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Excrept from filing document 2024-06-30

The aggregate market value of the voting shares held by non affiliates of the registrant as of December 31 2023 was approximately 607 million based on the closing price of the registrant s common share as reported on the NASDAQ Global Select Market on December 31 2023 the last business day of the registrant s most recently completed second fiscal quarter The common shares of the registrant held by each executive officer and director and certain affiliated shareholders who beneficially owned 10 or more of the outstanding common stock of the registrant have been excluded in such calculation as such persons and entities may be deemed to be affiliates of the registrant This determination of affiliate status is not necessarily a conclusive determination for other purposes
Portions of the registrant s Proxy Statement for the registrant s 2024 Annual General Meeting of Shareholders are incorporated by reference into Part III of this Form 10 K to the extent stated herein The Definitive Proxy Statement is expected to be filed within 120 days of the registrant s fiscal year ended June 30 2024
This Annual Report on Form 10 K and the documents incorporated herein by reference contain forward looking statements within the meaning of Section 27A of the Securities Act of 1933 as amended and Section 21E of the Securities Exchange Act of 1934 as amended which are subject to the safe harbor created by those sections Forward looking statements are based on our management s beliefs and assumptions and on information currently available to our management In some cases you can identify forward looking statements by terms such as may will should could intend would expect plan anticipate believe estimate project predict potential and similar expressions intended to identify forward looking statements These statements involve known and unknown risks uncertainties and other factors which may cause our actual results performance time frames or achievements to be materially different from any future results performance time frames or achievements expressed or implied by the forward looking statements We discuss many of these risks uncertainties and other factors in this Annual Report on Form 10 K in greater detail in Item 1A Risk Factors Given these risks uncertainties and other factors you should not place undue reliance on these forward looking statements Also these forward looking statements represent our estimates and assumptions only as of the date of this filing You should read this Annual Report on Form 10 K in its entirety and with the understanding that our actual future results may be materially different from what we expect We hereby qualify our forward looking statements by these cautionary statements Except as required by law we assume no obligation to update these forward looking statements publicly or to update the reasons actual results could differ materially from those anticipated in these forward looking statements even if new information becomes available in the future
We are a designer developer and global supplier of a broad portfolio of power semiconductors Our portfolio of power semiconductors includes approximately 2 700 products and has grown with the introduction of over 100 new products in the fiscal year ended June 30 2024 and over 60 and 130 new products in the fiscal years ended June 30 2023 and 2022 respectively Our teams of scientists and engineers have developed extensive intellectual properties and technical knowledge that encompass major aspects of power semiconductors which we believe enables us to introduce and develop innovative products to address the increasingly complex power requirements of advanced electronics We have an extensive patent portfolio that consists of 930 issued patents and 52 pending patents in the United States as of June 30 2024 We also have a total of 1 025 foreign patents which were based primarily on our research and development efforts through June 30 2024 We differentiate ourselves by integrating our expertise in technology design and advanced manufacturing and packaging to optimize product performance and cost Our portfolio of products targets high volume applications including personal computers graphic cards game consoles flat panel TVs home appliances power tools smart phones battery packs consumer and industrial motor controls and power supplies for TVs computers servers and telecommunications equipment
During the fiscal year ended June 30 2024 we continued our diversification strategy by developing new silicon and packaging platforms to expand our serviceable available market or SAM and offer higher performance products Our metal oxide semiconductor field effect transistors or MOSFET portfolio expanded significantly across a full range of voltage applications We also developed new technologies and products designed to penetrate into markets beyond our MOSFET computing base including the consumer communications and industrial markets Insulated Gate Bipolar Transistors or IGBTs for the home appliance market as well as power ICs for next generation computing and gaming applications
Our business model leverages global resources including research and development and manufacturing in the United States and Asia Our sales and technical support teams are localized in several growing markets We operate an 8 inch wafer fabrication facility located in Hillsboro Oregon or the Oregon Fab which is critical for us to accelerate proprietary technology development new product introduction and improve our financial performance To meet the market demand for the more mature high volume products we also utilize the wafer manufacturing capacity of selected third party foundries For assembly and test we primarily rely upon our in house facilities in China In addition we utilize subcontracting partners for industry standard packages We believe our in house packaging and testing capability provides us with a competitive advantage in proprietary packaging technology product quality cost and sales cycle time
On March 29 2016 we entered into a joint venture contract the JV Agreement with two investment funds owned by the Municipality of Chongqing the Chongqing Funds pursuant to which the Company and the Chongqing Funds formed a joint venture the JV Company for the purpose of constructing and operating a power semiconductor packaging testing and 12 inch wafer fabrication facility in the Liangjiang New Area of Chongqing China the JV Transaction
Such reduction reflects i the sale by the Company of approximately 2 1 of the outstanding JV equity interest which resulted in the deconsolidation of the JV Company ii additional sale by the Company of approximately 1 1 of outstanding JV equity interest in December 2021 iii the adoption of an employee equity incentive plan and the issuance of additional equity interest equivalent to 3 99 of the JV Company to investors in exchange for cash in December 2021 and iv issuance of additional equity interest of the JV to investors in January 2022 In February 2024 the JV Company repurchased certain shares that were previously issued to employees under the employee equity incentive plan which increased our percentage of equity ownership in the JV Company by 0 54 As of June 30 2024 the percentage of outstanding JV equity interest beneficially owned by us was 42 8 While we no longer control the JV Company the JV Company continued to provide us with significant level of foundry capacity to enable us to develop and manufacture our products including a commitment to provide us with a monthly wafer production capacity until December 2023 and additional commitment to provide wafer capacity after December 2023 if the JV Company s production capacity reaches certain specified level
We were incorporated in Bermuda on September 27 2000 as an exempted limited liability company The address of our registered office is Clarendon House 2 Church Street Hamilton HM 11 Bermuda The address of our U S office is Alpha and Omega Semiconductor Incorporated 475 Oakmead Parkway Sunnyvale CA 94085 The telephone number of our U S office is 408 830 9742 We have incorporated various wholly owned subsidiaries in different jurisdictions Please refer to Exhibit 21 1 to this Form 10 K for a complete list of our subsidiaries
Semiconductors are electronic devices that perform a variety of functions such as converting or controlling signals processing data and delivering or managing power The functionality and performance of semiconductors have generally increased over time while size and cost have generally decreased These advances have led to a proliferation of more complex semiconductors being used in a wide variety of consumer computing communications and industrial markets and have contributed to the growth of the semiconductor industry Regulations governing energy efficiency have accelerated this process in many applications
The semiconductor industry is segmented into analog and digital Analog semiconductors process light sound motion radio waves and electrical currents and voltages In contrast digital semiconductors process binary signals represented by a sequence of ones and zeros
As a result of these fundamental differences the analog semiconductor industry is distinct from the digital semiconductor industry in terms of the complexity of design and the length of product cycle Improper interactions between analog circuit elements can potentially render an electronic system inoperable Experienced engineers engaged in the design process are necessary because computer aided design cannot fully model the behavior of analog circuitry Therefore experienced analog engineers with requisite knowledge are in great demand but short supply worldwide In addition analog semiconductors tend to have a longer product life cycle because original design manufacturers or ODMs and original equipment manufacturers or OEMs typically design the analog portions of a system to span multiple generations of products Once designed into an application the analog portion is rarely modified because even small changes to the analog portion can trigger unanticipated consequences in other components resulting in system instability
Power semiconductors are a subset of the analog semiconductor sector with their own set of characteristics unique to system power architecture and function Power semiconductors transfer manage and switch electricity to deliver the appropriate amount of voltage or current to a broad range of electronic systems and also protect electronic systems from damage resulting from excessive or inadvertent electrical charges
Power semiconductors can be either discrete devices which typically comprise only a few transistors or diodes or ICs which incorporate a greater number of transistors The function of power discrete devices is power delivery by switching transferring or converting electricity Power transistors comprise the largest portion of the power discrete device market Power ICs sometimes referred to as power management ICs perform power delivery and power management functions such as controlling and regulating voltage and current and controlling power discrete devices
The power semiconductor market has been driven by several key factors in recent years The proliferation of computer and consumer electronics such as notebooks tablets smart phones flat panel displays and portable media players created the need for sophisticated power management that increases power efficiency and extends battery life The evolution of these
products is characterized by increased functionality thinner and smaller form factors and decreasing prices Our Power IC and low voltage 5V 40V MOSFET products address these markets In the area of AC DC power supplies for electronic equipment data centers and servers the market is characterized by a continuous demand for energy conservation through higher efficiency which drives the market for our medium voltage 40V 400V and high voltage 500V 1000V MOSFET products The increased application of power semiconductors to control motors in white goods and industrial applications is driving demand for Insulated Gate Bipolar Transistors or IGBTs IGBTs are also being used in renewable energy and automotive applications
The evolution toward smaller form factors and complex power requirements in the low voltage areas has driven further integration in power semiconductors resulting in power ICs that incorporate the functionalities of both power management and power delivery in a single device Power ICs can be implemented by incorporating all necessary power functions either on one piece of silicon or multiple silicon chips encapsulated into a single device Additionally advancements in semiconductor packaging technology enable increased power density and shrinking form factors
Our business and operational model is based on achieving a balance between technological advancement and cost effectiveness by using a dedicated in house technology research and development team to drive rapid new product developments while utilizing both in house and third party foundry capacity for our products
Accordingly third party foundries which are primarily designed and established for digital technologies may have limited capabilities when it comes to the development of new power semiconductor technologies
AOS seeks to advance our position as a designer developer and global supplier of a broad portfolio of power semiconductors We have adopted strategies that allow us to balance the development of proprietary technology at in house fabrication and packaging facilities and also utilize the capacity and manufacturing capability of third party foundries and subcontractors This enables us to bring new products to market faster and improve our financial performance in the long run This model also allows us to respond more quickly to our customer demands enhances relationships with strategic customers provides flexibility in capacity management and enables geographic diversification of our wafer supply chain Our in house manufacturing capability allows us to retain a higher level of control over the development and application of our proprietary process technology thereby reducing certain supply chain and operational risks In addition we enhanced the manufacturing capability and capacity of our Oregon Fab by investing in new equipment and expanding factory facilities which we expect will have a positive impact on our future new product development and revenue We intend to continue exploring opportunities to expand our manufacturing capabilities including acquisition of existing facilities formation of joint ventures or partnerships with third parties or applying for government funding or grants available in the semiconductor industry
Although our largest end market is the personal computing PC market we have successfully diversified our business by expanding into other markets including consumer communications and power supply and industrial markets
While we have made progress in our diversification and expansion into additional applications we continue to support and grow our PC business by expanding bill of material content gaining market share and acquiring new customers
We plan to further expand the breadth of our product portfolio to increase our total bill of materials within an electronic system and to address the power requirements of additional electronic systems Our product portfolio currently consists of approximately 2 700 products and we have introduced over 100 new products in this past fiscal year We will continue to leverage our expertise to further increase our product lines including higher performance power ICs IGBTs and high medium and low voltage MOSFETs in order to broaden our addressable market and improve our margin profile This includes expanding our power IC portfolio with multiphase controllers and smart power stages to address advanced System on Chip SoC products used in personal computing graphics cards and gaming
We believe that the ever increasing demand for power efficiency in power semiconductors requires expertise in and a deep understanding of the interrelationship among device physics process technologies design and packaging We also believe that engineers with experience and understanding of these multiple disciplines are in great demand but short supply Within this context we believe that we are well positioned to be a leader in providing total power management solutions because of our extensive pool of experienced scientists and engineers and our strong IP portfolio Accordingly we intend to leverage our expertise to increase the number of power discrete technology platforms and power IC designs including future digital power controller products that are currently under development to expand our product offerings and deliver complete
power solutions for our targeted applications In addition our ability to develop new technology is enhanced by the operation of our own manufacturing facilities in Oregon and our close partnership with the JV
We have developed direct relationships with key OEMs that are responsible for branding designing and marketing a broad array of electronic products as well as ODMs that have traditionally been responsible for manufacturing these products We are also focusing on developing and solidifying relationships with certain Tier 1 customers whose reputation resources and market share may enable us to generate more significant sales and design wins While OEMs typically focus design efforts on flagship products ODMs are increasingly responsible for designing portions or entire systems of the products they manufacture for OEMs In addition several ODMs are beginning to design manufacture and brand their own proprietary products which are sold directly to consumers We intend to strengthen our existing relationships and form new ones with both OEMs and ODMs by aligning our product development efforts with their product requirements thereby increasing the number of our products used within their systems and leveraging relationships to penetrate other products In addition we are focusing our research and development efforts to respond more directly to market demand by designing and developing new products based on feedback from our customers which also allows us to reduce time to market and sales cycles
We intend to continue to leverage our global resources and regional strengths We will continue to deploy marketing sales and technical support teams in close proximity to our end customers We will further expand and align our technical marketing and application support teams along with our sales team to better understand and address the needs of end customers and end market applications in particular for those with the new technology platforms developed in this past year and in the future This will assist us in identifying and defining new technology trends and products and to help us gain additional design wins While we no longer retain a controlling interest in the JV Company we continue our strong relationship with the JV Company to support our manufacturing capacity Also we entered into an agreement with the JV Company pursuant to which the JV Company agrees to provide us with a monthly wafer production capacity guarantee subject to future increase when the JV Company s production capacity reaches certain specified levels In addition we continue to seek potential partners and collaborators to develop new technologies and products as well as to explore other strategic transactions that will enable us to expand our manufacturing capacity and establish a global footprint
Our power discrete products consist of low medium and high voltage power MOSFETs Our low voltage MOSFET series is based on our proprietary silicon and package technologies with deep application know how in various markets We have precisely defined technology platforms to address different requirements from various applications Our medium voltage MOSFETs provide optimized performance with high efficiency high robustness and high reliability and are widely used in applications such as TV backlighting telecom power supplies and industrial applications We expanded our high voltage 600V and 700V MOSFET portfolio based on our aMOS5 technology platform in order to address demanding consumer and industrial applications Our high voltage portfolio includes our proprietary insulated gate bipolar transistor IGBT technology which we provide highly robust and easy to use solutions for industrial motor control and white goods applications We have also deployed our 1200V SiC Silicon carbide products based on our AlphaSiC platform designed to address high efficiency high density industrial applications such as solar inverters UPS and battery management systems
Our power ICs deliver power as well as control and regulate the power management variables such as the flow of current and level of voltage Our DrMOS and smart power stage SPS family of products continue to grow as we paired our latest high performance MOSFET silicon with our latest Driver IC and smart driver technologies We continue to expand our EZBuck power IC family with products that feature lower on resistance less power consumption smaller footprint and thermally enhanced packages as well Our smart load switch products have expanded beyond basic load switched to include specialized applications like Type C and eFuse Success has been driven by increased power density and protection to discrete solutions Sale of power ICs continued to gain traction during the past years especially with the expansion of our driver and multiphase controller product lines We introduced higher voltage drivers to expand success beyond PCs to motor drive applications such as power tools and garden equipment We have also made a major investment in R D to enter the multiphase controller market in 2020 with the introduction of the Intel IMVP 9 1 controller for notebooks Since then AOS has released or is designing in several multiphase controller families serving Intel AMD and Nvidia Introduction of these
Smart phone chargers battery packs notebooks desktop and servers data centers base stations graphics card game boxes TVs AC adapters power supplies motor control power tools E vehicles white goods and industrial motor drives UPS systems solar inverters and industrial welding
Power discretes are used across a wide voltage and current spectrum requiring high efficiency and reliability under harsh conditions Due to the diverse nature of end market applications we market both general purpose MOSFETs that are used in multiple applications as well as application specific MOSFETs
In addition to the traditional monolithic or single chip design we employ a multi chip approach for the majority of our power ICs This multi chip technique leverages our proprietary MOSFET and advanced packaging technologies to offer integrated solutions to our customers This allows us to update product portfolios by interchanging only the MOSFETs without changing the power management IC thereby reducing the time required for new product introduction and providing optimal solutions to our customers We believe that our power IC products improve our competitive position by enabling us to provide higher power density solutions to our end customers than some of our competitors
The incorporation of both power delivery and power management functions tends to make power ICs more application specific because these two functions have to be properly matched to a particular end product We have local technical marketing and applications engineers who closely collaborate with our end customers to help ensure that power IC specifications are properly defined at the beginning of the design stage
During the fourth quarter of fiscal year of 2024 we expanded our package portfolio options available for the second generation 650V to 1200V αSiC MOSFETs These new package selections give designers the added flexibility of multiple system optimization options to further maximize system efficiency while streamlining their manufacturing process We introduced industry s lowest quiescent power multiphase Vcore solution for computing systems This new Vcore solution
offers low quiescent power in all power states to maximize battery life Also we introduced innovatively designed space saving half bridge MOSFET for DC DC applications In addition we introduced ultra low capacitance TVS diode series This is ideal to protect high speed serial interfaces that are used in a broad range of electronic systems Moreover we introduced a 20V 7A type C sourcing protection switch designed to enhance USB type C efficiency and safety
During the third quarter of fiscal year of 2024 we introduced XSPairFET Buck Boost MOSFET for higher power USB PD 3 1 EPR applications This reduces board space and improves power density to achieve the high efficiency performance goals designers have set for this widely adopted USB PD Type C application Also we announced application specific EZBuck regulator to power intel meteor lake and arrow lake platforms We launched 3 phase driver IC to increase battery life of cordless power tools and E mobility In addition we announced innovatively designed double sided cooling DFN 5x6 package to meet a wide variety of high performance application requirements Moreover we released αMOS5 600V FRD 95mohm and 125mohm super junction MOSFET which are designed to meet the high efficiency and high density needs of servers workstations telecom rectifiers solar Inverters EV charging motor drives and industrial power applications
During the second quarter of fiscal year of 2024 we released our state of the art automotive TO leadless TOLL package for the company s automotive grade 80V and 100V MOSFETs This TOLL package helps designers meet the ongoing trend to electrify vehicles with the latest battery technology to meet clean energy zero emission goals
During the first quarter of fiscal year of 2024 we announced ultra low reverse working voltage TVS diodes for USB4 and thunderbolt 4 ESD protection This feature can provide a faster response time compared to conventional snap back devices enabling it to absorb ESD energy extremely quickly to avoid damage to the IC and surrounding components Also we introduced MRigidCSP package technology strengthening our battery management MOSFETs In addition we announced application specific EZBuck regulator to power 5V system rails
We have established direct relationships with key OEMs including Dell Inc Hewlett Packard Company Samsung Group and Stanley Black Decker Inc most of whom we serve through our distributors and ODMs In addition based on our historical design win activities our power semiconductors are also incorporated into products sold to many other leading OEMs
Through our distributors we provide products to ODMs who traditionally are contract manufacturers for OEMs As the industry has evolved ODMs are increasingly responsible for designing portions or entire systems of the products they manufacture for the OEMs In addition several ODMs are beginning to design manufacture and brand their own proprietary products which they sell directly to consumers Our ODM customers include Compal Electronics Inc Foxconn Quanta Computer Incorporated Wistron Corporation and Delta Electronics
In order to take advantage of the expertise of end customer fulfillment logistics and shorter payment cycles we sell most of our products through distributors In general under our agreements with distributors they have limited rights to return unsold merchandise subject to time and volume limitations As of June 30 2024 2023 and 2022 our two largest distributors were WPG Holdings Limited or WPG and Promate Electronic Co Ltd or Promate Sales to WPG and Promate accounted for 46 0 and 25 0 of our revenue respectively for the fiscal year ended June 30 2024 35 6 and 21 6 of our revenue respectively for the fiscal year ended June 30 2023 and 39 7 and 24 6 of our revenue respectively for fiscal year ended June 30 2022 respectively
Our marketing division is responsible for identifying high growth markets and applications where we believe our technology can be effectively deployed We believe that the technical background of our marketing team including application engineers helps us better define new products and identify potential end customers and geographic and product market opportunities For example as part of our market diversification strategy we have deployed and plan to recruit more field application engineers or FAEs for our new product offerings providing real time and local response to our end customers needs FAEs work with our end customers to understand their requirements and resolve technical problems FAEs also strive to anticipate future customer needs and facilitate the design in of our products into the end products of our customers We believe this strategy increases our share of revenue opportunities within the applications we currently serve as well as in new end market applications
Our sales team consists of sales personnel field application engineers customer service representatives and customer quality engineers who are responsible for key accounts We strategically position our team near our end customers through our offices in Taipei Hong Kong Shenzhen Shanghai Qingdao Suzhou Tokyo Seoul Heilbronn and Sunnyvale California complemented by our applications centers in Sunnyvale and Shanghai In addition our distributors and sales representatives
Our sales cycle varies depending on the types of products and can range from six to eighteen months In general our traditional power discrete products in PC and TV applications progress more rapidly through the customer s design and marketing processes and therefore they generally have a shorter sales cycle In contrast our newer Power IC and IGBT products used mostly in the power supply home appliance and industrial applications require a more extended design and marketing timeline and thus have a longer sales cycle Typically our sales cycle for all products comprises the following steps
The power semiconductor industry is characterized by fragmentation with many competitors We compete with different power semiconductor suppliers depending on the type of product lines and geographical area Our key competitors in power discretes and power ICs are primarily headquartered in the United States Japan Europe China and Taiwan Our major competitors in power discretes include Infineon Technologies AG ON Semiconductor Corp STMicroelectronics N V Toshiba Corporation Diodes Incorporated and Vishay Intertechnology Inc Our major competitors for our power ICs include Monolithic Power Systems Inc ON Semiconductor Corp Richtek Technology Corp Semtech Corporation Texas Instruments Inc and Vishay Intertechnology Inc
Some of our competitors have longer operating histories more brand recognition and significantly greater financial technical research and development sales and marketing manufacturing and other resources However we believe that we can compete effectively through our integrated and innovative technology platform and design capabilities including our strong and extensive patent portfolio strategic global business model expanding suites of new products diversified and broad customer base and excellent on the ground support and quick time to market for our products
As we provide power semiconductors used in consumer electronic products our business is subject to seasonality Our sales seasonality is affected by a number of factors including global and regional economic conditions as well as the PC market trends and conditions revenue generated from new products changes in distributor ordering patterns in response to channel
Our sales are made primarily pursuant to standard purchase orders from distributors and direct customers The amount of backlog to be shipped during any period depends on different factors and all orders are subject to cancellation or modification usually with no penalty to customers The quantities actually purchased by customers as well as shipment schedules are frequently revised to reflect changes in both the customers requirements and in manufacturing availability Therefore our backlog at any point in time is not a reliable indicator of our future revenue
We view technology as a competitive advantage and we invest significant time and capital in research and development to address the technology intensive needs of our end customers Our research and development expenditures for the fiscal years of 2024 2023 and 2022 were 89 9 million 88 1 million and 71 3 million respectively Our research and development expenditures primarily consist of salaries bonuses benefits share based compensation expense expenses associated with new product prototypes travel expenses fees for engineering services provided by outside contractors and consultants amortization of software and design tools depreciation of equipment and overhead costs We continue to invest in developing new technologies and products utilizing our own fabrication and packaging facilities as it is critical to our long term success We also evaluate appropriate investment levels and stay focused on new product introductions to improve our competitiveness We have research and development teams in Silicon Valley Sunnyvale California Oregon Texas Arizona Korea Taiwan and China We believe that these diverse research and development teams enable us to develop leading edge technology platforms and new products Our areas of research and development focus include
Consumer demand for smaller and more compact electronic devices with higher power density is driving the need for advanced packaging technology Our group of dedicated packaging engineers focuses on smaller form factors and higher power output with efficient heat dissipation and cost effectiveness We have invested resources in developing and enhancing our proprietary packaging technologies including the establishment of our in house packaging and testing facilities Our efforts to develop innovative packaging technologies continues to provide new and cost effective solutions with higher power density to our customers During the fiscal year ended June 30 2024 we continued our diversification strategies by developing new silicon and packaging platforms to expand our SAM and offer higher performance products
We focus on specialized process technology in the manufacturing of our products including vertical DMOS Shielded Gate Trench Trench field stop IGBTs charge balance high voltage MOSFETs Schottky Diode and BCDMOS processes
Our process engineers work closely with our design team to deploy and implement our proprietary manufacturing processes at our Oregon Fab the Chongqing Fab as well as the third party foundries that fabricate our wafers
To improve our process technology we continue to develop and enhance our expertise in device physics in order to better understand the physical characteristics of materials and the interactions among these materials during the manufacturing process
We invest significantly in the development of new technology platforms and introduction of new products Because power management affects all electronic systems we believe that developing a wide portfolio of products enables us to target new applications in addition to expanding our share of power management needs within existing applications
As a technology company we will continue our significant investment in research and development in our low voltage medium voltage and high voltage power discretes IGBT and power modules and power ICs by developing new technology platforms and new products that allow for improved product performance higher efficiency packages and higher levels of integration
Our Oregon Fab allows us to accelerate the development of our technology and products as well as to provide better service to our customers We allocate our wafer production between our in house facility and third party foundries During the
past three years we have gradually reduced our reliance on third party foundries and increased allocation of capacity to our Oregon Fab and Chongqing JV Fab On July 12 2022 we entered into an agreement with the JV Company for the Chongqing Fab pursuant to which the JV Company committed to provide us with a monthly wafer production capacity until December 2023 and additional commitment to provide wafer capacity after December 2023 if the JV Company s production capacity reaches certain specified level Currently our main third party foundry is Shanghai Hua Hong Grace Electronic Company Limited HHGrace located in Shanghai HHGrace has been manufacturing wafers for us since 2002 HHGrace manufactured 3 8 9 6 and 10 3 of the wafers used in our products for the fiscal years ended June 30 2024 2023 and 2022 respectively
Completed wafers from the foundries are sent to our in house packaging and testing facilities or to our subcontractors where the wafers are cut into individual die soldered to lead frames wired to terminals and then encapsulated in protective packaging After packaging all devices are tested in accordance with our specifications and substandard or defective devices are rejected We have established quality assurance procedures that are intended to control quality throughout the manufacturing process including qualifying new parts for production at each packaging facility conducting root cause analysis testing for lots with process defects and implementing containment and preventive actions The final tested products are then shipped to our distributors or customers
Our in house and wholly owned packaging and testing facilities are located in Shanghai China which handle most of our packaging and testing requirements for our products In addition the JV Company handles a portion of our packaging and testing requirement We continuously increase the outsourcing portion of our packaging and testing requirements to other contract manufacturers to improve our ability to respond to changes in market demand Our facilities have the combined capacity to package and test over 600 million parts per month and have available floor space for new package introductions We believe our ability to package and test our products internally represents a strategic advantage as it protects our proprietary packaging technology increases the rate of new package introductions reduces operating expenses and ultimately improves our profit margins
Our quality assurance practices aim to consistently provide our end customers with products that are reliable durable and free of defects We strive to do so through design for manufacturing and continuous improvement in our product design and manufacturing and close collaboration with our manufacturing partners Our manufacturing operations in China and our manufacturing facility in Oregon are certified to the ISO9001 and IATF16949 2016 These Quality Management System certifications represent a recognition of our high quality assurance standards Both ISO9001 and IATF16949 2016 are sets of criteria and procedures established by the International Organization of Standardization for developing a fundamental quality management system and focusing on continuous improvement defect prevention and the reduction of variation and waste Our products are also in compliance with Restrictions on the use of Hazardous Substances or RoHS 3 0
We maintain a supplier management and process engineering team in Shanghai that works with our third party foundries and packaging and testing subcontractors to monitor the quality of our products which is designed to ensure that manufacturing of our products is in strict compliance with our process controls monitoring procedures and product requirements We also conduct periodic reviews and annual audits to ensure supplier performance For example we examine the results of statistical process control systems implement preventive maintenance verify the status of quality improvement projects and review delivery time metrics In addition we rate and rank each of our suppliers every quarter based on factors such as their quality and performance Our facility in Oregon integrates manufacturing process controls through our manufacturing execution system coupled with wafer process controls that include monitoring procedures preventative maintenance statistical process control and testing to ensure that finished wafers delivered will meet and exceed quality and reliability requirements All materials used to manufacture wafers are controlled through a strict qualification process
Our manufacturing processes use many raw materials including silicon wafers gold copper molding compound petroleum and plastic materials and various chemicals and gases We obtain our raw materials and supplies from a large number of sources Although supplies for raw materials used by us are currently adequate shortages could occur in various essential materials due to interruption of supply or increased demand in the industry
Intellectual property is a critical component of our business strategy and we intend to continue to invest in the growth maintenance and protection of our intellectual property portfolio We own significant intellectual property in many aspects of power semiconductor technology including device physics and structure wafer processes circuit designs packaging modules and subassemblies We have also entered into intellectual property licensing agreements with other companies to use selected
third party technology for the development of our products although we do not believe our business is dependent to any significant degree on any individual third party license agreement In February 2023 we entered into a license agreement with a customer to license our proprietary SiC technology and to provide 24 months of engineering and development services for a total fee of 45 million consisting of fees of 18 0 million 6 8 million and 9 0 million paid to us in the March 2023 July 2023 and February 2024 respectively with the remaining amount to be paid upon the achievement of specified engineering services and product milestones
While we focus our patent efforts in the United States we file corresponding foreign patent applications in other jurisdictions such as China and Taiwan when filing is justified by cost and strategic importance The patents are increasingly important to remain competitive in our industry and a strong patent portfolio will facilitate the entry of our products into new markets As of June 30 2024 we had 930 patents issued in the United States of which 927 were based on our research and development efforts and 3 were acquired and these patents are set to expire between 2024 and 2042 We also had a total of 1 025 foreign patents including 468 Chinese patents 506 Taiwanese patents 27 Korean patents 4 Hong Kong patents 5 Philippine patents 8 Japanese patents 3 Europe patent and 4 India patent as of June 30 2024 Substantially all of our foreign patents were based on our research and development efforts These foreign patents will expire in the years between 2024 and 2042 In addition as of June 30 2024 we had a total of 159 patent applications of which 52 patents were pending in the United States 79 patents were pending in China 23 patents were pending in Taiwan and 5 patents were pending in other countries
As our technologies are deployed in new applications and as we diversify our product portfolio based on new technology platforms we may be subject to new potential infringement claims Patent litigation if and when instituted against us could result in substantial costs and a diversion of our management s attention and resources However we are committed to vigorously defending and protecting our investment in our intellectual property Therefore the strength of our intellectual property program including the breadth and depth of our portfolio will be critical to our success in the new markets we intend to pursue
In addition to patent protection we also rely on a combination of trademark copyright including mask work protection trade secret laws contractual provisions and similar laws in other jurisdictions We also enter into confidentiality and invention assignment agreements with our employees consultants suppliers distributors and customers and seek to control access to and distribution of our proprietary information
As of June 30 2024 we had 2 332 employees of whom 745 were located in the United States 1 409 were located in China and 178 were located in other parts of the world None of our employees is represented by a collective bargaining agreement Notwithstanding our global footprint and various geographical locations we have created an integrated workforce where employees worldwide work and collaborate as a team to advance our common business objectives while retaining local and regional practices and cultures
We are committed to providing a work environment in which our employees can realize fully their talents and develop successful careers As our strength is in our people we invest significantly in our employees by providing a wide range of training and development opportunities including mentoring coaching tuition reimbursement attendance at external seminars and professional conferences and regular in house training sessions on specific topics We train our managers to become good stewards for our employees balancing the need for quality of life with performance results We believe that these efforts contribute to the growth and well being of our employees as more than 50 of our managerial positions are filled through promotions of existing employees
We also keep our employees engaged and informed by providing periodic all staff communications and semi annual performance reviews to ensure that efforts and results are aligned with our business and strategic corporate objectives We value feedback from our employees and promote an open door policy which encourages employees to have regular conversations with their managers to share feedback and express concerns We also solicit employee feedback informally through regular employee interactions such as one on one or functional team staff meetings In addition we conduct employee satisfaction surveys at certain locations to help management identify areas that may require improvement As part of the AOS tradition we organize regular and seasonal social events such as team building activities annual appreciation picnics and holiday parties inviting both employees and their families to join We believe these efforts enable us to build a strong and solid group of dedicated and happy employees who form the core of our human capital resource
We are committed to providing an environment where employees from all walks of life are treated with respect care and dignity We adhere strictly to the Company s Code of Business Conduct and Ethics and other policies and ensure that our employment practices respect human rights and comply with national state and local regulatory requirements at all locations where we conduct business To recruit new talent we reach out to a broad range of sources including employee referrals on line advertising recruitment agencies and other social media platforms to seek out the best qualified candidates regardless of their backgrounds We are also focused on ensuring a diverse workforce including our management team Our Nominating
and Corporate Governance Committee leads the effort in recruiting qualified directors to serve on our Board Our employees appreciate and value the strength of our people oriented culture and the benefits our workplace diversity brings
We commit to a fair and living wage for all employees We offer competitive compensation and benefits packages for our employees that include a combination of base salary annual bonus discretionary bonus for outstanding achievements an employee stock purchase plan time based and performance based long term equity compensation Our equity related compensation programs are designed to motivate and incentivize our employees and align their rewards to financial and other business performance goals while increasing our shareholder value We have an established Employee Recognition Award program which is regularly utilized to recognize the outstanding achievements of employees and teams that go above and beyond to achieve AOS business goals In addition we have engaged nationally recognized outside independent compensation consulting firms to independently evaluate the appropriateness and effectiveness of compensation for our executives and other officers and to provide benchmarks for executive compensation as compared to peer companies
The semiconductor production process including the semiconductor wafer manufacturing and packaging process generates air emissions liquid wastes waste water and other industrial wastes We have installed various types of pollution control equipment for the treatment of air emissions and liquid waste and equipment for recycling and treatment of water in our packaging and testing facilities in China and wafer manufacturing facility in Oregon USA Waste generated at our manufacturing facilities including but not limited to acid waste alkaline waste flammable waste toxic waste oxide waste and self igniting waste is collected and sorted for proper disposal Our operations in China are subject to regulation and periodic monitoring by China s State Environmental Protection Bureau as well as local environmental protection authorities including those under the Shanghai Municipal Government which may in some cases establish stricter standards than those imposed by the State Environmental Protection Bureau Our operation in Oregon is subject to Oregon Department of Environmental Regulations Federal Environmental Protection Agency laws and regulations and local jurisdictional regulations We believe that we have been in material compliance with applicable environmental regulations and standards and have not had a material or adverse effect on our results of operations from complying with these regulations
We have implemented an ISO 14001 environmental management system in our manufacturing facilities in China and Oregon We also require our subcontractors including foundries and assembly houses to meet ISO 14001 standards We believe that we have adopted pollution control measures for the effective maintenance of environmental protection standards consistent with the requirements applicable to the semiconductor industry in China and the U S
Our products sold in worldwide are subject to RoHS in Electrical and Electronic Equipment which requires that the products do not contain more than agreed levels of lead cadmium mercury hexavalent chromium polybrominated biphenyl and polybrominated diphenyl ether flame retardants Our manufacturing facilities in China also obtained QC080000 certification which is an IECQ Certificate of Conformity Hazardous Substance Process Management for European Directive 2002 95 EC requirements and a Certificate of Green Partner for Sony Green Partner Program We avoid using these restricted materials to the extent possible when we design our products
We are also subject to SEC rules that require diligence disclosure and reporting on whether certain minerals and metals known as conflict minerals used in our products originate from the Democratic Republic of Congo and adjoining countries As of June 30 2024 2023 and 2022 we were in compliance with the related conflict minerals rule
We are subject to export and import control laws trade regulations and other trade requirements that limit which products we sell and where and to whom we sell our products Because we are committed to complying with all applicable export control laws regulations and requirements we have reviewed and revised our processes and procedures to ensure that our shipments to our customers remain compliant with applicable export laws As part of the enhanced process we have also conducted extensive risk assessment on export control compliance and implemented training programs for our employees
The following table lists the names ages and positions of our executive officers as of August 15 2024 There are no family relationships between any executive officers except that Mr Stephen C Chang is a son of Dr Mike F Chang
has served as our Chief Executive Officer since March 2023 and as a director since November 2022 Mr Chang previously served as the Company s President from January 2021 to February 2023 Prior to that Mr Chang served in various management positions including Executive Vice President of Product Line Management Senior VP of Marketing VP of the MOSFET Product Line and Senior Director of Product Marketing Mr Chang has over 20 years of industry experience and leads the Company s business strategies product and technology development sales and marketing functions manufacturing operation and supply chain management and other managerial responsibilities Mr Chang received his B A in Electrical Engineering from University of California Berkeley and M B A from Santa Clara University
is the founder of our company and serves as our Executive Chairman Dr Chang served as Chief Executive Officer since the founding of our company until March 2023 Prior to establishing our company Dr Chang served as the Executive Vice President at Siliconix Incorporated a subsidiary of Vishay Intertechnology Inc a global manufacturer and supplier of discrete and other power semiconductors or Siliconix from 1998 to 2000 Dr Chang also held various management positions at Siliconix from 1987 to 1998 Earlier in his career Dr Chang focused on product research and development in various management positions at General Electric Company from 1974 to 1987 Dr Chang received his B S in electrical engineering from National Cheng Kung University Taiwan and M S and Ph D in electrical engineering from the University of Missouri
has been serving as our Chief Financial Officer since August 2014 and Corporate Secretary since November 2013 Mr Liang served as our Interim Chief Financial Officer from November 2013 to August 2014 our Chief Accounting Officer since October 2006 and our Assistant Corporate Secretary from November 2009 to November 2013 Mr Liang became our company s corporate controller in August 2004 Prior to joining us Mr Liang held various positions at PricewaterhouseCoopers LLP or PwC from 1995 to 2004 including Audit Manager in PwC s San Jose office Mr Liang received his B S in management information system from the People s University of China and M A in finance and accounting from the University of Alabama
has been serving as our Chief Operating Officer since August 2021 Prior to that Dr Li served in various management positions in our Company since 2012 including Executive Vice President of World Wide Manufacturing Senior Vice President of World Wide Manufacturing Vice President of Front End Operation the director of Process Integration and Senior Manager of Process Integration Dr Li holds a B S in Chemistry and a M S in Chemical Engineering from Taiyuan University of Technology and a Ph D in Microelectronics Solid State Electronics from the Research Institute of Micro Nanometer Technology at Shanghai Jiao Tong University
has been serving as our Executive Vice President of Worldwide Sales and Business Development since January 2021 Prior to that Dr Xue held various managerial positions in our company since 2003 including Senior Vice President of Global Sales Vice President of Global Sales Vice President of Worldwide Manufacturing and General Manager of China Operation Prior to joining us Dr Xue served as the Director of Engineering in Dowslake Microsystem from 2001 to 2003 Dr Xue received his B S in Physics from Xiamen University and Ph D in Physical Chemistry from University of Pennsylvania
as soon as reasonably practicable after we electronically file such material with or furnish it to the SEC In addition the SEC maintains a website www sec gov that contains reports proxy statements and other information that we file electronically
Our operations and financial results are subject to various risks and uncertainties including those described below that could adversely affect our business financial condition results of operations cash flows and the trading price of our common stock
If we do not forecast demand for our products accurately we may experience product shortages delays in product shipment excess product inventory or difficulties in planning expenses which will adversely affect our business and financial condition
If we are unable to obtain raw materials in a timely manner or if the price of raw materials increases significantly production time and product costs could increase which may adversely affect our business
We may not be able to accurately estimate provisions at fiscal period end for price adjustment and stock rotation rights under our agreements with distributors and our failure to do so may impact our operating results
If we fail to maintain an effective internal control environment as well as adequate control procedures over our financial reporting investor confidence may be adversely affected thereby affecting the value of our stock price
Uncertainties exist with respect to the interpretation and implementation of PRC Foreign Investment Law and how it may impact the viability of our current corporate structure corporate governance and business operations
Limitations on our ability to transfer funds to our China subsidiaries could adversely affect our ability to expand our operations make investments that could benefit our businesses and otherwise fund and conduct our business
The M A Rules and certain other PRC regulations establish complex procedures for some acquisitions of Chinese companies by foreign investors which could make it more difficult for us to pursue growth through acquisitions in China
If securities or industry analysts do not publish research or reports about our business or if they adversely change their recommendations regarding our common shares or if our operating results do not meet their expectations the trading price of our common shares could decline
The semiconductor industry periodically experiences significant economic downturns characterized by diminished product and end market demand production overcapacity excess inventory which can result in rapid significant decline in shipment and sales which may harm our operating results and financial condition The semiconductor market is also highly cyclical and is characterized by constant and rapid technological change such as product obsolescence and price erosion evolving standards uncertain product life cycles and wide fluctuations in product supply and demand Since mid 2022 we have experienced an industry wide decline of customer demand for semiconductor products due primarily to the build up of excess inventory prior to the cessation of the COVID 19 pandemic This decline has negatively affected our recent financial performance in 2023 While we expect some recovery of the macroeconomic trend by the end of 2023 and early 2024 there is no guarantee that it will occur and a prolonged and extended downturn in the semiconductor industry will have a substantial impact on our operating results and financial conditions
A significant amount of our revenue is derived from sales of products in the PC markets such as notebooks motherboards and notebook battery packs Our revenue from the PC markets accounted for approximately 43 0 35 2 and 44 5 of our total revenue for the years ended June 30 2024 2023 and 2022 respectively The increasing popularity of smaller mobile computing devices such as tablets and smart phones with touch interfaces is rapidly changing the PC markets both in the United States and abroad In the past we experienced a significant reduction in the demand for our products due to the declining PC markets which negatively impacted our revenue profitability and gross margin While we experienced a surge of demand in the PC market as a result of the COVID 19 pandemic and related events such demand has returned to normal level and declined due to an industry wide inventory correction and the ensuing downturn in the semiconductor industry from late 2022 to the end of 2023 and early 2024 While we believe the negative impact of inventory correction has gradually subsided in mid 2024 we cannot predict how and when the market will be fully recovered We have implemented measures and strategies to mitigate the effect of such a downturn These measures and strategies may not be sufficient or successful in which case our operating results may be adversely affected
Our strategy of diversification into different market segments may not succeed according to our expectations and may expose us to new risks and place significant strains on our management operational financial and other resources
As part of the growth strategy to diversify our product portfolio and in response to the decline of the PC markets we have been developing new technologies and products designed to penetrate into other markets and applications including merchant power supplies power supplies flat panel TVs smart phones tablets gaming consoles lighting datacom telecommunications home appliances and industrial motor controls However there is no guarantee that these diversification efforts will be successful As a new entrant to some of these markets we may face intense competition from existing and more established providers and encounter other unexpected difficulties any of which may hinder or delay our efforts to achieve success In addition our new products may have long design and sales cycles Therefore if our diversification efforts fail to keep pace with the declining PC markets we may not be able to alleviate its negative impact on our results of operations
Our diversification into different market segments may place a significant strain on our management operational financial and other resources To manage this diversification effectively we will need to take various actions including
a deterioration in general demand for electronic products particularly the PC market as a result of global or regional financial crises and associated macro economic slowdowns and or the cyclicality of the semiconductor industry
the unpredictable volume and timing of orders deferrals cancellations and reductions for our products which may depend on factors such as our end customers sales outlook purchasing patterns and inventory adjustments based on general economic conditions or other factors
Any one or a combination of the above factors and other risk factors described in this section may cause our operating results to fluctuate from period to period making it difficult to predict our future performance Therefore comparing our operating results on a period to period basis may not be meaningful and you should not rely on our past results as an indication of our future performance
Geopolitical conflicts and tensions between the United States and China have threatened and destabilized trading relationships and economic activities between the two countries Because we have significant operations in both countries such conflicts and tensions may negatively impact our business At various times during recent years the United States and China have had disagreements over political and economic issues including but not limited to the recent imposition of tariffs by the U S on goods imported from China and to the U S government s efforts to restrict transfer and sharing of technologies including semiconductor technologies between the two countries In addition the U S government may enact new and more restrictive export control regulations that may reduce our ability to ship and sell products to certain customers in China and Asia and increase our cost to implement additional measures to comply with such new regulations In addition disagreements between the United States and China with respect to their political military or economic policies toward Taiwan may contribute to further controversies These controversies and trade frictions could have a material adverse effect on our business by among other things making it more difficult for us to coordinate our operations between the United States and China causing a reduction in the demand for our products by customers in the United States or China and reducing our profitability due to increasing cost of compliance
Demand for our products from our end customers fluctuates depending on their sales outlooks and market and economic conditions Accordingly our distributors place purchase orders with us based on their forecasts of end customer demand Because these forecasts may not be accurate channel inventory held at our distributors may fluctuate significantly due to the difference between the forecasts and actual demand As a result distributors adjust their purchase orders placed with us in response to changing channel inventory levels as well as their assessment of the latest market demand trends A significant decrease in our distributors channel inventory in one period may lead to a significant rebuilding of channel inventory in subsequent periods or vice versa which may cause our quarterly revenue and operating results to fluctuate significantly
In addition because our power semiconductors are used in consumer electronics products our revenue is subject to seasonality Our sales seasonality is affected by a number of factors including global and regional economic conditions as well as the PC market conditions revenue generated from new products changes in distributor ordering patterns in response to channel inventory adjustments and end customer demand for our products and fluctuations in consumer purchase patterns prior to major holiday seasons In recent year broad fluctuations in the semiconductor markets and the global economic conditions in particular the decline of the PC market conditions as well as the COVID 19 pandemic have had a more significant impact on our results of operations than seasonality and have made it difficult to assess the impact of seasonal factors on our business
If we are unable to introduce or develop new and enhanced products that meet or are compatible with our customer s product requirements in a timely manner it may harm our business financial position and operating results
Our success depends upon our ability to develop and introduce new and enhanced products that meet or are compatible with our customer s specifications performance standards and other product requirements in a timely manner The development of new and enhanced products involves highly complex processes and at times we have experienced delays in the introduction of new products Successful product development and introduction of new products depends on a number of factors including the accurate product specification timely completion of design achievement of manufacturing yields timely response to changes in customer s product requirements quality and cost effective production and effective marketing Since many of our products are designed for specific applications we must frequently develop new and enhanced products jointly with our customers In the past we have encountered product compatibility issues with a major OEM that has negatively impacted our financial results and although we have resolved fully such issues with the OEM there is no guarantee that the same compatibility issues will not occur in the future with other OEMs If we are unable to develop or acquire new products that meet or are compatible with our customer s specification and other product requirements in a timely manner we may lose revenue or market share with our customers which could have a material adverse effect on our business financial position and operating results
We invest significant capital and resources to compete with other power semiconductor companies to win competitive bids for our products in selection processes known as design wins Our effort to obtain design wins may detract from or delay the completion of other important development projects impair our relationships with existing end customers and negatively impact sales of products under development In addition we cannot be assured that these
efforts would result in a design win that our product would be incorporated into an end customer s initial product design or that any such design win would lead to production orders and generate sufficient revenue Furthermore even after we have qualified our products with a customer and made sales subsequent changes to our products manufacturing processes or suppliers may require a new qualification process which may result in delay and excess inventory If we cannot achieve sufficient design wins in the future or if we fail to generate production orders following design wins our ability to grow our business and improve our financial results will be harmed
The consumer end markets in particular the PC market in which our products are used are highly competitive Our OEM end customers may not successfully sell their products for a variety of reasons including
Our success depends on the ability of our OEM end customers to sell their products incorporating our products In addition we have expanded our business model to include more OEMs in our direct customer base The failure of our OEM end customers to achieve or maintain commercial success for any reason could harm our business results of operations and financial condition and prospects
The operation of the Oregon Fab requires significant fixed manufacturing cost In order to manage the capacity of the wafer fabrication facility efficiently we must perform a forecast of long term market demand and general economic conditions for our products Because market conditions may vary significantly and unexpectedly our forecast may change significantly at any time and we may not be able to make timely adjustments to our fabrication capacity in response to these changes During periods of continued decline in market demand in particular the decline of the PC market we may not be able to absorb the excess inventory and additional costs associated with operating the facility at higher capacity which may adversely affect our operating results Similarly during periods of unexpected increase in customer demand we may not be able to ramp up production quickly to meet these demands which may lead to the loss of significant revenue opportunities The manufacturing processes of a fabrication facility are complex and subject to interruptions We may experience production difficulties including lower manufacturing yields or products that do not meet our or our customers specifications and problems in ramping production and installing new equipment These difficulties could result in delivery delays quality problems and lost revenue opportunities Any significant quality problems could also damage our reputation with our customers and distract us from the development of new and enhanced product which may have a significant negative impact on our financial results
Defects and poor performance in our products could result in loss of customers decreased revenue unexpected expenses and loss of market share and we may face warranty and product liability claims arising from defective products
Our products are complex and must meet stringent quality requirements Products as complex as ours may contain undetected errors or defects especially when first introduced or when new versions are released Errors defects or poor performance can arise due to design flaws defects in raw materials or components or manufacturing anomalies which can affect both the quality and the yield of the product It can also be potentially dangerous as defective power components or improper use of our products by customers may lead to power overloads which could result in explosion or fire Any actual or perceived errors defects or poor performance in our products could result in the replacement or recall of our products shipment delays rejection of our products damage to our reputation lost revenue diversion of our engineering personnel from our product development efforts in order to address or remedy any defects
Furthermore as our products are typically sold at prices much lower than the cost of the equipment or other devices incorporating our products any defective inefficient or poorly performing products or improper use by customers of power components may give rise to warranty and product liability claims against us that exceed any revenue or profit we receive from the affected products We could incur significant costs and liabilities if we are sued and if damages are awarded against us There is no guarantee that our insurance policies will be available or adequate to protect against such claims Costs or payments we may make in connection with warranty and product liability claims or product recalls may adversely affect our financial condition and results of operations
As is typical in the semiconductor industry the average selling price of a particular product has historically declined significantly over the life of the product In the past we have reduced the average selling prices of our products in anticipation of future competitive pricing pressures new product introductions by us or our competitors and other factors We expect that we will have to similarly reduce prices in the future for older generations of products Reductions in our average selling prices to one customer could also impact our average selling prices to all customers A decline in average selling prices would harm our gross margins for a particular product If not offset by sales of other products with higher gross margins our overall gross margins may be adversely affected Our business results of operations financial condition and prospects will suffer if we are unable to offset any reductions in our average selling prices by increasing our sales volumes reducing our costs and developing new or enhanced products on a timely basis with higher selling prices or gross margins
If we do not forecast demand for our products accurately we may experience product shortages delays in product shipment excess product inventory or difficulties in planning expenses which will adversely affect our business and financial condition
We manufacture our products according to our estimates of customer demand This process requires us to make numerous forecasts and assumptions relating to the demand of our end customers channel inventory and general market conditions Because we sell most of our products to distributors who in turn sell to our end customers we have limited visibility as to end customer demand Furthermore we do not have long term purchase commitments from our distributors or end customers and our sales are generally made by purchase orders that may be cancelled changed or deferred without notice to us or penalty As a result it is difficult to forecast future customer demand to plan our operations
The utilization of our manufacturing facilities and the provisions for inventory write downs are important factors in our profitability If we overestimate demand for our products or if purchase orders are canceled or shipments delayed we may have excess inventory which may result in adjustments to our production plans These adjustments to our productions may affect the utilization of our own wafer fabrication and packaging facilities If we cannot sell certain portions of the excess inventory it will affect our provisions for inventory write downs Our inventory write down provisions are subject to adjustment based on events that may not be known at the time the provisions are made and such adjustments could be material and impact our financial results negatively
If we underestimate demand we may not have sufficient inventory to meet end customer demand and we may lose market share and damage relationships with our distributors and end customers and we may have to forego potential revenue opportunities Obtaining additional supply in the face of product shortages may be costly or impossible particularly in the short term which could prevent us from fulfilling orders in a timely manner or at all
In addition we plan our operating expenses including research and development expenses hiring needs and inventory investments based in part on our estimates of customer demand and future revenue If customer demand or revenue for a particular period is lower than we expect we may not be able to proportionately reduce our fixed operating expenses for that period which would harm our operating results
The power semiconductor industry is highly competitive and fragmented If we do not compete successfully against current or potential competitors our market share and revenue may decline Our main competitors are primarily headquartered in the United States Japan Taiwan and Europe Our major competitors for our power discretes include Infineon Technologies AG Magnachip Semiconductor Corporation ON Semiconductor Corp STMicroelectronics N V Toshiba Corporation Diodes Incorporated and Vishay Intertechnology Inc Our major competitors for our power ICs include Global Mixed mode Technology Inc Monolithic Power Systems Inc ON Semiconductor Corp Richtek Technology Corp Semtech Corporation Texas Instruments Inc and Vishay Intertechnology Inc
We expect to face competition in the future from our competitors other manufacturers designers of semiconductors and start up semiconductor design companies Many of our competitors have competitive advantages over us including
significantly greater financial technical research and development sales and marketing and other resources enabling them to invest substantially more resources than us to respond to the adoption of new or emerging technologies or changes in customer requirements
larger customer bases and longer more established relationships with distributors or existing or potential end customers which may provide them with greater reliability and information regarding future trends and requirements that may not be available to us
In addition the semiconductor industry has experienced increased consolidation over the past several years that may adversely affect our competitive position Consolidation among our competitors could lead to a less favorable competitive landscape capabilities and market share which could harm our business and results of operations
The allocation of our wafer production between in house facility and third party foundries may fluctuate from time to time We expect to continue to rely in part on third party foundries to meet our wafer requirements Although we use several independent foundries our primary third party foundry is HHGrace which manufactured 3 8 9 6 and 10 3 of the wafers used in our products for the fiscal years ended June 30 2024 2023 and 2022 respectively
If any third party foundry does not provide competitive pricing or is not able to meet our required capacity for any reason we may not be able to obtain the required capacity to manufacture our products timely or efficiently From time to time third party suppliers may extend lead times limit supplies or increase prices due to capacity constraints or other factors and we may experience a shortage of capacity on an industry wide basis that may last for an extended period of time There are no assurances that we will be able to maintain sufficient capacity to meet the full demand from our customers and failure to do so will adversely affect our results of operations If we cannot maintain sufficient capacity or control pricing with our existing third party foundries we may need to increase our own manufacturing capacity and there is no assurance that we can ramp up the production of the Oregon Fab timely to meet the increased demand If not we may need to seek alternative foundries which may not be available on commercially reasonable terms or at all In addition the process for qualifying a new foundry is time consuming difficult and may not be successful particularly if we cannot integrate our proprietary process technology with the process used by the new foundry Using a foundry with which we have no established relationship could expose us to potentially unfavorable pricing unsatisfactory quality or insufficient capacity allocation
We also rely on third party foundries to effectively implement certain of our proprietary technology and processes and also require their cooperation in developing new fabrication processes Any failure to do so may impair our ability to introduce new products and on time delivery of wafers for our existing products In order to maintain our profit margins and to meet our customer demand we need to achieve acceptable production yields and timely delivery of silicon wafers As is common in the semiconductor industry we have experienced and may experience from time to time difficulties in achieving acceptable production yields and timely delivery from third party foundry vendors Minute impurities in a silicon wafer can cause a substantial number of wafers to be rejected or cause numerous die on a wafer to be defective Low yields often occur during the production of new products the migration of processes to smaller geometries or the installation and start up of new process technologies
discretion of foundries to reduce deliveries to us on short notice allocate capacity to other customers that may be larger or have long term customer or preferential arrangements with foundries that we use
Any of the foregoing risks could delay shipment of our products result in higher expenses and reduced revenue damage our relationships with customers and otherwise adversely affect our business and operating results
We formed the JV Company in 2016 which consists of a power semiconductor packaging testing and 12 inch wafer fabrication facility in Chongqing The JV Company is our subcontractor that provides us with foundry capacity to develop and manufacture our products and to enhance our market position in China While we retained control over the JV Company from inception of 2021 we lost control over the JV Company in December 2021 as our equity interest in the JV Company has been diluted through the issuances of additional equity securities by the JV Company and other transactions
Because we no longer have a controlling interest in the JV Company the JV Company is operating and will continue to operate more independently and our influence on all aspects of the JV Company s business operations will be diminished Accordingly we might not be able to prevent the JV Company from taking actions adverse to our interests For example while we remain a major customer of the JV Company the JV Company may decide to enter into business relationships with other customers and allocate foundry capacities to such customers which may prevent us from securing a desirable or sufficient level of manufacturing capacity for our products Although the JV Company has previously agreed to provide us with a guaranteed capacity on a monthly basis such guarantee has expired and we are in the process of negotiating a new arrangement with the JV Company to provide us with capacity There is no guarantee that we will be successful in renewing the capacity agreement and even if we do there is no guarantee that we will obtain favorable pricing or service terms or that such capacity will be sufficient which may adversely affect our results of operations
Our lack of control over the JV Company may also make it more difficult for us to execute our broader business strategies in China including our R D sales and marketing product innovation efforts and protection of intellectual property rights because the JV Company may decide not to cooperate with us in these matters In addition while we expect to achieve a financial return for our investment in the JV Company as a result of the China IPO the China IPO process is complex time consuming and subject to a number of risks and there is no guarantee that the China IPO will be completed in a timely manner or at all and the JV Company s failure to close the China IPO will negatively affect our investment in the JV Company
In order to fund its capital expenditures and cost of operation the JV Company has incurred a significant amount of indebtedness from third party lenders under several loan and lease financing agreements some of which are secured by substantially all of the assets of the JV Company If the JV Company is not able to generate sufficient cash flow to make
payments under these loans the JV Company may be in default which will adversely affect its ability to continue operations and provide foundry services to us In addition the JV Company requires additional funding to continue its operations and to refinance its existing indebtedness There is no guarantee that the JV Company will be able to obtain financing on favorable terms or at all and any such failure may negatively impact our ability to access its wafer manufacturing capacity
Any of the foregoing risks could materially reduce the expected return of our investment in the JV Transaction and adversely affect our business operations our financial performance and the trading price of our shares
We sell a substantial portion of our products to distributors who in turn sell to our end customers Our distributors typically offer power semiconductor products from several different companies including our direct competitors The distributors assume collection risk and provide logistical services to end customers including stocking our products Two distributors WPG and Promate collectively accounted for 71 0 57 2 and 64 3 of our revenue for the fiscal years ended June 30 2024 2023 and 2022 respectively We currently have effective agreements with Promate and WPG to serve as our distributors and such agreement is renewed automatically for one year period continuously unless terminated earlier pursuant to the terms of such agreements We believe that our success will continue to depend upon these distributors Our reliance on distributors subjects us to a number of risks including
dependence upon the continued viability and financial resources of these distributors some of which are small organizations with limited working capital and all of which depend on general economic conditions and conditions within the semiconductor industry
If any significant distributor becomes unable or unwilling to promote and sell our products or if we are not able to renew our contracts with the distributors on acceptable terms we may not be able to find a replacement distributor on reasonable terms or at all and our business could be harmed
We have made and may continue to make strategic acquisitions of other companies assets or businesses or form joint ventures with partners to advance our business objectives These acquisitions and joint ventures involve significant risks and uncertainties
In order to position ourselves to take advantage of growth opportunities we have made and may continue to make strategic acquisitions mergers partnership joint ventures and alliances that involve significant risks and uncertainties Successful acquisitions and alliances in the semiconductor industry are difficult to accomplish because they require among other factors efficient integration and aligning of product offerings and manufacturing operations and coordination of sales and marketing and research and development efforts We may also seek to establish partnerships joint ventures and acquisition of assets in various foreign jurisdictions where we may not have significant operating experience In addition we may encounter unanticipated challenges and difficulties including regulatory and compliance issues lack of local support and geopolitical tensions The difficulties of integration and alignment may be increased by the necessity of coordinating geographically separated organizations the complexity of the technologies being integrated and aligned and the necessity of integrating personnel with dissimilar business backgrounds Furthermore there is no guarantee that we will be able to identify viable targets for strategic acquisition Also we may incur significant costs in efforts that may not result in a successful acquisitions
In addition we may also issue equity securities to pay for future acquisitions or alliances which could be dilutive to existing shareholders We may also incur debt or assume contingent liabilities in connection with acquisitions and alliances which could impose restrictions on our business operations and harm our operating results
If we are unable to obtain raw materials in a timely manner or if the price of raw materials increases significantly production time and product costs could increase which may adversely affect our business
Our fabrication and packaging processes depend on raw materials such as silicon wafers gold copper molding compound petroleum and plastic materials and various chemicals and gases From time to time suppliers may extend lead times limit supplies or increase prices due to capacity constraints or other factors If the prices of these raw materials rise significantly we may be unable to pass on the increased cost to our customers Our results of operations could be adversely affected if we are unable to obtain adequate supplies of raw materials in a timely manner or at reasonable price In addition from time to time we may need to reject raw materials because they do not meet our specifications or the sourcing of such materials do not comply with our conflict mineral policies resulting in potential delays or declines in output Furthermore problems with our raw materials may give rise to compatibility or performance issues in our products which could lead to an increase in customer returns or product warranty claims Errors or defects may arise from raw materials supplied by third parties that are beyond our detection or control which could lead to additional customer returns or product warranty claims that may adversely affect our business and results of operations
We may not be able to accurately estimate provisions at fiscal period end for price adjustment and stock rotation rights under our agreements with distributors and our failure to do so may impact our operating results
We sell a majority of our products to distributors under arrangements allowing price adjustments and returns under stock rotation programs subject to certain limitations As a result we are required to estimate allowances for price adjustments and stock rotation for our products as inventory at distributors at each reporting period end Our ability to reliably estimate these allowances enables us to recognize revenue upon delivery of goods to distributors instead of upon resale of goods by distributors to end customers
We estimate the allowance for price adjustment based on factors such as distributor inventory levels forecasted distributor selling prices distributor margins and demand for our products Our estimated allowances for price adjustments which we offset against accounts receivable from distributors were 41 7 million and 40 0 million at June 30 2024 and 2023 respectively
Our accruals for stock rotation are estimated based on historical returns and individual distributor agreement and stock rotation rights which are recorded as accrued liabilities on our consolidated balance sheets are contractually capped based on the terms of each individual distributor agreement Our estimated liabilities for stock rotation at June 30 2024 and 2023 were 4 7 million and 5 6 million respectively
Our estimates for these allowances and accruals may be inaccurate If we subsequently determine that any allowance and accrual based on our estimates is insufficient we may be required to increase the size of our allowances and accrual in future periods which would adversely affect our results of operations and financial condition
We have two wholly owned packaging and testing facilities located in Shanghai China that handle most of our packaging and testing requirements The operation of high volume packaging and testing facilities and implementation of our advanced packaging technology are complex and demand a high degree of precision and may require modification to improve yields and product performance We have committed substantial resources to ensure that our packaging and testing facilities operate efficiently and successfully including the acquisition of equipment and raw materials and training and management of a large number of technical personnel and employees Due to the fixed costs associated with operating our own packaging and testing facilities if we are unable to utilize our in house facilities at a desirable level of production our gross margin and results of operations may be adversely affected For example a significant decline in our market share or sales orders may negatively impact our factory utilization and reduce our ability to achieve profitability
Any of the foregoing risks could adversely affect our capacity to package and test our products which could delay shipment of our products result in higher expenses reduce revenue damage our relationships with customers and otherwise adversely affect our business results of operations financial condition and prospects
Our operations are dependent upon our information technology systems which encompass all of our major business functions across offices internationally We rely upon such information technology systems to manage and replenish inventory complete and track customer orders coordinate sales activities across all of our products and services maintain vital data and information perform financial and accounting tasks and manage and perform various administrative and human resources functions A substantial disruption in our information technology systems for any extended time period arising from for example system capacity limits from unexpected increases in our volume of business outages or delays in our service could result in delays in receiving inventory and supplies or filling customer orders and adversely affect our customer service and relationships Our systems might be damaged or interrupted by natural or man made events or by computer viruses physical or electronic break ins cyber attacks and similar disruptions affecting the global Internet
In the past we have experienced cybersecurity incidents and threats against our information technology systems While these incidents and attacks did not have a material adverse effect on our business operation or results of operations they caused temporary disruptions and interfered with our operations Any cybersecurity breach and financial loss may also have a negative impact on our internal control over financial reporting While we have implemented additional measures to enhance our security protocol to protect our system and intend to do so in response to any threats there is no guarantee that future attacks would be thwarted or prevented We also expect to incur additional costs and expenses to upgrade our information technology system and establish additional protective measures to prevent future breaches Furthermore despite our efforts to investigate improve and remediate the capability and performance of our information technology system we may not be able to discover all weaknesses breaches and vulnerabilities and failure to do so may expose us to higher risk of data loss and adversely affect our business operations and results of operations
We depend on the continuing services of our senior management team and other key personnel and if we lose a member of our senior management or are unable to successfully retain recruit and train key personnel our ability to develop and market our products could be harmed
Our success depends upon the continuing services of members of our senior management team and various engineering and other technical personnel In particular our engineers and other sales and technical personnel are critical to our future technological and product innovations Our industry is characterized by high demand and intense competition for talent and the pool of qualified candidates is limited We have entered into employment agreements with certain senior executives but we do not have employment agreements with most of our employees Many of these employees could leave our company with little or no prior notice and would be free to work for a competitor If one or more of our senior executives or other key personnel are unable or unwilling to continue in their present positions we may not be able to replace them easily or at all and other senior management may be required to divert attention from other aspects of our business In addition we do not have key person life insurance policies covering any member of our management team or other key personnel The loss of any of these individuals or our inability to attract or retain qualified personnel including engineers and others could adversely affect our product introductions overall business growth prospects results of operations and financial condition
Our success depends in part on our ability to protect our intellectual property We rely on a combination of patent copyright including mask work protection trademark and trade secret laws as well as nondisclosure agreements license agreements and other methods to protect our intellectual property rights which may not be sufficient to protect our intellectual property As of June 30 2024 we owned 930 issued U S patents expiring between 2024 and 2042 and had 52 pending patent applications with the United States Patent and Trademark Office In addition we own patents and have filed patent applications in several jurisdictions outside of the U S including China Taiwan Japan and Korea
Our patents and patent applications may not provide meaningful protection from our competitors and there is no guarantee that patents will be issued from our patent applications The status of any patent or patent application involves complex legal and factual determinations and the breadth of a claim is uncertain In addition our efforts to protect our intellectual property may not succeed due to difficulties and risks associated with
others independently developing similar proprietary information and techniques gaining authorized or unauthorized access to our intellectual property rights disclosing such technology or designing around our patents
the possibility that any patent or registered trademark owned by us may not be enforceable or may be invalidated circumvented or otherwise challenged in one or more countries may limit our competitive advantages
intellectual property laws and confidentiality laws may not adequately protect our intellectual property rights including for example in China where enforcement of China intellectual property related laws have historically been less effective primarily because of difficulties in enforcement and low damage awards
We also rely on customary contractual protection with our customers suppliers distributors employees and consultants and we implement security measures to protect our trade secrets We cannot assure you that these contractual protections and security measures will not be breached that we will have adequate remedies for any such breach or that our suppliers employees distributors or consultants will not assert rights to intellectual property arising out of such contracts
In addition we have a number of third party patent and intellectual property license agreements one of which requires us to make ongoing royalty payments In the future we may need to obtain additional licenses renew existing license agreements or otherwise replace existing technology We are unable to predict whether these license agreements can be obtained or renewed or the technology can be replaced on acceptable terms or at all
As is typical in the semiconductor industry we or our customers have received and may continue to receive claims of infringement from time to time or otherwise become aware of potentially relevant patents or other intellectual property rights held by other parties that may cover some of our technology products and services or those of our end customers The semiconductor industry is characterized by vigorous protection and pursuit of intellectual property rights which has resulted in protracted and expensive arbitration and litigation for many companies Patent litigation has increased in recent years due to increased assertions made by intellectual property licensing entities or non practicing entities and increasing competition and overlap of product functionality in our markets
Any litigation or arbitration regarding patents or other intellectual property could be costly and time consuming and could divert our management and key personnel from our business operations We have in the past and may from time to time in the future become involved in litigation that requires our management to commit significant resources and time In addition as part of our strategy to diversify our serviceable markets we launched several key product families and technologies to enable high efficiency power conversion solutions and we plan to develop and commercialize new products in other power semiconductor markets Our entry into the commercial markets for high voltage power semiconductors and other markets as a result of our diversification strategy may subject us to additional and increased risk of disputes or litigation relating to these products
Because of the complexity of the technology involved and the uncertainty of litigation generally any intellectual property arbitration or litigation involves significant risks Any claim of intellectual property infringement against us may require us to
indemnify our distributors end customers licensees and others from the costs of and damages of infringement claims by our distributors end customers licensees and others which could result in substantial expenses for us and damage our business relationships with them
As previously disclosed the Company has continued to respond to inquiries and requests for documents and information from Department of Commerce DOC in connection with an investigation into the Company s export control practices and DOC is currently reviewing this matter DOC has not informed the Company of any specific timeline or schedule under which DOC will complete its review
The ongoing government investigations into our export control compliance also subject us to a number of financial and business risks We expect to incur significant costs and expenses including legal fees in connection with our effort to respond to the government investigation Furthermore the management has diverted its resources and time in response to the investigation and might not be able to fully engage with the core operation and objectives of our business activities Finally while we are fully cooperating with the government in the investigation we are not able to predict its timing and outcome In the event that the government decides to bring enforcement action or impose fines against us it will result in a material adverse effect on our business operations our financial conditions and our reputation
We also expect that the U S export control regulations to evolve and change in response to the political and economic tension between the U S and China including potential new export control regulations that may impose additional restrictions on our ability to continue to do business with certain customers in China and Asia If such changes occur we may be required to reduce shipments to certain Asian customers adjust our business practices and incur additional costs to implement new export control compliance procedures policies and programs each of which will adversely affect our financial conditions and results of operations
External factors such as potential terrorist attacks acts of war financial crises such as the global or regional economic recession or geopolitical and social turmoil in those parts of the world that serve as markets for our products could have significant adverse effect on our business and operating results in ways that cannot presently be predicted Any future economic downturn or recession in the global economy in general and in particular on the economies in China Taiwan and other countries where we market and sell our products will have an adverse effect on our results of operations
We have research and development facilities located in Taiwan and the Silicon Valley in Northern California Historically these regions have been vulnerable to natural disasters and other risks such as earthquakes fires and floods which may disrupt the local economy and pose physical risks to our property We also have sales offices located in Taiwan and Japan where similar natural disasters and other risks may disrupt the local economy and pose physical risks
to our operations We are not currently covered by insurance against business disruption caused by earthquakes In addition we currently do not have redundant multiple site capacity in the event of a natural disaster or other catastrophic event In the event of such an occurrence our business would suffer
Our business could be adversely affected by natural disasters such as epidemics outbreaks or other health crisis An outbreak of avian flu or H1N1 flu in the human population or another similar health crisis similar to the COVID 19 pandemic could adversely affect the economies and financial markets of many countries particularly in Asia Moreover any related disruptions to transportation or the free movement of persons could hamper our operations and force us to close our offices temporarily
The occurrence of any of the foregoing or other natural or man made disasters could cause damage or disruption to us our employees operations distribution channels markets and customers which could result in significant delays in deliveries or substantial shortages of our products and adversely affect our business results of operations financial condition or prospects
We have limited product liability business disruption or other business insurance coverage for our operations In addition we do not have any business insurance coverage for our operations to cover losses that may be caused by litigation or natural disasters Any occurrence of uncovered loss could harm our business results of operations financial condition and prospects
We have adopted a global business model under which we maintain significant operations and facilities through our subsidiaries located in the U S China Taiwan and Hong Kong Our main research and development center is located in Silicon Valley and our manufacturing and supply chain is located in China We also have sales offices and customers throughout Asia the U S and elsewhere in the world Our international operations may subject us to the following risks
If we fail to maintain an effective internal control environment as well as adequate control procedures over our financial reporting investor confidence may be adversely affected thereby affecting the value of our stock price
We are required to maintain proper internal control over our financial reporting and adequate controls related to our disclosures As defined in Rule 13a 15 f under the Exchange Act internal control over financial reporting is a process designed by or under the supervision of the Chief Executive Officer and Chief Financial Officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles If we fail to maintain adequate controls our business the results of operations financial condition and or the value of our stock may be adversely impacted In addition if we identify material weakness in our internal control process we may be required to incur additional costs to implement remedial measures and public disclosure of material weaknesses may adversely affect the investors confidence in the quality of our financial disclosures which may negatively impact trading price of our stock
Any tax rate changes in the tax jurisdictions in which we operate could result in adjustments to our deferred tax assets if applicable which would affect our effective tax rate and results of operations
In addition the U S government has proposed various other changes to the U S international tax system certain of which could adversely impact foreign based multinational corporate groups and increased enforcement of U S international tax laws
It is possible that these or other changes in the U S tax laws foreign tax laws or proposed actions by international bodies such as the Organization of Economic Cooperation and Development OECD could significantly increase our U S or foreign income tax liability in the future including as described further below in this risk factor
In December 2017 the European Union EU identified certain jurisdictions including Bermuda and Cayman Islands which it considered had a tax system that facilitated offshore structuring by attracting profits without commensurate economic activity In order to avoid EU blacklisting both Bermuda and Cayman Islands introduced new legislation in December 2018 which came into force on January 1 2019 These new laws require Bermuda and Cayman companies carrying on one or more relevant activity including banking insurance fund management financing leasing headquarters shipping distribution and service center intellectual property or holding company to maintain a substantial economic presence in Bermuda and Cayman Islands in order to comply with the economic substance requirements Effective from December 31 2019 we have structured our activities to comply with the new law
However there is no experience yet as to how the Bermuda and Cayman Islands authorities will interpret and enforce these new rules The legislation remains subject to further clarification and accordingly there is no guarantee that we will be deemed to be compliant Furthermore this legislation may require us to make additional changes to the activities we carry on in Bermuda or Cayman Islands which could increase our costs either directly in those locations or indirectly as a result of increased costs related to moving our operations to other jurisdictions As a result we are not able to determine the impact on our operations and net income as of the current period
If any tax authorities were successful in challenging our transfer pricing policies or other tax judgments our income tax expense may be adversely affected and we could also be subject to interest and penalty charges which may harm our business financial condition and operating results
Further the U S Congress the EU the OECD and other government agencies in jurisdictions where we and our affiliates do business have had an extended focus on issues related to the taxation of multinational corporations One example is the OECD s initiative in the area of base erosion and profit shifting or BEPS Many countries have implemented or begun to implement legislation and other guidance to align their international tax rules with the OECD s BEPS recommendations In addition the OECD has been working on an extension of the BEPS project being referred to as BEPS 2 0 which focuses on two pillars of reform Pillar 1 is focused on global profit allocation and changing where large multinational corporations pay taxes and pillar 2 includes a global minimum tax rate The OECD published detailed blueprints of its proposals for pillar 1 and pillar 2 on October 14 2020 In 2021 the OECD announced that more than 140 member jurisdictions including the United States and Bermuda have politically committed to potential changes to the international corporate tax system including enacting a minimum tax rate of at least 15 as part of the OECD s Pillar Two initiative During December 2022 the European Union reached agreement on the introduction of a minimum tax directive requiring member states to enact local legislation We will continue to monitor countries laws with respect to the OECD model rules and the Pillar Two global minimum tax We do not believe Pillar Two has any material effect on us at this time and the effects of any future legislation in this area are not yet reasonably estimable but if such legislation is enacted in the future it could have a material effect on our provision for income taxes our financial results and our earnings and cash flows As a result of the focus on the taxation of multinational corporations the tax laws in the countries in which we and our affiliates do business could change on a prospective or retroactive basis and any such changes could adversely affect us
Our parent company is incorporated under the laws of Bermuda and is subject to Bermuda law with respect to taxation Under current Bermuda law the Company is not subject to any income or capital gains taxes in Bermuda As we have previously disclosed the Government of Bermuda announced in December 2023 that it enacted the Corporate Income Tax Act 2023 potentially imposing a 15 corporate income tax CIT on Bermuda companies that are within the scope of the CIT that will be effective for tax years beginning on or after January 1 2025 In particular the CIT applies to multinational companies with annual revenue of 750 million Euros or more in the consolidated financial
The Company is not in a position to determine whether the annual revenues may meet and or cross the 750 million Euro threshold for at least two of the four fiscal years immediately preceding the fiscal year when CIT may apply The Company continues to monitor and assess if and when it may be within the scope of the CIT If we become subject to the Bermuda CIT we may be subject to additional income taxes which may adversely affect our financial position results of operations and our overall business
We have entered into various debt agreements with certain financial institutions which generally require us to maintain certain financial covenants that have the effect of limiting our ability to take certain actions including actions to incur debt repurchase stock make certain investments and capital expenditures
These restrictions may limit our ability to pursue business and financial opportunities that are available or beneficial to us in response to changing and competitive economic environment which may have an adverse effect on our financial conditions
In addition a breach of any of these financial covenants if not waived by the lenders could trigger an event of default under the debt agreements which may result in the acceleration of our indebtedness or the loss of our collateral used to secure such indebtedness
We believe that our Bermuda parent and non U S subsidiaries each operate in a manner that they would not be subject to U S corporate income tax because they are not engaged in a trade or business in the United States
If our Bermuda parent and non U S subsidiaries were characterized as being so engaged we would be subject to U S tax at the regular corporate rates on our income that is effectively connected with U S trade or business plus an additional 30 branch profits tax on the dividend equivalent amount which is generally effectively connected income with certain adjustments deemed withdrawn from the United States Any such tax could materially and adversely affect our results of operations
Based on the current and anticipated valuation of our assets and the composition of our income and assets we do not expect to be considered a PFIC for U S federal income tax purposes for the foreseeable future
However we must make a separate determination for each taxable year as to whether we are a PFIC after the close of each taxable year and we cannot assure you that we will not be a PFIC for our June 30 2024 taxable year or any future taxable year
Under current law a non U S corporation will be considered a PFIC for any taxable year if either 1 at least 75 of its gross income is passive income or 2 at least 50 of the value of its assets generally based on an average of the quarterly values of the assets during a taxable year is attributable to assets that produce or are held for the production of passive income
PFIC status depends on the composition of our assets and income and the value of our assets including among others a pro rata portion of the income and assets of each subsidiary in which we own directly or indirectly at least 25 by value of the subsidiary s equity interests from time to time
Because we currently hold and expect to continue to hold a substantial amount of cash or cash equivalents and because the calculation of the value of our assets may be based in part on the value of our common shares which may fluctuate considerably given that market prices of technology companies historically often have been volatile we may be a PFIC for any taxable year
The Tax Act may have changed the consequences to U S shareholders that own or are considered to own as a result of the attribution rules 10 or more of the voting power or value of the stock of a non U S corporation a 10 U S shareholder under the U S Federal income tax law applicable to owners of U S controlled foreign corporations or CFCs
Prior to the Tax Act we did not believe that we or any of our non U S subsidiaries were considered a CFC which is a determination made daily based on whether the 10 U S shareholders together own or are considered to own under the attribution rules more than 50 of the voting power or value of a non U S corporation Under the Tax Act however because our group includes one or more U S subsidiaries certain of our non U S subsidiaries may be classified as CFCs with respect to any single 10 U S shareholder even without regard to whether 10 U S shareholders together own directly or indirectly more than 50 of the voting power or value of the Company Our 10 or greater U S shareholders should consult their individual tax advisors for advice regarding the Tax Act s revision to the U S Federal tax law applicable to owners of CFCs
Our financial results have been and are expected to continue to be affected by the economy in China If China s economy is slowing down it may negatively affect our business operation and financial results The China economy differs from the economies of most developed countries in many respects including
The Chinese economy has been transitioning from a planned economy to a more market oriented economy Although in recent years the China government has implemented measures emphasizing the utilization of market forces for economic reform the reduction of state ownership of productive assets and the establishment of corporate governance in business enterprises the China government continues to retain significant control over the business and productive assets in China Any changes in China s government policy or China s political economic and social conditions or in relevant laws and regulations may adversely affect our current or future business results of operations or financial condition These changes in government policy may be implemented through various means including changes in laws and regulations implementation of anti inflationary measures change of basic interest rate changes in the tax rate or taxation system and the imposition of additional restrictions on currency conversion and imports Furthermore given China s largely export driven economy any changes in the economies of China s principal trading partners and other export oriented nations may adversely affect our business results of operations financial condition and prospects
Our ability to successfully expand our business operations in China depends on a number of factors including macroeconomic and other market conditions and credit availability from lending institutions In response to the recent global and Chinese economic recession the China government has promulgated several measures aimed at expanding credit and stimulating economic growth We cannot assure you that the various macroeconomic measures monetary policies and economic stimulus package adopted by the China government to guide economic growth will be effective in maintaining or sustaining the growth rate of the Chinese economy If measures adopted by the China government fail to achieve further growth in the Chinese economy it may adversely affect our growth business strategies and operating results In addition changes in political and social conditions of China may adversely affect our ability to conduct our business in the region For example geopolitical disputes and increased tensions between China and its neighboring countries in which we conduct business could make it more difficult for us to coordinate and manage our international operations in such countries
Our business and corporate transactions including our operations through the JV Company are subject to laws and regulations applicable to foreign investment in China as well as laws and regulations applicable to foreign invested enterprises These laws and regulations frequently change and their interpretation and enforcement involve uncertainties that could limit the legal protections available to us Regulations and rules on foreign investments in China impose restrictions on the means that a foreign investor like us may apply to facilitate corporate transactions we may undertake
In addition the Chinese legal system is based in part on government policies and internal rules some of which are not published on a timely basis or at all that may have a retroactive effect As a result we may not be aware of our violation of these policies and rules until sometime after the violation If any of our past operations are deemed to be non compliant with Chinese law we may be subject to penalties and our business and operations may be adversely affected For instance under Special Administrative Measures Negative List for Foreign Investment Access some industries are categorized as sectors which are restricted or prohibited for foreign investment As the Negative List is updated every year there can be no assurance that the China government will not change its policies in a manner that would render part or all of our business to fall within the restricted or prohibited categories If we cannot obtain approval from relevant authorities to engage in businesses which become prohibited or restricted for foreign investors we may be forced to sell or restructure a business which has become restricted or prohibited for foreign investment Furthermore the China government has broad discretion in dealing with violations of laws and regulations including levying fines revoking business and other licenses and requiring actions necessary for compliance In particular licenses and permits issued or granted to us by relevant governmental bodies may be revoked at a later time by higher regulatory bodies If we are forced to adjust our corporate structure or business as a result of changes in government policy on foreign investment or changes in the interpretation and application of existing or new laws our business financial condition results of operations and prospects may be harmed Moreover uncertainties in the Chinese legal system may impede our ability to enforce contracts with our business partners customers and suppliers or otherwise pursue claims in litigation to recover damages or loss of property which could adversely affect our business and operations
Since 2018 U S and China trade tensions led to higher and increasing tariffs imposed by both countries on the import of goods from the other country The U S government used various authorities to implement tariffs on a variety of Chinese goods and materials which absent exemptions include products and applications including consumer electronics that incorporate our power discrete and power IC products In response China has imposed tariffs on certain American products and warned of additional actions if the U S imposes new or increased tariffs The continuing trade tensions could have significant adverse effects on world trade and the world economy While the two countries have negotiated and entered into agreements to gradually reduce certain tariffs it s unclear whether those agreements will significantly reduce the tariffs affecting our business operations The ultimate level of tariffs the ultimate scope of them and whether or how any proposed additional tariffs will impact our business is uncertain We believe that the imposition of additional tariffs by the U S government on products incorporating our power semiconductors could deter our customers from purchasing our products originating from China If so this would reduce demand for our power semiconductor products or result in pricing adjustments that would lower our gross margin which could have a material adverse effect on our business and results of operations
Uncertainties exist with respect to the interpretation and implementation of PRC Foreign Investment Law and how it may impact the viability of our current corporate structure corporate governance and business operations
On March 15 2019 the National People s Congress of the PRC promulgated the Foreign Investment Law which took effect on January 1 2020 and replaced the existing laws regulating foreign investment in China namely the Sino foreign Equity Joint Venture Enterprise Law the Sino foreign Cooperative Joint Venture Enterprise Law and the Wholly Foreign invested Enterprise Law together with their implementation rules and ancillary regulations The Foreign Investment Law embodies a PRC regulatory trend to rationalize its foreign investment regulatory regime in line with prevailing international practice and the legislative efforts to unify the corporate legal requirements for both foreign and domestic investments The Foreign Investment Law establishes the basic framework for the access promotion protection and administration of foreign investments in China in view of investment protection and fair competition For example treatment of foreign investors on a national level will be no less favorable than the treatment received by domestic investors unless such investments fall within a negative list On June 28 2018 the National Development and Reform Commission the NDRC and the Ministry of Commerce of the PRC the MOC published the Special Administrative Measures for Market Access of Foreign Investment Negative List 2018 Edition which identifies specific sectors where foreign investors will be subject to special administrative measures The Negative List has been updated three times in June 2019 June 2020 and December 2021 The current effective Negative List 2021 Edition took effect on January 1 2022
Since the Foreign Investment Law was newly enacted uncertainties still exist in relation to its interpretation and implementation For example the Foreign Investment Law provides that foreign invested enterprises established according to the existing laws regulating foreign investment may maintain their structure and corporate governance within a five year transition period which means that we may be required to adjust the structure and corporate governance of certain of our China subsidiaries in such transition period Failure to take timely and appropriate
In addition under the newly enacted Foreign Investment Law foreign investors or the foreign invested enterprise should report investment information on the principle of necessity Any company found to be non complaint with such investment information reporting obligation might be potentially subject to fines or administrative liabilities
Limitations on our ability to transfer funds to our China subsidiaries could adversely affect our ability to expand our operations make investments that could benefit our businesses and otherwise fund and conduct our business
The transfer of funds from us to our China subsidiaries either as a shareholder loan or as an increase in registered capital is subject to registration with or approval by the China s governmental authorities including the State Administration of Foreign Exchange SAFE the State Administration for Market Regulation SAMR and or the relevant examination and approval authority Our subsidiaries may also experience difficulties in converting our capital contributions made in foreign currencies into RMB due to changes in the China s foreign exchange control policies Therefore it may be difficult to change capital expenditure plans once the relevant funds have been remitted from us to our China subsidiaries These limitations and the difficulties our China subsidiaries may experience on the free flow of funds between us and our China subsidiaries could restrict our ability to act in response to changing market situations in a timely manner
A significant portion of our business is conducted in China where the currency is the Renminbi Regulations in China permit foreign owned entities to freely convert the Renminbi into foreign currency for transactions that fall under the current account which includes trade related receipts and payments interest and dividends Accordingly our Chinese subsidiaries may use Renminbi to purchase foreign exchange for settlement of such current account transactions without pre approval However pursuant to applicable regulations foreign invested enterprises in China may pay dividends only out of their accumulated profits if any determined in accordance with Chinese accounting standards and regulations A Chinese company must pay 10 of its annual after tax profits into the statutory reserve fund to fund the statutory reserve fund unless it has reached 50 of the registered capital of the company Where the accumulative amount of the company s statutory reserve is not enough to make up for the losses of the previous year the current year s profits must first be used to make up for the losses before the statutory reserve is accrued
Other transactions that involve conversion of Renminbi into foreign currency are classified as capital account transactions examples of capital account transactions include repatriations of investment by or loans to foreign owners or direct equity investments in a foreign entity by a China domiciled entity Capital account transactions require prior approval from or registration with China s State Administration of Foreign Exchange SAFE or its provincial branch or its authorized banks to convert a remittance into a foreign currency such as U S dollars and transmit the foreign currency outside of China
further or eliminate the ability of our China subsidiaries to purchase foreign currencies and transfer such funds to us to meet our liquidity or other business needs Any inability to access funds in China if and when needed for use by the Company outside of China could have a material and adverse effect on our liquidity and our business
The M A Rules and certain other PRC regulations establish complex procedures for some acquisitions of Chinese companies by foreign investors which could make it more difficult for us to pursue growth through acquisitions in China
The Regulations on Mergers and Acquisitions of Domestic Companies by Foreign Investors or the M A Rules adopted by six PRC regulatory agencies in August 2006 and amended in 2009 and some other regulations and rules concerning mergers and acquisitions established additional procedures and requirements that could make merger and acquisition activities by foreign investors more time consuming and complex including requirements in some instances that the Ministry of Commerce MOC be notified in advance of any change of control transaction in which a foreign investor takes control of a PRC domestic enterprise Moreover the Anti Monopoly Law requires that the MOC shall be
notified in advance of any concentration of undertaking if certain thresholds are triggered In addition the security review rules issued by the MOC that became effective in September 2011 specify that mergers and acquisitions by foreign investors that raise national defense and security concerns and mergers and acquisitions through which foreign investors may acquire de facto control over domestic enterprises that raise national security concerns are subject to strict review by the MOC and the rules prohibit any activities attempting to bypass a security review including by structuring the transaction through a proxy or contractual control arrangement On July 1 2015 the National Security Law of China took effect which provided that China would establish rules and mechanisms to conduct national security review of foreign investments in China that may impact national security China s Foreign Investment Law which became effective in January 2020 reiterates that China will establish a security review system for foreign investments On December 19 2020 the NDRC and the MOC jointly issued the Measures for the Security Review of Foreign Investments the New FISR Measures which was made according to the National Security Law and the Foreign Investment Law of China and became effective on January 18 2021 The New FISR Measures further expand the scope of national security review on foreign investment compared to the existing rules while leaving substantial room for interpretation and speculation In the future we may grow our business by acquiring complementary businesses Complying with the requirements of the above mentioned regulations and other relevant rules to complete such transactions could be time consuming and any required approval processes including obtaining approval from the MOC or its local counterparts may delay or inhibit our ability to complete such transactions which could affect our ability to expand our business or maintain our market share
While U S dollars is our main functional currency and our revenue and a significant portion of our operating expenses are denominated in U S dollars we are required to maintain local currencies primarily the RMB in our cash balances in connection with the funding of our overseas operations As a result our costs and operating expenses may be exposed to adverse movements in foreign currency exchange rates between the U S dollar and RMB We also do not utilize any financial instruments to hedge or reduce potential losses due to the fluctuation of foreign currency exchange rates In general any appreciation of U S dollars against a weaker RMB could reduce the value of our cash and cash equivalent balance which could increase our operating expenses and negatively affect our cash flow income and profitability The value of RMB against the U S dollars may fluctuate and is affected by many factors outside of our control including changes in political and economic conditions implementation of new monetary policies by the Chinese government and changes in banking regulations and there is no guarantee that we will be able to mitigate or recoup any losses due to a significant fluctuation in the U S dollar RMB exchange rates
The PRC government promulgated the Labor Contract Law of the PRC effective on January 1 2008 which was amended on December 28 2012 and the amended law became effective on July 1 2013 to govern the establishment of employment relationships between employers and employees and the conclusion performance termination of and the amendment to employment contracts The Labor Contract Law imposes greater liabilities on employers and significantly affects the cost of an employer s decision to reduce its workforce Further it requires that certain termination decisions be based upon seniority and not merit In the event our subsidiaries decide to significantly change or decrease their workforce in China the Labor Contract Law could adversely affect their ability to effect such changes in a manner that is most advantageous to our business or in a timely and cost effective manner thus materially and adversely affecting our financial condition and results of operations
In recent years compensation in various industries in China has increased and may continue to increase in the future In order to attract and retain skilled personnel we may need to increase the compensation of our employees Compensation may also increase as inflationary pressure increases in China In addition under the Regulations on Paid Annual Leave for Employees which became effective on January 1 2008 employees who have served more than one year for a specific employer are entitled to a paid vacation ranging from 5 to 15 days depending on length of service Employees who waive such vacation time at the request of employers must be compensated for three times their normal salaries for each waived vacation day This mandated paid vacation regulation coupled with the trend of increasing compensation may result in increase in our employee related costs and expenses and decrease in our profit margins
Taiwan has a unique international political status China does not recognize the sovereignty of Taiwan Although significant economic and cultural relations have been established during recent years between Taiwan and China relations have often been strained A substantial number of our key customers and some of our essential sales and
engineering personnel are located in Taiwan and we have a large number of operational personnel and employees located in China Therefore factors affecting military political or economic relationship between China and Taiwan could have an adverse effect on our business financial condition and operating results
Limited trading volumes and liquidity of our common shares on the NASDAQ Global Select Market may limit the ability of shareholders to purchase or sell our common shares in the amounts and at the times they wish In addition the financial markets in the United States and other countries have experienced significant price and volume fluctuations and market prices of technology companies have been and continue to be extremely volatile The trading price of our common shares on The NASDAQ Global Select Market ranged from a low of 19 55 to high of 37 38 from July 1 2023 to June 30 2024 At July 31 2024 the trading price of our common shares was 41 40 Volatility in the price of our shares may be caused by factors outside our control and may be unrelated or disproportionate to our operating results
In the past securities class action litigation has often been brought against a company following periods of volatility in such company s share price This type of litigation could result in substantial costs and divert our management s attention and resources which could negatively impact our business and financial conditions See Item 3 Legal Proceeding
If securities or industry analysts adversely change their recommendations regarding our common shares or if our operating results do not meet their expectations the trading price of our common shares could decline
The market price of our common shares is influenced by the research and reports that industry or securities analysts publish about us or our business There is no guarantee that these analysts will understand our business and results or that their reports will be accurate or correctly predict our operating results or prospects If one or more of these analysts cease coverage of our company or fail to publish reports on us regularly we could lose visibility in the financial markets which in turn could cause the market price of our common shares or its trading volume to decline Moreover if one or more of the analysts who cover our company downgrade our common shares or if our operating results or prospects do not meet their expectations the market price of our common shares could decline significantly
Certain provisions in our bye laws may delay or prevent an acquisition of us or a change in our management In addition by making it more difficult for shareholders to replace members of our board of directors these provisions also may frustrate or prevent any attempts by our shareholders to replace or remove our current management because our board of directors is responsible for appointing the members of our management team These provisions include
These provisions could make it more difficult for a third party to acquire us even if the third party s offer may be considered beneficial by many shareholders As a result shareholders may be limited in their ability to obtain a premium for their shares
We are a Bermuda limited liability exempted company As a result the rights of holders of our common shares will be governed by Bermuda law and our memorandum of association and bye laws The rights of shareholders under Bermuda law may differ from the rights of shareholders of companies incorporated in other jurisdictions including the U S For example some of our directors are not residents of the United States and a substantial portion of our assets are located outside the United States As a result it may be difficult for investors to effect service of process on those persons in the U S or to enforce in the U S judgments obtained in U S courts against us or those persons based on civil liability provisions of the U S securities laws It is doubtful whether courts in Bermuda will enforce judgments obtained in other jurisdictions including the U S against us or our directors or officers under the securities laws of those jurisdictions or entertain actions in Bermuda against us or our directors or officers under the securities laws of other jurisdictions
We recognize the importance of managing cybersecurity threats and risks related to our business and we have adopted a multi faceted and proactive strategy to identify evaluate address respond and neutralize cybersecurity threats and attacks We employ a combination of technical solutions security policies and procedures employee training programs and regular security audits to enhance and fortify our defenses We utilize advanced monitoring tools and anomaly detection systems to swiftly identify any suspicious activities or deviations from normal operation Our security infrastructure includes firewalls intrusion detection systems encryption protocols and access controls to protect our systems and data from unauthorized access or malicious attacks In the event of a security incident we have established incident response procedures to contain the threat minimize the impact and restore normal operations as quickly as possible We also conduct periodic risk assessments to identify cybersecurity threats as well as assessments in the event of a material change in our business practices that may affect our information systems that are vulnerable to such cybersecurity threats
Our cybersecurity team plays a critical role in managing our cybersecurity risk They oversee security controls and orchestrate our response to incidents on a day to day basis including threats arising internally or from our vendors suppliers or other third parties that we conduct business with In addition we have developed and implemented information security policies standards procedures and security guidelines that are based on industry standards particularly the National Institute of Standards and Technology NIST Cybersecurity Framework Furthermore we have implemented and maintained employee policies design to reduce risk of cyber attacks and educate employees on protocol in the event of a potential cybersecurity incident
We use third party service providers in various functions throughout our business We have implemented stringent processes to oversee and manage cybersecurity risk with these third parties which includes risk assessment activities enforcement of policies to ensure compliance with current cybersecurity standards and monitoring activities and periodic review of potential cyber breaches announcements made by the third party service providers
Currently we are not aware of any risks from cybersecurity threats that have materially affected our business strategy results of operations or financial condition or are reasonably likely to have a material effect However cyber attacks are increasing in frequency sophistication and intensity and despite our ongoing efforts we cannot eliminate all risks from cybersecurity threats or provide assurances that we have not experienced undetected cybersecurity incidents Please refer to Risk Factors in Part I Item 1A of this Form 10 K for more information on the risks posed to us by cybersecurity threats
Our management team including our cybersecurity team are responsible for day to day implementation assessment and management of our cybersecurity risk management processes Our cybersecurity team includes Vice President of Information Technology and Information Security Officer with a team of eight full time information technology professionals and several outside security vendors to manage our information security program Our Vice President of Information Technology and Information Security Officer have served in various roles in information technology and information security and together they have over 55 years of experience in this field The cybersecurity management team has primary responsibility for our overall cybersecurity risk management program including monitoring the prevention detection mitigation and remediation of cybersecurity incidents and works in partnership with our other business leaders including our Chief Executive Officer and Chief Financial Officer as well as our Board of Directors
Our Board of Directors the Board plays an active role in overseeing and managing the Company s cybersecurity risks The Audit Committee of the Board has established a Cybersecurity Subcommittee for the purpose of assessing analyzing and managing the Company s key cybersecurity and information technology risks and to ensure that our systems are adequate to protect against security breach and effectively safeguard the Company s IT infrastructure assets intellectual property and data The roles and responsibilities of the Cybersecurity Subcommittee are determined from time to time by the Audit Committee The Cybersecurity Subcommittee meets quarterly with our management team to discuss various matters relating to IT and cybersecurity risks and our senior management team communicates and coordinates directly with the Cybersecurity Subcommittee in the event of any cybersecurity incident The Cybersecurity Subcommittee is given the following responsibilities
As of July 31 2024 our primary U S facility which houses our research and design function as well as elements of marketing and administration is located in Sunnyvale California We conduct our manufacturing research and development sales and marketing and administration in Asia and North America We lease all properties used in our business except the wafer fabrication facility in Oregon acquired in January 2012 The following table sets forth the location size and primary use of our principal properties that are material to our business operations
As previously disclosed the Company continues to cooperate with the Department of Commerce DOC in connection with its ongoing investigation of the Company s export control practices DOC has not informed the Company of any specific timeline or schedule under which DOC will complete its review
We have in the past and may from time to time in the future become involved in legal proceedings arising from the normal course of business activities The semiconductor industry is characterized by frequent claims and litigation including claims regarding patent and other intellectual property rights as well as improper hiring practices Irrespective of the validity of such claims we could incur significant costs in the defense thereof or could suffer adverse effects on its operations
Our common shares have traded on the NASDAQ Global Select Market since April 29 2010 under the symbol AOSL As of July 31 2024 there were approximately 144 holders of record of our common shares not including those shares held in a street or nominee name
We have never declared or paid cash dividends on our common shares We currently intend to retain all available funds and any future earnings for use in the operation of our business and do not anticipate paying any dividends on our common share in the foreseeable future Any future determination to declare dividends will be made at the discretion of our board of directors and will depend on our financial condition operating results capital requirements general business conditions and other factors that our board of directors may deem relevant
The following graph compares the total cumulative shareholder return on our common shares with the total cumulative return of the NASDAQ Composite Index and the Philadelphia Semiconductor Index for the last five fiscal years ended June 30 2024 assuming an investment of 100 at the beginning of such period and the reinvestment of any dividends
The above Share Performance Graph and related information shall not be deemed soliciting material or to be filed with the Securities and Exchange Commission nor shall such information be incorporated by reference into any future filing under the Securities Act of 1933 or Securities Exchange Act of 1934 each as amended except to the extent that the Company specifically incorporates it by reference into such filing
You should read the following discussion of the financial condition and results of our operations in conjunction with our consolidated financial statements and the notes to those statements included elsewhere in this annual report Our consolidated financial statements contained in this annual report are prepared in accordance with U S GAAP
We are a designer developer and global supplier of a broad range of discrete power devices wide band gap power devices power management ICs and modules including a wide portfolio of Power MOSFET SiC IGBT IPM TVS HV Gate Drivers Power IC and Digital Power products Our portfolio of power semiconductors includes approximately 2 700 products and has grown with the introduction of over 100 new products in the fiscal year ended June 30 2024 and over 60 and 130 new products in the fiscal years ended June 30 2023 and 2022 respectively Our teams of scientists and engineers have developed extensive intellectual properties and technical knowledge that encompass major aspects of power semiconductors which we believe enables us to introduce and develop innovative products to address the increasingly complex power requirements of advanced electronics We have an extensive patent portfolio that consists of 930 patents and 52 patent applications in the United States as of June 30 2024 We also have a total of 1 025 foreign patents which primarily were based on our research and development efforts through June 30 2024 We differentiate ourselves by integrating our expertise in technology design and advanced manufacturing and packaging to optimize product performance and cost Our portfolio of products targets high volume applications including personal computers graphic cards game consoles flat panel TVs home appliances power tools smart phones battery packs consumer and industrial motor controls and power supplies for TVs computers servers and telecommunications equipment During fiscal year 2024 we accelerated the development of new technology platforms which allowed us to introduce 36 medium and high voltage MOSFET products targeting primarily the industrial markets and computing marketing as well as 17 low voltage MOSFET products primarily for the computing market In addition we introduced 37 Power IC new products for computing applications communication and consumer markets
Our business model leverages global resources including research and development and manufacturing in the United States and Asia Our sales and technical support teams are localized in several growing markets We operate an 8 inch wafer fabrication facility located in Hillsboro Oregon or the Oregon Fab which is critical for us to accelerate proprietary technology development new product introduction and improve our financial performance To meet the market demand for the more mature high volume products we also utilize the wafer manufacturing capacity of selected third party foundries For assembly and test we primarily rely upon our in house facilities in China In addition we utilize subcontracting partners for industry standard packages We believe our in house packaging and testing capability provides us with a competitive advantage in proprietary packaging technology product quality cost and sales cycle time
On March 29 2016 we formed a joint venture the JV Company with two investment funds owned by the Municipality of Chongqing the Chongqing Funds for the purpose of constructing and operating a power semiconductor packaging testing and 12 inch wafer fabrication facility Fab in the LiangJiang New Area of Chongqing China As of December 1 2021 we owned 50 9 and the Chongqing Funds owned 49 1 of the equity interest in the JV Company The Joint Venture was accounted under the provisions of the consolidation guidance since we had controlling financial interests until December 1 2021
On December 1 2021 the Effective Date Alpha Omega Semiconductor Shanghai Ltd AOS SH and Agape Package Manufacturing Shanghai Limited APM SH and together with AOS SH the Sellers each a wholly owned subsidiary of the Company entered into a share transfer agreement STA with a third party investor to sell a portion of the Company s equity interest in the JV Company which consists of a power semiconductor packaging testing and 12 inch wafer fabrication facility in Chongqing China the Transaction The Transaction closed on December 2 2021 the Closing Date which reduced the Company s equity interest in the JV Company from 50 9 to 48 8 Also the Company s right to designate directors on the board of JV Company was reduced to three 3 out of seven 7 directors from four 4 directors prior to the Transaction As a result of the Transaction and other factors the Company no longer has a controlling financial interest in the JV Company The JV Company was deconsolidated from the Company s Consolidated Financial Statements effective as of the Closing Date
On December 24 2021 we entered into a share transfer agreement with another third party investor pursuant to which the Company sold to this investor 1 1 of outstanding equity interest held by the Company in the JV Company In addition the JV Company adopted an employee equity incentive plan and issued an equity interest equivalent to 3 99 of the JV Company in exchange for cash As a result of these two transactions the Company owned 45 8 of the equity interest in the JV Company as of December 31 2021
On January 26 2022 the JV Company completed a financing transaction pursuant to a corporate investment agreement the Investment Agreement between the JV Company and certain third party investors the New Investors Under the Investment Agreement the New Investors purchased newly issued equity interest of the JV Company representing approximately 7 82 of post transaction outstanding equity interests of the JV Company for a total purchase price of RMB
509 million or approximately USD 80 million based on the currency exchange rate as of January 26 2022 the Investment Following the closing of the January 26 2022 Investment the percentage of outstanding JV equity interest beneficially owned by the Company was reduced to 42 2 at June 30 2022
In February 2024 the JV Company repurchased certain shares that were previously issued to employees under the employee equity incentive plan which increased the Company s percentage of equity ownership in the JV Company by 0 54 As of June 30 2024 the percentage of outstanding JV equity interest beneficially owned by the Company was 42 8
We reduced our ownership of the JV Company to below 50 to increase the flexibility of the JV Company to raise capital to fund its future expansion The JV Company is also contemplating an eventual listing on the Science and Technology Innovation Board or STAR Market of the Shanghai Stock Exchange The reduction of our ownership assists the JV Company in meeting certain regulatory listing requirements A potential STAR Market listing may take several years to consummate and there is no guarantee that such listing by the JV Company will be successful or will be completed in a timely manner or at all In addition the JV Company will continue to provide us with significant level of foundry capacity to enable us to develop and manufacture our products On July 12 2022 the current shareholders of the JV Company entered into a shareholders contract pursuant to which the JV Company committed to provide us with a monthly wafer production capacity until December 2023 and additional commitment to provide wafer capacity after December 2023 if the JV Company s production capacity reaches certain specified level
Because our products primarily serve consumer electronic applications any significant changes in global and regional economic conditions could materially affect our revenue and results of operations A significant amount of our revenue is derived from sales of products in the PC markets such as notebooks motherboards and notebook battery packs Therefore a substantial decline in the PC market could have a material adverse effect on our revenue and results of operations The PC markets have experienced a modest global decline in recent years due to continued growth of demand in tablets and smart phones worldwide economic conditions and the industry inventory correction which had and may continue to have a material impact on the demand for our products
A decline of the PC market may have a negative impact on our revenue factory utilization gross margin our ability to resell excess inventory and other performance measures We have executed and continue to execute strategies to diversify our product portfolio penetrate other market segments including the consumer communications and industrial markets and improve gross margins and profit by implementing cost control measures While making efforts to reduce our reliance on the computing market we continue to support our computing business and capitalize on the opportunities in this market with a more focused and competitive PC product strategy to gain market share
Our gross margin is affected by a number of factors including our manufacturing costs utilization of our manufacturing facilities the product mixes of our sales pricing of wafers from third party foundries and pricing of semiconductor raw materials Capacity utilization affects our gross margin because we have certain fixed costs at our Shanghai facilities and our Oregon Fab If we are unable to utilize our manufacturing facilities at a desired level our gross margin may be adversely affected In addition from time to time we may experience wafer capacity
constraints particularly at third party foundries that may prevent us from meeting fully the demand of our customers While we can mitigate these constraints by increasing and re allocating capacity at our own fab we may not be able to do so quickly or at sufficient level which could adversely affect our financial conditions and results of operations We also rely on the JV Company to provide foundry capacity to manufacture our products therefore it is critical that we maintain continuous access to such capacity which may not be available at sufficient level or at a pricing terms favorable to us because of lack of control over the JV Company s operation We continue to maintain a business relationship with the JV Company to ensure uninterrupted supply of manufacturing capacity Because we continue to rely on the JV Company to provide us with manufacturing capacity if the JV Company take actions or make decisions that prevents us from accessing required capacity our operations may be adversely affected
Erosion of average selling prices of established products is typical in our industry Consistent with this historical trend we expect our average selling prices of our existing products to decline in the future However in the normal course of business we seek to offset the effect of declining average selling price by introducing new and higher value products expanding existing products for new applications and new customers and reducing the manufacturing cost of existing products These strategies may cause the average selling price of our products to fluctuate significantly from time to time thereby affecting our financial performance and profitability
Our success depends on our ability to introduce products on a timely basis that meet or are compatible with our customers specifications and performance requirements Both factors timeliness of product introductions and conformance to customers requirements are equally important in securing design wins
with our customers As we accelerate the development of new technology platforms we expect to increase the pace at which we introduce new products and seek and acquire design wins If we were to fail to introduce new products on a timely basis that meet customers specifications and performance requirements particularly those products with major OEM customers and continue to expand our serviceable markets then we would lose market share and our financial performance would be adversely affected
Our distributors place purchase orders with us based on their forecasts of end customer demand and this demand may vary significantly depending on the sales outlook and market and economic conditions of end customers Because these forecasts may not be accurate channel inventory held at our distributors may fluctuate significantly which in turn may prompt distributors to make significant adjustments to their purchase orders placed with us As a result our revenue and operating results may fluctuate significantly from quarter to quarter In addition because our products are used in consumer electronics products our revenue is subject to seasonality Our sales seasonality is affected by numerous factors including global and regional economic conditions as well as the PC market conditions revenue generated from new products changes in distributor ordering patterns in response to channel inventory adjustments and end customer demand for our products and fluctuations in consumer purchase patterns prior to major holiday seasons In recent periods broad fluctuations in the semiconductor markets and the global and regional economic conditions in particular the changing PC market conditions have had a more significant impact on our results of operations than seasonality Furthermore our revenue may be impacted by the level of demand from our major customers due to factors outside of our control If these major customers experience significant decline in the demand of their products encounter difficulties or defects in their products or otherwise fail to execute their sales and marketing strategies successfully it may adversely affect our revenue and results of operations
We generate revenue primarily from the sale of power semiconductors consisting of power discretes and power ICs Historically a majority of our revenue has been derived from power discrete products Because our products typically have three year to five year life cycles the rate of new product introduction is an important driver of revenue growth over time We believe that expanding the breadth of our product portfolio is important to our business prospects because it provides us with an opportunity to increase our total bill of materials within an electronic system and to address the power requirements of additional electronic systems In addition a small percentage of our total revenue is generated by providing packaging and testing services to third parties through one of our in house facilities
Our product revenue is reported net of the effect of the estimated stock rotation returns and price adjustments that we expect to provide to our distributors Stock rotation returns are governed by contract and are limited to a specified percentage of the monetary value of products purchased by the distributor during a specified period At our discretion or upon our direct negotiations with the original design manufacturers ODMs or original equipment manufacturers OEMs we may elect to grant special pricing that is below the prices at which we sold our products to the distributors In certain situations we will grant price adjustments to the distributors reflecting such special pricing We estimate the price adjustments for inventory at the distributors based on factors such as distributor inventory levels forecasted distributor selling prices distributor margins and demand for our products
In February 2023 we entered into a license agreement with a customer to license our proprietary SiC technology and to provide 24 months of engineering and development services for a total fee of 45 0 million We received payments of such fees in the amount of 18 0 million 6 8 million and 9 0 million in March 2023 July 2023 and February 2024 respectively with the remaining amount to be paid upon the achievement of specified engineering services and product milestones The license and development fee is determined to be one performance obligation and is recognized over the 24 months during which we perform the engineering and development services We use the input method to measure progression of the transfer of services During the fiscal years ended June 30 2024 and 2023 we recorded 21 2 million and 9 9 million of license and development revenue respectively We also entered an accompanying supply agreement to provide limited wafer supply to the customer
Our cost of goods sold primarily consists of costs associated with semiconductor wafers packaging and testing personnel including share based compensation expense overhead attributable to manufacturing operations and procurement and costs associated with yield improvements capacity utilization warranty and valuation of inventories As the volume of sales
increases we expect cost of goods sold to increase While our utilization rates cannot be immune to the market conditions our goal is to make them less vulnerable to market fluctuations We believe our market diversification strategy and product growth will drive higher volume of manufacturing which will improve our factory utilization rates and gross margin in the long run
Our operating expenses consist of research and development and selling general and administrative expenses We expect our operating expenses as a percentage of revenue to fluctuate from period to period as we continue to exercise cost control measures in response to the declining PC market as well as align our operating expenses to the revenue level
Our research and development expenses consist primarily of salaries bonuses benefits share based compensation expense expenses associated with new product prototypes travel expenses fees for engineering services provided by outside contractors and consultants amortization of software and design tools depreciation of equipment and overhead costs We continue to invest in developing new technologies and products utilizing our own fabrication and packaging facilities as it is critical to our long term success We also evaluate appropriate investment levels and stay focused on new product introductions to improve our competitiveness We expect that our research and development expenses will fluctuate from time to time
Our selling general and administrative expenses consist primarily of salaries bonuses benefits share based compensation expense product promotion costs occupancy costs travel expenses expenses related to sales and marketing activities amortization of software depreciation of equipment maintenance costs and other expenses for general and administrative functions as well as costs for outside professional services including legal audit and accounting services We expect our selling general and administrative expenses to fluctuate in the near future as we continue to exercise cost control measures
If the recognition threshold is met the applicable accounting guidance permits us to recognize a tax benefit measured at the largest amount of tax benefit that is more likely than not to be realized upon settlement with a taxing authority
If the actual tax outcome of such exposures is different from the amounts that were initially recorded the differences will impact the income tax and deferred tax provisions in the period in which such determination is made
We record a valuation allowance against deferred tax assets if it is more likely than not that a portion of the deferred tax assets will not be realized based on historical profitability and our estimate of future taxable income in a particular jurisdiction
Our effective tax rate is highly dependent upon the geographic distribution of our worldwide profits or losses the tax laws and regulations in each geographical region where we have operations the availability of tax credits and carry forwards and the effectiveness of our tax planning strategies
On December 22 2017 the United States enacted tax reform legislation through the Tax Cuts and Jobs Act the Tax Act which significantly changes the existing U S tax laws including but not limited to 1 a reduction in the corporate tax rate from 35 to 21 2 a shift from a worldwide tax system to a territorial system 3 eliminating the corporate alternative minimum tax AMT and changing how existing AMT credits can be realized 4 bonus depreciation that will allow for full expensing of qualified property 5 creating a new limitation on deductible interest expense and 6 changing rules related to uses and limitations of net operating loss carryforwards created in tax years beginning after December 31 2017
The Company is not currently subject to the Base Erosion and Anti Abuse BEAT tax which is a tax imposed on certain entities who make payments to their non U S affiliates where such payments reduce the U S tax base The BEAT tax is imposed at a rate of 10 on Adjusted Taxable Income excluding certain payments to foreign related entities It is an
incremental tax over and above the corporate income tax and is recorded as a period cost It is possible that this tax could be applicable in future periods which would cause an increase to the effective tax rate and cash taxes
The Chips Act provides incentives to semiconductor chip manufacturers in the United States including providing manufacturing investment credits of 25 for investments in semiconductor manufacturing property placed in service after December 31 2022 for which construction begins before January 1 2027
Property investments qualify for the 25 credit if among other requirements the property is integral to the operation of an advanced manufacturing facility defined as having a primary purpose of manufacturing semiconductors or semiconductor manufacturing equipment
The IRA introduces a 15 corporate alternative minimum tax CAMT for corporations whose average annual adjusted financial statement income AFSI for any consecutive three tax year period preceding the applicable tax year exceeds 1 billion
The Company is subject to income tax expense or benefit based upon pre tax income or loss reported in the consolidated statements of income loss and the provisions of currently enacted tax laws The parent company is incorporated under the laws of Bermuda and is subject to Bermuda law with respect to taxation Under current Bermuda law the Company is not subject to any income or capital gains taxes in Bermuda As we have previously disclosed the Government of Bermuda announced in December 2023 that it enacted the Corporate Income Tax Act 2023 potentially imposing a 15 corporate income tax CIT on Bermuda companies that are within the scope of the CIT that will be effective for tax years beginning on or after January 1 2025 In particular the CIT applies to multinational companies with annual revenue of 750 million euros or more in the consolidated financial statements of the ultimate parent entity for at least two of the four fiscal years immediately preceding the fiscal year when the CIT may apply
The Company is not in a position to determine whether the annual revenues may meet and or cross the 750 million Euro threshold for at least two of the four fiscal years immediately preceding the fiscal year when CIT may apply The Company continues to monitor and assess if and when it may be within the scope of the CIT If we become subject to the Bermuda CIT we may be subject to additional income taxes which may adversely affect our financial position results of operations and our overall business
We use the equity method of accounting when we have the ability to exercise significant influence but we do not have control as determined in accordance with generally accepted accounting principles over the operating and financial policies of the company Effective December 2 2021 we reduced our equity interest in the JV Company below 50 of outstanding equity ownership and experienced a loss of control of the JV Company As a result we record our investment under equity method of accounting Since we are unable to obtain accurate financial information from the JV Company in a timely manner we record our share of earnings or losses of such affiliate on a one quarter lag
We record our interest in the net earnings of the equity method investee along with adjustments for unrealized profits or losses on intra entity transactions and amortization of basis differences within earnings or loss from equity interests in the Consolidated Statements of Operations Profits or losses related to intra entity sales with the equity method investee are eliminated until realized by the investor or investee Basis differences represent differences between the cost of the investment and the underlying equity in net assets of the investment and are generally amortized over the lives of the related assets that gave rise to them Equity method goodwill is not amortized or tested for impairment Instead the total equity method investment balance including equity method goodwill is tested for impairment We review for impairment whenever factors indicate that the carrying amount of the investment might not be recoverable In such a case the decrease in value is recognized in the period the impairment occurs in the Consolidated Statement of Operations
The following tables set forth our results of operations and as a percentage of revenue for the fiscal years ended June 30 2024 2023 and 2022 Our historical results of operations are not necessarily indicative of the results for any future period
Total revenue was 657 3 million for fiscal year 2024 a decrease of 34 0 million or 4 9 as compared to 691 3 million for fiscal year 2023 The decrease was primarily due to a decrease of 32 6 million and 12 8 million in sales of power discrete products and power IC products respectively The decrease in power discrete and power IC product sales was primarily due to a 17 3 decrease in average selling price as compared to last fiscal year due to a shift in product mix offset by a 12 3 increase in unit shipments The decrease in revenues was primarily driven by the decreased sales in the consumer markets particularly in gaming products offset by the increase in the computing market particularly in notebook and motherboard products The increase in revenue from packaging and testing services and other for the fiscal year 2024 as compared to last fiscal year was primarily due to increased demand The increase in license and development services for the fiscal year 2024 was related to the license agreement with a customer to license our proprietary SiC technology and to provide 24 months of engineering and development services in February 2023
Total revenue was 691 3 million for fiscal year 2023 a decrease of 86 2 million or 11 1 as compared to 777 6 million for fiscal year 2022 The decrease was primarily due to a decrease of 86 3 million and 2 3 million in sales of power discrete products and power IC products respectively The decrease in power discrete and power IC product sales was primarily due to a 30 1 decrease in unit shipments offset by a 26 9 increase in average selling price as compared to last fiscal year due to a shift in product mix The decrease in revenues was primarily driven by the significant decrease in the computing market reflecting weaker demand for computers and inventory correction by our customers in response to the industry wide downturn in the semiconductor industry partially offset by increased sales in the consumer markets particularly in gaming products The decrease in revenue from packaging and testing services for the fiscal year 2023 as compared to last
fiscal year was primarily due to decreased demand The increase in license and development services for the fiscal year 2023 was related to the license agreement with a customer to license our proprietary SiC technology and to provide 24 months of engineering and development services in February 2023
Cost of goods sold was 485 4 million for fiscal year 2024 a decrease of 6 4 million or 1 3 as compared to 491 8 million for fiscal year 2023 The decrease was primarily due to 4 9 decrease in revenue Gross margin decreased by 2 7 percentage points to 26 2 for the fiscal year 2024 as compared to 28 9 for the fiscal year 2023 The decrease in gross margin was primarily due to higher material costs and less favorable product mix during the fiscal year ended June 30 2024 We expect our gross margin to continue to fluctuate in the future as a result of variations in our product mix semiconductor wafer and raw material pricing manufacturing labor cost and general economic and PC market conditions
Cost of goods sold was 491 8 million for fiscal year 2023 a decrease of 17 2 million or 3 4 as compared to 509 0 million for fiscal year 2022 The decrease was primarily due to 11 1 decrease in revenue Gross margin decreased by 5 6 percentage points to 28 9 for the fiscal year 2023 as compared to 34 5 for the fiscal year 2022 The decrease in gross margin was primarily due to higher material costs and lower unit shipments during the fiscal year ended June 30 2023
Research and development expenses were 89 9 million for fiscal year 2024 an increase of 1 8 million or 2 0 as compared to 88 1 million for fiscal year 2023 The increase was primarily attributable to a 3 0 million increase in employee compensation and benefit expense mainly due to increased headcount and higher business and medical insurance expenses as well as higher bonus expense and vacation expense a 0 8 million increase in depreciation expenses and a 2 1 million increase in allocation expenses partially offset by a 4 2 million decrease in share based compensation expense as a result of a cancellation of certain performance based restricted stock units and an assessment of zero attainment for certain market based restricted stock units We continue to evaluate and invest resources in developing new technologies and products utilizing our own fabrication and packaging facilities We believe the investment in research and development is important to meet our strategic objectives
Research and development expenses were 88 1 million for fiscal year 2023 an increase of 16 9 million or 23 7 as compared to 71 3 million for fiscal year 2022 The increase was primarily attributable to a 3 9 million increase in employee compensation and benefit expense mainly due to increased headcount and higher medical insurance expenses partially offset by lower vacation accrual and lower bonus accrual a 2 4 million increase in share based compensation expense due to an
increase in stock awards granted a 3 6 million increase in depreciation expenses a 2 2 million increase in allocation expenses and a 4 8 million increase in product prototyping engineering expense as a result of increased engineering activities
Selling general and administrative expenses were 85 7 million for fiscal year 2024 a decrease of 3 1 million or 3 5 as compared to 88 9 million for fiscal year 2023 The decrease was primarily attributable to a 9 2 million decrease in share based compensation expense as a result of a cancellation of certain performance based restricted stock units and an assessment of zero attainment for certain market based restricted stock units partially offset by a 1 5 million increase in employee compensation and benefits expenses mainly due to increased headcount and higher bonus expense and vacation expense offset by lower business insurance expenses a 1 0 million increase in consulting fees a 1 0 million increase in audit fees a 1 8 million increase in allocation expenses and 0 7 million increase in employee business expenses
Selling general and administrative expenses were 88 9 million for fiscal year 2023 a decrease of 6 4 million or 6 7 as compared to 95 3 million for fiscal year 2022 The decrease was primarily attributable to a 11 3 million decrease in employee compensation and benefits expenses mainly due to lower bonus expenses accrual and lower vacation accrual partially offset by increased headcount higher medical and business insurance expenses as well as a 1 5 million decrease in loss incurred in connection with
cyber security incident partially offset by a 3 1 million increase in share based compensation expense due to an increase in stock award granted and the incremental expenses for one of our former officers equity shares resulting from the modification a 1 1 million increase in legal expenses a 0 7 million increase in recruiting and consulting fees a 1 2 million increase in allocation expenses and a 0 8 million increase in employee business expenses
Other income loss net decreased by 1 7 million in fiscal year 2024 as compared to the last fiscal year primarily due to decrease in foreign currency exchange loss as a result of the appreciation of RMB against USD
Other income loss net increased by 2 7 million in fiscal year 2023 as compared to the last fiscal year primarily due to increase in foreign currency exchange loss as a result of the depreciation of RMB against USD
Interest income expense net increased by 2 3 million in fiscal year 2024 as compared to the prior fiscal year primarily due to a 1 4 million increase in interest income as a result of higher interest rate as well as a 0 9 million decrease in interest expense as a result of a decrease in bank borrowings during the fiscal year 2024
Interest income expense net decreased by 2 8 million in fiscal year 2023 as compared to the fiscal year 2022 primarily due to a 3 6 million increase in interest income as a result of higher interest rate offset by a 0 7 million increase in interest expense as a result of an increase in bank borrowings during the fiscal year 2023
Income tax expense for fiscal years 2024 and 2023 was 3 6 million and 5 9 million respectively Income tax expense decreased by 2 3 million or 38 5 in fiscal year 2024 as compared to fiscal year 2023 The income tax expense of 3 6 million for the year ended June 30 2024 included a 0 2 million discrete tax expense and the income tax expense of 5 9 million for the year ended June 30 2023 included a 0 1 million discrete tax expense Excluding the discrete income tax items the effective tax rate for the years ended June 30 2024 and 2023 was 130 6 and 29 4 respectively The changes in the tax expense and effective tax rate between the periods resulted primarily from the Company reporting pretax book loss of 2 6 million for the year ended June 30 2024 as compared to a pretax book income of 19 7 million for year ended June 30 2023 as well as changes in the mix of earnings in various geographic jurisdictions between the current year and the same period of last year
Income tax expense for fiscal years 2023 and 2022 was 5 9 million and 39 3 million respectively Income tax expense decreased by 33 3 million or 84 9 in fiscal year 2023 as compared to fiscal year 2022 The income tax expense of 5 9 million for the year ended June 30 2023 included a 0 1 million discrete tax expense and the income tax expense of 39 3 million for the year ended June 30 2022 included a 33 5 million discrete tax expense related to the Company s 396 0 million of income from the sale of equity interest in a joint venture and the related deconsolidation gain as the Company changed from the consolidation method of accounting to the equity method of accounting In addition for the year ended June 30 2022 we recorded a tax benefit of 0 4 million from other discrete income tax items Excluding the discrete income tax items the effective tax rate for the years ended June 30 2023 and 2022 was 29 4 and 6 3 respectively The changes in the tax expense and effective tax rate between the periods resulted primarily from the Company reporting pretax book income of 19 7 million for the year ended June 30 2023 as compared to a pretax book income of 495 0 million 99 0 million of pretax book income plus the 396 0 million of income from the sale of equity interest in a joint venture and the related deconsolidation gain for the year ended June 30 2022 as well as changes in the mix of earnings in various geographic jurisdictions between the current year and the same period of last year
Our principal need for liquidity and capital resources is to maintain sufficient working capital to support our operations and to invest adequate capital expenditures to grow our business To date we finance our operations and capital expenditures primarily through funds generated from operations and borrowings under our term loans financing lease and other debt agreements
In March 2024 Bank of Communications Limited in China provided a line of credit facility to one of the Company s subsidiaries in China The purpose of the credit facility is to provide working capital borrowings The Company could borrow up to approximately RMB 140 million o
In December 2023 Industrial and Commercial Bank of China provided a line of credit facility to one of the Company s subsidiaries in China The purpose of the credit facility was to provide working capital borrowings The Company could borrow up to approximately RMB 72 0 million or 9 9 million based on currency exchange rate between RMB and U S Dollar on June 30 2024 with a maturity date of December 31 2024 As of June 30 2024 there was no outstanding balance for this loan
In September 2023 China Construction Bank provided a line of credit facility to one of the Company s subsidiaries in China The purpose of the credit facility is to provide working capital borrowings The Company could borrow up to approximately RMB 50 million or 6 9 million based on currency exchange rate between RMB and U S Dollar on June 30 2024 with a maturity date of September 8 2025 As of June 30 2024 there was no outstanding balance for this loan
On February 6 2023 we entered into a license and engineering service agreement with a leading power semiconductor automotive supplier related to our Silicon Carbide SiC MOSFET and diode technology Pursuant to the agreement we license and provide 24 months of engineering support for our proprietary SiC technology to the supplier for a total fee of 45 0 million We received payments of such fees in the amount of 18 0 million 6 8 million and 9 0 million in March 2023 July 2023 and February 2024 respectively and the remaining amount to be paid upon our achievements of specified business and product milestones In addition we entered an accompanying supply agreement with the supplier to provide it with limited wafer supply
In September 2021 Jireh Semiconductor Incorporated Jireh one of the wholly owned subsidiaries entered into a financing arrangement agreement with a company Lender for the lease and purchase of a machinery equipment manufactured by a supplier This agreement has a 5 years term after which Jireh has the option to purchase the equipment for 1 The implied interest rate was 4 75 per annum which was adjustable based on every five basis point increase in 60 month U S Treasury Notes until the final installation and acceptance of the equipment The total purchase price of this equipment was Euro 12 0 million In April 2021 Jireh made a down payment of Euro 6 0 million representing 50 of the total purchase price of the equipment to the supplier In June 2022 the equipment was delivered to Jireh after Lender paid 40 of the total purchase price for Euro 4 8 million to the supplier on behalf of Jireh In September 2022 Lender paid the remaining 10 payment for the total purchase price and reimbursed Jireh for the 50 down payment after the installation and configuration of the equipment The title of the equipment was transferred to Lender following such payment The agreement was amended with fixed implied interest rate of 7 51 and monthly payment of principal and interest effective in October 2022 Other terms remain the same In addition Jireh purchased hardware for the machine under this financing arrangement The purchase price of this hardware was 0 2 million The financing arrangement is secured by this equipment and other equipment which had a carrying amount of 13 6 million as of June 30 2024 As of June 30 2024 the outstanding balance of this debt financing was 9 2 million
On August 18 2021 Jireh entered into a term loan agreement with a financial institution the Bank in an amount up to 45 0 million for the purpose of expanding and upgrading the Company s fabrication facility located in Oregon The obligation under the loan agreement is secured by substantially all assets of Jireh and guaranteed by the Company The agreement has a term of 5 5 years and matures on February 16 2027 Jireh is required to make consecutive quarterly payments of principal and interest The loan accrues interest based on adjusted LIBOR plus the applicable margin based on the outstanding balance of the loan This agreement contains customary restrictive covenants and includes certain financial covenants that the Company is required to maintain Jireh drew down 45 0 million on February 16 2022 with the first payment of principal beginning in October 2022 As of June 30 2024 Jireh was in compliance with these covenants and the outstanding balance of this loan was 29 2 million
On August 9 2019 one of the Company s wholly owned subsidiaries the Borrower entered into a factoring agreement with the Hongkong and Shanghai Banking Corporation Limited HSBC whereby the Borrower assigns certain of its accounts receivable with recourse This factoring agreement allows the Borrower to borrow up to 70 of the net amount of its eligible accounts receivable of the Borrower with a maximum amount of 30 0 million The interest rate is based on the Secured Overnight Financing Rate SOFR plus 2 01 per annum The Company is the guarantor for this agreement The Company is accounting for this transaction as a secured borrowing under the Transfers and Servicing of Financial Assets
guidance In addition any cash held in the restricted bank account controlled by HSBC has a legal right of offset against the borrowing This agreement with certain financial covenants required has no expiration date On August 11 2021 the Borrower signed an agreement with HSBC to decrease the borrowing maximum amount to 8 0 million with certain financial covenants required Other terms remain the same The Borrower was in compliance with these covenants as of June 30 2024 As of June 30 2024 there was no outstanding balance of this factoring agreement
The Chinese government imposes certain currency exchange controls on cash transfers out of China Regulations in China permit foreign owned entities to freely convert the Renminbi into foreign currency for transactions that fall under the current account which includes trade related receipts and payments interests and dividend payments Accordingly subject to the review and verification of the underlying transaction documents and supporting documents by the account banks in China our Chinese subsidiaries may use Renminbi to purchase foreign exchange currency for settlement of such current account transactions without the pre approval from China s State Administration of Foreign Exchange SAFE or its provincial branch Pursuant to applicable regulations foreign invested enterprises in China may pay dividends only out of their accumulated profits if any determined in accordance with Chinese accounting standards and regulations A Chinese company must pay 10 of its annual after tax profits into the statutory reserve fund to fund the statutory reserve fund unless it has reached 50 of the registered capital of the company Where the accumulative amount of the company s statutory reserve is not enough to make up for the losses of the previous year the current year s profits must first be used to make up for the losses before the statutory reserve is accrued While SAFE approval is not statutorily required for eligible dividend payments to the foreign parent in practice before making the dividend payment the account bank may seek SAFE s opinion with respect to a dividend payment if the payment involves a relatively large amount which may delay the dividend payment depending on the then overall status of cross border payments and receipts of China
Transactions that involve conversion of Renminbi into foreign currency in relation to foreign direct investments and provision of debt financings in China are classified as capital account transactions Examples of capital account transactions include repatriations of investments by foreign owners and repayments of loan principal to foreign lenders Capital account transactions require prior approval from SAFE or its provincial branch or an account bank delegated by SAFE to convert a remittance into a foreign currency such as U S dollars and transmit the foreign currency outside of China As a result of this and other restrictions under PRC laws and regulations our China subsidiaries are restricted in their ability to transfer a portion of their net assets to us and such restriction may adversely affect our ability to generate sufficient liquidity to fund our operations or other expenditures As of June 30 2024 and 2023 such restricted portion amounted to approximately 93 5 million and 93 2 million or 10 5 and 10 5 of our total consolidated net assets attributable to the Company respectively
We believe that our current cash and cash equivalents and cash flows from operations will be sufficient to meet our anticipated cash needs including working capital and capital expenditures for at least the next twelve months In the long term we may require additional capital due to changing business conditions or other future developments including any investments or acquisitions we may decide to pursue If our cash is insufficient to meet our needs we may seek to raise capital through equity or debt financing The sale of additional equity securities could result in dilution to our shareholders The incurrence of indebtedness would result in increased debt service obligations and may include operating and financial covenants that would restrict our operations We cannot be certain that any financing will be available in the amounts we need or on terms acceptable to us if at all
As of June 30 2024 and 2023 we had 175 5 million and 195 6 million of cash cash equivalents and restricted cash respectively Our cash cash equivalents and restricted cash primarily consisted of cash on hand restricted cash and short term bank deposits with original maturities of three months or less Of the 175 5 million and 195 6 million cash and cash equivalents 55 0 million and 108 2 million respectively were deposited with financial institutions outside the United States
Net cash provided by operating activities of 25 7 million for fiscal year 2024 resulted primarily from net loss of 11 1 million non cash charges of 79 4 million and net change in assets and liabilities using net cash of 42 6 million The non cash charges of 79 4 million included depreciation and amortization expenses of 53 8 million share based compensation expense of 21 6 million equity method investment loss from equity investee of 4 8 million the net deferred income taxes of 0 9 million and loss on disposal of property and equipment of 0 1 million The net change in assets and liabilities using net cash of 42 6 million was primarily due to 33 8 million decrease in accrued and other liabilities 12 5 million increase in inventories 2 4 million decrease in accounts payable primarily due to timing of payment 5 5 million decrease in deferred revenue and 2 0 million decrease in income taxes payable partially offset by 9 9 million decrease in accounts receivable due to timing of billings and collection of payments increase in other payable on equity investee of 1 7 million 1 9 million decrease in other current and long term assets primarily due to decrease in advance payments to suppliers
Net cash provided by operating activities of 20 5 million for fiscal year 2023 resulted primarily from net income of 12 4 million non cash charges of 80 9 million and net change in assets and liabilities using net cash of 72 8 million The non cash charges of 80 9 million included depreciation and amortization expenses of 43 2 million share based compensation expense of 37 5 million equity method investment loss from equity investee of 1 4 million the net deferred income taxes of 1 4 million and loss on disposal of property and equipment of 0 2 million The net change in assets and liabilities using net cash of 72 8 million was primarily due to 45 5 million decrease in accrued and other liabilities decrease in other payable on equity investee of 17 0 million and 19 6 million decrease in accounts payable primarily due to timing of payment 25 2 million increase in inventories 18 7 million increase in other current and long term assets primarily due to decrease in advance payments to suppliers partially offset by 43 3 million decrease in accounts receivable due to timing of billings and collection of payments 8 1 million increase in deferred revenue and 2 0 million increase in income taxes payable
Net cash provided by operating activities of 218 9 million for fiscal year 2022 resulted primarily from net income of 453 2 million non cash charges of 287 6 million and net change in assets and liabilities providing net cash of 53 3 million The non cash charges of 287 6 million included depreciation and amortization expenses of 42 9 million share based compensation expense of 31 3 million gain on deconsolidation of the JV Company of 399 1 million loss on changes of equity interest in the JV Company net of 3 1 million deferred income tax on deconsolidation and changes of equity interest in the JV Company of 30 0 million equity method investment loss from equity investee of 2 6 million and net deferred income taxes of 1 6 million The net change in assets and liabilities providing net cash of 53 3 million was primarily due to 76 4 million increase in accrued and other liabilities income taxes payable on deconsolidation and changes of equity interest in the JV company of 3 5 million other payable on equity investee of 48 2 million and 23 8 million increase in accounts payable primarily due to timing of payment partially offset by 30 1 million increase in accounts receivable due to timing of billings and collection of payments 57 4 million increase in inventories 9 4 million increase in other current and long term assets primarily due to decrease in advance payments to suppliers and 1 7 million decrease in income taxes payable
Net cash used in investing activities of 35 7 million for the fiscal year 2024 was primarily attributable to 37 1 million purchases of property and equipment partially offset by 1 0 million government grant related to equipment and 0 4 million in proceeds from sale of property and equipment
Net cash used in investing activities of 109 6 million for the fiscal year 2023 was primarily attributable to 110 4 million purchases of property and equipment partially offset by 0 6 million government grant related to equipment and 0 2 million in proceeds from sale of property and equipment
Net cash used in investing activities of 130 8 million for the fiscal year 2022 was primarily attributable to 138 0 million purchases of property and equipment and 20 7 million deconsolidation of cash and cash equivalents of the JV Company partially offset by 1 4 million government grant related to equipment in the JV Company 26 3 million proceeds from sale of equity interest in the JV Company and 0 1 million proceeds from sale of property and equipment
Net cash used in financing activities of 9 9 million for the fiscal year 2024 was primarily attributable to 7 7 million in common shares acquired to settle withholding tax related to vesting of restricted stock units 0 9 million in payments of finance lease obligations and 11 5 million in repayments of borrowings partially offset by 10 1 million of proceeds from exercises of share options and issuance of shares under the ESPP
Net cash used in financing activities of 29 6 million for the fiscal year 2023 was primarily attributable to 6 4 million in common shares acquired to settle withholding tax related to vesting of restricted stock units 0 8 million in payments of finance lease obligations 26 6 million in repayments of borrowings and 13 4 million of payments for repurchase of common shares partially offset by 8 6 million of proceeds from borrowings and 9 0 million of proceeds from exercises of share options and issuance of shares under the ESPP
Net cash used in financing activities of 21 9 million for the fiscal year 2022 was primarily attributable to 64 3 million of proceeds from borrowings and 6 1 million of proceeds from exercises of share options and issuance of shares under the ESPP partially offset by 8 6 million in common shares acquired to settle withholding tax related to vesting of restricted stock units 4 2 million in payments of finance lease obligations and 35 7 million in repayments of borrowings
As of June 30 2024 we had recorded liabilities of 3 0 million for uncertain tax positions and 0 5 million for potential interest and penalties which are not included in the above table because we are unable to reliably estimate the amount of payments in individual years that would be made in connection with these uncertain tax positions
The preparation of our consolidated financial statements requires us to make estimates judgments and assumptions that affect the reported amounts of assets liabilities revenue and expenses To the extent there are material differences between these estimates and actual results our consolidated financial statements will be affected On an ongoing basis we evaluate the estimates judgments and assumptions including those related to stock rotation returns price adjustments allowance for doubtful accounts valuation of inventories warranty accrual income taxes leases equity method investment share based compensation recoverability of and useful lives for property plant and equipment and intangible assets
We determine revenue recognition through the following steps 1 identification of the contract with a customer 2 identification of the performance obligations in the contract 3 determination of the transaction price 4 allocation of the transaction price to the performance obligations in the contract and 5 recognition of revenue when or as a performance obligation is satisfied We recognize revenue at a point in time when product is shipped to the customer net of estimated stock rotation returns and price adjustments to certain distributors We present revenue net of sales taxes and any similar assessments Our standard payment terms range from 30 to 60 days
We sell our products primarily to distributors who in turn sell our products globally to various end customers Our revenue is net of the effect of the variable consideration relating to estimated stock rotation returns and price adjustments that we expect to provide to certain distributors Stock rotation returns are governed by contract and are limited to a specified percentage of the monetary value of the products purchased by distributors during a specified period We estimate provision for stock rotation returns based on historical returns and individual distributor agreements We also provide special pricing to certain distributors primarily based on volume to encourage resale of our products We estimate the expected price adjustments at the time the revenue is recognized based on distributor inventory levels forecasted future distributor selling prices distributor margins and demand for our products If actual stock rotation returns or price adjustments differ from our estimates adjustments may be recorded in the period when such actual information is known Allowance for price adjustments is recorded against accounts receivable and provision for stock rotation is recorded in accrued liabilities on the consolidated balance sheets
Our performance obligations relate to contracts with a duration of less than one year We elected to apply the practical expedient provided in ASC 606 Revenue from Contracts with Customers Therefore we are not required to disclose the aggregate amount of transaction price allocated to performance obligations that are unsatisfied or partially unsatisfied at the end of the reporting period
We recognize the incremental direct costs of obtaining a contract which consist of sales commissions when control over the products they relate to transfers to the customer Applying the practical expedient we recognize commissions as expense when incurred as the amortization period of the commission asset we would have otherwise recognized is less than one year
In February 2023 we entered into a license agreement with a customer to license our proprietary SiC technology and to provide 24 months of engineering and development services for a total fee of 45 0 million consisting of an upfront fee of 18 0 million 6 8 million and 9 0 million paid to us in March 2023 July 2023 and February 2024 respectively with the remaining amount to be paid upon the achievement of specified engineering services and product milestones The license and development fee is determined to be one performance obligation and is recognized over the 24 months when we perform the engineering and development services We use the input method to measure progression representing a faithful depiction of the transfer of services During the fiscal years ended June 30 2024 and 2023 we recorded 21 2 million and 9 9 million of license and development revenue The amount of contract liability is recorded as deferred revenue on the consolidated balance sheets In addition we also entered an accompanying supply agreement to provide limited wafer supply to the customer
We use the equity method of accounting when we have the ability to exercise significant influence but not control as determined in accordance with general accepted accounting principles over the operating and financial policies of the investee Effective December 2 2021 we reduced our equity interest in the JV Company which resulted in deconsolidation of our investment in the JV Company As a result beginning December 2 2021 we record our investment under equity method of accounting Due to difficulties in obtaining accurate financial information from the JV Company in a timely manner we record our share of earnings or losses of such affiliate on a one quarter lag Therefore our share of losses of the
JV Company for the period from December 2 2021 to March 31 2022 was recorded in our Consolidated Statement of Operations for the fiscal year ended June 30 2022 And our share of losses of the JV Company for the periods of April 1 2022 to March 31 2023 and April 1 2023 to March 31 2024 were recorded in our Consolidated Statement of Operations for the fiscal years ended June 30 2023 and 2024 We recognize and disclose intervening events at the JV Company in the lag period that could materially affect our consolidated financial statements
We record our interest in the net earnings of the equity method investee along with adjustments for unrealized profits or losses on intra entity transactions and amortization of basis differences within earnings or loss from equity interests in the Consolidated Statements of Operations Profits or losses related to intra entity sales with the equity method investee are eliminated until realized by the investor and investee Basis differences represent differences between the cost of the investment and the underlying equity in net assets of the investment and are generally amortized over the lives of the related assets that gave rise to them Equity method goodwill is not amortized or tested for impairment instead the equity method investment is tested for impairment We review for impairment whenever factors indicate that the carrying amount of the investment might not be recoverable In such a case the decrease in value is recognized in the period the impairment occurs in the Consolidated Statements of Operations
We carry inventories at the lower of cost determined on a first in first out basis or net realizable value Cost primarily consists of semiconductor wafers and raw materials labor depreciation expenses and other manufacturing expenses and overhead and packaging and testing fees paid to third parties if subcontractors are used Valuation of inventories is based on our periodic review of inventory quantities on hand as compared with our sales forecasts historical usage aging of inventories production yield levels and current product selling prices If actual market conditions are less favorable than those forecasted by us additional future inventory write downs may be required that could adversely affect our operating results Adjustments to inventory once established are not reversed until the related inventory has been sold or scrapped If actual market conditions are more favorable than expected and the products that have previously been written down are sold our gross margin would be favorably impacted
These estimates and judgments occur in the calculation of tax credits benefits and deductions and in the calculation of certain tax assets and liabilities which arise from differences in the timing of recognition of revenue and expense for tax and financial statement purposes as well as interest and penalties related to uncertain tax positions
While the final tax outcome of these matters may differ from the amounts that were initially recorded such differences will impact the income tax and deferred tax provisions in the period in which such determination is made
When it is more likely than not that all or some portion of specific deferred tax assets such as net operating losses or foreign tax credit carryforwards will not be realized a valuation allowance must be established for the amount of the deferred tax assets that cannot be realized
We intend to reinvest the undistributed earnings of its foreign subsidiaries indefinitely except for Alpha and Omega Semiconductor Cayman Ltd and AOS International LP As of June 30 2024 the cumulative earnings of Alpha and Omega Semiconductor Cayman and AOS International LP totaled 46 2 million and there was no deferred tax liability recorded as there is no income nor withholding tax amongst the applicable jurisdictions As of June 30 2024 the cumulative amount of undistributed earnings of its foreign entities considered permanently reinvested is 414 6 million Should the Company decide to remit this income to its Bermuda parent company in a future period its provision for income taxes may increase materially in that period The determination of the unrecognized deferred tax liability on these earnings is not practicable due to the complexity and variety of assumptions necessary to estimate the tax As of June 30 2024 the Company has recorded a deferred tax liability of 26 3 million for the basis difference related to our investment in the JV Company
The Financial Accounting Standards Board FASB has issued guidance which clarifies the accounting for income taxes by prescribing a minimum probability threshold that a tax position must meet before a financial statement benefit is recognized
The minimum threshold is defined as a tax position that is more likely than not to be sustained upon examination by the applicable taxing authority including resolution of any related appeals or litigation processes based on the technical merits of the position
Although the guidance on the accounting for uncertainty in income taxes prescribes the use of a recognition and measurement model the determination of whether an uncertain tax position has met those thresholds will continue to require significant judgment by management
To the extent that the final tax outcome of these matters is different than the amounts recorded such differences will impact the provision for income taxes in the period in which such determination is made
We maintain an equity settled share based compensation plan to grant restricted share units and stock options We recognize expense related to share based compensation awards that are ultimately expected to vest based on estimated fair values on the date of grant The fair value of restricted share units is based on the fair value of our common share on the date of grant For restricted stock awards subject to market conditions the fair value of each restricted stock award is estimated at the date of grant using the Monte Carlo pricing model The fair value of stock options is estimated on the date of grant using the Black Scholes option valuation model Share based compensation expense is recognized on the accelerated attribution basis over the requisite service period of the award which generally equals the vesting period
The Employee Share Purchase Plan the ESPP is accounted for at fair value on the date of grant using the Black Scholes option valuation model Share based compensation expense is significant to the consolidated financial statements and is calculated using our best estimates which involve inherent uncertainties and the application of management s judgment The Black Scholes option valuation model requires the input of subjective assumptions including the expected term and stock price volatility In addition judgment is also required in estimating the number of stock based awards that are expected to be forfeited Forfeitures are estimated based on historical experience at the time of grant Changes in estimated forfeitures are recognized in the period of change and impact the amount of stock compensation expenses to be recognized in future periods which could be material if actual results differ significantly from estimates
See Note 1 of the Notes to the consolidated financial statements contained in this Annual Report on Form 10 K for a full description of recent accounting pronouncements including the expected dates of adoption and estimated effects on results of operations and financial condition
We and our principal subsidiaries use U S dollars as our functional currency because most of the transactions are conducted and settled in U S dollars All of our revenue and a significant portion of our operating expenses are denominated in U S dollars The functional currency for our in house packaging and testing facilities in China is U S dollars and a significant portion of our capital expenditures are denominated in U S dollars However foreign currencies are required to fund our overseas operations primarily in Taiwan and China Operating expenses of overseas operations are denominated in their respective local currencies In order to minimize exposure to foreign currencies we maintained cash and cash equivalent balances in foreign currencies including Chinese Yuan RMB as operating funds for our foreign operating expenses For our subsidiaries which use the local currency as the functional currency the results and financial position are translated into U S dollar using exchange rates at balance sheet dates for assets and liabilities and using average exchange rates for income and expenses items The resulting translation differences are presented as a separate component of accumulated other comprehensive income loss and noncontrolling interest in the consolidated statements of equity Our management believes that our exposure to foreign currency translation risk is not significant based on a 10 sensitivity analysis in foreign currencies due to the fact that the net assets denominated in foreign currencies pertaining to foreign operations principally in Taiwan and China are not significant to our consolidated net assets
Our interest bearing assets comprise mainly interest bearing short term bank balances We manage our interest rate risk by placing such balances in instruments with various short term maturities Borrowings expose us to interest rate risk Borrowings are drawn down after due consideration of market conditions and expectation of future interest rate movements As of June 30 2024 we had 38 4 million outstanding under our loan and 3 2 million outstanding under our financing leases which were subject to fluctuations in interest rates For the year ended June 30 2024 a hypothetical 10 increase in the interest rate could result in 0 2 million additional annual interest expense The hypothetical assumptions made above will be different from what actually occurs in the future Furthermore the computations do not anticipate actions that may be taken by our management should the hypothetical market changes actually occur over time As a result actual impacts on our results of operations in the future will differ from those quantified above
We are subject to risk from fluctuating market prices of certain commodity raw materials particularly gold that are used in our manufacturing process and incorporated into our end products Supplies for such commodities may from time to time become restricted or general market factors and conditions may affect the pricing of such commodities Over the past few years the price of gold increased significantly and certain of our supply chain partners assess surcharges to compensate for the rising commodity prices We have been converting some of our products to use copper wires instead of gold wires Our results of operations may be materially and adversely affected if we have difficulty obtaining these raw materials the quality of available raw materials deteriorates or there are significant price changes for these raw materials For periods in which the prices of these raw materials are rising we may be unable to pass on the increased cost to our customers which would result in decreased margins for the products in which they are used and could have a material adverse effect on our net earnings We also may need to record losses for adverse purchase commitments for these materials in periods of declining prices We do not enter into formal hedging arrangements to mitigate against commodity risk We estimate that a 10 increase or decrease in the costs of raw materials subject to commodity price risk such as gold would decrease or increase our current year s net earnings by 0 6 million assuming that such changes in our costs have no impact on the selling prices of our products and that we have no pending commitments to purchase metals at fixed prices
Our management with the participation of our Chief Executive Officer and Chief Financial Officer evaluated the effectiveness of our disclosure controls and procedures as of June 30 2024 the end of the period covered by this Annual Report on Form 10 K Disclosure controls and procedures as defined in Rules 13a 15 e and 15d 15 e under the Securities Exchange Act of 1934 as amended the Exchange Act are designed to provide reasonable assurance that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded processed summarized and reported within the time periods specified in the SEC s rules and forms and that such information is accumulated and communicated to a company s management including its principal executive and principal financial officers as appropriate to allow timely decisions regarding required disclosure
Based upon that evaluation as of the end of the period covered in this Annual Report on Form 10 K our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of June 30 2024
Our management including our Chief Executive Officer and Chief Financial Officer is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a 15 f under the Exchange Act Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of our financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that 1 pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets 2 provide reasonable assurance that transactions are recorded to permit preparation of financial statements in accordance with generally accepted accounting principles and that our receipts and expenditures are made only in accordance with authorizations of our management and directors and 3 provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition use or disposition of our assets that could have a material effect on our financial statements
Our management conducted an assessment of the effectiveness of our internal control over financial reporting based on the criteria set forth in Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission 2013 framework as amended from time to time Based on the assessment our management concluded that the Company s internal control over financial reporting was effective as of June 30 2024
The effectiveness of the Company s internal control over financial reporting as of June 30 2024 has been audited by Baker Tilly US LLP an independent registered public accounting firm as stated in their report
As previously disclosed in Item 9A of our Annual Report on Form 10 K for the fiscal year ended June 30 2023 the prior year Form 10 K and in subsequent quarterly reports we did not i design and maintain effective information technology general controls in the areas of user access and segregation of duties for one of the information technology systems that supports the Company s financial reporting over inventory work in process and finished goods in costing and ii identify and test controls to ensure the reliability of the costing of inventory work in process and finished goods
Based upon the above we have determined that these control activities are appropriately designed and implemented and operating effectively for a sufficient period of time to conclude that the previously identified material weakness has been remediated as of June 30 2024
As required by Rule 13a 15 d under the Exchange Act our management including our Chief Executive Officer and Chief Financial Officer evaluated our internal control over financial reporting to determine whether any changes occurred during the fourth fiscal quarter covered by this Form 10 K that have materially affected or are reasonably likely to materially affect our internal control over financial reporting Except for the remediation efforts implemented in connection with the material weakness discussed above there were no changes during the quarter ended June 30 2024
While our disclosure controls and procedures and internal control over financial reporting are designed to provide reasonable assurance that their respective objectives will be met we do not expect that our disclosure controls and procedures or our internal control over financial reporting are or will be capable of preventing or detecting all errors and all fraud Any control system no matter how well designed and operated can provide only reasonable not absolute assurance that the control system s objectives will be met
The table below summarizes the material terms of trading arrangements adopted by any of our executive officers or directors during the June 2024 quarter All of the trading arrangements listed below are intended to satisfy the affirmative defense of Rule 10b5 1 c
Certain information required by Part III is omitted from this Annual Report on Form 10 K because we intend to file our definitive proxy statement for our next annual general meeting of shareholders pursuant to Regulation 14A of the Securities Exchange Act of 1934 as amended the 2024 Proxy Statement no later than 120 days after the end of fiscal year 2024 and certain information to be included in the 2024 Proxy Statement is incorporated herein by reference
The information required by this item concerning our directors executive officers Section 16 compliance and corporate governance matters is contained in part under the caption Business Executive Officers in Part I of this report and the remainder is incorporated by reference to the information set forth in the sections titled Election of Directors and Delinquent Section 16 a Reports in the 2024 Proxy Statement
The information required by this item regarding executive compensation is incorporated by reference from the information set forth under the captions Compensation of Non Employee Directors and Executive Compensation in the 2024 Proxy Statement
The information required by this item regarding security ownership of certain beneficial owners and management is incorporated by reference to the information set forth in the section titled Security Ownership of Certain Beneficial Owners and Management and Equity Compensation Plan Information in the 2024 Proxy Statement
The information required by this item regarding related party transactions and director independence is incorporated by reference from the information set forth under the captions Board of Directors and Committees of the Board and Related Party Transactions in the 2024 Proxy Statement
The information required by this item regarding principal accountant fees and services is incorporated by reference from the information set forth under the caption Principal Accounting Fees and Services in the 2024 Proxy Statement
We have audited the accompanying consolidated balance sheets of Alpha and Omega Semiconductor Limited the Company as of June 30 2024 and 2023 the related consolidated statements of operations comprehensive income loss equity and cash flows for each of the two years in the period ended June 30 2024 and the related notes and schedule collectively referred to as the consolidated financial statements We also have audited the Company s internal control over financial reporting as of June 30 2024 based on criteria established in
In our opinion the consolidated financial statements present fairly in all material respects the financial position of the Company as of June 30 2024 and 2023 and the results of its operations and its cash flows for each of the two years in the period ended June 30 2024 and 2023 in conformity with accounting principles generally accepted in the United States of America Also in our opinion the Company maintained in all material respects effective internal control over financial reporting as of June 30 2024 based on criteria established in
The Company s management is responsible for these consolidated financial statements for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in Management s Annual Report on Internal Control over Financial Reporting included in Item 9A of this Annual Report on Form 10 K Our responsibility is to express an opinion on the Company s consolidated financial statements and an opinion on the Company s internal control over financial reporting based on our audits We are a public accounting firm registered with the Public Company Accounting Oversight Board United States PCAOB and are required to be independent with respect to the Company in accordance with the U S federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB
We conducted our audits in accordance with the standards of the PCAOB Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement whether due to error or fraud and whether effective internal control over financial reporting was maintained in all material respects
Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements whether due to error or fraud and performing procedures that respond to those risks Such procedures included examining on a test basis evidence regarding the amounts and disclosures in the consolidated financial statements Our audits also included evaluating the accounting principles used and significant estimates made by management as well as evaluating the overall presentation of the consolidated financial statements Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting assessing the risk that a material weakness exists and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk Our audits also included performing such other procedures as we considered necessary in the circumstances We believe that our audits provide a reasonable basis for our opinions
A company s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles A company s internal control over financial reporting includes those policies and procedures that 1 pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the company 2 provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company and 3 provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition use or disposition of the company s assets that could have a material effect on the financial statements
Because of its inherent limitations internal control over financial reporting may not prevent or detect misstatements Also projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate
The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that 1 relate to accounts or disclosures that are material to the consolidated financial statements and 2 involved our especially challenging subjective or complex judgments The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements taken as a whole and we are not by communicating the critical audit matters below providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate
As described in Note 1 of the consolidated financial statements the Company assesses the valuation of its inventory on a periodic basis and provides an allowance based on several factors including inventory quantities on hand as compared with its sales forecasts historical usage aging of inventories production yield levels and current product selling prices
We identified the provision for excess and obsolete inventory as a critical audit matter because the determination of excess and obsolete inventory reserves is judgmental and considers several factors that are affected by market and economic conditions such as company forecasts dynamic pricing environments and industry supply and demand
We evaluated and tested the design and operating effectiveness of the Company s internal controls over the valuation of inventory including the calculation of lower of cost or net realizable value reserves and the determination of demand forecasts and related application against on hand inventory
We reviewed the reasonableness of the Company s methodology for estimating the valuation of inventories by evaluating factors including excess units on hand based on ending inventory quantities compared to forecasted shipment quantities
As described in Notes 1 and 6 of the consolidated financial statements the Company provides special pricing to certain distributors primarily based on volume to encourage resale of the Company s products The Company estimates the variable consideration of the allowance for price adjustments at the time revenue is recognized The Company records a reduction of revenue and a corresponding allowance for price adjustments against accounts receivable on the consolidated balance sheets
Estimating the allowance for price adjustments requires management to make certain assumptions including distributor inventory levels forecasted distributor selling prices distributor margins and future demand for products These assumptions could be affected by current and future economic and market conditions We identified the variable consideration of the allowance for price adjustments as a critical audit matter because auditing management s estimate of the allowance for price adjustments was complex due to the significant assumptions used in estimating the variable consideration
We evaluated and tested the design and operating effectiveness of the Company s internal controls for estimating the variable consideration of the allowance for price adjustments including testing controls over management s review of the allowance calculation and the underlying assumptions used to develop the estimate
We evaluated the reasonableness of management s significant assumptions by comparing them to the forecasted distributor selling prices as well as historical results of the company including testing the completeness and accuracy of the underlying data
We have audited the accompanying consolidated statements of operations and comprehensive income loss stockholders equity and cash flows of Alpha and Omega Semiconductor Limited the Company for the year ended June 30 2022 and the related notes and schedule collectively referred to as the Consolidated Financial Statements In our opinion the Consolidated Financial Statements present fairly in all material respects the results of its operations and its cash flows for the year ended June 30 2022 in conformity with accounting principles generally accepted in the United States of America
These Consolidated Financial Statements are the responsibility of the Company s management Our responsibility is to express an opinion on the Company s Consolidated Financial Statements based on our audit We are a public accounting firm registered with the Public Company Accounting Oversight Board United States PCAOB and are required to be independent with respect to the Company in accordance with the U S federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB
We conducted our audit in accordance with the standards of the PCAOB Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the Consolidated Financial Statements are free of material misstatement whether due to error or fraud
Our audit included performing procedures to assess the risks of material misstatement of the Consolidated Financial Statements whether due to error or fraud and performing procedures that respond to those risks Such procedures included examining on a test basis evidence regarding the amounts and disclosures in the Consolidated Financial Statements Our audit also included evaluating the accounting principles used and significant estimates made by management as well as evaluating the overall presentation of the Consolidated Financial Statements We believe that our audit provides a reasonable basis for our opinion
Alpha and Omega Semiconductor Limited and its subsidiaries the Company AOS we or us design develop and supply a broad range of power semiconductors The Company s portfolio of products targets high volume applications including personal and portable computers graphic cards flat panel TVs home appliances smart phones battery packs quick chargers home appliances consumer and industrial motor controls and power supplies for TVs computers servers and telecommunications equipment The Company conducts its operations primarily in the United States of America USA Hong Kong China and South Korea
The consolidated financial statements include the accounts of the Company its wholly owned subsidiaries and a subsidiary in which it had a controlling interest until December 1 2021 As of December 2 2021 the Company ceased having control over this subsidiary Therefore the Company deconsolidated this subsidiary as of that date
All intercompany account balances and transactions have been eliminated The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America U S GAAP
On March 29 2016 the Company entered into a joint venture contract the JV Agreement with two investment funds owned by the Municipality of Chongqing the Chongqing Funds pursuant to which the Company and the Chongqing Funds formed a joint venture the JV Company for the purpose of constructing and operating a power semiconductor packaging testing and 12 inch wafer fabrication facility in the Liangjiang New Area of Chongqing China the JV Transaction As of December 1 2021 the Company owned 50 9 and the Chongqing Funds owned 49 1 of the equity interest in the JV Company The Joint Venture was accounted under the provisions of the consolidation guidance since the Company had controlling financial interest until December 1 2021 As of December 2 2021 the Company ceased having control over the JV Company Therefore the Company deconsolidated the JV Company as of that date Subsequently the Company has accounted for its investment in the JV Company using the equity method of accounting As of June 30 2023 the percentage of outstanding JV equity interest beneficially owned by the Company was reduced to 42 2 Such reduction reflects i the sale by the Company of approximately 2 1 of the outstanding JV equity interest which resulted in the deconsolidation of the JV Company ii additional sale by the Company of approximately 1 1 of outstanding JV equity interest in December 2021 iii the adoption of an employee equity incentive plan and the issuance of additional equity interest equivalent to 3 99 of the JV Company to investors in exchange for cash in December 2021 and iv issuance of additional equity interest of JV to investors in January 2022 In February 2024 the JV Company repurchased certain shares that were previously issued to employees under the employee equity incentive plan which increased the Company s percentage of equity ownership in the JV Company by 0 54 As of June 30 2024 the percentage of outstanding JV equity interest beneficially owned by the Company was 42 8
The Company is subject to certain risks and uncertainties The Company believes changes in any of the following areas could have a material adverse effect on the Company s future financial position or results of operations or cash flows the macroeconomic condition and cyclical nature of the semiconductor industry the timing and success of new product development including market receptiveness operation of in house manufacturing facilities litigation or claims against the Company based on intellectual property patent product regulatory or other factors competition from other products general economic conditions the inability to attract and retain qualified employees lack of control of the JV Company and ultimately to sustain profitable operations risks associated with doing business in China and ability to diversify products and develop digital business the general state of the U S China and world economies the loss of any of its larger customers restrictions on the Company s ability to sell to foreign customers due to trade laws regulations and requirements disruptions of the supply chain of components needed for our products inability to obtain additional financing inability to meet certain debt covenants fundamental changes in the technology underlying the Company s products successful and timely completion of product design efforts and new product design introductions by competitors Additional risks and uncertainties that the Company is unaware of or that the Company currently believes are not material may also become important factors that adversely affect its business
The Company s revenue is limited by its ability to utilize wafer production and packaging and testing capacity from its in house facilities and obtain adequate wafer supplies from third party foundries Currently the Company s main third party foundry is Shanghai Hua Hong Grace Electronic Company Limited or HHGrace located in Shanghai China HHGrace has been manufacturing wafers for the Company since 2002 HHGrace manufactured approximately 3 8 9 6 and 10 3 of the wafers used in the Company s products for the fiscal years ended June 30 2024 2023 and 2022 respectively Although the Company believes that its volume of production allows the Company to secure favorable pricing and priority in allocation of capacity in its third party foundries if the foundries capacities are constrained due to market demands HHGrace together with other foundries from which the Company purchases wafers may not be willing or able to satisfy all of the Company s manufacturing requirements on a timely basis and or at favorable prices In addition manufacturing facilities capacity affects the Company s gross margin because the Company has certain fixed costs associated with its Oregon Fab as well as in house packaging and testing facilities If the Company fails to utilize its manufacturing facilities capacity at a desirable level its financial condition and results of operations will be adversely affected
The preparation of the consolidated financial statements in conformity with U S GAAP requires the Company to make estimates judgments and assumptions that affect the reported amounts of assets liabilities revenue and expenses To the extent there are material differences between these estimates and actual results the Company s consolidated financial statements will be affected On an ongoing basis the Company evaluates the estimates judgments and assumptions including those related to stock rotation returns price adjustments allowance for doubtful accounts inventory reserves warranty accrual income taxes leases share based compensation recoverability of and useful lives for property plant and equipment and intangible assets
Most of the Company s principal subsidiaries use U S dollars as their functional currency because their transactions are primarily conducted and settled in U S dollars All of their revenues and a significant portion of their operating expenses are denominated in U S dollars The functional currencies for the Company s in house packaging and testing facilities in China are U S dollars and a majority of their capital expenditures are denominated in U S dollars Foreign currency transactions are translated into the functional currencies using the exchange rates prevailing at the dates of the transactions Foreign exchange gains and losses resulting from the settlement of such transactions and from the re measurement of monetary assets and liabilities denominated in foreign currencies using exchange rates at balance sheet date and non monetary assets and liabilities using historical exchange rates are recognized in the consolidated statements of operations
For the Company s subsidiaries which use the local currency as their functional currency their results and financial position are translated into U S dollars using exchange rates at balance sheet dates for assets and liabilities and using average exchange rates for income and expenses items The resulting translation differences are presented as a separate component of accumulated other comprehensive income loss in the consolidated statements of equity
Cash and cash equivalents primarily consist of cash on hand and short term bank deposits with original maturities of three months or less Cash equivalents are highly liquid investments with stated maturities of three months or less as of the dates of purchase The carrying amounts reported for cash and cash equivalents are considered to approximate fair values based upon their short maturities
Cash and cash equivalents are maintained with reputable major financial institutions If due to current economic conditions or other factors one or more of the financial institutions with which the Company maintains deposits fails the Company s cash and cash equivalents may be at risk Deposits with these banks may exceed the amount of insurance provided on such deposits however these deposits typically may be redeemed upon demand and therefore bear minimal risk
The Company maintains restricted cash in connection with cash balances temporarily restricted for regular business operations These balances have been excluded from the Company s cash and cash equivalents balance and are classified as restricted cash in the Company s consolidated balance sheets As of June 30 2024 and 2023 the amount of restricted cash was 0 4 million and 0 4 million respectively
The allowance for expected credit loss is based on assessment of the expected collectability of accounts receivable from customers The Company reviews the allowance by considering factors such as historical collection experience credit quality age of the accounts receivable balances and current economic conditions that may affect a customer s ability to pay The
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability an exit price in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs The fair value hierarchy is based on three levels of inputs of which the first two are considered observable and the last unobservable that may be used to measure fair value which are the following
Level 2 Inputs other than Level 1 that are observable either directly or indirectly such as quoted prices for similar assets or liabilities quoted prices in markets that are not active or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities
The fair value of cash equivalents is based on observable market prices and have been categorized in Level 1 in the fair value hierarchy Cash equivalents consist primarily of short term bank deposits The carrying values of financial instruments such as cash and cash equivalents accounts receivable and accounts payable approximate their carrying values due to their short term maturities The carrying value of the Company s debt is considered a reasonable estimate of fair value which is estimated by considering the current rates available to the Company for debt of the same remaining maturities structure and terms of the debts
The Company carries inventories at the lower of cost determined on a first in first out basis or net realizable value Cost includes semiconductor wafer and raw materials labor depreciation expenses and other manufacturing expenses and overhead and packaging and testing fees paid to third parties if subcontractors are used Valuation of inventories are based on the Company s periodic review of inventory quantities on hand as compared with its sales forecasts historical usage aging of inventories production yield levels and current product selling prices If actual market conditions are less favorable than those forecasted by management additional future inventory write downs may be required that could adversely affect the Company s operating results Adjustments to inventory once established are not reversed until the related inventory has been sold or scrapped If actual market conditions are more favorable than expected and the products that have previously been written down are sold our gross margin would be favorably impacted
Property plant and equipment are stated at historical cost less accumulated depreciation Historical cost includes expenditures that are directly attributable to the acquisition of the items and the costs incurred to make the assets ready for their intended use
Equipment and construction in progress represent equipment received but the necessary installation has not been fully performed or building construction and leasehold improvements have been started but not yet completed Equipment and construction in progress are stated at cost and transferred to the respective asset class when fully completed and ready for their intended use
Internal use software development costs are capitalized to the extent that the costs are directly associated with the development of identifiable and unique software products controlled by the Company that will probably generate economic benefits beyond one year Costs incurred during the application development stage are required to be capitalized The application development stage is characterized by software design and configuration activities coding testing and installation Training costs and maintenance are expensed as incurred while upgrades and enhancements are capitalized if it is probable that such expenditures will result in additional functionality Costs include employee costs incurred and fees paid to outside consultants for the software development and implementation Internally developed software is amortized over its estimated useful life of three to five years starting from the date when it is ready for its intended use
Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are recognized as selling general and administrative expenses in the consolidated statements of operations Costs of maintenance and repairs that do not improve or extend the lives of the respective assets are expensed as incurred
The Company occasionally receives government grants that provide financial assistance for certain eligible expenditures in China These grants include reimbursements on interest expense on bank borrowings payroll tax credits credit for property plant and equipment in a particular geographical location employment credits as well as business expansion credits Government grants are not recognized until there is reasonable assurance that the Company will comply with the conditions attaching to it and that the grant will be received The Company records such grants either as a reduction of the related expense a reduction of the cost of the related asset or as other income depending upon the nature of the grant As a result of such grants during the fiscal year ended June 30 2024 the Company reduced property plant and equipment by 1 0 million During the fiscal year ended June 30 2023 the Company reduced property plant and equipment by 0 6 million and operating expenses by 0 1 million During the fiscal year ended June 30 2022 the Company reduced interest expense by 0 9 million property plant and equipment by 1 4 million and operating expenses by 0 2 million
The Company reviews all long lived assets whenever events or changes in circumstance indicate that these assets may not be recoverable When evaluating long lived assets if the Company concludes that the estimated undiscounted cash flows attributable to the assets are less than their carrying value the Company recognizes an impairment loss based on the excess of the carrying amount of the assets over their respective fair values which could adversely affect its results of operations
The Company determines revenue recognition through the following steps 1 identification of the contract with a customer 2 identification of the performance obligations in the contract 3 determination of the transaction price 4 allocation of the transaction price to the performance obligations in the contract and 5 recognition of revenue when or as a performance obligation is satisfied The Company recognizes product revenue at a point in time when product is shipped to the customer as determined by the agreed upon shipping terms net of estimated stock rotation returns and price adjustments that it expects to provide to certain distributors The Company presents revenue net of sales taxes and any similar assessments Our standard payment terms range from 30 to 60 days
The Company sells its products primarily to distributors who in turn sell the products globally to various end customers The Company allows stock rotation returns from certain distributors Stock rotation returns are governed by contract and are limited to a specified percentage of the monetary value of products purchased by distributors during a specified period The Company records an allowance for stock rotation returns based on historical returns current expectations and individual distributor agreements The Company also provides special pricing to certain distributors primarily based on volume to encourage resale of the Company s products Allowance for price adjustments is recorded against accounts receivable and the provision for stock rotation rights is included in accrued liabilities on the consolidated balance sheets
The Company s performance obligations relate to contracts with a duration of less than one year The Company elected to apply the practical expedient provided in ASC 606 Revenue from Contracts with Customers Therefore the Company is not
The Company recognizes the incremental direct costs of obtaining a contract which consist of sales commissions when control over the products they relate to transfers to the customer Applying the practical expedient the Company recognizes commissions as expense when incurred as the amortization period of the commission asset the Company would have otherwise recognized is less than one year
In February 2023 the Company entered into a license agreement with a customer to license the Company s proprietary SiC technology and to provide 24 months of engineering and development services for a total fee of 45 0 million consisting of an upfront fee of 18 0 million 6 8 million and 9 0 million paid to the Company in March 2023 July 2023 and February 2024 respectively with the remaining amount to be paid upon the achievement of specified engineering services and product milestones The license and development fee is determined to be one performance obligation and is recognized over the 24 months when the Company performs the engineering and development services The Company uses the input method to measure progression representing a faithful depiction of the transfer of services During the fiscal years ended June 30 2024 and 2023 the Company recorded 21 2 million and 9 9 million of license and development revenue respectively The amount of contract liability is recorded as deferred revenue on the consolidated balance sheets In addition the Company also entered an accompanying supply agreement to provide limited wafer supply to the customer
The Company determines if an arrangement is a lease at inception Operating leases are included in operating lease right of use ROU assets current operating lease liabilities and long term operating lease liabilities on the Company s consolidated balance sheets Finance leases are included in property plant and equipment finance lease liabilities and long term finance leases liabilities on the consolidated balance sheets
Operating lease ROU assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date The Company determines its incremental borrowing rate based on the information available at the lease commencement date The operating lease ROU assets also include any lease payments made and exclude lease incentives Lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise such options Operating lease expense is generally recognized on a straight line basis over the lease term Variable lease payments are expensed as incurred and are not included within the operating lease ROU asset and lease liability calculation The Company does not record leases on the consolidated balance sheet with a term of one year or less The Company elected to combine its lease and non lease components as a single lease component for all asset classes
The Company provides a standard one year warranty for products from the date of purchase by the end customers The Company accrues for estimated warranty costs at the time revenue is recognized The Company s warranty obligation is determined by product failure rates labor and material costs for replacing defective parts related freight costs for failed parts and other quality assurance costs The Company monitors its product returns for warranty claims and maintains warranty reserves based on historical experiences and anticipated warranty claims known at the time of estimation
While the final tax outcome of these matters may differ from the amounts that were initially recorded such differences will impact the income tax and deferred tax provisions in the period in which such determination is made
When it is more likely than not that all or some portion of specific deferred tax assets such as net operating losses or research and experimentation tax credit carryforwards will not be realized a valuation allowance must be established for the amount of the deferred tax assets that cannot be realized
The Company has concluded that it should report a full valuation allowance on its state research and development R D tax credit carryforwards as the Company annually generates more state R D tax credits than it could use based on its forecasts
The Financial Accounting Standards Board FASB issued guidance which clarifies the accounting for income taxes by prescribing a minimum probability threshold that a tax position must meet before a financial statement benefit is recognized
The minimum threshold is defined as a tax position that is more likely than not to be sustained upon examination by the applicable taxing authority including resolution of any related appeals or litigation processes based on the technical merits of the position
Although the guidance on the accounting for uncertainty in income taxes prescribes the use of a recognition and measurement model the determination of whether an uncertain tax position has met those thresholds will continue to require significant judgment by management
To the extent that the final tax outcome of these matters is different from the amounts recorded such differences will impact the provision for income taxes in the period in which such determination is made
The Company maintains an equity settled share based compensation plan to grant restricted share units and stock options The Company recognizes expense related to share based compensation awards that are ultimately expected to vest based on estimated fair values on the date of grant The fair value of restricted share units is based on the fair value of the Company s common share on the date of grant For restricted stock awards subject to market conditions the fair value of each restricted stock award is estimated at the date of grant using the Monte Carlo pricing model The fair value of stock options is estimated on the date of grant using the Black Scholes option valuation model Share based compensation expense is recognized on the accelerated attribution basis over the requisite service period of the award which generally equals the vesting period The Black Scholes option valuation model requires the input of subjective assumptions including the expected term and stock price volatility In addition judgment is also required in estimating the number of stock based awards that are expected to be forfeited Forfeitures are estimated based on historical experience at the time of grant Changes in estimated forfeitures are recognized in the period of change and impact the amount of stock compensation expenses to be recognized in future periods which could be material if actual results differ significantly from estimates
Comprehensive income loss is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances from non owner sources The Company s accumulated other comprehensive income loss consists of cumulative foreign currency translation adjustments
In December 2023 the FASB issued ASU No 2023 09 Income Taxes Topic 740 Improvements to Income Tax Disclosures which enhances the transparency effectiveness and comparability of income tax disclosures by requiring consistent categories and greater disaggregation of information related to income tax rate reconciliations and the jurisdictions in which income taxes are paid This guidance is effective for annual periods beginning after December 15 2024 with early adoption permitted The Company is currently evaluating the impact of the ASU on its income tax disclosures within the consolidated financial statements
In November 2023 the FASB issued ASU No 2023 07 Segment Reporting Topic 280 Improvements to Reportable Segment Disclosures which improves reportable segment disclosure requirements primarily through enhanced disclosures about significant segment expenses This ASU also expands disclosure requirements to enable users of financial statements to better understand the entity s measurement and assessment of segment performance and resource allocation This guidance is effective for fiscal years beginning after December 15 2023 and interim periods within fiscal years beginning after
On December 1 2021 the Effective Date Alpha Omega Semiconductor Shanghai Ltd AOS SH and Agape Package Manufacturing Shanghai Limited APM SH each a wholly owned subsidiary of the Company entered into a share transfer agreement STA with a third party investor to sell a portion of the Company s equity interest in the JV Company which consists of a power semiconductor packaging testing and 12 inch wafer fabrication facility in Chongqing China the Transaction The Transaction closed on December 2 2021 the Closing Date which reduced the Company s equity interest in the JV Company from 50 9 to 48 8 Also the Company s right to designate directors on the board of the JV Company was reduced to three 3 out of seven 7 directors from four 4 directors prior to the Transaction As a result of the Transaction and other factors the Company no longer has a controlling financial interest in the JV Company and has determined that the JV Company was deconsolidated from the Company s consolidated financial statements effective as of the Closing Date In connection with the deconsolidation and in accordance with ASC 810 the Company recorded a gain on deconsolidation of 399 1 million during the fiscal year ended June 30 2022 in the condensed consolidated statements of operations
On December 24 2021 the Company entered into a share transfer agreement with another third party investor pursuant to which the Company sold to this investor 1 1 of outstanding equity interest held by the Company in the JV Company In addition the JV Company adopted an employee equity incentive plan and issued an equity interest equivalent to 3 99 of the JV Company in exchange to cash As a result of these two transactions the Company owned 45 8 of the equity interest in the JV Company as of December 31 2021
On January 26 2022 the JV Company completed a financing transaction pursuant to a corporate investment agreement the Investment Agreement between the JV Company and certain third party investors the New Investors Under the Investment Agreement the New Investors purchased newly issued equity interest of the JV Company representing approximately 7 82 of post transaction outstanding equity interests of the JV Company for a total purchase price of RMB 509 million or approximately USD 80 million based on the currency exchange rate as of January 26 2022 the Investment Following the closing of the Investment and as of June 30 2022 the percentage of outstanding JV equity interest beneficially owned by the Company was reduced to 42 2
In February 2024 the JV Company repurchased certain shares that were previously issued to employees under the employee equity incentive plan which increased the Company s percentage of equity ownership in the JV Company by 0 54 As of June 30 2024 the percentage of outstanding JV equity interest beneficially owned by the Company was 42 8
The Company accounts for its investment in the JV Company as an equity method investment and reports its equity in earnings or loss of the JV Company on a three month lag due to an inability to timely obtain financial information of the JV Company During the fiscal years ended June 30 2024 2023 and 2022 the Company recorded 4 8 million 1 4 million and 2 6 million of its equity in loss of the JV Company respectively using lag reporting
As of June 30 2024 the Company owned 42 8 equity interest in the JV Company which by definition is a related party to the Company The JV Company supplies 12 inch wafers and provides assembly and testing services to AOS AOS previously sold 8 inch wafers to the JV Company for further assembly and testing services until January 1 2023 when it changed to consign the 8 inch wafers to the JV Company Due to the right of offset of receivables and payables with the JV Company as of June 30 2024 and 2023 AOS recorded the net amount of 13 7 million and 12 0 million respectively as a payable related to equity investee net on the Consolidated Balance Sheet Since the December 2 2021 deconsolidation of the JV Company and through the fiscal year ended June 30 2022 the Company purchased finished goods and services of 117 6 million from the JV Company and AOS provided the JV Company with 36 4 million of 8 inch wafers The purchases by AOS for the fiscal year ended June 30 2023 were 127 8 million and the sales by AOS for the fiscal year ended June 30 2023 were 35 6 million The purchases by AOS for the fiscal year ended June 30 2024 were 96 6 million and the sales by AOS for the fiscal year ended June 30 2024 were 9 8 million
Basic net income loss per share is computed using the weighted average number of common shares outstanding during the period Diluted net income loss per share is computed using the weighted average number of common shares outstanding plus potential shares of common stock during the period Potential shares of common stock include dilutive shares attributable to the assumed exercise of share options ESPP shares and vesting of RSUs using the treasury stock method and contingent issuances of common shares related to convertible preferred shares if dilutive Under the treasury stock method potential common shares outstanding are not included in the computation of diluted net income loss per share if their effect is anti dilutive
The Company manages its credit risk associated with exposure to distributors and direct customers on outstanding accounts receivable through the application of credit approvals credit ratings and other monitoring procedures In some instances the Company also obtains letters of credit from certain customers
Credit sales which are mainly on credit terms of 30 to 60 days are only made to customers who meet the Company s credit standards while sales to new customers or customers with low credit ratings are usually made on an advance payment basis The Company considers its trade accounts receivable to be of good credit quality because its key distributors and direct customers have long standing business relationships with the Company and the Company has not experienced any significant bad debt write offs of accounts receivable in the past The Company closely monitors the aging of accounts receivable from its distributors and direct customers and regularly reviews their financial positions where available
The Company capitalized 0 6 million 0 5 million and 0 3 million of software development costs during the fiscal years 2024 2023 and 2022 respectively Amortization of capitalized software development costs was 0 6 million in fiscal year 2024 0 4 million in fiscal year 2023 and 0 4 million in fiscal year 2022 Unamortized capitalized software development costs in each of the periods presented at June 30 2024 and 2023 were 1 0 million and 0 9 million respectively
The Company is amortizing intangible assets of patents and technology rights related to a license agreement with STMicroelectronics International N V Amortization expense for intangible assets was 3 2 million 3 3 million and 3 4 million for the years ended June 30 2024 2023 and 2022 respectively The estimated useful lives for patents and technology rights and trade name were five years and ten years respectively Customer relationships are fully amortized
Short term customer deposits are payments received from customers for securing future product shipments As of June 30 2024 9 0 million were from Customer A 8 9 million were from Customer B and 14 3 million were from other customers As of June 30 2023 13 5 million were from Customer A 9 2 million were from Customer B and 15 4 million were from other customers
Customer deposits are payments received from customers for securing future product shipments As of June 30 2024 12 0 million were from Customer A 2 0 million were from Customer B and 5 7 million were from other customers As of June 30 2023 21 0 million were from Customer A 11 7 million were from Customer B and 13 7 million were from other customers
In March 2024 Bank of Communications Limited in China provided a line of credit facility to one of the Company s subsidiaries in China The purpose of the credit facility is to provide working capital borrowings The Company could borrow up to approximately RMB 140 million or 19 3 million based on currency exchange rate between RMB and U S Dollar on
In December 2023 Industrial and Commercial Bank of China provided a line of credit facility to one of the Company s subsidiaries in China The purpose of the credit facility was to provide working capital borrowings The Company could borrow up to approximately RMB 72 0 million or 9 9 million based on currency exchange rate between RMB and U S Dollar on June 30 2024 with a maturity date of December 31 2024 As of June 30 2024 there was no outstanding balance for this loan
In September 2023 China Construction Bank provided a line of credit facility to one of the Company s subsidiaries in China The purpose of the credit facility is to provide working capital borrowings The Company could borrow up to approximately RMB 50 million or 6 9 million based on currency exchange rate between RMB and U S Dollar on June 30 2024 with a maturity date of September 8 2025 As of June 30 2024 there was no outstanding balance for this loan
On August 9 2019 one of the Company s wholly owned subsidiaries the Borrower entered into a factoring agreement with the Hongkong and Shanghai Banking Corporation Limited HSBC whereby the Borrower assigns certain of its accounts receivable with recourse This factoring agreement allows the Borrower to borrow up to 70 of the net amount of its eligible accounts receivable of the Borrower with a maximum amount of 30 0 million The interest rate is based on the Secured Overnight Financing Rate SOFR plus 2 01 per annum The Company is the guarantor for this agreement The Company is accounting for this transaction as a secured borrowing under the Transfers and Servicing of Financial Assets guidance In addition any cash held in the restricted bank account controlled by HSBC has a legal right of offset against the borrowing This agreement with certain financial covenants required has no expiration date On August 11 2021 the Borrower signed an agreement with HSBC to decrease the borrowing maximum amount to 8 0 million with certain financial covenants required Other terms remain the same The Borrower was in compliance with these covenants as of June 30 2024 As of June 30 2024 there was no outstanding balance for this factoring agreement
In September 2021 Jireh Semiconductor Incorporated Jireh one of the Company s wholly owned subsidiaries entered into a financing arrangement agreement with a company Lender for the lease and purchase of a machinery equipment manufactured by a supplier This agreement has a 5 years term after which Jireh has the option to purchase the equipment for 1 The implied interest rate was 4 75 per annum which was adjustable based on every five basis point increase in 60 month U S Treasury Notes until the final installation and acceptance of the equipment The total purchase price of this equipment was Euro 12 0 million In April 2021 Jireh made a down payment of Euro 6 0 million representing 50 of
the total purchase price of the equipment to the supplier In June 2022 the equipment was delivered to Jireh after Lender paid 40 of the total purchase price for Euro 4 8 million to the supplier on behalf of Jireh In September 2022 Lender paid the remaining 10 payment for the total purchase price and reimbursed Jireh for the 50 down payment after the installation and configuration of the equipment The title of the equipment was transferred to Lender following such payment The agreement was amended with fixed implied interest rate of 7 51 and monthly payment of principal and interest effective in October 2022 Other terms remain the same In addition Jireh purchased hardware for the machine under this financing arrangement The purchase price of this hardware was 0 2 million The financing arrangement is secured by this equipment and other equipment which had a carrying amount of 13 6 million as of June 30 2024 As of June 30 2024 the outstanding balance of this debt financing was 9 2 million
On August 18 2021 Jireh entered into a term loan agreement with a financial institution the Bank in an amount up to 45 0 million for the purpose of expanding and upgrading the Company s fabrication facility located in Oregon The obligation under the loan agreement is secured by substantially all assets of Jireh and guaranteed by the Company The agreement has a term of 5 5 years and matures on February 16 2027 Jireh is required to make consecutive quarterly payments of principal and interest The loan accrues interest based on adjusted LIBOR plus the applicable margin based on the outstanding balance of the loan This agreement contains customary restrictive covenants and includes certain financial covenants that the Company is required to maintain Jireh drew down 45 0 million on February 16 2022 with the first payment of principal beginning in October 2022 As of June 30 2024 Jireh was in compliance with these covenants and the outstanding balance of this loan was 29 2 million
The Company evaluates contracts for lease accounting at contract inception and assesses lease classification at the lease commencement date Operating leases are included in operating lease right of use ROU assets operating lease liabilities and operating lease liabilities long term on the Company s consolidated balance sheets Finance leases are included in property plant and equipment finance lease liabilities and finance lease liabilities long term on the consolidated balance sheets The Company recognizes a ROU asset and corresponding lease obligation liability at the lease commencement date where the lease obligation liability is measured at the present value of the minimum lease payments As most of the leases do not provide an implicit rate the Company uses its incremental borrowing rate at lease commencement The Company uses an interest rate commensurate with the interest rate to borrow on a collateralized basis over a similar term with an amount equal to the lease payments Operating leases are primarily related to offices research and development facilities sales and marketing facilities and manufacturing facilities In addition long term supply agreements to lease gas tank equipment and purchase industrial gases are accounted for as operating leases Lease agreements frequently include renewal provisions and require the Company to pay real estate taxes insurance and maintenance costs For operating leases the amortization of the ROU asset and the accretion of its lease obligation liability result in a single straight line expense recognized over the lease term The finance lease is related to the 5 1 million of a machinery lease financing with a vendor In September 2022 the lease was amended to make a monthly payment of principal and interest as a fixed amount effective in October 2022 Other terms remain the same The amendment was accounted for as a debt modification and no gain or loss was recognized The Company does not record leases on the consolidated balance sheet with a term of one year or less
The Company s Bye laws as amended authorized the Company to issue 100 000 000 common shares with par value of 0 002 Each common share is entitled to one vote The holders of common shares are also entitled to receive dividends whenever funds are legally available and when and if declared by the board of directors No dividends had been declared as of June 30 2024
In September 2017 the board of directors approved a repurchase program the Repurchase Program that allowed the Company to repurchase its common shares from the open market pursuant to a pre established Rule 10b5 1 trading plan or through privately negotiated transactions up to an aggregate of 30 0 million The amount and timing of any repurchases under the Repurchase Program depend on a number of factors including but not limited to the trading price volume and availability of the Company s common shares Shares repurchased under this program are accounted for as treasury shares and the total cost of shares repurchased is recorded as a reduction of shareholders equity From time to time treasury shares may be reissued as part of the Company s stock based compensation programs Gains on re issuance of treasury stock are credited to additional paid in capital losses are charged to additional paid in capital to offset the net gains if any from previous sales or re issuance of treasury stock Any remaining balance of the losses is charged to retained earnings As of June 30 2023 there were no availability under this repurchase program which was terminated
During fiscal year 2023 the Company repurchased an aggregate of 548 132 shares from the open market for a total cost of approximately 13 4 million excluding fees and related expenses at an average price of 24 51 per share During fiscal year 2024 and 2022 the Company did not repurchase any shares pursuant to the repurchase program
As of June 30 2024 the Company had repurchased an aggregate of 7 332 780 shares for a total cost of 81 1 million at an average price of 11 01 per share excluding fees and related expenses since inception of the program No repurchased shares have been retired Of the 7 332 780 repurchased shares 194 716 shares with a weighted average repurchase price of 9 77 per share were reissued at an average price of 4 29 per share for option exercises and vested restricted stock units RSU
The 2009 Share Option Share Issuance Plan the 2009 Plan was approved in September 2009 at the annual general meeting of shareholders in connection with the Company s IPO At the annual general meeting of shareholders in November 2018 the 2009 Plan was approved to be terminated and the 2018 Omnibus Incentive Plan the 2018 Plan was effective No further awards will be made under the 2009 Plan The 2018 Plan authorized the board of directors to grant incentive share options non statutory share options and restricted shares to employees directors non employee directors and consultants of the Company and its subsidiaries for up to 2 065 000 common shares The 2018 Plan does not include an evergreen authorization Therefore the Company is not permitted to increase the number of shares reserved in the share pool without obtaining further shareholder approval Outstanding shares under the 2018 Plan and awards granted under the 2009 Plan that expire are forfeited or cancelled or terminate prior to the issuance of the shares subject to those awards or are settled in cash will be available for subsequent issuance under the 2018 Plan At the annual general meeting of shareholders in November 2021 2022 and 2023 the 2018 Plan was approved to increase by 1 000 000 740 000 and 427 000 shares respectively to a total of 4 232 000 shares As of June 30 2024 919 093 shares were available for grant under the 2018 Plan
Beginning with the 2014 Annual Shareholders Meeting on the date of each annual shareholders meeting each individual who commences service as a non employee Board member by reason of his or her election to the Board at such annual meeting and each individual who is to continue to serve as a non employee Board member whether or not that individual is standing for re election to the Board at that particular annual meeting will automatically be granted an award in the form of restricted share units covering that number of common shares determined by dividing one hundred sixty thousand dollars 160 000 by the average fair market value per share for the ninety 90 day period preceding the grant date up to a maximum of 10 000 shares
Under the 2018 Plan incentive share options and RSU are to be granted at a price that is not less than 100 and nonstatutory share options are to be granted at not less than 85 of the fair value of the common shares at the date of grant for employees and consultants Options and RSUs generally vest over a four year to five year period and are exercisable for a maximum period of ten years after the date of grant
In March each year since fiscal year 2017 the Company granted PRSU to certain personnel The number of shares to be ultimately earned under the PRSU is determined based on the level of attainment of predetermined financial goals The PRSU vests in four equal annual installments from the first anniversary date after the grant date if certain predetermined financial goals were met The Company recorded 2 8 million 5 2 million and 4 6 million of expenses for these PRSUs during the years ended June 30 2024 2023 and 2022 respectively
n December 2021 the Company granted 1 0 million market based restricted stock units to certain non officer personnel The number of shares to be earned at the end of the performance period was determined based on the Company s achievement of specified stock prices and revenue thresholds during the performance period from January 1 2022 to December 31 2024 as well as the recipients remaining in continuous service with the Company through such period The MSU vests in four equal annual installments after the end of performance period The Company estimated the grant date fair values of its MSUs using a Monte Carlo simulation model In September 2023 the Company determined it was no longer probable that it would achieve the minimum revenue threshold specified in the awards Therefore the Company reversed all of the previously recognized expenses of 6 4 million for these MSUs In addition on September 19 2023 the Compensation Committee of the Board approved a modification of the terms of MSUs to extend the performance period through December 31 2025 changed the commencement date for the four year time based service period to January 1 2026 and reduced the achievement of specified stock prices and revenue thresholds The fair value of these MSUs was revalued to reflect the change using a Monte Carlo simulation model with the following assumptions risk free interest rate of 4 94 expected term of 2 28 years expected volatility of 61 38 and dividend yield of 0 In June 2024 the Company determined it was no longer probable that the revenue thresholds for the modified MSU would be achieved Therefore the Company reversed 2 4 million in the June 2024 quarter that was recorded during the fiscal year 2024 related to the modification on September 19 2023 The Company recorded approximately 6 4 million 1 9 million and 4 5 million of expenses for these MSUs during the fiscal years ended June 30 2024 2023 and 2022 respectively
During the quarter ended September 30 2018 the Company granted 1 3 million MSUs to certain personnel The number of shares to be earned at the end of the performance period is determined based on the Company s achievement of specified stock prices and revenue thresholds during the performance period from January 1 2019 to December 31 2021 as well as the recipients remaining in continuous service with the Company through such period The MSUs vest in four equal annual installments after the end of performance period On August 31 2020 the Compensation Committee of the Board approved a modification of the terms of MSU to i extend the performance period through December 31 2022 and ii change the commencement date for the four year time based service period to January 1 2023 The modified MSUs were valued
immediately before and after the modification using Monte Carlo simulation pricing model The Monte Carlo simulation pricing model applied the following assumptions for pre modification conditions risk free interest rate of 0 13 expected term of 1 3 years expected volatility of 66 7 and dividend yield of 0 and for post modification conditions risk free interest rate of 0 14 expected term of 2 3 years expected volatility of 59 1 and dividend yield of 0 The fair value of these MSUs was recalculated to reflect the change as of August 31 2020 and the unrecognized compensation amount was adjusted to reflect the increase in fair value The Company recorded approximately 1 0 million 3 9 million and 1 6 million of expense for these MSUs during the years ended June 30 2024 2023 and 2022 respectively
At the annual general meeting of shareholders in November 2018 the 2018 Employee Share Purchase Plan Purchase Plan or ESPP Plan was approved under which 1 430 000 common shares are available for issuance The Purchase Plan does not include an evergreen authorization therefore the Company is not permitted to increase the number of shares reserved
in the share pool without obtaining further shareholder approval At the general meeting of shareholders in November 2021 and 2023 the ESPP Plan was approved to increase by 1 070 000 and 1 200 000 shares respectively to a total of 3 700 000 shares The Purchase Plan provided for a series of overlapping offering periods with a duration of 24 months generally beginning on May 15 and November 15 of each year The Purchase Plan allows employees to purchase common shares through payroll deductions of up to 15 of their eligible compensation Such deductions will accumulate over a six month accumulation period without interest After such accumulation period common shares will be purchased at a price equal to 85 of the fair market value per share on either the first day of the offering period or the last date of the accumulation period whichever is less The maximum number of shares that may be purchased by a participant on any purchase date may not exceed 875 shares for a total of 3 500 shares per a 24 month offering period In addition no participant may purchase more than 25 000 worth of common stock in any one calendar year period No more than 300 000 common shares may be purchased by all participants on any purchase date
The ESPP is compensatory and results in compensation expense The fair values of common shares to be issued under the ESPP were determined using the Black Scholes option pricing model with the following assumptions
The weighted average estimated fair value of employee stock purchase rights granted pursuant to the ESPP during the years ended June 30 2024 2023 and 2022 was 10 16 11 46 and 16 48 per share respectively
The total share based compensation expense related to TRSU PRSUs MSUs stock options and ESPP described above recognized in the consolidated statements of operations for the years presented was as follows
The Company maintains a 401 k retirement plan for the benefit of qualified employees in the U S Employees who participate may elect to make salary deferral contributions to the plan up to 100 of the employees eligible salary subject to annual Internal Revenue Code maximum limitations The employer s contribution is discretionary Effective from April 1 2022 the Company began to match 50 of employee contribution up to 4 of eligible compensation for a 2 maximum match During the fiscal years ended June 30 2024 2023 and 2022 the Company made employer match contributions of 1 8 million 1 9 million and 0 3 million respectively
The Company makes mandatory contributions for its employees to the respective local governments in terms of retirement medical insurance and unemployment insurance where applicable according to labor and social security laws and regulations of the countries and areas in which the Company operates The retirement contribution rate is 7 7 in the U S
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes Significant components of our deferred tax assets and liabilities are as follows
The Company s valuation allowance related to deferred income taxes as reflected in the consolidated balance sheets was 7 3 million and 6 7 million as of June 30 2024 and 2023 respectively The change in valuation allowance for June 30 2024 and 2023 was an increase of 0 6 million and an increase of 0 9 million respectively
At June 30 2024 and 2023 the Company provided a valuation allowance for its state research and development credit carryforward deferred tax assets of 7 3 million and 6 7 million respectively as it generated more state tax credits each year than it can utilize The Company intends to maintain a valuation allowance equal to the state research and development credit carryforwards in excess of the state net deferred tax liabilities on all other state book tax differences and net operating loss carryforward
At June 30 2024 the Company had federal research and development tax credit carryforwards of approximately 8 2 million The federal tax credits begin to expire in 2040 if not utilized At June 30 2024 the Company had state tax credit carryforwards of approximately 9 9 million of which 9 0 million carryforward indefinitely 0 6 million have a 10 to 15 year life beginning to expire in 2033 and 0 3 million with a 20 year life beginning to expire in 2038
The Company intends to reinvest the undistributed earnings of its foreign subsidiaries indefinitely except for Alpha and Omega Semiconductor Cayman Ltd and AOS International LP As of June 30 2024 the cumulative earnings of Alpha and Omega Semiconductor Cayman and AOS International LP totaled 46 2 million and there was no deferred tax liability
recorded as there is no income nor withholding tax amongst the applicable jurisdictions As of June 30 2024 the cumulative amount of undistributed earnings of its foreign entities considered permanently reinvested is 414 6 million Should the Company decide to remit this income to its Bermuda parent company in a future period its provision for income taxes may increase materially in that period The determination of the unrecognized deferred tax liability on these earnings is not practicable due to the complexity and variety of assumptions necessary to estimate the tax As of June 30 2024 the Company has recorded a deferred tax liability of 26 3 million for the basis difference related to our investment in the JV Company
At June 30 2024 the total unrecognized tax benefits of 10 1 million included 7 1 million of unrecognized tax benefits that have been netted against the related deferred tax assets The remaining 3 0 million of unrecognized tax benefits was recorded within long term income tax payable on the Company s consolidated balance sheet as of June 30 2024 The Company cannot reasonably estimate the timing and amount of potential cash settlements on the unrecognized tax benefits
The total unrecognized tax benefits of 10 1 million at June 30 2024 included 6 9 million that if recognized would reduce the effective income tax rate in future periods It is reasonably possible that the Company will recognize approximately 0 2 million reduction to its uncertain tax positions during the next twelve months due to a lapse in the applicable statute of limitations
The Company recognizes interest and penalties related to uncertain tax positions in income tax expense To the extent accrued interest and penalties do not ultimately become payable amounts accrued will be reduced and reflected as a reduction of the overall income tax provision in the period that such determination is made The amount of interest and penalties accrued at June 30 2024 was 0 5 million of which 0 2 million was recognized in the year ended June 30 2024 The amount of interest and penalties accrued at June 30 2023 was 0 3 million of which 0 1 million was recognized in the year ended June 30 2023
The Company files its income tax returns in the United States and in various foreign jurisdictions The tax years 2004 to 2024 remain open to examination by U S federal and state tax authorities due to tax attribute carryovers The tax years 2018 to 2024 remain open to examination by foreign tax authorities
In accordance with the guidance on the accounting for uncertainty in income taxes the Company regularly assesses the likelihood of adverse outcomes resulting from these examinations to determine the adequacy of its provision for income taxes
If events occur and the payment of these amounts ultimately proves to be unnecessary the reversal of the liabilities would result in tax benefits being recognized in the period when the Company determines the liabilities are no longer necessary
On December 22 2017 the United States enacted tax legislation commonly known as the Tax Cuts and Jobs Act the Tax Act which significantly changed the existing U S tax laws including but not limited to 1 a reduction in the corporate tax rate from 35 to 21 2 a move from a worldwide tax system toward a territorial system through a participation exemption deduction for certain foreign source dividends 3 eliminating the corporate alternative minimum tax AMT and changing how existing AMT credits can be realized 4 bonus depreciation that allows for full expensing of qualified property 5 creating a new limitation on deductible interest expense and 6 changing rules related to uses and limitations of net operating loss carryforwards created in tax years beginning after December 31 2017
The Company is not currently subject to the Base Erosion and Anti Abuse BEAT tax which is a tax imposed on certain entities who make payments to their non U S affiliates where such payments reduce the U S tax base
The BEAT tax is imposed at a rate of 10 on Adjusted Taxable Income excluding certain payments to foreign related entities It is an incremental tax over and above the corporate income tax and is recorded as a period cost
The Chips Act provides incentives to semiconductor chip manufacturers in the United States including providing a 25 manufacturing investment credits for investments in semiconductor manufacturing property placed in service after December 31 2022 for which construction begins before January 1 2027
Property investments qualify for the 25 credit if among other requirements the property is integral to the operation of an advanced manufacturing facility defined as having a primary purpose of manufacturing semiconductors or semiconductor manufacturing equipment
The IRA introduces a 15 corporate alternative minimum tax CAMT for corporations whose average annual adjusted financial statement income AFSI for any consecutive three tax year period preceding the applicable tax year exceeds 1 billion
The Company is subject to income tax expense or benefit based upon pre tax income or loss reported in the consolidated statements of income loss and the provisions of currently enacted tax laws The parent company is incorporated under the laws of Bermuda and is subject to Bermuda law with respect to taxation Under current Bermuda law the Company is not subject to any income or capital gains taxes in Bermuda As we have previously disclosed the Government of Bermuda announced in December 2023 that it enacted the Corporate Income Tax Act 2023 potentially imposing a 15 corporate income tax CIT on Bermuda companies that are within the scope of the CIT that will be effective for tax years beginning on or after January 1 2025 In particular the CIT applies to multinational companies with annual revenue of 750 million euros or more in the consolidated financial statements of the ultimate parent entity for at least two of the four fiscal years immediately preceding the fiscal year when the CIT may apply
The Company is not in a position to determine whether the annual revenues may meet and or cross the 750 million Euro threshold for at least two of the four fiscal years immediately preceding the fiscal year when CIT may apply The Company continues to monitor and assess if and when it may be within the scope of the CIT If we become subject to the Bermuda CIT we may be subject to additional income taxes which may adversely affect our financial position results of operations and our overall business
In the July 2015 ruling the Tax Court concluded that the sharing of the cost of employee stock compensation in a company s cost sharing arrangement was invalid under the U S Administrative Procedures Act
Altera appealed the case to the U S Supreme Court in February 2020 but the U S Supreme Court declined to hear the case in June 2020 leaving intact the U S Court of Appeals for the Ninth Circuit s decision
The Company is organized as and operates in one operating segment the design development and supply of power semiconductor products for computing consumer electronics communication and industrial applications The chief operating decision makers are the Executive Chairman and the Chief Executive Officer The financial information presented to the Company s Executive Chairman and Chief Executive Officer is on a consolidated basis accompanied by information about revenue by customer and geographic region for purposes of evaluating financial performance and allocating resources The Company has one business segment and there are no segment managers who are held accountable for operations operating results and plans for products or components below the consolidated unit level Accordingly the Company reports as a single operating segment
The Company sells its products primarily to distributors in the Asia Pacific region who in turn sell these products to end customers Because the Company s distributors sell their products to end customers which may have a global presence revenue by geographical location is not necessarily representative of the geographical distribution of sales to end user markets
In February 2023 the Company entered into a license agreement with a customer to license the Company s proprietary SiC technology and to provide 24 months of engineering and development services for a total fee of 45 0 million
Laws and regulations in China permit payments of dividends by the Company s subsidiaries in China only out of their retained earnings if any as determined in accordance with China accounting standards and regulations Each China subsidiary is also required to set aside at least 10 of its after tax profit if any based on China accounting standards each year to its statutory reserves until the cumulative amount of such reserves reaches 50 of its registered capital As a result of these China laws and regulations the Company s subsidiaries in China are restricted in their abilities to transfer a portion of their net assets to the Company As of June 30 2024 and 2023 such restricted portion amounted to approximately 93 5 million and 93 2 million or 10 5 and 10 5 of our total consolidated net assets attributable to the Company respectively As the Company s subsidiaries in China are not revenue generating operating units the Company does not expect to repatriate funds in the form of dividends loans or advances from its subsidiaries in China for working capital and other funding purposes
As of June 30 2024 and 2023 the Company had approximately 100 8 million and 127 5 million respectively of outstanding purchase commitments primarily for purchases of semiconductor raw materials wafers spare parts packaging and testing services and others
The Company has in the past and may from time to time in the future become involved in legal proceedings arising from the normal course of business activities The semiconductor industry is characterized by frequent claims and litigation including claims regarding patent and other intellectual property rights as well as improper hiring practices Irrespective of the validity of such claims the Company could incur significant costs in the defense of such claims and suffer adverse effects on its operations
As previously disclosed the Company is currently cooperating with Department of Commerce DOC in connection with its investigation of the Company s export control practices DOC has not informed the Company of any specific timeline or schedule under which DOC will complete its review Given the case is in still ongoing and DOC have not provided the Company with any clear indication of the timing and schedule for the investigation the Company cannot estimate the reasonably possible loss or range of loss that may occur Also the Company is unable to predict the duration scope result or related costs of the investigation although the Company expects to incur additional professional fees as a result of this matter In addition the Company is unable to predict what if any further action that may be taken by the government in connection with the investigation or what if any penalties sanctions or remedial actions may be sought
The Company is a party to a variety of agreements that it has contracted with various third parties Pursuant to these agreements the Company may be obligated to indemnify another party to such an agreement with respect to certain matters Typically these obligations arise in the context of contracts entered into by the Company under which the Company customarily agrees to hold the other party harmless against losses arising from a breach of representations and covenants related to such matters as title to assets sold certain intellectual property rights specified environmental matters and certain income taxes In these circumstances payment by the Company is customarily conditioned on the other party making a claim pursuant to the procedures specified in the particular contract which procedures typically allow the Company to challenge the other party s claim Further the Company s obligations under these agreements may be limited in time and or amount and in some instances the Company may have recourse against third parties for certain payments made by it under these agreements The Company has not historically paid or recorded any material indemnifications and no accrual was made at June 30 2024 and 2023
The Company has agreed to indemnify its directors and certain employees as permitted by law and pursuant to its Bye laws and has entered into indemnification agreements with its directors and executive officers The Company has not recorded a liability associated with these indemnification arrangements as it historically has not incurred any material costs associated with such indemnification obligations Costs associated with such indemnification obligations may be mitigated by insurance
coverage that the Company maintains However such insurance may not cover any or may cover only a portion of the amounts the Company may be required to pay In addition the Company may not be able to maintain such insurance coverage at reasonable cost if at all in the future
matters including the use handling discharge and disposal of hazardous materials The Company believes that it has been in material compliance with applicable environmental regulations and standards Complying with current laws and regulations has not had a material adverse effect on the Company s financial condition and results of operations However it is possible that additional environmental issues may arise in the future which the Company cannot currently predict
Foundry Agreement dated as of January 10 2002 between the Registrant and Shanghai Hua Hong NEC Electronics Company Limited incorporated by reference to Exhibit 10 16 from Registration Statement on Form F 1 File No 333 165823 filed with the Commission on March 31 2010
First Addendum to Foundry Agreement dated as of July 28 2005 between the Registrant and Shanghai Hua Hong NEC Electronics Company Limited incorporated by reference to Exhibit 10 17 from Registration Statement on Form F 1 File No 333 165823 initially filed with the Commission on March 31 2010
Second Addendum to Foundry Agreement dated as of April 11 2007 between the Registrant and Shanghai Hua Hong NEC Electronics Company Limited incorporated by reference to Exhibit 10 18 from Registration Statement on Form F 1 File No 333 165823 filed with the Commission on March 31 2010
Foundry Service Agreement dated as of November 2 2009 between Alpha Omega Semiconductor Macau Ltd and Shanghai Hua Hong NEC Electronics Company Limited incorporated by reference to Exhibit 10 6 from Registration Statement on Form F 1 File No 333 165823 filed with the Commission on March 31 2010
Non Exclusive Distributor Agreement dated as of July 27 2010 between Alpha Omega Semiconductor Hong Kong Limited and Frontek Technology Corporation incorporated by reference to Exhibit 4 17 from Annual Report on Form 20 F File No 001 34717 filed with the Commission on September 2 2010
Supplement to Non Exclusive Distributor Agreement dated as of July 27 2010 between Alpha Omega Semiconductor Hong Kong Limited and Frontek Technology Corporation incorporated by reference to Exhibit 4 18 from Annual Report on Form 20 F File No 001 34717 filed with the Commission on September 2 2010
First Amendment of Supplement to Distribution Agreement dated as of April 21 2011 between Alpha Omega Semiconductor Hong Kong Limited and Frontek Technology Corporation incorporated by reference to Exhibit 10 15 from Annual Report Form 10 K File No 001 34717 filed with the Commission on September 9 2011
Supplement to Distribution Agreement dated as of July 27 2010 between the Registrant and Frontek Technology Corporation incorporated by reference to Exhibit 10 1 from Quarterly Report on Form 10 Q File No 001 34717 filed with the Commission on February 6 2015
Non Exclusive Distributor Agreement dated as of July 27 2010 between Alpha Omega Semiconductor Hong Kong Limited and Promate Electronic Co Ltd incorporated by reference to Exhibit 4 19 from Annual Report on Form 20 F File No 001 34717 filed with the Commission on September 2 2010
Supplement to Non Exclusive Distributor Agreement dated as of July 27 2010 between Alpha Omega Semiconductor Hong Kong Limited and Promate Electronic Co Ltd incorporated by reference to Exhibit 4 20 from Annual Report on Form 20 F File No 001 34717 filed with the Commission on September 2 2010
First Amendment of Supplement to Distribution Agreement dated as of April 21 2011 between Alpha Omega Semiconductor Hong Kong Limited and Promate Electronic Co Ltd incorporated by reference to Exhibit 10 18 from Annual Report Form 10 K File No 001 34717 filed with the Commission on September 9 2011
Supplement to Distribution Agreement dated as of July 27 2010 between the Registrant and Promate Electronic Co Ltd incorporated by reference to Exhibit 10 2 from Quarterly Report on Form 10 Q File No 001 34717 filed with the Commission on February 6 2015
Lease dated as of December 23 2009 between Alpha and Omega Semiconductor Incorporated and OA Oakmead II LLC incorporated by reference to Exhibit 10 19 from Registration Statement on Form F 1 File No 333 165823 filed with the Commission on March 31 2010
Guarantee dated as of January 5 2010 between the Registrant and OA Oakmead II LLC incorporated by reference to Exhibit 10 20 from Registration Statement on Form F 1 File No 333 165823 filed with the Commission on March 31 2010
Third Addendum to Foundry Agreement dated as of March 6 2012 by and among the Registrant and Shanghai Hua Hong NEC Electronics Company Limited incorporated by reference to Exhibit 10 34 from Annual Report on Form 10 K File No 001 34717 filed with the Commission on August 31 2012
Third Supplemental Agreement to the Joint Venture Contract on Incorporation of Chongqing Alpha and Omega Semiconductor Limited English Translation incorporated by reference to Exhibit 10 2 to the Quarterly Report on Form 10 Q File No 001 34717 filed with the Commission on May 11 2020
First Amendment to Lease dated as of December 23 2009 between Alpha and Omega Semiconductor Incorporated and ECI Five Oakmead LLC incorporated by reference to Exhibit 10 3 to the Quarterly Report on Form 10 Q File No 001 34717 filed with the Commission on May 11 2020
Alpha Omega Semiconductor Limited 2018 Omnibus Incentive Plan as amended and restated effective as of November 9 2023 incorporated by reference to Appendix A to the Definitive Proxy Statement on Schedule 14A filed with the Commission on September 25 2023
Amendment to Market Performance Restricted Share Unit Agreement incorporated by reference to Exhibit 10 1 to the Quarterly Report on Form 10 Q File No 001 34717 filed with the Commission on November 6 2020
Equity Transfer Agreement of Chongqing Alpha and Omega Semiconductor Limited dated as of December 1 2021 English Translation incorporated by reference to Exhibit 10 1 to the Quarterly Report on Form 10 Q File No 001 34717 filed with the Commission on February 9 2022
Fourth Addendum to Foundry Agreement dated as of July 28 2005 between the Registrant and Shanghai Hua Hong NEC Electronics Company Limited incorporated by reference to Exhibit 10 1 to the Quarterly Report on Form 10 Q File No 001 34717 filed with the Commission on May 10 2022
Shareholders Contract of Chongqing Alpha and Omega Semiconductor Limited dated as of July 12 2022 incorporated by reference to Exhibit 10 54 from Annual Report on Form 10 K File No 001 34717 filed with the Commission on September 20 2022
Confidential treatment has been granted for certain information contained in this document pursuant to an order of the Securities and Exchange Commission Such information has been omitted and filed separately with the Securities and Exchange Commission
Pursuant to the requirements of Section 13 or 15 d of the Securities Exchange Act of 1934 the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized
that each person whose signature appears below constitutes and appoints Stephen C Chang and Yifan Liang and each or any one of them his or her true and lawful attorney in fact and agent with full power of substitution and re substitution for him or her and in his or her name place and stead in any and all capacities to sign any and all amendments to this report and to file the same with all exhibits thereto and other documents in connection therewith with the Securities and Exchange Commission granting unto said attorneys in fact and agents and each of them full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith as fully to all intents and purposes as he or she might or could do in person hereby ratifying and confirming all that said attorneys in fact and agents or any of them or their or his or her substitutes or substitute may lawfully do or cause to be done by virtue hereof
Pursuant to the requirements of the Securities Exchange Act of 1934 this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated

Company Name	ALPHA & OMEGA SEMICONDUCTOR Ltd Vist SEC web-site
Category	SEMICONDUCTORS & RELATED DEVICES
Trading Symbol	AOSL