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DATE
Nov. 5, 2025 at 5 p.m. ET
CALL PARTICIPANTS
Chief Executive Officer — Stephen Chunping Chang
Chief Financial Officer — Yifan Liang
Investor Relations — Steven Pelayo
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RISKS
Yifan Liang stated non-GAAP gross margin declined to 24.1% from 24.4% in the prior quarter and 25.5% a year ago, citing "higher operation costs" as the primary driver.
Stephen Chunping Chang said, "Looking ahead to December, we expect computing segment revenue to decline nearly 20% sequentially," referring to fiscal Q2 2026. This reflects the anticipated slowdown after the post-holiday season and ongoing digestion in AI and graphics cards.
Yifan Liang provided guidance for fiscal Q2 2026 revenue of "approximately $160 million, plus or minus $10 million," a decrease from $182.5 million reported in fiscal Q1 2026.
Net inventory increased by $6.5 million quarter over quarter, and days sales outstanding rose to 21 days from 15 days in the prior quarter, indicating slower receivables rotation.
TAKEAWAYS
Revenue -- $182.5 million, rising 3.4% sequentially and 0.3% year over year in fiscal Q1 2026.
Non-GAAP gross margin -- Non-GAAP gross margin was 24.1% in fiscal Q1 2026, down sequentially from 24.4% and year over year from 25.5%, primarily due to higher operating costs.
Non-GAAP EPS -- $0.13 per share (non-GAAP) in fiscal Q1 2026, compared to $0.02 in the prior quarter and $0.21 a year earlier.
Product revenue growth -- Product revenue was up 3.3% year over year in the September quarter, with Power IC revenue reaching $72.7 million in fiscal Q1 2026, up 37.3% year over year and 5.9% sequentially, accounting for nearly 40% of total product revenue.
JV equity sale proceeds -- Received the first payment of $94 million from the $150 million sale of 20.3% equity in the China joint venture in fiscal Q1 2026, significantly increasing the cash balance to $223.5 million at the end of the quarter.
Computing segment -- Computing segment revenue was up 27.1% year over year and 4.6% sequentially in the September quarter, representing 53.2% of total revenue; segment revenue projected to decline nearly 20% sequentially in December.
Consumer segment -- Consumer segment revenue declined 25.8% year over year and 11.6% sequentially, making up 12.9% of total revenue; guidance calls for a high-teen percentage sequential decline in the consumer segment for the December quarter.
Communication segment -- September revenue increased 21.4% sequentially but was down 7.8% year over year, with upcoming sequential decline expected to be low to mid-single digits.
Power supply and industrial -- Revenue represented 15.3% of total and declined 12.4% year over year and 5.6% sequentially (non-GAAP); expected to grow mid- to high-single digits sequentially in the December quarter.
CapEx -- $9.8 million in the September quarter, with December quarter CapEx guidance of $14 million to $16 million.
Operating cash flow -- $10.2 million, including $5 million of customer deposit repayments, in operating cash flow for fiscal Q1 2026; $8.2 million in customer deposit refunds expected in December 2025.
December quarter guidance -- Revenue expected to be around $160 million, plus or minus $10 million, for the December quarter; gross margin anticipated at 22.3% for fiscal Q2 2026, non-GAAP gross margin at 23%, both plus or minus 1%; non-GAAP operating expenses guided to $40.5 million, plus or minus $1 million, for the December quarter.
800-volt AI power architecture -- Management announced support for 800-volt DC architecture for next-generation AI data centers, targeting higher efficiency and new system design cycles.
SUMMARY
Alpha and Omega Semiconductor Limited (AOSL +2.70%) reported fiscal Q1 2026 results in line with revenue guidance, with growth in computing and communications segments offset by consumer and industrial softness. The company achieved a record Power IC revenue contribution, reflecting a strategic shift toward total power solutions and higher-margin applications. A major cash infusion from the partial divestiture of the China joint venture enabled accelerated investment in targeted R&D and technology. Management provided near-term guidance for declines across several segments in the December quarter due to normalization and seasonal effects, with a particular emphasis on the expected reset in computing and ongoing AI and graphics digestion. New design wins in power tools and a rare architecture transition with 800-volt DC for data centers position the company for expansion into emerging markets and next-generation applications.
CEO Chang said, "this architecture change creates a new design cycle and, with it, new opportunities for Alpha and Omega Semiconductor Limited to expand our footprint in high-performance computing and data center markets."
Yifan Liang noted a continued historical range for ASP erosion and described the use of new product introductions to reset price trajectories.
Management expects steady growth throughout fiscal 2026 and a greater upturn in 2027 as new programs move into volume production.
R&D and system-level engineering investments are being increased to accelerate readiness for advanced AI and high-performance computing opportunities.
The company ended fiscal Q1 2026 with an improved balance sheet, having paid off $20.8 million in equipment loans in September and projecting additional capital deployment based on milestone-driven objectives.
INDUSTRY GLOSSARY
BOM (Bill of Materials) content: The dollar value of a company's components included in each customer's end product, directly impacting revenue and gross margin per unit sold.
DMOS: Double-diffused metal-oxide semiconductor, a type of power transistor widely used in switching applications, referenced here as a business revenue line.
ASP (Average Selling Price): The mean price at which each unit of a specific product segment is sold during a given period.
Hot swap application: A circuit or product feature enabling components to be added or removed while a system remains powered, critical for server and data center reliability.
Full Conference Call Transcript
Stephen Chunping Chang will begin with business updates, including strategic highlights and a detailed segment report. After that, Yifan Liang will review the financial results and provide guidance for the December quarter. Finally, we will have the Q&A session. The earnings release was distributed over the wire today, November 5, 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. 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 GAAP. 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 a more detailed description of these risks and uncertainties, please refer to our recent filings with the SEC. We assume no obligation to update the information provided in today's call. Now I will turn the call over to our CEO, Stephen Chunping Chang.
Stephen Chunping Chang: Thank you, Steven. Welcome to Alpha and Omega Semiconductor Limited's fiscal 2026 Q1 earnings call. We will begin with a high-level overview of our results and then jump into segment details. We delivered fiscal Q1 revenue results at the midpoint of our guidance, primarily driven by growth in our computing and communications segments, offset partially by weaker trends in consumer and power supply and industrial. Overall, total September revenue was $182.5 million. Non-GAAP gross margin was 24.1%. Non-GAAP EPS was $0.13. Total revenue increased slightly year over year and 3.4% sequentially. As previously noted, licensing revenue was excluded. Excluding licensing and other revenue, our product revenue was up 3.3% year over year.
Power IC revenue increased 5.9% sequentially and 37.3% year over year to a record quarterly high and now represents nearly 40% of total product revenue. The richer mix of power IC benefits gross margins and, combined with increased controller sales, underscores our transformation from a component supplier to a total solutions provider. On October 13, we announced support for 800-volt DC power architecture, a major step forward for next-generation AI data centers. This shift from traditional 54-volt systems to 800 volts represents a fundamental change in data center power distribution, improving efficiency, reducing copper usage, and enabling megawatt-scale racks.
Alpha and Omega Semiconductor Limited is part of an expanding ecosystem to provide silicon carbide, gallium nitride, stacked die MOSFETs, and multi-phase controllers to address every stage of power conversion. We are excited about this transition as the move to 800 volts opens the door for Alpha and Omega Semiconductor Limited to participate in entirely new system designs rather than competing for existing pockets. In short, this architecture change creates a new design cycle and, with it, new opportunities for Alpha and Omega Semiconductor Limited to expand our footprint in high-performance computing and data center markets.
During the quarter, we received the first installment payment of approximately $94 million from the sale of a portion of our equity interest in our China joint venture. We are using this capital to accelerate the pace of strategic investment across technology, equipment, and engineering talent, doubling down in the very areas where we have already proven success. These disciplined investments are designed to strengthen our technology leadership and expand our served markets into higher performance and higher margin applications. Our momentum in graphics, smartphones, and AI platforms is proof that past investments are paying off.
Now emboldened by that success, we are going deeper by expanding our served available market, strengthening differentiation, and developing more complete system solutions that raise the performance bar for our customers. These investments position us to outpace the competition, increase our design capability, and drive higher BOM content and margin contribution across a broader set of high-growth, high-value applications. With that, let me now cover our segment results and provide some guidance by segment for the next quarter. Starting with computing, September revenue was up 27.1% year over year and up 4.6% sequentially and represented the majority, or 53.2%, of total revenue. These results were ahead of our original expectation for low single-digit sequential growth and mid-teens year over year.
The strong demand from PCs continued into September, driven by two key factors: the ongoing orders from customers seeking to mitigate tariff-related uncertainty and traditional seasonal strength, such as back-to-school and holiday demand. Combined AI and graphics card revenue declined sequentially but remained more than double from a year ago. The decline was anticipated, reflecting a digestion phase following the strong June shipments. One of our initial data center programs ramped at a smaller scale than originally planned, but we remain actively engaged across multiple new AI opportunities. In addition, the near-term moderation in graphics card demand reflects manufacturing prioritization toward AI platforms. We view these effects as temporary and expect activity to normalize as new programs ramp in March.
Looking ahead to December, we expect computing segment revenue to decline nearly 20% sequentially. This reflects the anticipated slowdown following the typical post-holiday seasonal cooling in both PCs and tablets and the digestion phase in both AI and graphics cards. As we just mentioned, we view these factors as short-term in nature, with demand expected to stabilize and return to a more typical pattern as we move into 2026. At the same time, we are expanding our footprint beyond controller and power stage solutions to include new opportunities in the 48-volt to 12-volt power delivery board, broadening our reach into the AI market.
Our medium voltage solutions are optimized for applications requiring fast switching performance in the power conversion stage as well as high safe operating area capability for 48-volt hot swap applications. Turning to the consumer segment, September revenue was down 25.8% year over year and 11.6% sequentially and represented 12.9% of total revenue. The results reflect the normalization of demand following strong Q2 promotional activity in gaming and a contraction from home appliances. The standout in the consumer segment was wearables, which delivered a second consecutive quarter of strong sequential growth, reaching a record high. Growth was fueled by share gains, new customers, higher BOM content, and an expanding product lineup that includes headphones, watches, and smart AI glasses.
For December, we forecast a high-teen sequential decline in the consumer segment, primarily driven by maturing product cycle demand in gaming and seasonality in wearables, partially offset by growth from new refrigerator and fan applications in home appliances. Specific to gaming, we continue to work closely with our key customer on their next-generation platform. These programs leverage our established designs in position and play directly to our strength in high-performance power management. We expect to benefit when these new products enter production and launch their next product cycle. Next, let's discuss the communication segment. September revenue increased 21.4% sequentially but declined 7.8% year over year.
The sequential growth was primarily driven by demand related to product launches from our Tier 1 smartphone customer in the USA, while smartphone sales in both China and Korea also improved from the prior quarter. The year-over-year decline is mostly due to weaker demand from smartphone customers in China and our strategic decision to prioritize US customers. Despite these dynamics, Alpha and Omega Semiconductor Limited has continued to capture share with leading global OEMs. We continue to strengthen our leadership position, particularly in high-end smartphones, where charging current and BOM content continue to rise.
Looking ahead, December will likely decline low to mid-single digits sequentially, which is better than typical seasonality as we expect demand from US customers to remain strong, supported by share gains, ramping of new products, and higher BOM content related to increasing charging currents. Now let's talk about our last segment, power supply and industrial. It accounted for 15.3% of total revenue and was down 12.4% year over year and 5.6% sequentially. The sequential decline was primarily due to softer demand in AC-DC power supplies and quick chargers, partially offset by a rebound in e-mobility after a weaker June. Overall, the results were below our expectations for mid-single-digit sequential growth as quick charger demand came in weaker than expected.
Within these segments, power tools revenue decreased sequentially and year over year, reflecting softer consumer spending and inventory adjustments at key customers. Looking ahead to December, we expect power supply revenue to grow mid to high single digits sequentially. Growth will be driven primarily by the power tool segment, which has been in a correction phase but is now showing signs of recovery as customers ramp new products into mass production. We are already seeing progress, including a recent design win that integrates our driver ICs with medium voltage MOSFETs in the next-generation brushless motor platform. This win highlights our growing system-level capability and position in advanced motor control applications.
Elsewhere, DC band demand is expected to soften in December, while e-mobility continues to show moderate growth, particularly in emerging markets where new projects are beginning to ramp. Looking ahead to December, we expect product revenue of around $150 million, reflecting typical seasonality following a strong September period. Demand across PCs is normalizing after recent tariff-related demand, gaming and wearables are also trending lower following promotional activity earlier in the year. AI and graphics cards are also digesting the strong shipment from June. In contrast, we expect strength in power tools and e-mobility to help offset some of the softness.
Before turning the call over to Yifan Liang, I would like to take a moment to highlight several critical investments currently underway. We remain more confident than ever in our long-term trajectory as we deepen our role in the global transformation taking place across electrification, digital localization, and AI-driven computing. Power management has never been more essential, and Alpha and Omega Semiconductor Limited is well-positioned across these megatrends with a broad portfolio spanning computing and AI, battery management, and motor control. This diversification, combined with our evolution from discrete components to total power solutions, continues to expand our served markets, enhance our resilience across cycles, and drive sustainable growth.
In the near term, while the market continues to recalibrate, we are driving innovation through disciplined investments and a focused strategy. With the cash proceeds from our JV equity sale, we are deploying capital with discipline, directing resources towards areas where we already demonstrate strength, such as smartphones and PCs, while further expanding our opportunities in graphics and AI. At the same time, we are investing in high-impact initiatives that will shape the next wave of growth. For example, we are seeing continued expansion of BOM content in AI platforms, not only through our total power solutions combining controllers and power stages but also through our high-performance MOSFET portfolio.
Another key priority is accelerating the development of the 800-volt AI power architecture, which marks a major inflection point in power efficiency and density for next-generation data centers. To support these opportunities, we are increasing targeted R&D and system-level engineering investments to advance design capability, qualification, and early production readiness, applying the same proven playbook that has driven our success in high-performance computing and mobile markets. These investments are designed to strengthen our technology leadership and expand our served market into higher performance and higher margin applications. We expect steady growth through 2026, followed by a stronger upturn in 2027 as programs transition from design into volume production.
Capital deployment will remain milestone-driven and tied to clear technical and commercial objectives to ensure attractive returns on invested capital. With that, I will now turn the call over to Yifan Liang for a discussion of our fiscal first-quarter financial results and our outlook for the next quarter.
Yifan Liang: Thank you, Stephen. Good afternoon, everyone, and thank you for joining us. Revenue for September was $182.5 million, up 3.4% sequentially and up 0.3% year over year. In terms of product mix, DMOS revenue was $108.5 million, up 1.1% sequentially and down 11.4% over last year. Power IC revenue was $72.7 million, up 5.9% from the prior quarter and 37.3% from a year ago. Assembly service and other revenue was $1.3 million, as compared to $500,000 last quarter and $900,000 for the same quarter last year. Non-GAAP gross margin was 24.1%, compared to 24.4% last quarter and 25.5% a year ago. The quarter-over-quarter decrease was mainly impacted by higher operation costs.
Non-GAAP operating expenses were $41.4 million, compared to $40.9 million for the prior quarter and $38.5 million last year. The quarter-over-quarter increase was primarily due to higher professional service fees. Non-GAAP quarterly EPS was $0.13, compared to $0.02 per share last quarter and $0.21 per share a year ago. Moving on to cash flow, operating cash flow was $10.2 million, including $5 million of repayment of customer deposits. By comparison, operating cash flow was negative $2.8 million in the prior quarter and positive $11 million last year. We expect to refund $8.2 million of customer deposits in December.
EBITDA, excluding equity method investment income, was $19.4 million for the quarter, compared to $10.5 million last quarter and $20.6 million for the same quarter a year ago. Now let me turn to our balance sheet. We completed September with a cash balance of $223.5 million, compared to $153.1 million at the end of last quarter. In September, we divested 20.3% of our equity interest in the JV company for $150 million, and we received the first installment payment of $94 million. We expect to receive the remaining payments in the next few months. Also in September, we paid off $20.8 million for the remaining balance of our equipment loan. Net trade receivables increased by $2.3 million sequentially.
Day sales outstanding were 21 days for the quarter, compared to 15 days for the prior quarter. Net inventory increased by $6.5 million quarter over quarter. Average days in inventory were 124 days for the quarter, compared to 126 days for the prior quarter. CapEx for the quarter was $9.8 million, compared to $14.3 million for the prior quarter. We expect CapEx for the December quarter to range from $14 million to $16 million. With that, now I would like to discuss December guidance. We expect revenue to be approximately $160 million, plus or minus $10 million. GAAP gross margin to be 22.3%, plus or minus 1%. We anticipate the non-GAAP gross margin to be 23%, plus or minus 1%.
GAAP operating expenses to be $47.1 million, plus or minus $1 million. Non-GAAP operating expenses are expected to be $40.5 million, plus or minus $1 million. Interest income to be $1 million higher than interest expense, and income tax expense to be in the range of $1.1 million to $1.3 million. With that, we will now open the call for questions. Operator, please start the Q&A session.
Operator: At this time, if you would like to ask a question, please press *1 on your telephone keypad. As a reminder, our first question comes from David Neil Williams with the company Benchmark. David, your line is now open. David, please ensure you are not on hold.
David Neil Williams: Hey. Good afternoon. Can you guys hear me okay?
Operator: Yes. Now we can. Thanks.
David Neil Williams: Okay. Apologies for the technical difficulties here. So, excuse me for kind of missing the first part of the call here, but just kind of curious if you could give us maybe a little more color on the sequential decline, if there is anything in particular there that you think is maybe demand-side related if you kind of look out into next year? Just kind of how things are trending as we get into 2026?
Stephen Chunping Chang: Sure. And we are looking at the fourth calendar quarter, December. Some of this is seasonality, but some of this does go a little bit beyond seasonality. We know that particularly in the PC area, we saw activity tied to mitigating tariffs, seeing more activity in the beginning part of the year. We already at that time expected that to be temporary, and it ended up being kind of a longer temporary going through most of even September. But that is coming to an end, and we expect that it is right now going through a correction period, but we see this as more of a temporary as well.
Fundamentally, the markets that we are in still have the underlying growth trends behind them, whether it is BOM expansion in PCs or whether it is smartphones moving to higher charging currents. Those trends are still ongoing. So we see this more as a temporary correction, whereas the underlying trends are still there.
David Neil Williams: Great. Thanks for the color there.
Operator: Mhmm.
David Neil Williams: And then just maybe on the gross margin side, Yifan, if you can, and forgive me if it has already been asked and answered, but can you just kind of speak to the gross margin and the degradation and how you kind of think about or how we should think about that trending through next year? Thank you.
Yifan Liang: Sure. Well, before the September quarter, our gross margin was in line with our guidance and then slightly below the midpoint, primarily reflecting some higher operation expenses. Going forward, I would expect this gross margin line will fluctuate along with revenue, top line, and depending on the product mix and production level. So, as Stephen just mentioned, for December, yes, we are expecting a lower top line, and so we also expect the gross margin line to be a little bit lower than September. So next year, we are still confident in our product mix and that it will improve after this near-term slowdown and inventory correction.
Operator: At this time, there are no more questions registered in the queue. Again, if you would like to ask a question, please press *1. Our next question comes from Kyle Smith with the company Stifel. Kyle, your line is now open.
Kyle Smith: Hey, guys. Thank you for taking my question. Maybe shifting longer term, I am curious what sort of dynamics you are seeing around ASP and any potential erosion. I know, like, in the past, it has been kind of like mid to high single-digit declines annually. What sort of dynamics are you kind of seeing for 2026? And then heading into fiscal 2027, just any commentary there would be appreciated.
Yifan Liang: Alright. Sure. I mean, right now, so far this year, this calendar year, we have been seeing pretty much the ASP erosion has been trending toward historical numbers, and as you said, it is in the single-digit year-over-year type of range. So, that is on the same parts, the year-over-year basis. So, what we do is, we roll out new products to provide our customers with higher performance and more functionality so that we can reset ASP. So going forward, we will be doing the same thing. And in terms of the overall market pricing situation, that is hard to say. It depends on the overall economy and competition. So far this year, it is in line with historical trends.
Stephen Chunping Chang: And let me comment a little more on this one too. Yes, we are glad to see more normalization of ASP decline. But the key thing that we are driving to actually raise and raise margin going forward is actually through the mix, as Yifan has alluded to. We are going after sockets in applications that are more performance-driven. In this sense, this is where when we are talking about investing in growth, we are investing in these types of areas that can drive higher BOM content both for our ICs as well as our MOSFET solutions. We have been talking about the percentage of our Power IC business as a percentage of revenue increasing.
We are happy to see that even our MOSFETs are also going after higher performance sockets, whether it is in smartphones for higher charging currents or even for AI servers going after either hot swap applications or intermediate area bus conversions where they need high-performance MOSFETs. All these kinds of sockets help to increase the BOM content as well as the margin ramp profile.
Kyle Smith: Great. That is really helpful color. Thank you. And then, yeah, I guess maybe if I could just turn to the JV sale, which I know is obviously bringing in a lot of cash. And you have talked about some of the uses that you kind of see for that influx of capital that is coming in, but I guess it would be helpful if maybe you could qualitatively just kind of rank sort the different uses of those proceeds that you kind of see. I think you alluded to it a little bit in your previous answer, but any additional color there would be appreciated.
Yifan Liang: Okay. Sure. Yeah. Through this sale of equity, we have already realized about $176 million. So this deal, we got $150 million back in December 2021, and we got about $26 million. So $176 million in total. And after this deal, we still own 18.9% of the JV. So definitely, this transaction significantly strengthened our balance sheet. Going forward, in terms of how we want to use those proceeds, a couple of things.
As Stephen already talked about, we will continue to invest in areas where we have been doing very well, for example, in smartphones, PCs, AI, and at the same time, we will invest in expanding and growing BOM content in terms of AI, and that would support our next wave of growth. So in those AI and 800-volt AI power architecture areas, we see a lot of potential opportunities for us. So those are the areas we are going to continue to invest in.
Stephen Chunping Chang: Yeah. Let me add on to that too. Basically, in terms of the investment area, we are taking a very focused look at that, a very disciplined approach. We want to invest more in areas where we have demonstrated that we can execute and expand our business, whether it is going deeper into existing applications such as PCs, such as phones, or expanding into AI applications. If it is into areas where we see that we have competitive strength, we have products that are competitive going after performance-driven sockets. So those are the areas that we will focus on.
Kyle Smith: Great. Thank you. And then just one quick housekeeping question. I missed it at the end. You guided for the industrial segment to a bit of mid to high single-digit sequential increase or decrease in December?
Stephen Chunping Chang: December should be to grow mid to high single digits sequentially. That is our guidance.
Kyle Smith: Okay. Perfect. Thank you very much.
Yifan Liang: Thank you.
Stephen Chunping Chang: Thanks.
Operator: Our next question comes from Craig Ellis with the company B. Riley Securities. Craig, your line is now open.
Craig Ellis: Yes. Thanks for taking the question. I was late getting in, so apologies if these questions have already been asked. I think what I saw in the prepared remarks is that we had expected AI-related revenues to be coming back in the fourth quarter after some digestion in the fiscal first quarter, but now we expect more of that ramp to come in the fiscal third quarter. Is that correct? And what is happening that is causing that ramp to be a quarter later than we previously expected?
Stephen Chunping Chang: Sure. Yeah. We were originally counting on some ramp-up happening in the second half of the calendar year. Although we did some ramp in the previous quarter, right now, it looks like the demand for that is not as strong as what it was originally forecast. So we are continuing to watch, at least for this particular program. But that said, we continue to be engaged in other opportunities that have different timelines that we are actively pursuing.
Craig Ellis: And as you convey that, Stephen, are you referring to engaging with other opportunities with the same customer? Or are you referring to other opportunities with different customers? Just trying to understand what is happening in the business.
Stephen Chunping Chang: It is a little bit of both. As we mentioned in the call, there is the total solutions with our controller and with our drive and loss and power stage products. Those are mostly with the same customer that we are engaged with now. But as we mentioned on the call, we are also expanding to go after other sockets in AI, which includes some power delivery to get the power even before getting to that last stage. That expands our available customers to other ones besides the one we are currently serving for AI.
Craig Ellis: Okay. And then, there were remarks, I believe, in the call about investments for growth. And maybe you are referring to that right there, or maybe it is a different point. My question regarding the investments for growth, does that mean we are sustaining current levels of R&D? Are you expecting that you are going to need to take R&D higher because you would need either additional design engineers, additional field engineers, etc.? Help me understand what investing for or in growth looks like.
Stephen Chunping Chang: Sure. Yeah. We are planning to invest some more into R&D, especially to fuel some of these areas. The idea is that we are happy to see the success so far, but we want to accelerate that success. Go after more programs, go after more sockets, expand our offering even more in those specific areas. So that will come with some R&D expense as well to cover those additional products to serve the bigger opportunities there.
Craig Ellis: And can you, Stephen, can Yifan quantify how that would be? And when we would expect to see it? For example, is it into the guide you have given for the fiscal second quarter? Or is it something that comes in the fiscal second half of the year?
Stephen Chunping Chang: In terms of the return portion, timing-wise, we have already been investing so far. Some of this is going to be, we will start to see next year already. This is why we are signaling that we will or expect to see some growth, steady growth in the calendar 2026, followed by a more upturn in 2027. So that is the result of further investment in these growth areas.
Craig Ellis: Okay. Got it. And then, just moving on to non-AI businesses. You commented that compute was up in the fiscal first quarter. Despite some of the ship-ahead activity, I thought it might be up a little bit more given that we have, I think, 9% quarter-on-quarter sequential growth. Can you just comment on how you feel about share activity in the compute market? And then I would just ask the same thing about the gaming card market because I think that is in the same segment. Thank you.
Stephen Chunping Chang: Okay. Yeah. For the PC side, seasonally, September is always the peak. We saw that strength going into September. But by the end of September, that is when we started to see some of the adjustments happening based on the more pulling in terms of the first half, first portion of the year. So that started to change towards the end of September. But overall, it is still a strong quarter for us. It always is a strong quarter in September. Just now we are expecting some kind of temporary adjustment as we enter into the lower season for PCs.
Craig Ellis: Got it. Thank you, guys. I will hop back in the queue.
Stephen Chunping Chang: Sure. You have a second question that is real quick. So on the graphics cards, right? So for the gaming cards portion, that also, I think it was strong more towards the first part of the year. We are expecting that to moderate some going into December, mainly because our end customer is focusing more on the data center, and the allocation for them is more shifted that way. But we see this as also temporary too. We expect this to come back pretty shortly.
Craig Ellis: Got it. Thank you, Stephen.
Operator: Our next question comes from Tore Van Berg with the company Stifel. Tore, your line is now open.
Tore Van Berg: Yes. Hi, thank you. Hi, Stephen. So I know it is very early, but I am just looking at next year and just want to understand some of the puts and takes. Obviously, I am not looking for particular guidance here, but given your R&D pipeline, some of your design wins, what would be some of the relatively better performance segments you think next year?
Stephen Chunping Chang: Yeah. I would say that those three areas that we are talking about investing in, those are the ones to focus on for us as a company. PCs in general, besides the more temporary adjustments, we are focused in general on expanding total solutions, including both controller as well as power stages. So we expect to see further BOM content expansion just for standard PCs. In general, we also expect to see growth both for graphics and AI combined. We continue to make progress there. We hope to see more platforms hitting the market with our products on there. Smartphones also, we have been talking about expanding BOM content there. Over there is because of the higher charging currents.
We see more of that happening, rolling out to more phone platforms in our key customer. That should hit again in the peak season in September there. So overall, I think those are the areas that we are focusing on, PCs, AI applications, as well as smartphones. Those are the bigger ones that we will see. Of course, we still have our investments in other motor applications. Over there, we are starting to see some signs of life in power tools and e-mobility. So those can help as well too.
Tore Van Berg: Very good. And my last question is on gross margin and more precisely on utilization. All these down quarters, March quarter tends to be seasonally down. So when would you start to ramp utilization again? Or I guess, the better question is, what are some of the signs that you need to see above and beyond seasonality, obviously, to start to get utilization up again?
Yifan Liang: Sure. We generally adjust our factory productions along with the expectation of revenue, so the shipments. So, yes, once we see that the order patterns are improving and higher, we have to start turning on the utilization. Also, looking ahead for the entire calendar year 2026, for certain bottleneck areas, we may need to start some productions early on to smooth out the whole year's production to support our customers.
Tore Van Berg: Sounds good. Thank you.
Stephen Chunping Chang: Alright.
Operator: At this time, there are no more questions registered in the queue. I would like to pass the conference back over to the management team for closing remarks.
Steven Pelayo: Okay. This is Steven Pelayo. Before we conclude, I just want to highlight a few upcoming investor events. The management team will be participating in the 14th Annual Roth Technology Conference on November 19 in New York City, the UBS Global Technology and AI Conference on December 3 in Scottsdale, Arizona, and the 14th Annual NYC CEO Summit on December 16 in New York City. If you wish to request a meeting, please contact the institutional sales representative at the sponsoring bank. This concludes our earnings call today. Thank you for your interest in Alpha and Omega Semiconductor Limited, and we look forward to speaking with you again next quarter.
Operator: This will conclude today's call. Thank you for your participation and enjoy the rest of your day.