAP EPS attributable to AOS for the quarter was $0.23 per share as compared to $0.26 for the prior quarter and $0.30 for the same quarter last year. AOS generated $12.5 million operating cash flow in the December quarter as compared to $4.2 million net cash used in operating activities and $22.1 million operating cash flow generated in the same quarter last year. Cash flow used in operations attributable to the JV company was $3.5 million for the December quarter compared to $3 million provided -- operating -- by operating activities for the prior quarter and $9.1 million used in operating activities for the same quarter last year.

Consolidated EBITDAS for the December quarter was $13.9 million compared to $14.5 million for the prior quarter and $13.5 million for the same quarter last year. EBITDAS attributable to AOS for the quarter was $12.5 million as compared to $13.8 million for the prior quarter and $15.7 million for the same quarter last year.

Now let's look at the balance sheet. We completed the December quarter with cash and cash equivalents of $107.2 million, including $86.1 million at AOS and $21.1 million at the JV company. This compares to $103.1 million at the end of last quarter, which included $88 million at AOS and $15.1 million at the JV company. Our cash balance 1 year ago was $146.6 million, including $93.6 million at AOS and $53 million at the JV company.

Bank borrowing balance at the end of the December quarter was $148.5 million, including $36.9 million at AOS and $111.6 million at the JV company. In the December quarter, AOS and the JV company repaid $4.1 million and $16.4 million of the existing loans, respectively. The JV company also borrowed $30.9 million of working capital. Net trade receivables were $33.9 million as compared to $39.3 million at the end of last quarter and $33.9 million for the same quarter last year.

Day sales outstanding for the quarter was 28 days compared to 25 days in the prior quarter. Net inventory was $117.6 million at the quarter end, down from $118.6 million last quarter and up from $103 million in the prior year. Average days in inventory was 114 days for the quarter, flat as compared to the prior quarter. Net property, plant and equipment was $416.1 million as compared to $404 million last quarter and $380.8 million last year. Capital expenditures were $15.4 million for the quarter, including $12.1 million at AOS and $3.3 million at the JV [company]. We estimate that the capital expenditure for AOS core business to stay at 6% to 8% of the total revenue for the fiscal year 2020.

Before I turn the call over to Mike, I would like to update you on the progress of our JV company. During the December quarter, the 12-inch fab and assembly and test production continued to make progress as expected. Our goal remains the same, that is to ramp up the Phase 1 of the 12-inch fab to approach the target run rate by the September quarter of this calendar year, subject to general and overall market conditions.

With that, now I would like to turn the call over to our CEO, Dr. Mike Chang, who will provide the business highlights for the quarter. Mike?

Thank you, Yifan. Despite the challenging conditions, we remain focused and continued to execute well during the December quarter. Our revenue came in within the guidance range, achieving both year-over-year and sequential revenue growth. Meanwhile, our gross margin benefited from improved operational efficiency. Most importantly, AOS reported a healthy non-GAAP earnings, and our core business generated strong operating cash flow. Looking ahead to the March quarter, we expect weaker than normal seasonality in our business. I'll speak to one factor that is creating a headwind, and Yifan will provide more details on the total outlook in his comments.

There has been wide coverage of the coronavirus outbreak in China. Our employees' wellbeing is our top priority. I'm grateful that all our employees are safe. In addition to the mandatory extended Chinese New Year holiday, we have implement additional travel bans, screening procedures as well as self-quarantine measures. While we maintain the partial production throughout the holiday, we anticipate that it will take longer for our factory to return to full production during the March quarter.

We have factored the impact of this disruption into the guidance we are providing today. As you can imagine, this is a developing situation, and so is its potential effect on the global supply chain. We will continue to evaluate the impact on our business' business as further developments warrant. We have been consistently pushing forward with our plan to create demand with the differentiated product across key market segments, and at the same time, we have been accelerating the penetration and the diversification into multiple global branded customers. For Computing, our customers increasing in value, high-performance products as underlying trends such as artificial intelligence, big data and the Internet of Things are reshaping the computing industry. With our highly efficient products, we were able to penetrate every single key PC OEM, maintaining a strong position at all of them.

Coming to the IGBT business. We demonstrated solid traction by posting 40% year-over-year growth, once again, in calendar 2019. We continue to expand our footprint at a broad base of home appliance customers with both discrete and the module solutions. Our mobile business, including smartphone battery pack and quick-charger applications was the fastest-growing business in percentage terms last year as we wrap the high-volume production for multiple global OEMs. As we secure additional layers of business at multiple OEMs and ODMs, we remain confident about the strength of our mobile business.

In order to address this growing demand from global brand name customers, we carefully planned the supply-chain expansion, which centered on the 12-inch fab and assembly and cast facility in Chongqing. Our customers appreciate our commitment to enabling their growth and support our goals. Looking beyond March quarter, we think that we are well positioned to capitalize on the demand we have created. Last year, although, we garnered meaningful design wins, we were not able to fully satisfy peak season demand due to supply constraints at our Oregon fab. As a result, we had to make difficult allocation decisions as to which customer and applications to support and this hindered our growth last year. This year with added capacity at Chongqing JV, we are in a much better position to supply our customers as they ramp up their production volumes, especially since both smartphone and PC applications are expected to hit their usual seasonal peak in the September quarter.

Therefore, we still expect to approach in the Phase 1 target run rate by the September quarter this year. This expanded capacity will allow us to better capture potential growth opportunities and fuel our diversification effort as we benefited from the momentum seen across in -- across a broad array of growing applications. We have the right strategy in place and the outstanding teams to execute it. We have demonstrated remarkable progress, especially in 3 key areas: creating demand; penetrating top-tier global OEMs with value-added solutions; and expanding production capacity to fulfill demand. This in return is building great momentum with ever-increasing design wins in the pipeline and the share gains at multiple customers across key market segments, which validates our confidence in driving sustainable growth. We remain encouraged by the opportunities ahead of us and are fully committed to moving forward with our growth plans and navigating the headwinds and the volatilities we are facing in the short term.

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 41.3% of our total revenue in the December quarter. Revenue was up 5.4% sequentially and down 12.8% year-over-year. During the quarter, the CPU supply eased a bit but it was still not enough to fully satisfy the market demand. However, the ramp of high-end tablet application and the continued migration into high-value products such as Vcore and graphic cards, enabled modest growth in this segment's business. The CPU shortage is anticipated to persist at least through the first half of calendar 2020, especially with small core. This has been compounded by the impact of coronavirus on our PC customers. As a result, we are estimating a mid-digit -- mid-single-digit sequential decrease in the Computing segment.

Now turning to the Consumer segment, which represented 18% of total revenue in the December quarter. Revenue decreased 1.3% sequentially, and was up 13.8% year-over-year. We had originally expected to see a double-digit sequential decrease due to TV seasonality, however, we saw healthy demand for various consumer applications during the quarter. As Mike mentioned earlier, strong customer momentum with our leading portfolio of IGBT solutions, continued especially with home-appliance applications. Bolstered by high-performance and reliability required by these applications, our IGBT product line posted a 40% annual increase in calendar year 2019 after growing [43%] in calendar 2018 year-over-year.

As we expand our customer base in home appliances and the celebrate production ramp at global OEMs, we expect the IGBT business to increase another 40% in calendar year 2020. Looking into the March quarter, we expect a moderate seasonal decline in the consumer segment. Next, let's discuss the Power Supply / Industrial segment. This segment accounted for 21.3% of total revenue, down 7.6% sequentially and up 13.5% year-over-year. While we grew in applications such as solar power and industrial fans, the seasonal decrease in other AC-DC power supply applications was sharper than anticipated.

As one of the key suppliers of quick-charging solutions, we believe that we are well positioned to benefit from the introduction of 5G phones with larger batteries paired with higher-wattage power supplies. However, entering into what is typically the seasonal low point for our quick charger business, we expect to see a double-digit revenue decline in this segment during the March quarter.

Finally, let's move on to the Communications segment, which was 17.9% of revenue in the quarter, down 1.1% and up 32.5% year-over-year. Our highly efficient battery protection business continues to be strong during the December quarter, and we maintained the segment's revenue similar to the peak level. Since each global smartphone OEM launches new models at different times throughout the year, serving multiple global OEMs helps us offset some seasonality. For the March quarter, we expect the recovery in 5G telecom to drive growth on top of continued strength in the battery pack protection products. Therefore, we anticipate a modest increase in the Communications segment in the March quarter.

With that, I will now turn the call over to Yifan for additional comments and guidance.

Thank you, Stephen. As disclosed in our press release, we are cooperating with federal authorities in their recent investigations of our export control practices with Huawei and its affiliates. We have maintained an export control compliance program and have been committed to fully complying with all applicable laws and regulations. In connection with this investigation, we have suspended shipment of our products to Huawei, based on the order issued by Department of Commerce. This suspension is expected to reduce our revenue for the March quarter by approximately $4 million to $5 million. We are working with DoC to resolve this issue. Although currently, we do not know when we will be able to resume shipment to Huawei, if at all. In addition, we expect to incur $1 million to $2 million of professional fees during the March quarter, in connection with the ongoing government investigation.

Please note that the DoC order applies to only our shipments to Huawei. Our sales to other customers are expected to continue and grow beyond the March quarter, unaffected by the order. Since this is a pending and confidential matter, we will not be making additional comments beyond the facts that we have shared with you on this call, in our press release and the related financial impact that we can assess at this time, except as required by law. Future inquiries will be directed to these statements. Based on this development and estimated production loss in China due to the coronavirus outbreak and extended Chinese New Year holiday, our expectations for the third quarter of fiscal year 2020 are as follows: We expect the revenue to be between $106 million and $110 million. In addition to the impact of suspended shipment to Huawei, this guidance also reflects an estimate of $6 million to $7 million reduction in revenue due to the production loss resulted from the coronavirus outbreak and extended Chinese New Year holiday, based on the information we have as of today.

We expect GAAP gross margin to be 17.3%, plus or minus 1%. We anticipate non-GAAP gross margin to be 26%, plus or minus 1%. Gross margin guidance reflects the inefficiency caused by production disruptions due to the coronavirus as well as suspended shipment to Huawei. Note that non-GAAP gross margin excludes $0.4 million of estimated share-based compensation and $8.5 million of estimated production ramp-up costs relating to the JV company. We expect GAAP operating expenses to be in the range of $29 million, plus or minus $1 million. Non-GAAP operating expenses are expected to be in the range of $25.5 million, plus or minus $1 million. Both GAAP and non-GAAP operating expenses include $3 million to $3.3 million of estimated expenses relating to the development of our digital power business. Non-GAAP operating expenses exclude $1 million and $2 million of estimated professional fees related to the investigation and $2 million of estimated share-based compensation.

Tax expense should be approximately $0.4 million to $0.6 million. We anticipate a loss attributable to noncontrolling interest to be around $4.7 million. On a non-GAAP basis, excluding estimated production ramp-up costs relating to the JV company, this item is expected to be approximately $0.3 million. As part of our normal practice, we are not assuming any obligations to update this information.

With that, we'll open up the floor for questions. Operator?

(Operator Instructions)

And we do have a question from the line of David Williams.

Quickly, I guess, if we're kind of thinking about the different moving pieces here, obviously, Huawei is a drag. And if I can recall correctly, previously, that was a fairly negligible part of the business. Can you kind of talk about how that has trended, I guess, since we've started the process of demand until now? And kind of has that -- the revenue changed much in that time? Has it come down? Or are you shipping about the same as you were previously? Just kind of how those revenues have trended, I guess, for the last several quarters?

Sure, David. As we mentioned, we have maintained an export control compliance program. We have been committed to fully complying with all applicable laws and regulations. So right now, we are cooperating with government agencies in their investigations right now. So this -- because this is a pending and a confidential matter, we said, and we do not intend to make additional comments beyond the facts that we have shared on this call and our earnings release except as required by law. So that's -- we'll stop there. Our March quarter guidance, we factor in those impacts, and we have already said about $4 million to $5 million revenue impact for our March quarter. And then some expense impact that we also disclosed there. So we'll -- this -- to me, I mean, this is near term, short-term headwinds and so we'll get through it. And we'll press on with our growth plan longer-term so that we'll continue to grow and diversify our customer base and applications we serve. So then you know our models and the -- those models and -- are still there, they're in the shooting range, even now with some additional challenges. So that we'll face it and marching on.

And this is Stephen. And I just want to speak on behalf of the overall -- our push towards diversification. Our biggest markets right now are PC and smartphones. And in the past few years, and there's been a big push by the company to actually diversify our customer base within those core segments and we've been pretty successful at expanding that customer base. And geographically, also, in order to reach all the major customers in each of those spaces.

So we are encouraged by that progress and that helps us also as we move forward and because of that base is wide.

Okay. Fantastic. And then if I'm thinking about the segment that is the largest contributor, where should I be thinking about that $4 million coming from? Is it dispersed amongst the different units? Or is it more heavily related to one or the other?

We can't comment specifically, again, about Huawei specifically but we did. Our guidance in -- overall as well as in each of the segments is reflecting the impact of that.

Okay. And then just the -- kind of thinking about from an OpEx perspective, understanding some of the lumpiness at the moment. And it looks like the $25 million guide for the next quarter is coming down from the prior quarter. Can you talk a little bit about what you're doing in terms of the OpEx? What those trends are, cost containment strategies, anything of that sort that might help us get a better handle on OpEx longer term?

Sure. Listen, March quarter's OpEx guidance, non-GAAP guidance and $25.5 million is pretty much flattish compared to the December quarter's actual numbers. So that's our current view that we'll maintain our OpEx at this level. And then, we'll continue to invest in certain strategic initiatives, such as digital power product line, we will continue to do that. And so right now, we are at full speed to pursue our growth plan.

And I guess, if I kind of do the math here, and I look at the numbers that are being taken out for Huawei, and then, of course, for the coronavirus impact. That would add about $10 million to $10.5 million to the total from your guidance. So if I'm looking at that $110 million that puts it at about $120 million to $121 million. Is it fair to say that you're seeing that demand, that same level of demand through the business or is there anything that I'm missing? Is -- just thinking about that growth trajectory, is a fairly nice step?

Yes. I mean, that's in the ballpark number. I mean, seasonally, the March quarter is our lowest quarter normally. We are seeing some good design wins and [gains] at a variable -- various customers. And so our March quarter's guidance reflected that despite the near-term headwinds. And so that -- subtract it out. And yes, we'll -- right now, that's where we are.

Okay. And then one more, if I can. Stephen, maybe you can answer this. But if we're kind of thinking about the allocation and where you're still on allocation amongst your customers. Can you kind of parse that out for us. Where, I guess, is the greatest demand? I know, at one point, that the PC had been kind of taken out of the drive and slipping in other higher-margin products in. Are you still doing the same type of strategies? Or is there anything in terms of the different allocation mix that you could point to?

Sure. I can talk about that. So last year, it was a calendar year, it was a bit of a struggle for us because we were on allocation. And as I mentioned before, we're ramping in all these major customers in PC and smartphone especially. Both of these, all usually peak at the same time during the September quarter. So last year, we had to be very optimal in -- optimized in our loading in our preparation for that to make sure that we could keep all the key customers happy and matching our priority. And this year, we've -- we're actually encouraged because we have been working on expanding our supply chain. We've been talking about our Chongqing 12-inch expansion with the joint venture. This is already beginning to ramp. And we believe that this is going to help us to provide a lot more flexibility in the way that we support our customers. So yes, I believe that we'll still have some allocation issues to deal with but we have a lot more options now with Chongqing, in order to address not only in the peak demand that's coming during the peak season but also to support all the new business that we've been working to expand and get into.

And our next question comes from the line of Craig Ellis.

Carlin Lynch on for Craig. Just wanted to start with the joint venture and kind of the ramp there. Obviously the coronavirus is an unwelcome headwind, but I think there was -- last quarter, you had said that there was going to be roughly $7 million in revenues in this past quarter and then looking out to the September quarter, obviously, that $150 million run rate, we get to $37.5 million in revenue per quarter. As we think about the dynamics past this March quarter, where -- what end markets are going to be driving that big leg up at the joint venture? Is it going to be coming from smartphones? Just curious as how we think about post March quarter, getting to that $150 million run rate off of what, obviously, is a little bit of a lower rate than maybe hoped in the March quarter?

Okay. I'll address your questions for -- first part of your question, and Steven can talk about product mix. What we have been saying is, we're targeting to ramp up the 12-inch fab joint venture to approach the target run rate, quarterly run rate, in the September quarter. Well, it doesn't mean it's a linear progression. So from last year's September quarter to this year's September quarter, we anticipate in -- around a year, 12 months or so ramp-up time for the new fab but it is not linear. So right now, with the -- even given the near-term headwinds will still remain to target September run rate to get to that run rate. So I mean, that's our overall goal at this point. I'll let Stephen talk about the -- what type of products we will run over there.

Sure. So regarding the applications that we're serving for Chongqing. We're actually moving several of our technology platforms over there in order to help support the growth, especially in PC and smartphones. Those will probably come first. We have a lot of high runners that are -- and that we'll -- that we're planning to move over there in order to help to balance out the loading wind in our whole supply chain. So we'll be targeting those first but we also are going after other applications as well, too. So this -- the fab has several platforms, again, being -- that will be supported from the 12-inch Chongqing Joint Venture. So again, we have a lot more flexibility to support that. So not only for existing business to help balance the load, but also to support new business.

Got it. And just kind of put a fine point on it. That means that we could expect, maybe, in the June and September quarter, we could see above seasonal growth or growth above what we've seen historically, just given how much more capacity you guys have to fill demand versus, say, last year or 2 years ago where you were still incredibly supply constrained. Is that fair?

That's correct. And to be fair, we will still be on allocation for certain areas but with Chongqing, we have a lot more ability to support that peak season.

Got it. And then -- so turning to the digital power side. Obviously, OpEx has kind of bounced around between -- it looks like $2.8 million and $3.1 million per quarter. Two questions there. One, is that kind of -- are we now at a steady $3 million per quarter in operating expense, so $12 million a year? And then on second, can you touch on just what the demand has looked like in terms of breadth of customers? Are -- where are we in terms of -- is it one big customer? A few big customers? Just where are we with that rollout? Any color there would be great.

Okay. I'll comment on the OpEx portion first, and then I'll let Steven to comment on the progress. In terms of OpEx and related to our digital power team. Yes, and right now, it's running around $3 million or so per quarter. And this -- the expenses could fluctuate, I mean, from quarter-to-quarter, depending on the engineering activities. And then, I mean, I would think it probably in the range of $3 million to $3.5 million per quarter, that type of range. I'll let Stephen comment on the progress.

Sure. So we're pretty pleased with the progress so far in digital power. Last year was definitely mainly a product in development and early engagement with customers as we kind of reach into the end of last year, and this is -- this stepped up going quite a bit. And we are getting deeper into customer engagement at several customers. And we're happy with what we see. But -- and we expect to start to turn some of these opportunities into design-ins -- into design wins and convert them into revenue soon. And we will be providing some more guidance on this in the coming quarters but we are happy with what we see so far.

Got it. And then just 2 more for me, quick ones, and then I'll jump back in the queue. On inventory dynamics, it was good to kind of see inventory -- days of inventory rise a little bit quarter-over-quarter. Because I know you guys had said before that it was -- you guys were running a bit lean. Can you touch on some of the channel inventory dynamics, both for you guys, and kind of any color about industry broadly? I know you had said that Intel CPU supply remains tight but any kind of color what you're seeing in terms of inventory destocking? Obviously, we just had this long period for where things kind of destocked pretty rapidly.

Okay, sure. For our own channel inventory, yes, right now is at low end of our target range, which is 2 to 3 months. So for us, now it's on average and so we're still at pretty tight inventory level. In terms of channels -- and right now, the overall channel inventory and overall market conditions, I think, right now, we need to reassess after the Chinese New Year because of this coronavirus outbreak. I mean, this one could potentially hit the global supply chain. So hopefully -- right now, this virus' situation is very fluid, and it's still evolving. So we need to closely monitor its impact on the global supply chain and overall market conditions.

And has -- just to clarify that, how has some of the China coronavirus, has that impacted supply and demand dynamics within the last 2 weeks or so? How has that kind of changed the situation?

Well, last couple of weeks has been Chinese New Year. So I mean, a lot of the China, Taiwan, a lot of Asian countries, they are on holiday. So right now, it is hard to say. This is still pretty dynamic. Need time to closely monitor and evaluate because there are some productions from our customer side and whether or not they can resume their productions to the full capacity. How soon they can get to that point? And also on our supplier side, and we also need to evaluate how soon they can start in their productions and for our own factories in China, pretty much our entire assembly and test and back-end productions are all in China. So then we also need to evaluate. And once those workers come back on February 10, that's now where the one is supposed to come back.

But given the current coronavirus situation, we also implemented self-quarantine policy. Even though they come back and they may have another 14 days in self-quarantine time. So all those things are kind of still evolving and developing. So we need to keep close eyes on those situations.

And we have a question from the line of Craig Ellis.

Appreciate all the transparency on the things that are going on in the business. I wanted to really follow up on some of the things related to guidance. And some of this may have been covered earlier, I was on a different call. And Carlin was doing a great job following up on some of the specifics. But as I look at guidance, it looks like there's an $11 million revenue impact for 2 reasons, and I want to understand them much better. First, with respect to the China coronavirus allowance that you're making at $6 million to $7 million. How much of that is simply on the supply side? And some of the things you just mentioned in Chongqing, Yifan, versus any of the demand side disruption that you may be seeing? And maybe to put that first question in context, you can tell us how much Chongqing related revenue you had in the December quarter. And with the $6 million to $7 million adjustment, how much is embedded now in guidance? Or if all of the Chongqing's fabs' revenues are excluded from guidance?

Okay. Sure. Right now, that $6 million, $7 million is our estimate. Primarily, we estimate based on the -- our production situation. The -- with this extended Chinese New Year holiday, and that's another 7 days and then you [got] -- we lost, and with the 14 days quarantine and the policies we implemented and so, and that potentially will have some other additional disruptions on our production. So the $6 million, $7 million, and that's reflected there. Overall, our backlog and bookings are healthy at this point. And so pending on the customers check and after Chinese New Year, after they come back and probably we expect gradually we'll learn more from our customers at this point. So that's a $6 million, $7 million or more, in fact, an estimate based on our own production situation.

This is Stephen. So on the demand side, the end demand side, we haven't seen any major impact yet. We do see, however, we do see that our direct customers, they also have operations running in China as well, too. So they're seeing the same -- they're dealing with the same issues and that we are as well. So we do see some impact there. But right now, it's also overlapping with our own production delays because of the labor force taking a little longer to come back. So we are reflecting that in our guidance. Where we are -- have confidence that the current demand actually is still looking very healthy. And -- but we will have to work temporarily through this challenging time for China as we deal with the situation.

Okay. The 2 follow-ups are, one, Steven, it sounds like then, you're saying that share loss risk is mitigated given that this is a headwind that your customers are accounting but can you speak to any share loss risk that might be out there if you're unable to fill existing demand with products your customers had counted on? And then, Yifan, what gives you confidence that the fab will be up and running and delivering output so that it could, in the calendar second quarter, your fiscal fourth quarter, be able to get back to a revenue level that would meet the Phase 1 ramp target you have for the September quarter? So that's more of an operational question.

So regarding the demand question. Right now, we're not anticipating any share loss as a result of that right now. And we believe that it's mostly affecting, right now, this return to work. Certainly, if things change, it could be a different story but it probably won't be just us that's affected as well. So on the demand side, that's what we see right now.

Okay. From an estimate, I mean, this -- overall, I mean, right now, that's what we can see and what we estimate based on the information we have as of today. This coronavirus, and yes, it could -- potentially, it could last into quarter. I mean, nobody knows. We'll give a update in the future if needed. Generally, I mean, there's a virus and is what, based on current information, it's more like it will trade away when you have a hotter temperature, weather. So that's when using some comparison with SARS, like 15 years ago, it was operated in the spring time and then went away in the late spring and early summer timeframe. So that's our current information we have.

In terms of September run rate, and that's, of course, subject to the overall market conditions. Right now, based on our design wins, wins pipelines and then our customers ramp up schedule, we are expecting PC customers. And Customers are ramping to the peak season in the September quarter at the same time. So that's where we need capacity the most. So that's -- we're marching forward. And we have our longer-term growth plan and then we'll press on it.

This is Mike Chang. Talk about our long term, which at -- just a few years apart, be too long, okay? This company have a clear road map to go be -- beyond $1 billion company, as we've been talking about in the last year or so. And the matter because this company has a determination to build up the company, build the infrastructure to expand our product technology and application all across wider and deeper. And also, we migrate in upper application area, we can become more application specific. So the momentum is there. The strength is there, the capability is there. Yes, we're facing a short-term headwind. But however, this headwind will be over, and our cost we'll not be changing it. So with this company, we have 4 companies to purchase -- to pursue that -- our original goal.

That's helpful, Mike. I appreciate the color. And then I wanted to switch gears and just make sure I understood the Huawei situation. Can you please identify when you were notified by the DoJ (sic) [DoC] about the inquiry? Is there any revenue that's included in the fiscal third quarter guidance associated with Huawei? And can you just put the $4 million to $5 million allowance, that you called out in your press release, as a headwind to the quarter in the context of what you would have shipped to Huawei, say, in the December quarter and the September quarter for us?

Sure. Craig, this DoC order -- first of all, this DoC order applies only to our shipments to Huawei. So our sales to other non-Huawei customers are expected to continue and grow beyond the March quarter. So -- and given that, I mean, since this is pending and confidential matter that we do not plan to make any additional comments beyond what we shared with you on this call and in our press release, so unless it's required by law. So any future inquiries about this case and this -- yes, this -- and will be directed to those statements.

And we have no further questions. And I'll turn the call back over to your speakers.

Sure. This concludes our earnings call today. Thank you for your interest in AOS, and we look forward to talking with you again next quarter. Thank you.

Thank you.

Thank you.

Thank you. And this does conclude today's conference call. You may now disconnect your lines.