Company: AOSL
Filing Date: 2025-08-28
Form Type: 10-K
Source: 0001628280-25-041297
Chunk: 149

Company: ALPHA & OMEGA SEMICONDUCTOR Ltd
Filing Date: 2025-08-28
Form: 10-K
Item: Item 7
Chunk 149
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 standard distribution price in order to remain competitive and secure sales.  After the distributors sell the Company’s products to their end customers, the distributors submit a “ship-and-debit” price adjustment claim to the Company to adjust the distributor’s cost from the standard price to the pre-approved lower price.  After the Company verifies that the claim was pre-approved, a credit memo is issued to the distributors for the ship-and-debit claim.  In determining the transaction price, the Company considers ship-and-debit price adjustments to be variable consideration.  The Company estimates the variable consideration of the allowance for price adjustments at the time revenue is recognized.  Estimating the allowance for price adjustments requires management to make certain assumptions including distributor inventory levels, forecasted distributor selling prices, distributor margins and future demand for products.  These assumptions could be affected by current and future economic and market conditions.  We also allow stock rotation returns from certain distributors.  Stock rotation returns are governed by contract and are limited to a specified percentage of the monetary value of products purchased by distributors during a specified period.  We record an allowance for stock rotation returns based on historical returns, expected sales volumes and individual distributor agreements.  Allowance for price adjustments is recorded against accounts receivable and the provision for stock rotation rights is included in accrued liabilities on the consolidated balance sheets.

Valuation of inventories

We evaluate our inventory for salability, obsolescence and other available applicable information.  When evaluating the adequacy of our provision for excess and obsolete inventory, we identify excess and obsolete products and also analyze historical usage, forecasted demand, and current economic trends.  Demand for our products can fluctuate significantly from period to period.  A significant decrease in demand could result in an increase in the amount of excess inventory on hand.  In addition, our industry is characterized by frequent new product development and technological changes that could result in an increase in the amount of obsolete inventory quantities on hand.  Also our estimates of forecasted demand and judgement to determine excess inventory may prove to be inaccurate, in which case we may have understated or overstated the reduction to the total carrying value of our inventory for excess and obsolete inventory.  If actual economic trends are less favorable than those forecasted, additional future inventory write-downs may be required, which could adversely affect our operating results.   Inventory adjustments, once established, are not reversed until the related inventory has been sold or scrapped.  If actual economic trends are more favorable than expected and the products that have previously been written down are sold