ALPHA & OMEGA SEMICONDUCTOR LTD MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND OPERATING RESULTS (Form 10-Q)

Except for the historical information contained herein, the matters addressed in
this Item 2 constitute "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. These forward looking statements
include, but are not limited to, statements regarding future financial
performance of the Company; the expected ramp up timeline of the 12-inch fab at
the JV Company; the impact of government investigation and coronavirus on our
financial performance; and other statements and information set forth under the
heading "Factors Affecting Our Performance". Such forward-looking statements are
subject to a variety of risks and uncertainties, including those discussed below
under the heading "Risk Factors" and elsewhere in this Quarterly Report on Form
10-Q, that could cause actual results to differ materially from those
anticipated by the Company's management. The Private Securities Litigation
Reform Act of 1995 (the "Act") provides certain "safe harbor" provisions for
forward-looking statements. All forward-looking statements made in this
Quarterly Report on Form 10-Q are made pursuant to the Act. The Company
undertakes no obligation to publicly release the results of any revisions to its
forward-looking statements that may be made to reflect events or circumstances
after the date hereof or to reflect the occurrence of unexpected events. Unless
the context otherwise requires, the words "AOS," the "Company," "we," "us" and
"our" refer to Alpha and Omega Semiconductor Limited and its subsidiaries.

This management's discussion should be read in conjunction with the management's
discussion included in the Company's Annual Report on Form 10-K for the fiscal
year ended June 30, 2021, filed with the Securities and Exchange Commission on
August 30, 2021.
Overview

We are a designer, developer and global supplier of a broad portfolio of power
semiconductors. Our portfolio of power semiconductors includes approximately
2,400 products, and has grown significantly with the introduction of over 160
new products in the fiscal years ended June 30, 2021 and 2020, respectively, and
200 new products in the fiscal year ended June 30, 2019, respectively. During
the three months ended September 30, 2021, we introduced an additional 17 new
products. 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 870
patents and 56 patent applications in the United States as of September 30,
2021. We also have a total of 907 foreign patents, which were based primarily on
our research and development efforts through September 30, 2021. 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
and portable computers, graphic cards, flat panel TVs, home appliances, smart
phones, battery packs, game consoles, consumer and industrial motor controls and
power supplies for TVs, computers, servers and telecommunications equipment.

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.

We operate a power semiconductor packaging, testing and wafer fabrication
facility in the Liangjiang New Area of Chongqing, China through our joint
venture (the "JV Company") with two investment funds owned by the Municipality
of Chongqing (the "Chongqing Funds"). We currently own 51%, and the Chongqing
Funds own 49%, of the equity interest in the JV Company. While the JV Company is
our consolidated subsidiary for purpose of financial reporting, it operates as
an independent and separate legal entity. As a result, the JV Company's assets
and liabilities are segregated from our company's assets and liabilities. For
example, the JV Company incurs debt through its own financing and bank loan
agreements, and our parent company and other subsidiaries are not parties to
these agreements and do not provide any guarantee or security for the JV
Company's debt, nor do we have direct access to any cash proceeds borrowed from
such loan agreements. As part of our strategic plan, we formed the JV Company to
fulfill growing customer demand. The JV Company has reached its targeted
production of assembly and testing, and has ramped up its Phase I target run
rate of the 12-inch wafer fabrication in the quarter ended September 30, 2021.
During the three months ended September 30, 2021, we recorded $2.0 million in
net loss attributable to the noncontrolling interest in the JV Company. The
additional capacity at the JV Company contributed significantly to meeting the
increasing demand for our products. However, the financial performance of the JV
Company is
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affected by various factors, including the impact of the global COVID-19
pandemic and related economic downturn, intensified geopolitical tensions
between China and U.S., logistical difficulties, the JV Company's ability to
obtain financing and other risk factors beyond our control. We will continue to
monitor and evaluate market conditions closely and react quickly to the changing
environment as necessary to achieve an optimal production level at the JV
Company. In addition, the JV Company is currently pursuing various financing
options to fund its future expansion and repay its debt obligations, and there
is no guarantee that the JV Company will be able obtain such financing with
favorable terms, or at all. We expect the joint venture to provide important
capacity to support our future growth, enhance our market positions in China,
and drive improvements in capital expenditures.

During the fiscal quarter ended September 30, 2021, we continued our
diversification program 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, and
power IC product portfolio expanded significantly. Our high performance products
and deepened customer relationships with our OEM and ODM customers have
contributed to the achievement of our record high quarterly revenue of $187.0
million for the three months ended September 30, 2021, a 23.4% growth compared
to the same quarter last year.

Impact of the COVID-19 pandemic on our business

Our business operations have been impacted by the global COVID-19 pandemic and
the resulting economic downturn. Numerous governmental jurisdictions, including
the States of California, Oregon and Texas in the U.S. and countries throughout
the Asia Pacific region have imposed "stay-at-home" orders, quarantines, travel
bans and similar governmental orders and restrictions to control the spread of
COVID-19. Such orders and restrictions have resulted in business closures, work
stoppages, slowdowns and delays in commercial activities, unprecedented and
widespread unemployment, disruptions to ports and other shipping infrastructure,
border closures, and other travel or health-related restrictions, thereby
negatively impacting our customers, suppliers, distributors, employees, offices,
and the entire semiconductor ecosystem.

As a result of the COVID-19 pandemic and changing consumer behaviors due to
various government restrictions, including "stay-at-home" orders, we have
experienced shifting market trends, including an increasing demand in markets
for notebooks, PCs, gaming devices and other products. While we have recently
benefited from the increasing demand for PC related products, there is no
guarantee that this trend will continue, and such increasing demand may
discontinue or decline if government authorities relax or terminate COVID-19
related restrictions and consumer behaviors change in response to the reopening
of certain economic activities. In an effort to protect the health and safety of
our employees and to comply with various government and regulatory guidelines,
we took proactive actions to adopt policies and protocols at our locations
around the world, including social distancing guidelines, working from home,
limiting the number of employees attending meetings, reducing the number of
people in our sites at any one time, and suspending employee travel, and these
measures may result in difficulties and logistical challenges in our business
operations.

Since the start of the second quarter of 2021, there have been increasing
availability and administration of vaccines against COVID-19, as well as an
easing of restrictions on social, business, travel, and government activities
and functions, and a gradual resumption of economic activities and consumer
spending in our industries. On the other hand, infection rates continue to
fluctuate in various regions and new strains of the virus remain a risk. In
addition, there are ongoing global impacts resulting from the pandemic,
including disruption of the product supply chains, shortages of semiconductor
components, and delays in shipments, product development, and product launches.
The full extent of the future impact of the COVID-19 pandemic on our operational
and financial performance is uncertain and will depend on many factors outside
our control, including, without limitation, the timing, extent, trajectory and
duration of the pandemic; the availability, distribution and effectiveness of
vaccines; the spread of new variants of COVID-19; the continued and renewed
imposition of protective public safety measures; the disruption of global supply
chain; and the impact of the pandemic on the global economy and demand for
consumer products. Although we are unable to predict the full impact and
duration of the COVID-19 pandemic on our business, we are actively managing our
business operations and financial expenditures in response to continued
uncertainty.

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Other factors affecting our performance

In addition to the COVID-19 pandemic and related events described above, our performance is affected by several key factors, including the following:

The global, regional economic and PC market conditions: Because our products
primarily serve consumer electronic applications, any significant change in
global and regional economic conditions could materially affect our revenue and
results of operations. For example, because a significant amount of our revenue
is derived from sales of products in the personal computing ("PC") markets, such
as notebooks, motherboards and notebook battery packs, a substantial decline or
downturn 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. However, we recently have experienced a significant increase of demand
in PC market due to the impact of the COVID-19 pandemic and resulting shift in
market trend and consumer behaviors. We cannot predict whether and how long this
trend will continue due to the uncertainty and unpredictability of COVID-19
pandemic. 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.

Manufacturing costs and capacity availability:  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, our Oregon fab and our Chongqing fabrication facility
operated by the JV Company. 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. For example, the recent global shortage of
semiconductor manufacturing capacity has provided us with both challenges and
opportunities in the market, and highlighted the importance of maintaining
sufficient and independent in-house manufacturing capabilities to meet
increasing customer demands. 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. In addition, we recently commenced a plan
to enhance the manufacturing capability and capacity of our Oregon fab by
investing in new equipment and expanding our factory facilities, which we expect
will have a positive impact on our future new product development and revenue,
particularly during the period of global shortage of capacity. 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 if our control over the JV Company's operation is diminished. Our control
may be reduced if the JV Company completes an equity financing or/and issues
more shares that dilute our equity interests in the JV Company, or if the
management of the JV Company operates more independently without our
supervision.

Erosion and fluctuation of average selling price: 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 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.

Product introductions and customers' product requirements: 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. We believe that the JV Transaction will increase and
diversify our customer base, particularly in China, in the long term. However,
the ramp-activities and production schedule of our JV Company have been impacted
by the COVID-19 pandemic and related events, as discussed above. Even if we are
able to ramp up the operation of the JV Company timely, we may not be successful
in acquiring or maintaining a sufficient number of new customers to offset
additional costs due to various factors, including but are not limited to,
competition from other semiconductor companies in the region, our lack
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of history and prior relationships with customers as a new entrant, difficulties
in executing our joint venture strategies and the general economic conditions in
Chongqing and China.

Distributor ordering patterns, customer demand and seasonality: 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 decline of the 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.

Regulatory Matters: As previously disclosed, the DOJ commenced an investigation
into our compliance with export control regulations relating to business
transactions with Huawei, which were added to the "Entity List" by the DOC in
May 2019. We continue to cooperate fully with federal authorities in the
investigation. We have continued to respond to inquiries and requests from DOJ
for documents and information relating to the investigation, and the matter is
currently pending at DOJ. However, DOJ and DOC have not provided us any clear or
definitive response regarding the timeline of the investigation and potential
resolutions or outcome. In the meantime, we continue to incur significant costs
and expenses, including legal and professional fees, in connection with the
government investigation, which may reduce our profitability and operating
margin.
Principal line items of statements of operations
The following describes the principal line items set forth in our condensed
consolidated statements of operations:
Revenue

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 subsidiaries.

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 these
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, pre-approved
future distributor selling prices, distributor margins and demand for our
products.
Cost of goods sold

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. We continued to ramp up the 12-inch fab at the JV
Company to meet the increasing demand on our products. 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.
Operating expenses
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Our operating expenses consist of research and development, selling, general and
administrative expenses and impairment of long-lived assets. 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.

Research and development costs. Our research and development expenses mainly include salaries, bonuses, benefits, stock-based compensation expenses, expenses associated with new product prototypes, travel expenses, fees for engineering services provided by external contractors and consultants, depreciation of software and design tools, depreciation of equipment costs and overheads. We continue to invest in the development of new technologies and products using our own manufacturing and packaging facilities, as this is critical to our long term success. We also assess the appropriate investment levels and remain focused on launching new products to improve our competitiveness. We expect our research and development expenses to fluctuate from time to time.

Selling, general and administrative expenses.  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.
Income tax expense

We are subject to income taxes in various jurisdictions. Significant judgment
and estimates are required in determining our worldwide income tax expense. The
calculation of tax liabilities involves dealing with uncertainties in the
application of complex tax regulations of different jurisdictions globally. We
establish accruals for potential liabilities and contingencies based on a more
likely than not threshold to the recognition and de-recognition of uncertain tax
positions. 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. Changes in the location of taxable income (loss) could result in
significant changes in our income tax expense.

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 judgments regarding future taxable income may
change due to changes in market conditions, changes in tax laws, tax planning
strategies or other factors. If our assumptions and consequently our estimates
change in the future, the deferred tax assets may increase or decrease,
resulting in corresponding changes in income tax expense. 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.

we Law on tax cuts and employment, enacted December 22, 2017

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
US affiliates, where such payments reduce the US 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.

“we Consolidated Appropriation Law 2021 “(” CAA 2021 “), promulgated December 27, 2020

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On December 27, 2020, the United States enacted the Consolidated Appropriations
Act, 2021, which made changes to existing U.S. tax laws. There was no material
impact of the tax law changes included in the Consolidated Appropriations Act,
2021 to the Company.

“US bailout law 2021” promulgated March 11, 2021

On March 11, 2021, the United States enacted the American Rescue Plan Act of
2021, which made changes to existing U.S. tax laws. There was no material impact
of the tax law changes included in the American Rescue Plan Act of 2021 to the
Company.
Results of Operations
The following tables set forth statements of operations, also expressed as a
percentage of revenue, for the three months ended September 30, 2021 and 2020.
Our historical results of operations are not necessarily indicative of the
results for any future period.
                                                                                    Three Months Ended September 30,
                                                                   2021                  2020                2021                  2020
                                                                       (in thousands)                              (% of revenue)
Revenue                                                     $       187,035          $ 151,551                 100.0  %             100.0  %
Cost of goods sold                                                  122,468            109,028                  65.5  %              71.9  %
Gross profit                                                         64,567             42,523                  34.5  %              28.1  %
Operating expenses
Research and development                                             17,812             14,691                   9.5  %               9.7  %
Selling, general and administrative                                  21,806             17,505                  11.7  %              11.6  %

Total operating expenses                                             39,618             32,196                  21.2  %              21.3  %
Operating income                                                     24,949             10,327                  13.3  %               6.8  %
Interest expense and other income (loss), net                        (2,192)              (549)                 (1.3) %              (0.3) %

Income before income taxes                                           22,757              9,778                  12.0  %               6.5  %
Income tax expense                                                    1,320              1,011                   0.7  %               0.7  %
Net income including noncontrolling interest                         21,437              8,767                  11.3  %               5.8  %
Net loss attributable to noncontrolling interest                     (1,987)              (807)                 (1.1) %              (0.5) %
Net income attributable to Alpha and Omega Semiconductor
Limited                                                     $        23,424          $   9,574                  12.4  %               6.3  %

Stock-based compensation expense was recognized as follows:

                                                                              Three Months Ended September 30,
                                                               2021              2020               2021                 2020
                                                                   (in thousands)                        (% of revenue)
Cost of goods sold                                          $    569          $   385                   0.3  %             0.3  %
Research and development                                       1,043            1,080                   0.6  %             0.7  %
Selling, general and administrative                            3,023            1,411                   1.6  %             0.9  %
Total                                                       $  4,635          $ 2,876                   2.5  %             1.9  %



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Three Months Ended September 30, 2021 and 2020
Revenue
The following is a summary of revenue by product type:
                                                                                 Three Months Ended September 30,
                                                          2021                   2020                               Change
                                                               (in thousands)                     (in thousands)            (in percentage)
Power discrete                                     $    130,688              $ 119,375          $        11,313                          9.5  %
Power IC                                                 52,330                 29,455                   22,875                         77.7  %
Packaging and testing services                            4,017                  2,721                    1,296                         47.6  %
                                                   $    187,035              $ 151,551          $        35,484                         23.4  %



Total revenue was $187.0 million for the three months ended September 30, 2021,
an increase of $35.5 million, or 23.4%, as compared to $151.6 million for the
same quarter last year. The increase was primarily due to an increase of $11.3
million and $22.9 million in sales of power discrete products and sales of power
IC products, respectively. The increase in power discrete and power IC product
sales was primarily due to a 39.7% increase in unit shipments, partially offset
by an 8.4% decrease in average selling price as compared to same quarter last
year due to a shift in product mix. The increase in revenue of packaging and
testing services for the three months ended September 30, 2021, as compared to
same quarter last year, was primarily due to increased demand.
Cost of goods sold and gross profit
                                             Three Months Ended September 30,
                              2021              2020                        Change
                                 (in thousands)              (in thousands)       (in percentage)
Cost of goods sold       $   122,468        $ 109,028       $        13,440                12.3  %
 Percentage of revenue          65.5   %         71.9  %

Gross profit             $    64,567        $  42,523       $        22,044                51.8  %
 Percentage of revenue          34.5   %         28.1  %



Cost of goods sold was $122.5 million for the three months ended September 30,
2021, an increase of $13.4 million, or 12.3%, as compared to $109.0 million for
the same quarter last year. The increase was primarily due to 23.4% increase in
revenue. Gross margin increased by 6.4 percentage points to 34.5% for the three
months ended September 30, 2021, as compared to 28.1% for the same quarter last
year. Our JV Company continued its ramp during the three months ended September
30, 2021, which resulted in an increase in the capacity utilization and
contributed to the increase in gross margin during the three months ended
September 30, 2021.
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Research and development costs

                          Three Months Ended September 30,
             2021                2020                      Change
               (in thousands)                (in thousands)      (in percentage)
    $     17,812              $ 14,691      $        3,121                21.2  %


Research and development expenses were $17.8 million for the three months ended
September 30, 2021, an increase of $3.1 million, or 21.2%, as compared to $14.7
million for the same quarter last year. The increase was primarily attributable
to a $2.7 million increase in employee compensation and benefits expense mainly
due to higher bonuses accrual, a $0.2 million increase in product prototyping
engineering expense as a result of increased engineering activities, and a $0.1
million increase in depreciation expenses during the current quarter.
Selling, general and administrative expenses
                                                                                       Three Months Ended September 30,
                                                                 2021                2020                               Change
                                                                     (in thousands)                  (in thousands)            (in percentage)
Selling, general and administrative                         $     21,806          $ 17,505          $        4,301                         24.6  %



Selling, general and administrative expenses were $21.8 million for the three
months ended September 30, 2021, an increase of $4.3 million, or 24.6%, as
compared to $17.5 million for the same quarter last year. The increase was
primarily attributable to a $4.2 million increase in employee compensation and
benefits expenses mainly due to higher bonus expenses accrual and increased
business insurance expenses, as well as $1.6 million increase in share-based
compensation expense due to higher stock rewards price. The increase was
partially offset by a $0.7 million decrease in legal expense related to the
government investigation, a $0.2 million decrease in marketing demo and trade
shows costs as a result of the COVID-19 pandemic, and a $0.5 million decrease in
audit and tax consulting fees during the current quarter.
Interest expense and other income (loss), net
                                                                                Three Months Ended September 30,
                                                           2021               2020                              Change
                                                              (in thousands)                  (in thousands)            (in percentage)

Net interest expense and other income (losses) $ (2 192) $ (549) $ (1643)

                       299.3  %



Interest expense was primarily related to bank borrowings. Interest expense
increased by $0.5 million during the three months ended September 30, 2021 as
compared to the same period last year was primarily due to an increase in bank
borrowings, as well as an interest refund from the Chinese government in the JV
Company in the same period last year.
Interest income and others were primarily related to interest earned from cash
and cash equivalents, as well as foreign exchange gains (losses). Interest
income and others, net decreased by $1.1 million during the three months ended
September 30, 2021 as compared to the same period last year was primarily due to
lower foreign currency exchange gains as a result of the depreciation of RMB
against USD.
Income tax expense
                                             Three Months Ended September 30,
                                2021                 2020                       Change
                                 (in thousands)                  (in thousands)       (in percentage)
Income tax expense   $      1,320                  $ 1,011      $           309                30.6  %



The Company recognized income tax expense of approximately $1.3 million and $1.0
million for the three months ended September 30, 2021 and 2020, respectively.
The income tax expense of $1.3 million for the three months ended September 30,
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2021 included a $.09 million discrete tax expense. The income tax expense of
$1.0 million for the three months ended September 30, 2020 included a $0.03
million discrete tax benefit. Excluding the discrete income tax items, the
effective tax rate for the three months ended September 30, 2021 and 2020 was
5.4% and 10.7%, respectively. The changes in the effective tax rate and tax
expense between the periods resulted primarily from the Company reporting pretax
book income of $22.8 million for the three months ended September 30, 2021 as
compared to a pretax book income of $9.8 million for the three months ended
September 30, 2020.
Liquidity and Capital Resources
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.
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 5.5 year term 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 require the Company to maintain. As of September 30,
2021, there was no outstanding balance under the loan.
On October 2019, the Company's subsidiary in China entered into a line of credit
facility with Bank of Communications Limited in China. This line of credit
matures on February 14, 2021 and is based on the China Base Rate multiplied by
1.05, or 4.99% on October 31, 2019. The purpose of the credit facility is to
provide short-term borrowings. The Company could borrow up to approximately RMB
60.0 million or $8.5 million based on the currency exchange rate between the RMB
and the U.S. Dollar on October 31, 2019. In September 2021, this line of credit
was renewed with maximum borrowings up to RMB 140.0 million with the same terms
and a maturity date of September 18, 2022. As of September 30, 2021, there was
no outstanding balance under the loan.
On November 16, 2018, the Company's subsidiary in China entered into a line of
credit facility with Industrial and Commercial Bank of China. The purpose of the
credit facility was to provide short-term borrowings. The Company could borrow
up to approximately RMB 72.0 million or $10.3 million based on currency exchange
rate between RMB and U.S. Dollar on November 16, 2018. The RMB 72.0 million
consists of RMB 27.0 million for trade borrowings with a maturity date of
December 31, 2021, and RMB 45.0 million for working capital borrowings or trade
borrowings with a maturity date of September 13, 2022. As of September 30, 2021,
there was no outstanding balance under the 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 one month London Interbank Offered Rate ("LIBOR") plus 1.75%
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. As of September 30, 2021, the
Borrower was in compliance with these covenants. As of September 30, 2021, there
was no outstanding balance and the Company had unused credit of approximately
$8.0 million.

On May 1, 2018, Jireh Semiconductor Incorporated ("Jireh"), a wholly-owned
subsidiary of the Company, entered into a loan agreement with a financial
institution (the "Bank") that provided a term loan in the amount of $17.8
million. The obligation under the loan agreement is secured by certain real
estate assets of Jireh and guaranteed by the Company.  The loan has a five-year
term and matures on June 1, 2023. Beginning June 1, 2018, Jireh made consecutive
monthly payments of principal and interest to the Bank. The outstanding
principal accrues interest at a fixed rate of 5.04% per annum on the basis of a
360-day year. The loan agreement contains customary restrictive covenants and
includes certain financial covenants that require the Company to maintain, on a
consolidated basis, specified financial ratios. In August 2021, Jireh signed an
amendment of this loan with the Bank to modify the financial covenants
requirement to align with the new term loan agreement entered into on August 18,
2021 discussed above. The amendment was accounted for as a debt modification and
no gain or loss
                                       36
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has been recognized. The Company was in compliance with these restrictive covenants
September 30, 2021. From September 30, 2021, the outstanding balance of the term loan was $ 14.8 million.

On August 15, 2017, Jireh entered into a credit agreement with the Bank that
provided a term loan in an amount up to $30.0 million for the purpose of
purchasing certain equipment for the Company's fabrication facility located in
Oregon.  The obligation under the credit agreement is secured by substantially
all assets of Jireh and guaranteed by the Company.  The credit agreement has a
five-year term and matures on August 15, 2022. In January 2018 and July 2018,
Jireh drew down the loan in the amount of $13.2 million and $16.7 million,
respectively. Beginning in October 2018, Jireh is required to pay to the Bank on
each payment date, the outstanding principal amount of the loan in monthly
installments.  The loan accrues interest based on an adjusted LIBOR as defined
in the credit agreement, plus a specified applicable margin in the range of
1.75% to 2.25%, based on the outstanding balance of the loan.  The credit
agreement contains customary restrictive covenants and includes certain
financial covenants that require the Company to maintain, on a consolidated
basis, specified financial ratios and fixed charge coverage ratio. In August
2021, Jireh signed an amendment of this loan with the Bank to modify the
financial covenants requirement to align with the new term loan agreement
entered into on August 18, 2021 discussed above. The amendment was accounted for
as a debt modification and no gain or loss was recognized. The Company was in
compliance with these covenants as of September 30, 2021. As of September 30,
2021, the outstanding balance of the term loan was $7.5 million.

In September 2017, the Board of Directors approved a repurchase program (the
"Repurchase Program") that allowed us to repurchase our 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 our 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. We did not repurchase any
shares pursuant to the Repurchase Plan during the three months ended September
30, 2021. Since the inception of the program, we repurchased an aggregate of
6,784,648 shares for a total cost of $67.3 million, at an average price of $9.92
per share, excluding fees and related expenses.  As of September 30, 2021, of
the 6,784,648 repurchased shares, 161,145 shares with a weighted average
repurchase price of $10.13 per share, were reissued at an average price of $5.19
per share pursuant to option exercises and vested restricted share units. We had
$13.4 million remained available under the Repurchase Program as of
September 30, 2021.

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.

Financing operations of the company JV

From time to time the JV Company entered into financing and loan agreements with
banks and other third parties to fund capital expenditures and other operational
expenses in connection with the constructions and ramp-up of the manufacturing
facility in Chongqing. The JV Company incurs debt through its own financing
agreements, and our parent company and other subsidiaries are not parties to
these agreements and do not provide any guarantee or security for JV Company's
debt, nor do we have direct access to any cash proceeds borrowed from such loan
agreements.

On May 9, 2018 (the "Effective Date"), the JV Company entered into a lease
finance agreement and a security agreement (the "Agreements") with YinHai
Leasing Company and China Import/Export Bank (the "Lenders").  Pursuant to the
Agreements, the Lenders agreed to provide an aggregate of RMB 400.0 million, or
$62.8 million based on the currency exchange rate between RMB and U.S. Dollar on
the Effective Date, of financing to the JV Company (the "Lease Financing"). In
exchange for the Lease Financing, the JV Company agreed to transfer title of its
assembly and testing equipment to the Lenders, and the Lenders leased such
equipment to the JV Company under a five-year lease arrangement, pursuant to
which the JV Company makes quarterly lease payments to the Lenders consisting of
principal and interest based on a repayment schedule mutually agreed by the
parties.  The interest under the Lease Financing is accrued based on the China
Base Rate multiplied by 1.15, or 5.4625% on the Effective Date.  Under the
Agreements, at the end of the five-year lease term, the Lenders agree to sell
such equipment back to the JV Company for a nominal amount (RMB 1).  The JV
Company's obligations under the Lease Financing are secured by the land and
building owned by the JV Company (the "Collateral").  The proceeds from the
Lease Financing were used primarily for the acquisition and installation of the
12-inch fabrication equipment and other expenses of the JV Company relating to
the completion of the fabrication facility located in Chongqing. The Agreements
contain customary representation, warranties and covenants, including
restrictions on the transfer of the Collateral. The Agreements also contain
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customary events of default, including but not limited to, failure to make
payments and breach of material terms under the Agreements. The Agreements
include certain customary closing conditions, including the payment of deposit
by the JV Company. On June 28, 2020, the parties entered into a modification to
this agreement, pursuant to which the interest rate was changed to be the
five-year loan prime rate in China plus 0.8125%, or 5.4625%. Other terms of this
agreement remain the same. As of September 30, 2021, the outstanding balance of
the Lease Financing of 163.0 million RMB (equivalent of $25.2 million based on
the currency exchange rate as of September 30, 2021) was recorded under
short-term and long-term finance lease liabilities.

On March 12, 2019, the JV Company entered into a loan agreement with The
Export-Import Bank of China in the aggregate principal amount of RMB 200.0
million (approximately $29.8 million based on currency exchange rate between RMB
and U.S. Dollar on March 31, 2019). The loan will mature on February 20, 2025.
The JV Company drew down RMB 190.0 million and RMB 10.0 million in March 2019
and December 2019, respectively. The loan withdraw window expired on February
28, 2020. The interest is accrued based on the China Base Rate multiplied by
1.1, or 5.39%. The loan requires quarterly interest payments. The principal
payments are required to be paid every 6 months over the term of loan commencing
in October 2019. This loan is secured by the buildings and certain equipment
owned by the JV Company with a carrying value of $88.1 million as of
September 30, 2021. As a condition of the loan arrangement, RMB 14.0 million
(approximately $2.0 million) of cash is held as restricted cash by the JV
Company as a compensating balance at the bank until the principal is paid. On
June 24, 2020, a modification of this loan was signed, pursuant to which the
interest rate was changed to be based on the five-year loan prime rate in China
plus 0.74%, or 5.39%. Other terms of this loan remain the same. As of
September 30, 2021, the outstanding balance of the loan was RMB 184.0 million
(equivalent of $28.5 million based on the currency exchange rate as of
September 30, 2021).

In December 2019, the JV Company entered into a loan agreement with China
Development Bank in the amount of $24.0 million. The obligation under the loan
agreement is secured by certain assets of the JV Company with a carrying value
of $111.7 million as of September 30, 2021. The JV Company is required to make
consecutive semi-annual payments of principal until December 8, 2024. The
interest is accrued based on the LIBOR rate plus 2.8%. The interest is required
to be paid on March 21 and September 21 each year. As of September 30, 2021, the
outstanding balance of the loan was $19.2 million.

On April 26, 2020, the JV Company entered into a loan agreement with China
Development Bank, Agricultural Bank of China, China Merchants Bank and Chongqing
Rural Commercial Bank (collectively, the "Banks") in the aggregate principal
amount of RMB 250 million (approximately $35.7 million based on the currency
exchange rate between RMB and U.S. Dollar on April 26, 2020). The obligation
under the loan agreement is secured by certain assets of the JV Company. The
obligation under the loan agreement is secured by certain assets of the JV
Company with a carrying value of $111.7 million as of September 30, 2021. The JV
Company is required to make consecutive semi-annual payments of principal until
December 8, 2024. Interest payments are due on March 20, June 20, September 20
and December 20 of each year based on the LPR plus 1.3%. The JV Company drew
down RMB 250.0 million (approximately $35.3 million based on the currency
exchange rate between RMB and U.S. Dollar on June 30, 2020) in April 2020. As of
September 30, 2021, the outstanding balance of the loan was $34.1 million.

On November 13, 2020, the JV Company entered into a one-year loan agreement with
China Merchant Bank in China. The JV Company can borrow up to RMB 50.0 million,
or $7.6 million, based on the currency exchange rate between RMB and U.S. Dollar
on November 13, 2020. The loan's interest rates are based on the China one-year
loan prime rate ("LPR") plus 1.4% per annum. Interest payments are due quarterly
with the entire principal due not later than November 19, 2021. During the three
months ended December 31, 2020, the JV Company borrowed RMB 50.0 million, or
$7.6 million, at an interest rate of 5.25% per annum. As of September 30, 2021,
the outstanding balance of this loan was $7.7 million.

On April 19, 2021, the JV Company entered into a loan agreement with China
Everbright Bank in China to borrow a maximum of RMB 100 million. The borrowing
can be in RMB or U.S. Dollar ("USD"). The loan consists of RMB 50 million for
working capital borrowings in Chinese yuan and RMB 50 million for borrowing in
USD. The loan is collateralized by eligible accounts receivable. On April 19,
2021, the JV Company borrowed RMB 50.0 million, or $7.7 million based on the
currency exchange rate between RMB and USD on April 19, 2021, at an interest
rate of 5.1% per annum. The interest payments are due quarterly with the entire
principal due no later than May 19, 2022. On June 16, 2021 and June 24, 2021,
the JV Company borrowed $4.2 million and $3.5 million at interest rate of 2.7%
per annum, and repaid in full during the quarter ended September 30, 2021. On
August 17, 2021 and September 22, 2021, the JV Company also borrowed
$4.2 million and $3.4 million at interest rate of 2.7% per annum, with principal
due on November 9, 2021 and December 12, 2021, respectively. As of September 30,
2021, the total outstanding balance of these loans was $15.3 million.


On June 29, 2021, the JV Company entered into a P1Y-year loan agreement with
China CITIC Bank in China to borrow a maximum of $7.7 million. Interest payments
are due on the 20th of each quarter commencing on September 20, 2021, and the
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entire principal is due on June 29, 2022. As of September 30, 2021, the
outstanding balance of this loan was $7.7 million at an interest rate of 3.49%
per annum.
Cash, cash equivalents and restricted cash
As of September 30, 2021 and June 30, 2021, we had $255.0 million and $204.8
million of cash, cash equivalents and restricted cash, respectively. Our cash,
cash equivalents and restricted cash primarily consist of cash on hand,
restricted cash, and short-term bank deposits with original maturities of three
months or less. Of the $255.0 million and $204.8 million cash, cash equivalents
and restricted cash, $225.8 million and $134.6 million, respectively, are
deposited with financial institutions outside the United States.
The following table shows our cash flows from operating, investing and financing
activities for the periods indicated:
                                                                       

Three months ended September 30,

                                                                          2021                    2020
                                                                                (in thousands)
Net cash provided by operating activities                          $         80,607          $     9,848
Net cash used in investing activities                                       (23,911)             (11,337)
Net cash used in financing activities                                        (6,535)              (4,186)

Effect of exchange rate changes on cash, cash equivalents and restricted cash

                                                                 (11)               1,997

Net increase (decrease) in cash, cash equivalents and restricted
cash                                                               $         50,150          $    (3,678)

Cash flow from operating activities

Net cash provided by operating activities of $80.6 million for the three months
ended September 30, 2021 resulted primarily from net income of $21.4 million and
non-cash expenses of $19.0 million, partially offset by net changes in assets
and liabilities using cash of $40.1 million. The non-cash expenses of $19.0
million primarily included $13.7 million of depreciation and amortization
expenses, $4.6 million of share-based compensation expense, and $0.7 million of
deferred income taxes. The net changes in assets and liabilities of $40.1
million were primarily due to a $52.9 million increase in accrued and other
liabilities, a $2.1 million increase in accounts payable due to timing of
payments, and a $0.4 million increase in income taxes payable, partially offset
by a $3.5 million increase in accounts receivable as a result of higher revenue,
a $9.1 million increase in inventories due to a continued ramp of the JV
Company, and a $2.6 million increase in other current and long-term assets due
to increase in advance payments to suppliers.
Net cash provided by operating activities of $9.8 million for the three months
ended September 30, 2020 resulted primarily from net income of $8.8 million and
non-cash expenses of $15.4 million, partially offset by net changes in assets
and liabilities using net cash of $14.3 million. The non-cash expenses of $15.4
million primarily included $12.5 million of depreciation and amortization
expenses and $2.9 million of share-based compensation expense. The net changes
in assets and liabilities using cash of $14.3 million were primarily due to a
$13.0 million increase in accounts receivable as a result of
better-than-expected revenue, a $2.2 million increase in inventories due to a
continued ramp of the JV Company, and a $1.0 million increase in other current
and long-term assets due to increase in advance payments to vendors, and a $0.8
million decrease in accrued and other liabilities, partially offset by a $1.9
million increase in accounts payable due to timing of payments, and a $0.7
million increase in income taxes payable.
Cash flows from investing activities
Net cash used in investing activities of $23.9 million for the three months
ended September 30, 2021 was primarily attributable to purchases of property and
equipment of $8.4 million for the JV Company and purchases of property and
equipment of $16.6 million for other than the JV Company, net of government
grants of $1.1 million.

Net cash used in investing activities of $11.3 million for the three months
ended September 30, 2020 was primarily attributable to $11.3 million purchases
of property and equipment, including $3.4 million purchased by the JV Company.
Cash flows from financing activities
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Net cash used in financing activities of $6.5 million for the three months ended
September 30, 2021 was primarily attributable to $9.7 million in repayments of
borrowings, $4.2 million in payment of finance lease obligations, and $0.2
million in common shares acquired to settle withholding tax related to vesting
of restricted stock units, partially offset by $7.6 million proceeds from
borrowings.

Net cash used in financing activities of $4.2 million for the three months ended
September 30, 2020 was primarily attributable to $11.1 million in repayments of
borrowings, $4.0 million in payment of finance lease obligations, and $0.4
million in common shares acquired to settle withholding tax related to vesting
of restricted stock units, partially offset by $11.3 million proceeds from
borrowings.

Commitments

See Note 10 of the Notes to the Condensed Consolidated Financial Statements
contained in this Quarterly Report on Form 10-Q for a description of
commitments.
Off-Balance Sheet Arrangements
As of September 30, 2021, we had no material off-balance sheet arrangements as
defined in Regulation S-K 303(a)(4)(ii) arrangements.
Contractual Obligations
There were no material changes outside of our ordinary course of business in our
contractual obligations from those disclosed in our Annual Report on Form 10-K
for the fiscal year ended June 30, 2021.

Recent Accounting Pronouncements
See   Note 1   of the Notes to the Condensed Consolidated Financial Statements
contained in this Quarterly Report on Form 10-Q for a description of recent
accounting pronouncements, including the expected dates of adoption and
estimated effects on results of operations and financial condition, which is
incorporated herein by reference.

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