UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(MARK ONE)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~March 31,~~September 30, 2013

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM TO

Commission file number 001-34717

__________________________

Alpha and Omega Semiconductor Limited

(Exact name of Registrant as Specified in its Charter)



Bermuda	77-0553536
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification Number)

Clarendon House, 2 Church Street

Hamilton HM 11, Bermuda

(Address of Principal Registered

Offices including Zip Code)

(408) 830-9742

(Registrant's Telephone Number, Including Area Code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):



Large accelerated filer o	Accelerated filer x	Non-accelerated filer o	Smaller reporting company o
		(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

Number of common shares outstanding as of ~~April 30,~~October 31, 2013: ~~25,501,585.~~25,706,052.

Alpha and Omega Semiconductor Limited

Form 10-Q

Fiscal ~~Third~~First Quarter Ended ~~March 31,~~September 30, 2013

TABLE OF CONTENTS



		Page
Part I.	FINANCIAL INFORMATION
Item 1.	Financial Statements:	1
	Condensed Consolidated Balance Sheets as of ~~March 31,~~September 30, 2013 and June 30, ~~2012~~2013 (Unaudited)	1
	Condensed Consolidated Statements of Operations for the Three ~~and Nine~~ Months Ended ~~March 31,~~September 30, 2013 and ~~March 31,~~September 30, 2012 (Unaudited)	2
	Condensed Consolidated Statements of Comprehensive Income ~~(Loss)~~ for the Three ~~and Nine~~ Months Ended ~~March 31,~~September 30, 2013 and ~~March 31,~~September 30, 2012 (Unaudited)	3
	Condensed Consolidated Statements of Cash Flows for the ~~Nine~~Three Months Ended ~~March 31,~~September 30, 2013 and ~~March 31,~~September 30, 2012 (Unaudited)	4
	Notes to Condensed Consolidated Financial Statements (Unaudited)	5
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	1714
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	2724
Item 4.	Controls and Procedures	2824
Part II.	OTHER INFORMATION
Item 1.	Legal Proceedings	2925
Item 1A.	Risk Factors	2925
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3125
Item 3.	Defaults Upon Senior Securities	3125
Item 4.	Mine Safety Disclosures	3125
Item 5.	Other Information	3125
Item 6.	Exhibits	3226
	Signatures	3327

Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

													ALPHA AND OMEGA SEMICONDUCTOR LIMITED	CONDENSED CONSOLIDATED BALANCE SHEETS	(Unaudited, in thousands except par value per share)
	March 31, 2013			June 30, 2012			September 30, 2013			June 30, 2013
ASSETS
Current assets:
Cash and cash equivalents	$	104,040		$	82,166		$	95,995		$	92,406
Restricted cash	201			236			245			204
Accounts receivable, net	29,812			38,850			40,949			38,298
Inventories	67,093			65,778			68,422			68,339
Deferred income tax assets	2,711			2,789			1,598			3,030
Other current assets	4,879			3,962			4,042			3,578
Total current assets	208,736			193,781			211,251			205,855
Property, plant and equipment, net	142,943			158,543			132,978			138,111
Intangible assets, net	599			1,028			392			496
Goodwill	269			269			269			269
Deferred income tax assets	10,574			10,061			10,685			10,823
Other long-term assets	957			2,475			844			767
Total assets	$	364,078		$	366,157		$	356,419		$	356,321

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short term debt	$	3,571		$	3,571		$	3,107		$	3,821
Accounts payable	36,154			35,646			32,789			31,738
Accrued liabilities	15,124			21,026			15,518			14,571
Income taxes payable	3,011			2,349			1,215			1,472
Deferred margin	474			366			625			622
Capital leases	974			961			934			1,267
Total current liabilities	59,308			63,919			54,188			53,491
Long-term debt	14,537			16,429			12,857			13,571
Income taxes payable - long term	3,480			3,509			3,498			3,692
Deferred income tax liabilities	1,531			587			1,421			2,613
Capital leases - long term	347			1,085			195			195
Deferred rent	1,388			1,235			1,268			1,308
Total liabilities	80,591			86,764			73,427			74,870

Commitments and contingencies (Note 10)
Commitments and contingencies (Note 9)
Shareholders' equity:
Preferred shares, par value $0.002 per share:
Authorized: 10,000 shares; Issued and outstanding: none at March 31, 2013 and June 30, 2012	—			—
Authorized: 10,000 shares; Issued and outstanding: none at September 30, 2013 and June 30, 2013							—			—
Common shares, par value $0.002 per share:
Authorized: 50,000 shares; Issued and outstanding: 25,718 shares and 25,492 shares at March 31, 2013 and 25,167 shares and 24,938 shares at June 30, 2012	51			50
Treasury shares at cost; 226 shares at March 31, 2013 and 229 shares at June 30, 2012	(2,054		)	(2,104		)
Authorized: 50,000 shares; Issued and outstanding: 25,924 shares and 25,698 shares at September 30, 2013 and 25,882 shares and 25,656 shares at June 30, 2013							52			51
Treasury shares at cost; 226 shares at September 30, 2013 and June 30, 2013							(2,050		)	(2,054		)
Additional paid-in capital	166,304			160,602			169,531			168,352
Accumulated other comprehensive income	979			972			1,011			957
Retained earnings	118,207			119,873			114,448			114,145
Total shareholders’ equity	283,487			279,393			282,992			281,451
Total liabilities and shareholders’ equity	$	364,078		$	366,157		$	356,419		$	356,321

See accompanying notes to these condensed consolidated financial statements.

Table of Contents

ALPHA AND OMEGA SEMICONDUCTOR LIMITED

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited, in thousands except per share data)


	Three Months Ended March 31,						Nine Months Ended March 31,						Three Months Ended September 30,
	2013			2012			2013			2012			2013			2012
Revenue	$	75,015		$	83,858		$	260,224		$	248,019		$	84,121		$	95,761
Cost of goods sold	69,770			64,564			208,852			189,875			66,970			70,228
Gross profit	5,245			19,294			51,372			58,144			17,151			25,533

Operating expenses
Research and development	6,876			6,510			20,675			23,012			6,847			6,933
Selling, general and administrative	8,917			9,028			26,536			26,144			8,940			8,781
Impairment of long-lived assets	2,557			—			2,557			—
Total operating expenses	18,350			15,538			49,768			49,156			15,787			15,714
Operating income (loss)	(13,105		)	3,756			1,604			8,988

Operating income													1,364			9,819
Interest income	22			21			59			85			24			17
Interest expense	(93		)	(135		)	(282		)	(206		)	(79		)	(82		)
Income (loss) before income taxes	(13,176		)	3,642			1,381			8,867

Income tax expense (benefit)	(3		)	1,038			2,894			2,650
Net income (loss)	$	(13,173	)	$	2,604		$	(1,513	)	$	6,217

Net income (loss) per share
Income before income taxes													1,309			9,754
Income tax expense													1,002			1,812
Net income													$	307		$	7,942
Net income per share
Basic	$	(0.52	)	$	0.11		$	(0.06	)	$	0.25		$	0.01		$	0.32
Diluted	$	(0.52	)	$	0.10		$	(0.06	)	$	0.24		$	0.01		$	0.31

Weighted average number of common shares used to compute net income (loss) per share
Weighted average number of common shares used to compute net income per share
Basic	25,467			24,675			25,266			24,578			25,684			25,038
Diluted	25,467			25,647			25,266			25,565			26,309			25,884

See accompanying notes to these condensed consolidated financial statements.

Table of Contents

ALPHA AND OMEGA SEMICONDUCTOR LIMITED

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME ~~(LOSS)~~

(Unaudited, in thousands)


	Three Months Ended March 31,					Nine Months Ended March 31,					Three Months Ended September 30,
	2013			2012		2013			2012		2013		2012
Net income (loss)	$	(13,173	)	$	2,604	$	(1,513	)	$	6,217
Net income											$	307	$	7,942
Other comprehensive income, net of tax
Foreign currency translation adjustment	(48		)	69		7			94		54		30
Total comprehensive income (loss)	$	(13,221	)	$	2,673	$	(1,506	)	$	6,311
Total comprehensive income											$	361	$	7,972

See accompanying notes to these condensed consolidated financial statements.

Table of Contents

ALPHA AND OMEGA SEMICONDUCTOR LIMITED

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited, in thousands)


	Nine Months Ended March 31,						Three Months Ended September 30,
	2013			2012			2013			2012
Cash flows from operating activities
Net income (loss)	$	(1,513	)	$	6,217
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Net income							$	307		$	7,942
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	21,872			17,897			6,927			7,180
Amortization	429			429			103			143
Allowance for doubtful accounts	—			643
Share-based compensation expense	3,576			3,971			1,209			1,441
Deferred income taxes, net	510			354			378			318
Loss on disposal of property and equipment	138			2
Impairment of long-lived assets	2,557			—
(Gain) loss on disposal of property and equipment							(74		)	51
Changes in working capital:
Accounts receivable	9,038			2,853			(2,651		)	9,472
Inventories	(1,315		)	14,221			(83		)	(5,278		)
Other current and long-term assets	602			3,713			(541		)	2,784
Accounts payable	5,442			(20,329		)	712			1,469
Income taxes payable	633			(1,488		)	(451		)	455
Accrued and other liabilities	(5,716		)	2,342			904			(2,367		)
Net cash provided by operating activities	36,253			30,825			6,740			23,610

Cash flows from investing activities
Purchases of property and equipment	(14,046		)	(28,308		)	(1,578		)	(10,243		)
Restricted cash released (placed)	35			(25		)
Acquisition of Oregon fab	—			(21,330		)
Investment in a privately held company	—			(100		)
Proceeds from sale of property and equipment							194			—
Restricted cash placed							(42		)	(3		)
Net cash used in investing activities	(14,011		)	(49,763		)	(1,426		)	(10,246		)

Cash flows from financing activities
Proceeds from exercise of stock options and ESPP	2,255			1,313
Payment for repurchase of common shares	(5		)	(1,574		)
Proceeds from exercise of stock options							23			376
Proceeds from borrowings	250			26,800			—			250
Repayments of borrowings	(2,143		)	(14,698		)	(1,429		)	(715		)
Principal payments on capital leases	(726		)	(306		)	(333		)	(250		)
Net cash provided by (used in) financing activities	(369		)	11,535

Net cash used in financing activities							(1,739		)	(339		)
Effect of exchange rate changes on cash and cash equivalents	1			39			14			7
Net increase (decrease) in cash and cash equivalents	21,874			(7,364		)
Net increase in cash and cash equivalents							3,589			13,032
Cash and cash equivalents at beginning of period	82,166			86,708			92,406			82,166
Cash and cash equivalents at end of period	$	104,040		$	79,344		$	95,995		$	95,198

Supplemental disclosures of non-cash investing and financing information:
Supplemental disclosures of non-cash investing information:
Property and equipment purchased but not yet paid	$	3,430		$	10,867		$	2,157		$	3,963

See accompanying notes to these condensed consolidated financial statements.

ALPHA AND OMEGA SEMICONDUCTOR LIMITED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. The Company and Significant Accounting Policies

The Company

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 portable computers, flat panel TVs, LED lighting, smart phones, battery packs, 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, Macau, China, Taiwan, Korea and Japan.

Basis of Preparation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) for interim financial information and with the instructions to Article 10 of Securities and Exchange Commission Regulation S-X, as amended. They do not include all information and footnotes necessary for a fair presentation of financial position, results of operations and cash flows in conformity with U.S. GAAP for complete financial statements. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes contained in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, ~~2012~~2013. All significant intercompany balances and transactions have been eliminated in consolidation. In the opinion of management, all adjustments (consisting of normal recurring adjustments and accruals) considered necessary for a fair presentation of the results of operations for the period presented have been included in the interim period. Operating results for the ~~three and~~ ~~nine~~three months ended ~~March 31,~~September 30, 2013 are not necessarily indicative of the results that may be expected for other interim periods or the fiscal year ending June 30, ~~2013~~2014. The condensed consolidated balance sheet at June 30, ~~2012~~2013 is derived from the audited financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, ~~2012~~2013.

Use of Estimates

The preparation of the condensed 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 condensed 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, share-based compensation, variable interest entities, and useful lives for property, plant and equipment and intangible assets.

Fair Value of Financial Instruments

The fair value of cash equivalents are 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.

~~Impairment of Long-Lived Assets~~

Long-lived assets or asset groups are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset might not be recoverable. Factors that would necessitate an impairment assessment include a significant decline in the observable market value of an asset, a significant change in the extent or manner in which an asset is used, or any other significant adverse change that would indicate that the carrying amount of an asset or group of assets may not be recoverable. Where such factors indicate potential impairment, the recoverability of an asset or asset group is assessed by determining if the carrying value of the asset or asset group exceeds the sum of the projected undiscounted cash flows expected to result from the use and eventual disposition of the assets over the remaining economic life. The impairment loss is measured based on the difference between the carrying amount and estimated fair value.

~~ALPHA AND OMEGA SEMICONDUCTOR LIMITED~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

During the quarter ended March 31, 2013, in light of the unfavorable market conditions particularly relating to the accelerated decline of the personal computing (PC) market, the Company conducted an in-depth analysis of its strategic plan. In its review, the Company reconsidered the key assumptions in its overall strategic business and manufacturing capacity plans in light of the continued declines in the PC market. As a result, the Company revised its PC related revenue and volume outlook as well as manufacturing capacity requirements. These material changes in the Company's outlook and plans, which the Company was able to determine in the third quarter of fiscal 2013, triggered an impairment review of its long-lived assets.

The Company determined that the related estimated undiscounted cash flows were not sufficient to recover the carrying value of certain manufacturing machinery and equipment primarily for the packaging of its PC related products. The average remaining useful life of those impaired assets was approximately ~~two years~~. The Company estimated the fair values of those long-lived assets based on net realizable values of similar machinery and equipment recently transacted by third-party used-machine brokers and recorded an asset impairment charge of approximately ~~$2.6 million~~ ~~to reduce the related carrying amount to its estimated fair value as of March 31, 2013.~~

Comprehensive Income ~~(Loss)~~

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 consists of cumulative foreign currency translation adjustments. Total comprehensive income ~~(loss)~~ is presented in the condensed consolidated statements of comprehensive income.

ALPHA AND OMEGA SEMICONDUCTOR LIMITED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Recent Accounting Pronouncements

In ~~March~~July 2013, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update ("ASU") ~~2013-05,~~2013-11, ~~Foreign Currency Matters~~Income Taxes (Topic ~~830) Parent's Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or~~740) Presentation of an ~~Investment in~~Unrecognized Tax Benefit When a ~~Foreign Entity~~Net Operating Loss Carryforward, a Similar Tax Loss ,or a Tax Credit Carryforward Exists. The new guidance requires the netting of unrecognized tax benefits ("UTBs") against a deferred tax asset for a loss or other carryforward that ~~when a reporting entity (parent) ceases to have a controlling financial interest~~would apply in a subsidiary or group of assets that is a nonprofit activity or business within a foreign entity, the parent is required to apply the guidance in Subtopic 830-30 to release any related cumulative translation adjustment into net income. The cumulative translation adjustment should be released into net income only if the sale or transfer results in the complete or substantially complete liquidationsettlement of the ~~foreign entity in which~~uncertain tax positions. Under the ~~subsidiary~~new standard, UTBs will be netted against all available same-jurisdiction loss or ~~group of assets had resided. For an equity method investment~~other tax carryforwards that would be utilized, rather than only against carryforwards that are created by the UTBs. The ASU is a foreign entity, the partial sale guidance in Section 830-30-40 still applies. As such, a pro rata portion of the cumulative translation adjustment should be released into net income upon a partial sale of such an equity method investment. This treatment does not apply to an equity method investment that is not a foreign entity. In those instances, the cumulative translation adjustment is released into net income only if the partial sale represents a complete or substantially complete liquidation of the foreign entity that contains the equity method investment. The amendments in this ASU are effective ~~prospectively~~ for fiscal years, and interim ~~reporting~~ periods within those years, beginning after ~~Dec.~~December 15, 2013. Early adoption is permitted. The ~~amendments~~ASU should be applied prospectively to ~~derecognition events occurring after~~all unrecognized tax benefits that exist at the effective date. ~~Prior periods should not be adjusted. Early adoption~~Retrospective application is permitted. The Company does not expect the adoption of this guidance to have any significant impact on the Company's condensed consolidated financial statements.

~~In February 2013, the FASB issued ASU 2013-02"Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income"~~, which requires an entity to report, either on the face of the statement where net income is presented or in the notes, the effect of significant reclassifications out of accumulated other comprehensive income on the respective line items in net income if the amount being reclassified is required under U.S. GAAP to be reclassified in its entirety to net income. For other amounts that are not required under U.S. GAAP to be reclassified in their entirety to net income in the same reporting period, an entity is required to cross-reference other disclosures required under U.S. GAAP that provide additional detail about those amounts. The guidance in ASU 2013-02 is effective prospectively for fiscal years, and interim periods within those years, beginning after December 15, 2012. Early adoption is permitted. The Company does not expect the adoption of this guidance to have any significant impact on the Company's consolidated financial statements.

~~In June 2011, the FASB issued ASU 2011-05,~~ ~~Comprehensive Income: Presentation of Comprehensive Income.~~ The new guidance requires the presentation of comprehensive income, the components of net income and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The new guidance also requires presentation of adjustments for items that are reclassified from other comprehensive income to net income in the statement where the components of net income and the components of other comprehensive income are presented. In December 2011, the FASB issued an amendment to this guidance to defer the requirement to present

~~ALPHA AND OMEGA SEMICONDUCTOR LIMITED~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

~~such reclassification adjustments. The guidance is effective for fiscal years and interim periods within those fiscal years, beginning after December 15, 2011.~~

Effective July 1, 2012, the Company retrospectively adopted this new guidance by presenting total comprehensive income and the components of net income and other comprehensive income in two separate but consecutive statements. The adoption of this guidance resulted only in a change in how the Company presents other comprehensive income in the condensed consolidated financial statements and did not have any impact on its results of operations, financial position, or cash flows.

2. Net Income ~~(Loss)~~ Per Share

The following table presents the calculation of basic and diluted net income ~~(loss)~~ per share:


	Three Months Ended March 31,					Nine Months Ended March 31,					Three Months Ended September 30,
	2013			2012		2013			2012		2013		2012
	(in thousands, except per share data)										(in thousands, except per share data)
Numerator:
Net income (loss)	$	(13,173	)	$	2,604	$	(1,513	)	$	6,217
Net income											$	307	$	7,942

Denominator:
Basic:
Weighted average number of common shares used to compute basic net income (loss) per share	25,467			24,675		25,266			24,578
Weighted average number of common shares used to compute basic net income per share											25,684		25,038
Diluted:
Weighted average number of common shares used to compute basic net income (loss) per share	25,467			24,675		25,266			24,578
Weighted average number of common shares used to compute basic net income per share											25,684		25,038
Effect of potentially dilutive securities:
Stock options, RSUs and ESPP shares	—			972		—			987		625		846
Weighted average number of common shares used to compute diluted net income (loss) per share	25,467			25,647		25,266			25,565
Net income (loss) per share:
Weighted average number of common shares used to compute diluted net income per share											26,309		25,884
Net income per share:
Basic	$	(0.52	)	$	0.11	$	(0.06	)	$	0.25	$	0.01	$	0.32
Diluted	$	(0.52	)	$	0.10	$	(0.06	)	$	0.24	$	0.01	$	0.31

The following potential dilutive securities were excluded from the computation of diluted net income ~~(loss)~~ per share as their effect would have been anti-dilutive:


	Three Months Ended March 31,		Nine Months Ended March 31,		Three Months Ended September 30,
	2013	2012	2013	2012	2013	2012
	(in thousands)				(in thousands)
Employee stock options and RSUs	4,119	2,531	3,218	2,708	2,783	2,694
ESPP to purchase common shares	858	233	453	373	307	316
Total potential dilutive securities	4,977	2,764	3,671	3,081	3,090	3,010

ALPHA AND OMEGA SEMICONDUCTOR LIMITED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

3. Concentration of Credit Risk and Significant Customers

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,~~requirements, while sales to new customers or customers with low credit ratings are usually made on an advance payment basis. The Company considers its financial assets 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, when available.

Summarized below are individual customers whose revenue or accounts receivable balances were 10% or higher than the respective total consolidated amounts:


	Three Months Ended March 31,				Nine Months Ended March 31,				Three Months Ended September 30,
Percentage of revenue	2013		2012		2013		2012		2013		2012
Customer A	21.4	%	26.4	%	23.2	%	22.3	%	20.6	%	23.6	%
Customer B	45.5	%	37.4	%	43.5	%	40.9	%	44.3	%	41.5	%
Customer C	10.8	%	14.3	%	12.0	%	14.5	%	11.8	%	13.7	%


	March 31, 2013		June 30, 2012		September 30, 2013		June 30, 2013
Percentage of accounts receivable	March 31, 2013		June 30, 2012		September 30, 2013		June 30, 2013
Customer A	10.6	%	34.1	%	20.5	%	33.8	%
Customer B	36.8	%	23.6	%	37.8	%	22.6	%
Customer C	19.9	%	20.4	%	17.9	%	19.9	%
Customer D	10.5	%	6.1	%

4. Balance Sheet Components

Accounts receivable:


	March 31, 2013			June 30, 2012			September 30, 2013			June 30, 2013
	(in thousands)						(in thousands)
Accounts receivable	$	45,552		$	55,858		$	54,545		$	52,202
Less: Allowance for price adjustments	(14,988		)	(16,256		)	(13,566		)	(13,152		)
Less: Allowance for doubtful accounts	(752		)	(752		)	(30		)	(752		)
Accounts receivable, net	$	29,812		$	38,850		$	40,949		$	38,298

Inventories:


	March 31, 2013		June 30, 2012		September 30, 2013		June 30, 2013
	(in thousands)				(in thousands)
Raw materials	$	15,338	$	27,856	$	20,224	$	17,248
Work in-process	40,365		28,188		38,230		38,618
Finished goods	11,390		9,734		9,968		12,473
	$	67,093	$	65,778	$	68,422	$	68,339

ALPHA AND OMEGA SEMICONDUCTOR LIMITED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Property, plant and equipment:



	September 30, 2013			June 30, 2013
	(in thousands)
Land	$	4,950		$	4,950
Building	4,106			4,106
Manufacturing machinery and equipment	157,963			156,958
Equipment and tooling	10,387			10,356
Computer equipment and software	16,369			16,140
Office furniture and equipment	1,566			1,559
Leasehold improvements	24,224			24,068
	219,565			218,137
Less accumulated depreciation	(94,121		)	(87,180		)
	125,444			130,957
Equipment and construction in progress	7,534			7,154
Property, plant and equipment, net	$	132,978		$	138,111

Other long term assets:



	September 30, 2013		June 30, 2013
	(in thousands)
Prepayments for property and equipment	$	265	$	77
Investment in a privately held company	100		100
Deferred debt issuance cost	67		91
Office leases deposits	412		499
	$	844	$	767

Accrued liabilities:



	September 30, 2013		June 30, 2013
	(in thousands)
Accrued salaries and wages	$	2,979	$	3,079
Accrued vacation	2,315		2,078
Accrued bonuses	902		880
Warranty accrual	1,361		1,428
Stock rotation accrual	1,597		1,572
Accrued professional fees	786		918
ESPP payable	891		353
Customer deposits	108		123
Other accrued expenses	4,579		4,140
	$	15,518	$	14,571

ALPHA AND OMEGA SEMICONDUCTOR LIMITED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

~~During the three months ended March 31, 2013, the Company recorded an inventory write-down of~~ ~~$7.7 million~~ ~~related to excess and obsolete inventory primarily consisting of products relating to PC applications, and to a lesser extent, products for power supplies.~~

~~Property, plant and equipment:~~

March 31,
2013 June 30,
2012
(in thousands)
Land $ 4,950
$ 4,950
Building 4,106
4,077
Manufacturing machinery and equipment 153,829
152,307
Equipment and tooling 10,004
9,910
Computer equipment and software 15,785
14,912
Office furniture and equipment 1,559
1,630
Leasehold improvements 23,032
22,463
213,265
210,249
Less accumulated depreciation (80,208 ) (63,114 )
133,057
147,135
Equipment and construction in progress 9,886
11,408
Property, plant and equipment, net $ 142,943
$ 158,543

~~Other long term assets:~~

March 31,
2013 June 30,
2012
(in thousands)
Prepayments for property and equipment $ 222
$ 1,632
Investment in a privately held company 100
100
Deferred debt issuance cost 117
204
Office leases deposits 518
539
$ 957
$ 2,475

~~Accrued liabilities:~~

March 31,
2013 June 30,
2012
(in thousands)
Accrued salaries and wages $ 3,131
$ 3,418
Accrued vacation 1,889
2,232
Accrued bonuses 851
4,258
Warranty accrual 974
1,556
Stock rotation accrual 1,510
2,032
Accrued professional fees 729
687
ESPP payable 784
313
Customer deposits 100
179
Other accrued expenses 5,156
6,351
$ 15,124
$ 21,026

~~ALPHA AND OMEGA SEMICONDUCTOR LIMITED~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

The activities in the warranty accrual, included in accrued liabilities, is as follows:


	Nine Months Ended March 31,						Three Months Ended September 30,
	2013			2012			2013			2012
	(in thousands)						(in thousands)
Beginning balance	$	1,556		$	664		$	1,428		$	1,556
Additions	117			743			285			118
Utilization	(699		)	(641		)	(352		)	(113		)
Ending balance	$	974		$	766		$	1,361		$	1,561

The activities in the stock rotation accrual, included in accrued liabilities, is as follows:


	Nine Months Ended March 31,						Three Months Ended September 30,
	2013			2012			2013			2012
	(in thousands)						(in thousands)
Beginning balance	$	2,032		$	1,880		$	1,572		$	2,032
Additions	4,349			4,189			1,346			1,618
Utilization	(4,871		)	(3,817		)	(1,321		)	(1,872		)
Ending balance	$	1,510		$	2,252		$	1,597		$	1,778

5. ~~Acquisition of Wafer Fabrication Facility~~

On January 31, 2012, the Company completed the acquisition of certain assets, including land, building, machinery and equipment and inventories, associated with a wafer fabrication facility located in Hillsboro, Oregon (the "Oregon fab") from Integrated Device Technology, Inc, ("IDT"), for a purchase price of ~~$26.3 million~~ ~~in cash plus certain assumed liabilities of~~ ~~$0.5 million. The Company applied the related cash deposit of~~ ~~$5.0 million~~ ~~made during fiscal 2011 to the purchase price.~~

The acquisition was accounted for as a business combination and the financial results of operations of the acquired facility were included in the Company's consolidated statements of operations from the date of acquisition. In connection with the acquisition, the Company incurred certain acquisition related expenses of approximately ~~$0.2 million, which were recorded in general and administrative expenses in the Company's condensed consolidated statements of operations for fiscal 2012.~~

~~The allocation of the total purchase consideration of~~ ~~$26.3 million~~ ~~based on the estimated fair values as of the acquisition date, is summarized in the following table (in thousands):~~

Land $ 4,950
Building 3,900
Machinery and equipment 15,564
Inventories 2,159
Accrued liabilities (512 )
Goodwill 269
Total purchase consideration $ 26,330

~~Of the total purchase price paid at the time of acquisition, approximately~~ ~~$0.3 million~~ has been allocated to goodwill. Goodwill represents the excess of the purchase price of an acquired business over the fair value of the underlying net tangible assets and is deductible for tax purposes. Among the factors that contributed to a purchase price in excess of the fair value of the net tangible assets were the synergies in improved product research and development as well as product to market lead time and production operations that can be leveraged to enable the Company to build an enterprise value greater than the sum of its

~~ALPHA AND OMEGA SEMICONDUCTOR LIMITED~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

~~parts. The Company is depreciating the building on a straight-line basis over an estimated useful life of~~ ~~20 years~~ ~~and the machinery and equipment over an estimated useful life of~~ ~~3 to 7 years~~.

The Company considered the additional proforma revenue and earnings disclosure as not practical given the assets acquired had been and will continue to be used primarily as a captive fabrication facility. Due to the lack of independently substantiated standalone historical financial statements of the acquired assets, retrospective application requires significant estimates of their related revenues, costs and expenses for the proforma financial information disclosure. It is impossible to distinguish objectively information about those estimates that would provide evidence of circumstances that existed on the dates at which those amounts would be recognized, measured, or disclosed under retrospective application, or such information would have been available when the financial statements for that prior period were issued. Furthermore, the wafers produced by the Oregon fab for the Company are different from those of IDT and the Company does not intend to continue to produce such wafers. Therefore, the retroactive proforma financial information would not provide meaningful information for investors.

6. Debt

On May 11, 2012, the Company entered into a loan agreement with a financial institution that provides a term loan of $20.0 million for general purposes and a $10.0 million non-revolving credit line for the purchase of equipment. Both the term loan and equipment line will ~~mature~~be fully repayable in May 2015. The borrowings may be made in the form of either Eurodollar loans or Base Rate loans. Eurodollar loans accrue interest based on an adjusted London Interbank Offered Rate ("LIBOR") as defined in the agreement, plus a margin of 1.00% to 1.75%. Base Rate loans accrue interest at the highest of (a) the lender's Prime Rate, (b) the Federal Funds Rate plus 0.5% and (c) the Eurodollar Rate (for a one-month interest period) plus 1%; plus a margin of -0.5% to 0.25%. The applicable margins for both Eurodollar loans and Base Rate loans will vary from time to time in the foregoing ranges based on the cash and cash equivalent balances maintained by the Company and its subsidiaries with the lender. In May 2013, the equipment credit line expired and there was no outstanding balance. As of ~~March 31,~~September 30, 2013, the outstanding balance of the term loan ~~and the equipment line~~ was $~~17.9~~15.7 million ~~and~~ $0. Of the $~~17.9~~15.7 million term loan, $~~3.6~~2.9 million was included as short-term debt as of ~~March 31,~~September 30, 2013.

The obligations under the term loan ~~agreement~~ are secured by substantially all assets of two subsidiaries of the Company, including, but not limited to, certain real property and related assets located at the Oregon fab. In addition, the Company and certain subsidiaries of the Company have agreed to guarantee full repayment and performance of the obligations under the loan agreement. 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 including total liabilities to tangible net worth, fixed charge coverage and current assets to current liabilities. As of ~~March 31,~~September 30, 2013, the Company was in compliance with these covenants.

Two of the Company's subsidiaries in China had revolving lines of credit that allow each of the subsidiaries to draw down, from time to time, up to 80% of the accounts receivable balance of such subsidiary, with an aggregated maximum amount of RMB 95 million (equivalent of $~~15.3~~15.5 million based on the currency exchange rate as of ~~March 31,~~September 30, 2013) to finance the subsidiary's working capital with a maximum of 120-day repayment term. The interest rate on each draw down varied and was indexed to the published LIBOR per annum. ~~These lines expired in August 2012 and were renewed in November 2012 with substantially the same terms except the aggregated maximum available amount of~~The Company did not renew these two lines of credit ~~increased from RMB~~ ~~80 million~~ ~~to RMB~~ ~~95 million~~.which expired in September 2013. As of ~~March 31,~~September 30, 2013, there was no outstanding balance ~~for~~under these two revolving lines of credit.

During July 2012, the Company entered into a loan agreement with the State of Oregon for an amount of $250,000. The loan is required to be used for training new and re-training existing employees of the Oregon Fab. The loan bears a compound annual interest rate of 5.0% and is to be repaid in April 2014. The State may forgive the loan and unpaid interest if certain conditions primarily relating to hiring targets are ~~met. As of~~ ~~March 31, 2013~~,met and it is more likely than not that the ~~outstanding balance of the loan was~~ ~~$250,000~~.Company will meet those hiring

119

ALPHA AND OMEGA SEMICONDUCTOR LIMITED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

7.targets. As of September 30, 2013, the outstanding balance and accrued interest of the loan, included in short term debt, was $265,500.

6. Shareholders' Equity and Share-based Compensation

~~Shares~~Share Repurchase

On October 22, 2010, the Company's board of directors authorized a $25.0 million share repurchase program. Under this repurchase program the Company may, from time to time, repurchase shares from the open market or in privately negotiated transactions, subject to supervision and oversight by the board. The Company accounts for treasury stock under the cost method. Shares repurchased 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 are charged to retained earnings.

During the ~~three and~~ ~~nine~~three months ended ~~March 31,~~September 30, 2013, the Company ~~repurchased 0 and~~ ~~600~~did not repurchase any shares ~~respectively, with weighted average repurchase price of~~ ~~$7.48~~ ~~per share~~ under the program. During the ~~three and~~ ~~nine~~three months ended ~~March 31,~~September 30, 2013, the Company ~~issued~~reissued ~~2,600~~ ~~and~~ ~~4,000~~250 shares, ~~respectively,~~ with weighted average repurchase cost of $~~13.80~~13.82 per share, ~~for both periods,~~ upon vesting of certain restricted stock units ("RSU").

As of ~~March 31,~~September 30, 2013, the Company repurchased an aggregate of 241,770 shares for a total cost of $2.3 million, at an average repurchase price of $9.40 per share since inception of the program. Of the 241,770 repurchased shares, ~~15,800~~16,050 shares with a weighted average repurchase price of $13.80 per share were reissued at an average price of $~~4.11~~4.05 per share for option exercises and vested RSUs.

Stock Options

The following table summarizes the Company's stock option activities for the ~~nine~~three months ended ~~March 31,~~September 30, 2013:


			Weighted						Weighted
			Average						Average
	Number of		Exercise Price		Aggregate		Number of		Exercise Price		Aggregate
	Shares		Per Share		Intrinsic Value		Shares		Per Share		Intrinsic Value
Outstanding at June 30, 2012	4,214,652		$	10.00	$	6,758,645
Outstanding at June 30, 2013							3,593,854		$	10.24	$	3,144,506
Granted	209,400		8.38				—		—
Exercised	(365,542	)	3.90		1,732,864		(27,750	)	0.83		195,606
Canceled or forfeited	(433,345	)	13.03				(1,025	)	4.66
Outstanding at March 31, 2013	3,625,165		$	10.16	$	4,604,369
Outstanding at September 30, 2013							3,565,079		$	10.32	$	3,569,027

Information with respect to stock options outstanding and exercisable at ~~March 31,~~September 30, 2013 is as follows:


	Options Outstanding				Options Vested and Exercisable			Options Outstanding				Options Vested and Exercisable
	Number Outstanding	Weighted-Average Remaining Contractual Life (years)	Weighted-Average Exercise Price		Number Exercisable	Weighted-Average Exercise Price		Number Outstanding	Weighted-Average Remaining Contractual Life (years)	Weighted-Average Exercise Price		Number Exercisable	Weighted-Average Exercise Price
Total options outstanding	3,625,165	5.65	$	10.16	2,706,736	$	9.61	3,565,079	5.21	$	10.32	2,794,573	$	9.97

Options vested and expected to vest	3,547,483	5.59	$	10.13				3,514,239	5.17	$	10.30

Options expected to vest are the result of applying the pre-vesting forfeiture rate assumption to total outstanding options.

1210

ALPHA AND OMEGA SEMICONDUCTOR LIMITED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

~~The fair value of stock options granted were estimated at the date of grant using the Black-Scholes option valuation for~~ ~~the nine months ended March 31, 2013~~ ~~with the following weighted average assumptions:~~



	~~Nine Months Ended March 31,~~
	~~2013~~
~~Volatility rate~~	~~49%~~
~~Risk-free interest rate~~	~~0.7% - 0.8%~~
~~Expected term~~	~~5.5 years~~
~~Dividend yield~~	0%

Restricted Stock Units ("RSU")

The following table summarizes the Company's RSU activities for the ~~nine~~three months ended ~~March 31,~~September 30, 2013:


	Number of Restricted Stock Units		Weighted Average Grant Date Fair Value Per Share		Weighted Average Remaining Recognition Period (Years)	Aggregate Intrinsic Value		Number of Restricted Stock Units		Weighted Average Grant Date Fair Value Per Share		Weighted Average Remaining Recognition Period (Years)	Aggregate Intrinsic Value
Nonvested at June 30, 2012	449,378		$	10.33	2.26	$	4,111,809
Nonvested at June 30, 2013								549,553		$	9.50	1.87	$	4,198,585
Granted	250,365		8.66					26,804		7.65
Vested	(94,873	)	10.18					(20,847	)	9.48
Forfeited	(39,650	)	10.95					(23,050	)	9.66
Nonvested at March 31, 2013	565,220		$	9.57	2.07	$	5,019,154
Nonvested at September 30, 2013								532,460		$	9.40	1.69	$	4,477,989
RSUs vested and expected to vest	496,483				1.99	$	4,408,772	481,109				1.62	$	4,046,123

The fair value of RSU is estimated based on the market price of the Company's share on the date of grant.

~~Employee Share Purchase Plan~~

The Employee Share Purchase Plan (the "ESPP") was established in May 2010 upon the completion of the Company's initial public offering. The assumptions used to estimate the fair values of common shares issued under the ESPP were as follows:



	~~Nine Months Ended March 31,~~
	~~2013~~
~~Volatility rate~~	~~50%~~
~~Risk-free interest rate~~	~~0.1% - 0.3%~~
~~Expected term~~	~~1.3 years~~
~~Dividend yield~~	0%

Share-based Compensation Expense

The total share-based compensation expense related to stock options, ~~ESPP~~Employee Share Purchase Plan and RSUs described above, recognized in the condensed consolidated statements of operations for the periods presented was as follows:

~~ALPHA AND OMEGA SEMICONDUCTOR LIMITED~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~


	Three Months Ended March 31,				Nine Months Ended March 31,				Three Months Ended September 30,
	2013		2012		2013		2012		2013		2012
	(in thousands)				(in thousands)				(in thousands)
Cost of goods sold	$	191	$	171	$	530	$	385	$	196	$	198
Research and development	353		285		1,024		916		295		393
Selling, general and administrative	678		840		2,022		2,670		718		850
	$	1,222	$	1,296	$	3,576	$	3,971	$	1,209	$	1,441

Total unrecognized stock-based compensation expense as of ~~March 31,~~September 30, 2013 was $~~6.2~~4.5 million, which includes estimated forfeitures and is expected to be recognized over a weighted-average period of ~~1.6~~1.3 years.

7. Income Taxes

The Company recognized income tax ~~benefit~~expense of approximately $~~3,000~~1.0 million and ~~income tax expense of~~ $~~1.0~~1.8 million for the three months ended ~~March 31, 2013~~ ~~and~~ ~~2012, respectively. The Company recognized income tax expense of approximately~~ ~~$2.9 million~~ ~~and~~ ~~$2.7 million~~ ~~for~~ ~~the nine months ended March 31, 2013~~ ~~and~~ ~~2012, respectively. The effective tax rate was~~ ~~0.0%~~ ~~and~~ ~~28.5%~~ ~~for~~ ~~the three months ended March 31,~~September 30, 2013 and 2012, respectively. The estimated effective tax rate was ~~209.6%~~76.5% and ~~29.9%~~18.6% for the ~~nine~~three months ended ~~March 31,~~September 30, 2013 and 2012, respectively. The effective tax rate for the three months ended ~~March 31, 2013~~ was lower than that for same period of last year primarily due to the tax benefits of the January 2013 reinstatement of the U.S. federal R&D credit retroactive to January 1, 2012 combined with lower projected earnings for the year. The effective tax rate for ~~the nine months ended March 31,~~September 30, 2013 was higher than that for same period of last year primarily due to the changes in the mix of earnings in various geographic jurisdictions between the two ~~periods, somewhat offset by the tax benefits from the January 2013 reinstatement of the U.S. federal R&D credit retroactive to January 1, 2012.~~periods.

The Company files its income tax returns in the United States and in various foreign jurisdictions. The tax years 2001 to ~~2012~~2013 remain open to examination by U.S. federal and state tax authorities. The tax years 2005 to ~~2012~~2013 remain open to examination by foreign tax authorities.

The Company's income tax returns are subject to examinations by the Internal Revenue Service and other tax authorities in various jurisdictions. 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. These assessments can require considerable estimates and judgments. As of ~~March 31,~~September 30, 2013, the gross amount of unrecognized tax benefits was approximately $~~7.3~~7.6 million. If the Company's estimate of income tax liabilities proves to be less than the ultimate assessment, then a further charge to expense would be required. If events occur and the payment of these amounts ultimately proves to be unnecessary, the reversal of the liabilities would result in tax benefits

Table of Contents

being recognized in the period when the Company determines the liabilities are no longer necessary. The Company does not anticipate any material changes to its uncertain tax positions during the next twelve months.

8. Segment and Geographic Information

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-maker is the Chief Executive Officer. The financial information presented to the Company's 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.

The revenue by geographical location in the following tables is based on the country or region to which the products were shipped to:

~~ALPHA AND OMEGA SEMICONDUCTOR LIMITED~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~


	Three Months Ended March 31,				Nine Months Ended March 31,				Three Months Ended September 30,
	2013		2012		2013		2012		2013		2012
	(in thousands)				(in thousands)				(in thousands)
Hong Kong	$	62,927	$	65,557	$	208,805	$	193,616	$	71,256	$	74,627
China	9,765		14,729		42,730		43,943		10,892		17,629
South Korea	1,162		2,252		4,822		6,416		797		2,268
United States	399		368		1,055		1,135		473		343
Other countries	762		952		2,812		2,909		703		894
	$	75,015	$	83,858	$	260,224	$	248,019	$	84,121	$	95,761

The following is a summary of revenue by product type:


	Three Months Ended March 31,				Nine Months Ended March 31,				Three Months Ended September 30,
	2013		2012		2013		2012		2013		2012
	(in thousands)				(in thousands)				(in thousands)
Power discrete	$	58,374	$	66,256	$	204,679	$	192,461	$	65,145	$	75,504
Power IC	12,252		12,756		39,719		39,036		13,612		14,531
Packaging and testing services	4,389		4,846		15,826		16,522		5,364		5,726
	$	75,015	$	83,858	$	260,224	$	248,019	$	84,121	$	95,761

Long-lived assets, consisting of property, plant and equipment by geographical area are as follows:


	March 31, 2013		June 30, 2012		September 30, 2013		June 30, 2013
	(in thousands)				(in thousands)
China	$	97,504	$	111,432	$	89,941	$	93,663
United States	44,194		46,730		42,573		43,946
Other countries	1,245		381		464		502
	$	142,943	$	158,543	$	132,978	$	138,111

~~10.~~

ALPHA AND OMEGA SEMICONDUCTOR LIMITED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

9. Commitments and Contingencies

Purchase Commitments

As of ~~March 31,~~September 30, 2013 and June 30, ~~2012~~2013, the Company had approximately $~~23.7~~18.9 million and $~~43.3~~25.8 million, respectively, of outstanding purchase commitments primarily for purchases of semiconductor raw materials, wafers, spare parts and packaging and testing services; and approximately $~~0.8~~1.9 million and $~~2.6~~0.4 million, respectively, of capital commitments for the purchase of property and ~~equipment, respectively.~~equipment.

Contingencies and Indemnities

The Company is currently not a party to any material legal proceedings. The Company has in the past, and may from time to time in the future, ~~becomes~~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 thereof or could suffer adverse effects on its operations.

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

~~ALPHA AND OMEGA SEMICONDUCTOR LIMITED~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

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 has been made at ~~March 31,~~September 30, 2013 and June 30, ~~2012~~2013.

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 in the future.

1613

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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. 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, ~~2012~~2013, filed with the Securities and Exchange

Commission on August ~~31, 2012.~~30, 2013.

Overview

We are a designer, developer and global supplier of a broad portfolio of power semiconductors. Our portfolio of power semiconductors ~~is extensive, with~~includes over ~~1,000~~1,300 products, and has grown rapidly with the introduction of over ~~240~~195 new products during the fiscal year ~~ended June 30, 2012,~~2013, and over ~~190~~240 and ~~140~~190 new products in the fiscal years ~~2011~~2012 and ~~2010,~~2011, respectively. During the ~~nine~~three months ended ~~March 31,~~September 30, 2013, we introduced an additional ~~156~~57 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 ~~would enable~~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 ~~309~~351 patents and ~~209~~201 patent applications in the United States as of ~~March 31,~~September 30, 2013. We differentiate ourselves by integrating our expertise in technology, design and advanced packaging to optimize product performance and cost. Our portfolio of products targets high-volume applications, including ~~portable~~personal computers, flat panel TVs, LED lighting, smart phones, battery packs, 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 ~~expertise in the United States~~ and ~~Asia, cost-effective semiconductor~~ manufacturing in the United States and ~~Asia and localized~~Asia. Our sales and technical support teams are localized in several fast-growing electronics hubs. Our core research and development team, based in Silicon Valley, California and Hillsboro, Oregon, is complemented by our design center in Taiwan and process, and packaging and testing engineers in China. In January 2012, we completed the acquisition ofgrowing markets. We operate a 200mm wafer fabrication facility located in Hillsboro, Oregon, ~~(the "Oregon~~("the Oregon fab") ~~from Integrated Device Technology, Inc ("IDT"). Given the highly unique nature of discrete power technology, this acquisition was~~which is critical for us to accelerate proprietary technology development, ~~speed up~~ new product introduction ~~reduce manufacturing costs~~ and improve our ~~long-term~~ financial ~~performance. To meet market demand,~~performance in the long run. For example, in calendar year 2012, we ~~allocate our wafer manufacturing requirements~~were able to ~~in-house capacity for newer products and selected third-party foundries for more mature high volume products. Since~~triple the ~~acquisition, we~~number of new technology platforms released as compared to prior years. These platforms have ~~created our next~~allowed us to develop a new generation of low voltage MOSFET products, our Gen 5 AlphaMOS, ~~developed a new technology platform, AlphaIGBT~~ and ~~introduced~~introduce AlphaMOSII high voltage technology and new medium voltage products. To meet the market demand for the more mature high volume products, atwe also utilize the ~~Oregon fab. Additionally, we have made significant progress in ramping up production at our Oregon fab since the acquisition.~~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 believe that our in-house packaging capability, together with the Oregon fab, position us to drive towards technology leadership in a broad range of power semiconductors.~~

Factors affecting our performance

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, a deterioration of the global and regional economic conditions could materially affect our revenue and results of operations. In particular, because a significant amount of our revenue is derived from sales of products in the personal

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computing ("PC") markets, such as notebooks, motherboards and notebook battery packs, a significant decline or downturn in the PC markets can have a material adverse effect on our revenue and results of operations. Our revenue from the PC markets accounted for approximately ~~47.6%~~45.2% and ~~51.4%~~53.4% of our total revenue for the three ~~and~~ ~~the nine~~ months ended ~~March 31,~~September 30, 2013, and 2012, respectively.

~~The increasing popularity~~ Since the beginning of smaller, mobile computing devices such as tablets and smartphones with touch interfaces is rapidly changing the PC markets both in the United States and internationally. A decrease in the rate of growth of orcalendar year 2013, we have experienced a significant global decline in the PC markets due to continued growth of ~~demands~~demand in tablets and smartphones, worldwide economic conditions ~~and/or~~and the industry inventory correction which had and may continue to have ~~had~~ a material negative impact on the demand for our products, revenue, factory utilization, gross margin, our ability to resell excess inventory, and other performance measures.

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In response to this trend, we have been executing and are continuing to execute strategies to diversify our product portfolio and penetrate into other market segments, such as the consumer, communication and industrial market segments, which we believe would mitigate and eventually overcome the reduced demand resulting from the declining PC markets. As we develop and sell new products that serve more diversified markets, we expect that sales based on the PC markets, as a percentage of the total revenue, will continue to decline. However, if the rate of decline in the PC markets is faster than we expected, or if we cannot successfully diversify or introduce new products to keep pace with the declining PC markets, we may not be able to alleviate its negative impact, which will adversely affect our results of operations.

Manufacturing costs: Our gross margin may be affected by our manufacturing costs, including utilization of our own manufacturing facilities, pricing of wafers from other foundries and semiconductor raw materials, which may fluctuate from time to time largely due to the market demand and supply. Capacity utilization affects our gross margin because we have certain fixed costs associated with our in-house packaging and testing facilities and our Oregon fab. If we are unable to utilize the capacity of our in-house manufacturing facilities at a desired level, our gross margin may be adversely affected. In ~~light of~~addition, the continuing decline of the PC markets ~~we conducted an impairment review~~as discussed above has led to a reduced level of ~~certain of~~capacity utilization at our ~~long-lived assets during~~manufacturing facilities in the past, including the quarter ended ~~March 31,~~September 30, 2013. ~~Based on such review,~~If we ~~recorded a non-cash impairment charge~~are not able to mitigate the negative impact of ~~$2.6 million as~~ the ~~changed circumstances indicated that the carrying amount of certain long-lived assets, consisting of manufacturing machinery and equipment for the packaging of PC-related product,~~declining PC markets, we may not be ~~recoverable (see "Impairment of Long-Lived Assets" below for more details). In addition, based~~able to improve our factory utilization or offset the increasing manufacturing costs, which could have a material adverse effect on our periodic review of inventory as of Mach 31, 2013, we recorded a non-cash, non-recurring inventory valuation charge in the amount of $7.7 million for certain excess and obsolete inventory consisting of products relating to PC applications, and to a lesser extent, products for power supplies. We determined that this non-recurring inventory write-down was required primarily due to loss of market share with certain customers, including a major OEM with whom we conducted business indirectly, as well as the effect of the continuing decline of the PC market. Although we believe our current provisions related to inventories and long-lived assets are considered adequate, there is no assurance that we will not incur additional inventory write-downs or impairment charges given the rapid and unpredictable changes of computing and consumer markets in which we compete. Such charges could materially adversely affect our financial conditions and operating results.gross margin.

Erosion of average selling price: Erosion of average selling prices of established products is typical in our industry. Consistent with this historical trend, we expect that average selling prices of our ~~established~~existing products will continue to decline in the future. However, as a normal course of business, we seek to offset the effect of declining average selling prices by introducing new and higher value products, expanding existing products for new applications and new customers, and reducing the manufacturing cost of existing products.

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. Recently we have introduced new mid- and high-voltage products as part of our business strategy to diversify our product portfolios and penetrate into new markets such as the telecommunications and industrial markets. As we accelerate the development of new technology platforms, we expect to increase the pace at which we introduce new products and obtain design wins. Our failure to introduce products on a timely basis that meet customers' specifications and performance requirements and our inability to continue to expand our serviceable markets could adversely affect our financial performance, including loss of market ~~shares~~share with customers.

~~During the quarter ended March 31, 2013,~~In addition, our financial performance may decline if we experience significant product compatibility issues. We recorded a non-cash, non-recurring inventory valuation charge in the amount of $7.7 million ~~for certain excess~~during the third quarter of fiscal 2013, and ~~obsolete inventory, consisting of products relating to PC applications, and to a lesser extent, products for power supplies. Approximately~~approximately $5.7 million of ~~the $7.7 million non-recurring inventory write-down~~which was attributable to newly developed products for desktop PC applications for a major OEM because these products were not compatible with its particular applications. ~~We are working closely~~While we have fully resolved this issue with the OEM, ~~to address these~~similar product compatibility issues may arise with other products or OEMs, and ~~implement~~the solutions ~~to prevent~~we implemented may not be fully effective in preventing future occurrences. ~~However, there is no guarantee that we will be able to resolve these issues fully and regain all or any related loss of market shares.~~

Distributor ordering patterns 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 outlooks 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

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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.

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~~Manufacturing costs:~~ Our gross margin may be affected by our manufacturing costs, including utilization of our own manufacturing facilities, pricing of wafers purchased from other foundries and semiconductor raw materials, which may fluctuate from time to time largely due to the market demand and supply. Capacity utilization affects our gross margin because we have certain fixed costs associated with our in-house packaging and testing facilities and our Oregon fab. If we are unable to utilize the capacity of our in-house manufacturing facilities at a desirable level, our gross margin may be adversely affected. In addition, the persistent decline of the PC markets as discussed above has led to reduced level of capacity utilization at our manufacturing facilities during the quarter ended March 31, 203. If we are not able to mitigate the negative impact of the declining PC markets, we may not be able to improve our factory utilization or offset the increasing manufacturing cost, which could have a material adverse effect on our gross 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 was derived from power discrete products and a ~~small~~smaller amount was derived from power IC 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 includes 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~~cost associated with yield improvements, capacity utilization, warranty and inventory reserves. As the volume of sales increases, we expect cost of goods sold to increase. We have recently implemented a process to improve our factory capacity utilization rates by transferring more wafer production to our Oregon fab and reducing our reliance on outside foundries. 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

Our operating expenses consist of research and development, ~~expenses,~~ selling, general and administrative ~~expenses and impairment of long-lived assets.~~expenses. We expect that our total operating expenses will generally increase over time due to our belief that our business will continue to grow. However, our operating expenses as a percentage of revenue may fluctuate from period to period.

Research and development expenses. 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 for research and development personnel. As we continue to invest significant resources in developing new technologies and products, we expect our research and development expenses to increase.

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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 increase as we expand our business.

~~Impairment of Long-Lived Assets:~~ Long-lived assets or asset groups are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset might not be recoverable. The recoverability of an asset or asset group is assessed by determining if the carrying value of the asset or asset group exceeds the sum of the projected undiscounted cash flows expected to result from the use and eventual disposition of the assets over the remaining economic life. The impairment loss is measured based on the difference between the carrying amount and estimated fair value.

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

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tax benefit that is more likely than ~~likely~~not to be realized upon ~~settlement.~~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.

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Results of Operations

The following tables set forth statements of operations, also expressed as a percentage of revenue, for the ~~three and~~ ~~nine~~three months ended ~~March 31,~~September 30, 2013 and 2012. Our historical results of operations are not necessarily indicative of the results for any future period.


	Three Months Ended March 31,										Nine Months Ended March 31,										Three Months Ended September 30,
	2013			2012			2013		2012		2013			2012			2013		2012		2013			2012			2013		2012
	(in thousands)						(% of revenue)				(in thousands)						(% of revenue)				(in thousands)						(% of revenue)
Revenue	$	75,015		$	83,858		100.0	%	100.0	%	$	260,224		$	248,019		100.0	%	100.0	%	$	84,121		$	95,761		100.0	%	100.0	%
Cost of goods sold	69,770			64,564			93.0	%	77.0	%	208,852			189,875			80.3	%	76.6	%	66,970			70,228			79.6	%	73.3	%
Gross profit	5,245			19,294			7.0	%	23.0	%	51,372			58,144			19.7	%	23.4	%	17,151			25,533			20.4	%	26.7	%

Operating expenses
Research and development	6,876			6,510			9.2	%	7.7	%	20,675			23,012			7.9	%	9.3	%	6,847			6,933			8.1	%	7.2	%
Selling, general and administrative	8,917			9,028			11.9	%	10.8	%	26,536			26,144			10.2	%	10.5	%	8,940			8,781			10.6	%	9.2	%
Impairment of long-lived assets	2,557			—			3.4	%	—	%	2,557			—			1.0	%	—	%
Total operating expenses	18,350			15,538			24.5	%	18.5	%	49,768			49,156			19.1	%	19.8	%	15,787			15,714			18.7	%	16.4	%
Operating income (loss)	(13,105		)	3,756			(17.5	)%	4.5	%	1,604			8,988			0.6	%	3.6	%
Operating income																					1,364			9,819			1.7	%	10.3	%
Interest income	22			21			—	%	—	%	59			85			—	%	—	%	24			17			—	%	—	%
Interest expense	(93		)	(135		)	(0.1	)%	(0.2	)%	(282		)	(206		)	(0.1	)%	—	%	(79		)	(82		)	(0.1	)%	(0.1	)%
Income (loss) before income taxes	(13,176		)	3,642			(17.6	)%	4.3	%	1,381			8,867			0.5	%	3.6	%
Income tax expense (benefit)	(3		)	1,038			—	%	1.2	%	2,894			2,650			1.1	%	1.1	%
Net income (loss)	$	(13,173	)	$	2,604		(17.6	)%	3.1	%	$	(1,513	)	$	6,217		(0.6	)%	2.5	%
Income before income taxes																					1,309			9,754			1.6	%	10.2	%
Income tax expense																					1,002			1,812			1.2	%	1.9	%
Net income																					$	307		$	7,942		0.4	%	8.3	%

Share-based compensation expense was allocated as follow:


	Three Months Ended March 31,								Nine Months Ended March 31,								Three Months Ended September 30,
	2013		2012		2013		2012		2013		2012		2013		2012		2013		2012		2013		2012
	(in thousands)				(% of revenue)				(in thousands)				(% of revenue)				(in thousands)				(% of revenue)
Cost of goods sold	$	191	$	171	0.3	%	0.2	%	$	530	$	385	0.2	%	0.2	%	$	196	$	198	0.2	%	0.2	%
Research and development	353		285		0.5	%	0.3	%	1,024		916		0.4	%	0.4	%	295		393		0.4	%	0.4	%
Selling, general and administrative	678		840		0.9	%	1.0	%	2,022		2,670		0.8	%	1.1	%	718		850		0.9	%	0.9	%
Total	$	1,222	$	1,296	1.7	%	1.5	%	$	3,576	$	3,971	1.4	%	1.7	%	$	1,209	$	1,441	1.5	%	1.5	%

Revenue

The following is a summary of revenue by product type:


	Three Months Ended March 31,									Nine Months Ended March 31,									Three Months Ended September 30,
	2013		2012		Change					2013		2012		Change					2013		2012		Change
	(in thousands)				(in thousands)			(in percentage)		(in thousands)				(in thousands)			(in percentage)		(in thousands)				(in thousands)			(in percentage)
Power discrete	$	58,374	$	66,256	$	(7,882	)	(11.9	)%	$	204,679	$	192,461	$	12,218		6.3	%	$	65,145	$	75,504	$	(10,359	)	(13.7	)%
Power IC	12,252		12,756		(504		)	(4.0	)%	39,719		39,036		683			1.7	%	13,612		14,531		(919		)	(6.3	)%
Packaging and testing services	4,389		4,846		(457		)	(9.4	)%	15,826		16,522		(696		)	(4.2	)%	5,364		5,726		(362		)	(6.3	)%
	$	75,015	$	83,858	$	(8,843	)	(10.5	)%	$	260,224	$	248,019	$	12,205		4.9	%	$	84,121	$	95,761	$	(11,640	)	(12.2	)%

Total revenue was $~~75.0~~84.1 million for the three months ended ~~March 31,~~September 30, 2013, a decrease of $~~8.8~~11.6 million, or ~~10.5%~~12.2%, as compared to $~~83.9~~95.8 million for the same period last year. The decrease was primarily due to the decrease in sales of $~~7.9~~10.4 million, $~~0.5~~0.9 million, and $~~0.5~~0.4 million of power discrete, power IC products and packaging and testing services, respectively.

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The decrease in sales of power discrete and power IC products was mainly a result of a ~~5.8%~~4.0% decrease in unit shipments, and a ~~5.1%~~8.5% decline in average selling prices as compared to the same period of last year, mainly due to selling price erosion in the

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computing and consumer markets and to a lesser extent, a shift in product mix as a result of reduced demand for our products related to PC ~~applications, and to a lesser extent, selling price erosion~~applications. The decrease in ~~the computing and consumer markets. Revenues in~~revenue of packaging and testing services for the three months ended ~~March 31,~~September 30, 2013 ~~decreased by $0.5 million~~ as compared to the same period last year was primarily due to reduced ~~demand.~~

~~Total revenue was~~ ~~$260.2 million~~ ~~for~~ ~~the nine months ended March 31, 2013, an increase of~~ ~~$12.2 million, or~~ ~~4.9%~~,demand as ~~compared to~~ ~~$248.0 million~~ ~~for the same period last year. The increase consisted of~~ ~~$12.2 million~~ ~~and~~ ~~$0.7 million~~ ~~increase in sales of power discrete and power IC products, respectively, primarily as a~~ result of ~~a 11.5% increase in unit shipments, partially offset by a 5.1% decrease in average selling price as compared to~~ the ~~same period of last year mainly due to a shift in product mix and, to a lesser extent, selling price erosion in the computing and consumer~~declining PC markets. ~~The increase of total revenue was partially offset by a~~ ~~$0.7 million~~ ~~decrease in packaging and testing services due to reduced demand.~~

Cost of goods sold and gross profit


	Three Months Ended March 31,											Nine Months Ended March 31,											Three Months Ended September 30,
	2013			2012			Change					2013			2012			Change					2013			2012			Change
	(in thousands)						(in thousands)			(in percentage)		(in thousands)						(in thousands)			(in percentage)		(in thousands)						(in thousands)			(in percentage)
Cost of goods sold	$	69,770		$	64,564		$	5,206		8.1	%	$	208,852		$	189,875		$	18,977		10.0	%	$	66,970		$	70,228		$	(3,258	)	(4.6	)%
Percentage of revenue	93.0		%	77.0		%						80.3		%	76.6		%						79.6		%	73.3		%

Gross profit	$	5,245		$	19,294		$	(14,049	)	(72.8	)%	$	51,372		$	58,144		$	(6,772	)	(11.6	)%	$	17,151		$	25,533		$	(8,382	)	(32.8	)%
Percentage of revenue	7.0		%	23.0		%						19.7		%	23.4		%						20.4		%	26.7		%

Cost of goods sold was $~~69.8~~67.0 million for the three months ended ~~March 31,~~September 30, 2013, ~~an increase~~a decrease of $~~5.2~~3.3 million, or ~~8.1%~~4.6%, as compared to $~~64.6~~70.2 million for the same period last year, primarily as a result of a $7.7 million non-recurring inventory write-down for certain excess and obsolete inventory consisting of newly developed products for desktop PC applications for a major OEM that were not compatible with its particular applications, and to a lesser extent, products for power supplies.decreased unit shipments. The ~~increase~~decrease was partially offset by the impact of reduced ~~unit shipments~~raw material pricing during the three months ended ~~March 31, 2013.~~September 30, 2013. Gross margin decreased by ~~16.0~~6.3% percentage points to ~~7.0%~~20.4% for the three months ended ~~March 31,~~September 30, 2013 as compared to ~~23.0%~~26.7% for the same period of last year. The decrease in gross margin was primarily due to ~~the negative impact of the $7.7 million non-recurring inventory write-down~~lower factory utilization as well as ~~lower factory utilization primarily~~reduced average selling prices, mainly due to the continuing lower demand in the declining PC markets.

~~Cost of goods sold was~~ ~~$208.9 million~~ ~~for~~ ~~the nine months ended March 31, 2013, an increase of~~ ~~$19.0 million, or~~ ~~10.0%, as compared to~~ ~~$189.9 million~~ for the same period of last year primarily as a result of a $7.7 million non-recurring inventory write-down for certain excess and obsolete inventory consisting of newly developed products for desktop PC applications for a major OEM that were not compatible with its particular applications, and to a lesser extent, products for power supplies, as well as increased unit shipments. Gross margin decreased by 3.7 percentage points to ~~19.7%~~ ~~for~~ ~~the nine months ended March 31, 2013, as compared to~~ ~~23.4%~~ for the same period last year. The decrease in gross margin was primarily due to the non-recurring inventory write-down of $7.7 million, partially offset by tighter factory expense control as compared to the same period last year. We expect our gross margin to continue to fluctuate in the future as a result of variations in our product mix, factory utilization, semiconductor wafer and raw material pricing, manufacturing labor cost and general economic and PC market conditions.

Research and development expenses

Three Months Ended March 31, Nine Months Ended March 31,
2013 2012 Change 2013 2012 Change
(in thousands) (in thousands) (in percentage) (in thousands) (in thousands) (in percentage)
Research and development $ 6,876
$ 6,510
$ 366
5.6 % $ 20,675
$ 23,012
$ (2,337 ) (10.2 )%



	Three Months Ended September 30,
	2013		2012		Change
	(in thousands)				(in thousands)			(in percentage)
Research and development	$	6,847	$	6,933	$	(86	)	(1.2	)%

Research and development expenses were $~~6.9~~6.8 million for the three months ended ~~March 31, 2013, an increase of~~ ~~$0.4 million, or~~ ~~5.6%, as compared to~~ ~~$6.5 million~~ for the same period last year. The increase was primarily attributable to a $0.3 million increase in employee compensation and benefits primarily due to increase in headcount and a $0.1 million increase in share based compensation.

~~Table of Contents~~

~~Research and development expenses were~~ ~~$20.7 million~~ ~~for~~ ~~the nine months ended March 31,~~September 30, 2013, a decrease of $~~2.3~~0.1 million, or ~~10.2%~~1.2%, as compared to $~~23.0~~6.9 million for the same period last year. The decrease was primarily attributable to a ~~$3.4~~$0.5 million decrease in product prototyping engineering expenses ~~mainly related~~and a $0.1 million decrease in share-based compensation primarily due to ~~engineering wafers expenses incurred~~less stock options and awards granted during the ~~nine~~three months ended ~~March 31, 2012~~ ~~under the then new foundry agreement with IDT. The decrease was~~September 30, 2013, partially offset by a ~~$0.9~~$0.5 million increase in employee compensation and benefits primarily due to increase in headcount and ~~a $0.1 million increase in share-based compensation.~~performance bonus. We continue to invest significant resources in developing new technologies and new products utilizing our own fabrication and packaging facilities. However, we expect that our research and development expenses will fluctuate from time to time.

Selling, general and administrative expenses

Three Months Ended March 31, Nine Months Ended March 31,
2013 2012 Change 2013 2012 Change
(in thousands) (in thousands) (in percentage) (in thousands) (in thousands) (in percentage)
Selling, general and administrative $ 8,917
$ 9,028
$ (111 ) (1.2 )% $ 26,536
$ 26,144
$ 392
1.5 %



	Three Months Ended September 30,
	2013		2012		Change
	(in thousands)				(in thousands)		(in percentage)
Selling, general and administrative	$	8,940	$	8,781	$	159	1.8	%

Selling, general and administrative expenses ~~remained essentially flat at~~were $8.9 million for the three months ended ~~March 31, 2013~~, as compared to $9.0 million for the same period last year. It was primarily due to a $0.5 million increase in employee compensation and benefits mainly due to an increase in headcount, a $0.1 million increase in depreciation and amortization expenses primarily due to fixed assets acquired during current and prior quarters, and a $0.2 million increase in legal expenses due to increased legal consulting services; offset by a $0.2 million decrease in share based compensation primarily due to increased cancellations of stock options and other equity awards, a $0.1 million decrease in sales commission primarily due to decrease in sales and a $0.5 million bad debt expenses incurred in the third quarter of last year related to a service customer.

~~Selling, general and administrative expenses were~~ ~~$26.5 million~~ ~~for~~ ~~the nine months ended March 31,~~September 30, 2013, an increase of $~~0.4~~0.2 million, or ~~1.5%~~1.8%, as compared to $~~26.1~~8.8 million for the same period last year. The increase was primarily due to a ~~$2.1~~$0.8 million increase in employee compensation and benefits ~~mainly due to increase in headcount,~~as a ~~$0.4~~result of reduced performance bonus during the same period last year and a $0.3 million increase in depreciation and amortization expenses primarily due to fixed assets acquired during the nine months ended March 31, 2013, and a $0.5 million increase in legal expenses due to increased legal consulting services; partially offset by a $0.6 million decrease in share-based compensation due to increased cancellations of stock options and other equity awards, a $0.8 million decrease in accounting, Sarbanes-Oxley compliance and consulting fees as the related accounting and consulting activities decreased, a $0.2 million decrease in business ~~taxes~~tax primarily due to a business tax refund of a subsidiary in China during the ~~nine months ended March 31, 2013,~~same period of last year, partially offset by a $0.2 million decrease in ~~sales commission~~depreciation and amortization expenses primarily due to less fixed assets acquired during current and prior quarters, a $0.4 million in recovery of doubtful account as a result of continued effort in collection from a service customer, a $0.3 million decrease in ~~sales~~audit and ~~a $0.6 million bad debt expenses incurred last year~~tax fees due to reduced related ~~to a service customer.~~

~~Impairment of long-lived assets~~

During the quarter ended March 31, 2013, in light of the unfavorable market conditions particularly related to the accelerated decline of the PC market, we conducted an in-depth analysis of our strategic plan. In our review, we reconsidered the key assumptions in our overall strategic business and manufacturing capacity plans in light of the continued declines in the PC market. As a result, we revised our PC related revenue and volume outlookconsulting services as well as ~~our manufacturing capacity requirements. These material changes~~a $0.1 million decrease in ~~our outlook~~share based compensation primarily due to less grants of share options and ~~plans, which we were able to determine in~~other equity awards during the ~~third quarter~~three months ended September 30, 2013.

Table of ~~fiscal 2013, triggered an impairment review of our long-lived assets.~~Contents

We determined that the related estimated undiscounted cash flows were not sufficient to recover the carrying value of certain manufacturing machinery and equipment primarily for the packaging of our PC-related products due to the accelerated decline of the PC markets. The average remaining useful life of those impaired assets was approximately two years. We estimated the fair values of those long-lived assets based on net realizable values of similar machinery and equipment recently transacted by third-party used-machine brokers and recorded an asset impairment charge of approximately $2.6 million to reduce the related carrying amount to its estimated fair value as of March 31, 2013.

Interest income and expenses

Interest income was primarily related to interest earned from cash and cash equivalents. The ~~interest income remain flat for the three months ended March 31, 2013 as compared to the same period last year. The decrease~~increase in interest income during the ~~nine~~three months ended ~~March 31,~~September 30, 2013 as compared to the same period last year was primarily due to ~~lower~~higher average interest rate.

~~Table of Contents~~

Interest expense was primarily related to bank borrowings. The decrease in interest expenses ~~for~~during the three months ended ~~March 31, 2013 as compared to the same period prior year was primarily due to less bank borrowings. The increase in interest expenses during the~~ ~~nine months ended March 31,~~September 30, 2013 was primarily due to ~~an increase~~a decrease in bank borrowings ~~including~~mainly related to the $20.0 million term loan obtained in May 2012 for working capital ~~purposes as compared to the same period last year.~~of our Oregon fab.

Income tax expense

Three Months Ended March 31, Nine Months Ended March 31,
2013 2012 Change 2013 2012 Change
(in thousands) (in thousands) (in percentage) (in thousands) (in thousands) (in percentage)
Income tax expense (benefit) $ (3 ) $ 1,038
$ (1,041 ) (100 )% $ 2,894
$ 2,650
$ 244
9.2 %



	Three Months Ended September 30,
	2013		2012		Change
	(in thousands)				(in thousands)			(in percentage)
Income tax expense	$	1,002	$	1,812	$	(810	)	(44.7	)%

We recognized ~~income tax benefit of approximately~~ ~~$3,000~~ ~~and~~ income tax expense of approximately $1.0 million and $1.8 millionfor the three months ended ~~March 31,~~September 30, 2013 and 2012, respectively. The effective tax rate was ~~0.0%~~76.5% and ~~28.5%~~18.6% for the three months ended ~~March 31,~~September 30, 2013 and 2012, respectively. Our effective tax rate for the three months ended ~~March 31, 2013~~ was lower than that for same period of last year primarily due to the tax benefits of the January 2013 reinstatement of the U.S. federal R&D credit retroactive to January 1, 2012 combined with lower projected earnings for the fiscal year 2013.

~~We recognized income tax expense of approximately~~ ~~$2.9 million~~ ~~and~~ ~~$2.7 million~~ ~~for~~ ~~the nine months ended March 31, 2013~~ ~~and~~ ~~2012, respectively. The estimated effective tax rate was~~ ~~209.6%~~ ~~and~~ ~~29.9%~~ ~~for~~ ~~the nine months ended March 31, 2013~~ ~~and~~ ~~2012, respectively. Our effective tax rate for~~ ~~the nine months ended March 31,~~September 30, 2013 was higher than that for ~~the~~ same period of last year primarily due to the changes in the mix of earnings in various geographic jurisdictions between the two ~~periods, somewhat offset by the tax benefits from the January 2013 reinstatement of the U.S. federal R&D credit retroactive to January 1, 2012.~~periods.

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Liquidity and Capital Resources

Our principal need for liquidity and capital resources is to maintain sufficient working capital ~~sufficient~~ to support our operations and to ~~make~~invest adequate capital expenditures to ~~finance~~fuel the growth of our business. Currently, we primarily financed our operations and capital expenditures through funds generated from ~~operations and borrowings under our revolving lines of credit and term loans.~~operations.

On May 11, 2012, we entered into a loan agreement with a financial institution that provides a term loan of ~~$20.0~~$20.0 million for general purposes and a ~~$10.0~~$10.0 million non-revolving credit line for the purchase of equipment. Both the term loan and equipment credit line will ~~mature~~be fully repayable in May 2015. The borrowings may be made in the form of either Eurodollar loans or Base Rate loans. Eurodollar loans accrue interest based on an adjusted London Interbank Offer Rate ("LIBOR") as defined in the agreement, plus a margin of 1.00% to 1.75%. Base Rate loans accrue interest at the highest of (a) the lender's Prime Rate, (b) the Federal Funds Rate plus 0.5% and (c) the Eurodollar Rate (for a one-month interest period) plus 1%; plus a margin of -0.5% to 0.25%. The applicable margins for both Eurodollar loans and Base Rate loans will vary from time to time in the foregoing ranges based on the cash and cash equivalent balances maintained by us and our subsidiaries with the lender. In May 2013, the equipment credit line expired and there was no outstanding balance. As of ~~March 31,~~September 30, 2013, the outstanding balance of the term loan ~~and the equipment line~~ was ~~$17.9~~$15.7 million ~~and $0, respectively.~~.

The obligations under the term loan ~~agreement~~ are secured by substantially all assets of two of our subsidiaries, including but not limited to, certain real property and related assets located at the Oregon fab. In addition, we and certain of our subsidiaries have agreed to guarantee full repayment and performance of the obligations under the loan agreement. The loan agreement contains customary restrictive covenants and includes certain financial covenants that require us to maintain on a consolidated basis specified financial ratios including total liabilities to tangible net worth, fixed charge coverage and current assets to current liabilities. As of ~~March 31,~~September 30, 2013, we were in compliance with these covenants.

Two of our subsidiaries in China had revolving lines of credit that allow each of the subsidiaries to draw down, from time to time, up to 80% of the accounts receivable of such subsidiary, with an aggregated maximum amount of RMB 95 million (equivalent of $~~15.3~~15.5 million based on the currency exchange rate as of ~~March 31,~~September 30, 2013) to finance the subsidiary's working capital with a maximum of 120-day repayment term. The interest rate on each draw down varied and was indexed to the published LIBOR per annum. These lines expired in September 2013. As of ~~March 31,~~September 30, 2013, there was no outstanding balance under these two revolving lines of credit.

During July 2012, we entered into a loan agreement with the State of Oregon for an amount of $0.3 million. The loan is required to be used for training new and re-training existing employees of the Oregon fab. The loan bears a compound annual interest rate of 5.0% and is to be repaid in April 2014. The State may forgive the loan and unpaid interest if certain conditions primarily relating to hiring targets are ~~met.~~met and it is more likely than not that we will meet those hiring targets. As of ~~March 31,~~September 30, 2013, the outstanding balance and accrued interest of the loan, ~~including accrued interest~~included in short term debt, was $0.3 million.

On October 22, 2010, our board of directors authorized a $25.0 million share repurchase program. Under this repurchase program we may, from time to time, repurchase shares from the open market or in privately negotiated transactions, subject to supervision and oversight by the board. During the ~~three and~~ ~~nine~~three months ended ~~March 31,~~September 30, 2013, and 2012, we did not repurchase any shares from the ~~Company repurchased 0 shares and 600 shares, respectively, with weighted average repurchase price of $7.48 per share~~open market under the program. As of ~~March 31,~~September 30, 2013, we repurchased an aggregate of 241,770 shares from the open market for a total cost of $2.3 million, at an average price of $9.40 per share since inception of the program. Shares repurchased are accounted for as treasury shares and the total cost of shares repurchased is recorded as a reduction of shareholders' equity. As at ~~March 31,~~September 30, 2013, of the 241,770 repurchased shares, ~~15,800~~16,050 shares with a weighted average repurchase price of ~~$13.80~~$13.80 per share, were reissued at an average price of ~~$4.11~~$4.05 per share for option exercises and vested RSUs.

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.

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Cash and cash equivalents

As of ~~March 31,~~September 30, 2013 and June 30, ~~2012,~~2013, we had $~~104.0~~96.0 million and $~~82.2~~92.4 million of cash and cash equivalents, respectively. Our cash and cash equivalents primarily consisted of cash on hand and short-term bank deposits with original maturities of three months or less.

The following table shows our cash flows from operating, investing and financing activities for the periods indicated:


	Nine Months Ended March 31,						Three Months Ended September 30,
	2013			2012			2013			2012
	(in thousands)						(in thousands)
Net cash provided by operating activities	$	36,253		$	30,825		$	6,740		$	23,610
Net cash used in investing activities	(14,011		)	(49,763		)	(1,426		)	(10,246		)
Net cash provided by (used in) financing activities	(369		)	11,535
Net cash used in financing activities							(1,739		)	(339		)
Effect of exchange rate changes on cash and cash equivalents	1			39			14			7

Net increase (decrease) in cash and cash equivalents	$	21,874		$	(7,364	)
Net increase in cash and cash equivalents							$	3,589		$	13,032

Cash flows from operating activities

Net cash provided by operating activities of $~~36.3~~6.7 million for the ~~nine~~three months ended ~~March 31,~~September 30, 2013 resulted primarily from net ~~loss~~income of $~~1.5~~0.3 million, non-cash charges of $~~29.1~~8.5 million and net change in working capital ~~providing~~using net cash of $~~8.7~~2.1 million. The non-cash charges of $~~29.1~~8.5 million included (a) $~~22.3~~7.0 million of depreciation and amortization expenses, (b) $~~3.6~~1.2 million of share-based compensation expense and (c) $~~0.5~~0.4 million of net deferred income taxes, ~~(d)~~partially offset by $0.1 million of ~~loss~~gain on disposal of property and equipment ~~and (e)~~ ~~$2.6 million~~ ~~of impairment charges of long-lived assets~~ during the quarter. The net change in working capital ~~providing~~using net cash of $~~8.7~~2.1 million was primarily due to a (i) $~~9.0~~2.7 million ~~decrease~~increase in accounts receivable due to the timing of billings and collection of payments, (ii) $~~5.4~~0.5 million increase in other current and long term assets primarily due to increase in advance payments to vendors, (iii) $0.5 million decrease in income taxes payable and (iv) $0.1 million increase in inventories as we built up our inventories to meet market demand, partially offset by (a) $0.7 million increase in accounts payable primarily due to increase in inventory purchase and timing of payment, ~~(iii)~~and (b) $~~0.6~~0.9 million increase in accrued and other liabilities primarily related to employee contributions to ESPP.

Net cash provided by operating activities of $23.6 million for the three months ended September 30, 2012 resulted primarily from net income of $7.9 million, non-cash charges of $9.1 million and net change in working capital providing net cash of $6.6 million. The non-cash charges of $9.1 million included $7.3 million of depreciation and amortization expenses, $1.4 million of share-based compensation expense, $0.3 million of net deferred income taxes and $0.1 million loss on disposal of property and equipment. The net change in working capital providing net cash of $6.6 million was primarily due to a (i) $9.5 million decrease in accounts receivable due to the timing of billings and collection of payments; (ii) $2.8 million decrease in other current and long term assets primarily due to decrease in advance payments to ~~suppliers,~~suppliers; (iii) $1.5 million increase in accounts payable primarily due to increase in inventory purchase and timing of payment, and (iv) ~~$0.6~~$0.5 million increase in income taxes payable; partially offset by ~~a (a)~~ ~~$1.3~~$5.3 million increase in inventories as we ~~build~~built up our inventories for the Oregon fab ramp up and ~~(b)~~ ~~$5.7~~$2.4 million decrease in accrued and other liabilities primarily related to performance bonuses.

~~Net cash provided by operating activities of~~ ~~$30.8 million~~ ~~for~~ ~~the nine months ended March 31, 2012~~ ~~resulted primarily from net income of~~ ~~$6.2 million, non-cash charges of~~ ~~$23.3 million~~ ~~and net change in working capital providing net cash of~~ ~~$1.3 million. The non-cash charges of~~ ~~$23.3 million~~ ~~included (a)~~ ~~$18.3 million~~ ~~of depreciation and amortization expenses, (b)~~ ~~$4.0 million~~ ~~of share-based compensation expense, (c)~~ ~~$0.6 million~~ ~~of allowance for doubtful accounts and (d)~~ ~~$0.4 million~~ ~~of net deferred income taxes. The net change in working capital providing net cash of~~ ~~$1.3 million~~ ~~was primarily due to a (i)~~ ~~$2.9 million~~ ~~decrease in accounts receivable due to the timing of billings and collection of payments, (ii)~~ ~~$14.2 million~~ ~~decrease in inventories as we reduced our inventories in response to changes in market condition, (iii)~~ ~~$3.7 million~~ ~~decrease in other current and long term assets primarily due to decrease in advance payments to suppliers and (iv)~~ ~~$2.3 million~~ ~~increase in accrued and other liabilities primarily related to expenses of the Oregon fab; partially offset by a (a)~~ ~~$20.3 million~~ ~~decrease in accounts payable primarily due to reduced inventory purchase and timing of payment, and (b)~~ ~~$1.5 million~~ ~~decrease in income taxes payable.~~

Cash flows from investing activities

Net cash used in investing activities of $~~14.0~~1.4 million for the ~~nine~~three months ended ~~March 31,~~September 30, 2013 was primarily attributable to purchase of property and equipment of $1.6 million to increase our in-house production capacity, partially offset by $0.2 million proceeds from sale of property and equipment during the quarter.

Net cash used in investing activities of $10.2 million for the three months ended September 30, 2012 was primarily attributable to purchase of property and equipment to increase our in-house production capacity.

~~Net cash used in investing activities of~~ ~~$49.8 million~~ ~~for~~ ~~the nine months ended March 31, 2012~~ ~~was primarily attributable to~~ ~~$28.3 million~~ ~~for purchase of property and equipment to increase our in-house production capacity,~~ ~~$21.3 million~~ ~~of cash for the acquisition of the new Oregon fab in January 2012 and~~ ~~$0.1 million~~ ~~related to the investment in a privately held company.~~

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Cash flows from financing activities

Net cash used in financing activities of $~~0.4~~1.7 million for the ~~nine~~three months ended ~~March 31,~~September 30, 2013 was primarily attributable to $~~1.9~~1.4 million of net repayment toof our borrowings ~~and~~ ~~$0.7 million~~ ~~in payment of capital lease obligations; partially offset by a~~ ~~$2.3 million~~ ~~of proceeds from exercise of stock options and issuance of shares under the ESPP.~~

~~Net cash provided by financing activities of~~ ~~$11.5 million~~ ~~for~~ ~~the nine months ended March 31, 2012~~ ~~was primarily attributable to~~ ~~$12.1 million~~ ~~of net proceeds from our revolving lines of credit and~~ ~~$1.3 million~~ ~~of proceeds from exercise of stock options and issuance of shares under ESPP, partially offset by~~ ~~$1.6 million~~ ~~for repurchase of our common shares under the share repurchase program~~ and $0.3 million in payment of capital lease obligations.

Net cash used in financing activities of $0.3 million for the three months ended September 30, 2012 was primarily attributable to $0.5 million of net repayment of our borrowings and $0.3 million in payment of capital lease obligations; partially offset by a $0.4 million of proceeds from exercise of stock options.

Capital expenditures

Capital expenditures were $~~14.0~~1.6 million and $~~28.3~~10.2 million for the ~~nine~~three months ended ~~March 31,~~September 30, 2013 and 2012, respectively. Our capital expenditures primarily consisted of the purchases of property and equipment. As we have been building the foundation for our wafer manufacturing and new technology development capability under the fab-lite business model since the acquisition of the Oregon fab in January 2012, we will be focusing on new product development and factory utilization going forward.

Capital expenditures for the ~~nine~~three months ended ~~March 31,~~September 30, 2013 primarily consisted of purchases of equipment for our packaging and testing services as well as for upgrading our operational and financial systems. Capital expenditures for the three months ended September 30, 2012primarily consisted of purchases of equipment for the Oregon fab. ~~Following the acquisition of the Oregon fab, we used a combination of in-house capacity and third party foundries to satisfy our wafer manufacturing requirements.~~

~~Capital expenditures for~~ ~~the nine months ended March 31, 2012~~ primarily consisted of purchases of packaging and testing equipment for our two in-house packaging facilities and purchases of consigned equipment to a third-party foundry. We relied primarily on our in-house capacities for packaging and testing our products and expect to continue to do so in the future.

Commitments

As of ~~March 31,~~September 30, 2013 and June 30, ~~2012~~2013, we had approximately $~~23.7~~18.9 million and $~~43.3~~25.8 million, respectively, of outstanding purchase commitments primarily for purchases of semiconductor raw materials and wafers.

As of ~~March 31,~~September 30, 2013 and June 30, ~~2012~~2013, we had approximately $~~0.8~~1.9 million and $~~2.6~~0.4 million, respectively, of capital commitments for the purchase of property and equipment.

Off-Balance Sheet Arrangements

As of ~~March 31,~~September 30, 2013, we had no material off-balance sheet arrangements as defined in Regulation S-K 303(a)(4)(ii) arrangements.

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 full 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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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

~~In addition to~~There have been no material changes in the ~~below commodity price risk disclosure,~~market risks previously disclosed in Part II, Item 7A, "Quantitative and Qualitative Disclosures About Market Risk," of our Annual Report on Form 10-K for the year ended June 30, ~~2012~~2013 ~~contains market risks identified by~~, filed with the ~~Company. There have been no material changes in the market risks we previously disclosed.~~

~~Commodity Price Risk~~

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 passSEC 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~~

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~~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.~~August 30, 2013.

ITEM 4. CONTROLS AND PROCEDURES

Management's Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and ~~our~~ Chief Financial Officer, ~~has~~ evaluated the effectiveness of our disclosure controls and procedures (as defined in ~~Rule~~Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of ~~the Exchange Act)~~1934, as amended, (the “Exchange Act”)), as of the end of the period covered by this report. ~~Our~~Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures as of September 30, 2013 have been designed and are ~~designed~~functioning effectively to ~~ensure~~provide reasonable assurance that the information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms, ~~of the Securities and Exchange Commission ("SEC")~~ and that such information is accumulated and communicated to our management, including ~~the~~our Chief Executive Officer and Chief Financial Officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. ~~Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of~~ ~~March 31, 2013, our disclosure controls and procedures were effective.~~

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting during the three months ended ~~March 31,~~September 30, 2013 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Limitation on Effectiveness of Controls

~~It should~~While our disclosure controls and procedures and internal control over financial reporting are designed to provide reasonable assurance that their respective objectives will be ~~noted~~met, we do not expect that ~~any~~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, ~~of controls,~~ no matter how well designed and operated, can provide only reasonable, ~~and~~ not absolute, assurance that the control system's objectives ~~of the system are~~will be met. The design of any control system is based, in part, upon the benefits of the control system relative to its costs. Control systems can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. In addition, over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies and procedures may deteriorate. In addition, the design of any control system is based in part upon certain assumptions about the likelihood of future events.

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PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

We are currently not a party to any material legal proceedings. 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.

ITEM 1A. RISK FACTORS

~~In addition to the risk factors below,~~ Item 1A of Part I of our Annual Report on Form 10-K for the year ended June 30, ~~2012,~~2013, filed with the SEC on August ~~31, 2012, as updated and supplemented by risk factors set forth in Item 1A of Part II of our Quarterly Report on Form 10Q filed since the filing of such Annual Report,~~30, 2013, contains risk factors identified by ~~the Company. Except for the risk factors below, there~~AOS. There have been no material changes to the risk factors we previously disclosed. Our operations could also be affected by additional factors that are not presently known to us or by factors that we currently consider immaterial to our business.

The decline of personal computing (“PC”) markets may have a material adverse effect on our results of operations, and our efforts to diversify our products may not be sufficient to mitigate the impact of the declining PC markets.

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 47.6% and 51.4% of our total revenue for the three and ~~the nine months ended March 31, 2013~~, respectively. The increasing popularity of smaller, mobile computing devices such as tablets and smartphones with touch interfaces is rapidly changing the PC markets both in the United States and abroad. Recently, we experienced a significant reduction in the demand for our products due to the declining PC markets, particularly from our distributors and customers in Taiwan, which have negatively impacted our revenue and profitability.

The decline of the PC markets may also adversely affect our ability to adjust inventory levels in response to the lower shipments, which may negatively impact our gross margins. During the quarter ended March 31, 2013, we recorded a non-cash, non-recurring inventory valuation charge of $5.7 million primarily related to excess and obsolete inventory consisting of PC-related products that were not compatible with a particular OEM's applications and were deemed not saleable. Moreover, the continuing decline of the PC markets may reduce the capacity utilization of our manufacturing facilities or impair the value of our long-lived assets, including equipment and machinery used for the manufacturing and packaging of our products, which could have a material adverse effect on our results of operations. See the risk factor entitled “~~We may experience impairment of our long-lived assets, which would decrease our earnings and net worth” below.~~

As part of the growth strategy to diversify our product portfolio and in response to the rapid decline of the PC markets, we have been developing new technologies and products designed to penetrate into other markets and applications, including power supplies, gaming console, smartphones, tablets, flat panel TVs, and industrial motor controls. We believe that this diversification strategy would mitigate the impact of reduced demand due to the declining PC markets. 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 the rate of decline in the PC markets is faster than we expected, or 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.

~~We may experience impairment of our long-lived assets, which would decrease our earnings and net worth.~~

Accounting rules require that long-lived assets be tested for impairment under certain circumstances. The outcome of impairments testing could result in the write-down of all or a portion of the value of the long-lived assets. A write-down of our assets would, in turn, reduce our earnings and net worth. During the three months ended March 31, 2013, and as a result of the accelerated declining PC markets, we recorded a non-cash charge of approximately $2.6 million in long-lived assets primarily related to our packaging service machinery and equipment for our PC related products (see "Impairment of Long-Lived Assets" in Management's Discussion and Analysis of Financial Condition and Results of Operations in Item 2 of Part I of this Quarterly

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Report for more details). It is possible that we may be required to incur additional write-downs in the future, resulting in significant reductions to our earnings and net worth. Factors which may lead to additional material impairment of our long-lived assets include, but are not limited to:

~~A significant decrease in the market value of the asset such as manufacturing and packaging equipment;~~

~~A significant adverse change in the extent or manner in which the asset group is being used, or in its physical condition;~~

~~A significant adverse change in the legal factors or in the business climate that could affect the value of the asset, including an adverse action or assessment by a regulator;~~

~~An accumulation of costs significantly in excess of the amount originally expected to acquire or construct the asset;~~

~~A current period operating or cash flow loss or a projection or forecast that demonstrates continuing losses associated with the asset's use; and~~

~~A current expectation that more-likely-than-not, the asset will be sold or otherwise disposed of significantly before the end of its previously estimated useful life.~~

Furthermore, our impairment review requires us to make estimates and projections regarding, but not limited to, future cash flows. If these estimates or projections change or proved to be incorrect, we may be required to record additional impairment charges on our long-lived assets.

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 customers' 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. 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 shares with our customers, which could have a material adverse effect on our business, financial position and operating results.

During the quarter ended March 31, 2013, we recorded a non-cash, non-recurring inventory valuation charge in the amount of $7.7 million for certain excess and obsolete inventory, consisting of products relating to PC applications, and to a lesser extent, products for power supplies. Approximately $5.7 million of the $7.7 million non-recurring inventory write-down was attributable to newly developed products for desktop PC applications for a major OEM because these products were not compatible with its particular applications and were deemed not saleable. We are working closely with the OEM to address these issues and implement solutions to prevent future occurrences. However, there is no guarantee that we will be able to resolve these issues fully and in a timely manner. Our failure to do so may adversely affect our ability to recover the related loss of revenue and market shares, which may harm our business, financial position and results of operations.

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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

During the three months ended ~~March 31,~~September 30, 2013, we made no sale of unregistered securities and no repurchase of shares under the $25.0 million share repurchase program authorized by our board of director on October 22, 2010.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

Not applicable.

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ITEM 6. EXHIBITS



~~10.31~~10.1	~~Summary~~Form of ~~Amended Fiscal Year 2013 Executive Incentive Plan~~Director's Share Option Agreement under the Automatic Grant Program
31.1	Certification of Chief Executive Officer pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of Chief Financial Officer pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*32.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2*32.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS**101.INS	XBRL Instance
101.SCH**101.SCH	XBRL Taxonomy Extension Schema
101.CAL**101.CAL	XBRL Taxonomy Extension Calculation
101.DEF**101.DEF	XBRL Taxonomy Extension Definition
101.LAB**101.LAB	XBRL Taxonomy Extension Labels
101.PRE**101.PRE	XBRL Taxonomy Extension Presentation

* This exhibit shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended ("the "Exchange Act") or otherwise subject to the liabilities of that Section, nor shall it be deemed incorporated by reference in any filings under the Securities Act of 1933, as amended (the "Securities Act") or the Exchange Act, whether made before or after the date hereof and irrespective of any general incorporation language in any filings.

** XBRL information is furnished and not filed or a part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act, is deemed not filed for purposes of section 18 of the Exchange Act, and otherwise is not subject to liability under these sections.

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SIGNATURES

Pursuant to the requirements 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.

~~May~~November 6, 2013



ALPHA AND OMEGA SEMICONDUCTOR LIMITED

By:	/s/ MARY L. DOTZ
	Mary L. Dotz
	Chief Financial Officer
	(Principal Financial Officer)

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