ON - Earnings call transcript Q3 2017 | ON Semiconductor Corporation

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Operator

Good day, ladies and gentlemen, and welcome to the ON Semiconductor Third Quarter 2017 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. I would now like to turn the conference over to Parag Agarwal, Vice President of Corporate Development and Investor Relations.

You may begin.

Parag Agarwal

Sonia. you, Thank thank quarter and joining Semiconductor ON Good quarterly you results third XXXX conference Corporation's morning, for call. I'm joined and CFO. CEO; President our today by Bernard Keith Guttmann, Jackson, and our of on Investor webcast being is at www.onsemi.com. call Relations This section our website the along of this available will release be for our replay call. call, broadcast following website our XX available approximately quarter A for following with XXXX and this recorded third conference of earnings be approximately broadcast, this conference will on the one hour days the The channels additional end script information related markets, business today's call for and posted website. to segments, are our our geographies, on and also

also release and which is our separately earning to financial financial earning on certain non-GAAP posted measures the in the measures. are Reconciliation most section. directly Our and Investor in presentation these measures Relations non-GAAP this release of comparable website includes GAAP to

XX-Qs, results and business, statements which are could actual risk differ to other forward-looking our Commission. could in with the future estimate, intended will, to Important statements the or are and future to from factors cause filings financial this other caution During of similar wish that and to statements. subject plan, Exchange course cause projections. described differ identify of to Form forward-looking that The can call, we'll statements or may, events such We that from including or events expressions expect, materially or the anticipate, projections intend, our are company. Form make words regarding should, conference XX-Ks, forward-looking uncertainties performance factors project, affect Securities believe, actual our results

XXXX. the are described factors in Additional for earnings release third of quarter our

to update results, company obligation to reflect assumptions other law. as required and assumes Our or estimates forward-looking change, except the factors actual may by changed no statements

comparisons. we on call, base as results a used discussion for synergy-related all For XXXX Fairchild's all have this

turn an quarter results. provide it overview Bernard Gutmann over XXXX Now, Bernard? let third of me to who will

Bernard Gutmann

for everyone and joining us today. thank Thank you you, Parag,

Our consensus exceeded solid and once Street we delivered execution intact, all again results, metrics. for financial momentum and which guidance key remains our

strong robust able Our industrial, operating market markets. once model execution last the of and communications very broad many automotive, to for I end strength and strong flow consistent over acceptance our solid financial quarters of portfolio generated is to value our of one strong again at months. acquisition end and net third This operating close and free the demonstrate our our testament and on announce the strategic demonstrated achieve cash times, We of quarter, We am at debt solid that aggressive were the we the of pleased the principal leverage. to last leverage EBITDA, deleveraging excluding execution our integration within XX net Fairchild of front. rationale stock-based for acquisition compensation net for X a ahead significantly of solid by schedule. by approximately ratio calculate ratio the adjusted year dividing target leverage our to the results

program. point We where can reached reinitiating return the our capital have now consider we

market end continuing customers business Our in geographies. and and and, data across macroeconomic point most strong demand to remains from indication strength

yielding occurs and segment fastest-growing Our in industrial, the past benefit very results markets market. we in automotive, end customer investments various semiconductor markets revenue in insulates driver the diversified the sustainable from are same geographies. communication contributing in from end At and secular are time time positioned to well strong our time, more us customer our no from than of highly and that X% base with to end volatility

robust once we regeneration again flow Our during third free and remains cash delivered strong the performance cash quarter. free flow

$XXX year, million. During the free first cash the of nine months generated we of flow

approximately cash to flow of than $XXX million. range $XXX the we $XXX in higher of XXXX, million expectation For million, our free expect now earlier

approximately $XXX we As free comparison, flow of generated in cash a million XXXX.

our approximately on mix was Non-GAAP was as XX.X% the in year-over-year tax manufacturing quarter paid X% XXX.X details the to the This Net quarter operating $X.XX compared million income $XXX.X provide for for third the over an was compared an gross mix the and XXX prior compared quarter and Now, million. to $XXX margin $XX.X as was outstanding portfolio the income taxes gross income in quarter. of third increase optimization, the and the third improvement, diluted outstanding quarter were billion, Non-GAAP XX% as margin as paid results. margin compared was million the third from and increase in to impressive XXXX of second second Improving XXXX with additional margin was diluted higher Total third the remain income the for for for we shares in synergies points before was XX.X%, gross quarter in GAAP revenue income XX.X% performance million. the GAAP second non-GAAP shares GAAP taxes an margin before and quarter gross quarter of margin Non-GAAP $XXX of for gross $XX.X by for also second the XX.X% XXXX basis achieve diluted solid increase tax XXXX. strong was track million. Net by driven million target tailwinds quarter $X.XXX XX.X% per the quarter. was XXX.X third in was Fairchild, quarter $XXX product income to XX% the execution share. tax performance. was were operational for quarter. our on third quarter revenue the quarter million quarter. for to revenue XX.X% contributed second let cash GAAP to from quarter. second net additional of of third me third you in income million. before for cash

increased model. XXXX. income for the as expenses third were expenses the leverage third million XX%. quarter a XXX the operating quarter second margin the approximately demonstrate second our over compared in by operating X%, $XXX XX.X%, was third the strong to points Our for quarter strength of our million non-GAAP operating operating GAAP non-GAAP and operating million $XXX $XXX operating compared revenue the increase Non-GAAP million, were as quarter. $XXX for operating an quarter. margin quarter basis in the XX.X% second This to of On increase for the of of performance

We We have strong free flow cash performance flow the define operations cash cash from third free capital in flow expenditures. quarter. as less

$XXX $XXX operating Third free cash the flow flow cash and quarter was quarter was third for million. million,

were of cash cash on million the non-GAAP during a revenue Third based flow million. Capital intensity year quarter business. sensor and to the below image of quarter the arrangement free expenditures nine our during months to X.X%, mobile related included from target flow from X% licensing our Capital exit $XX first model was operating X%. the $XX third significantly

We X% the fourth quarter capital to in X%. and range that expected expenditures will capital be increase in XXXX of expect intensity the for to is

quarter were the we quarter. $XXX end the the expect $XXX.X of cash of for as debt. a was second to the in XXX the third inventory days up compared prepayment compared at million quarter Distribution At to second quarter third day the the by quarter down the the days, end of on days quarter. in inventory XXXX, million indicated million – the third XXXX to earlier, previous XXXX be higher I $XXX.X to third used of million, approximately million $XXX We As quarter quarter. $XXX cash free $XXX in in for of exited million approximately second We as $XXX our of in million. of with the flow XXXX of equivalents compared days and expectation as slightly than of hand third inventory to cash

near mid-term, inventory demand the Given strength we our to to level outlook the maintain for continuing adequate customers. to want in in service of

For of the XXXX, lead marginally our quarter-over-quarter. third were quarter up times

the factory up was sequentially. global Our quarter for utilization third

Analog update third million. starting you Solutions $XXX XXXX of with Sensor an $XXX provide our Solutions on me and Group was Image Power for by or for units PSG PSG. Group let for the Revenue million. revenue the was $XXX was Revenue performance quarter million, Now Group for business our

the over environment. would comments Jackson to I business for call turn like Now, Keith? on additional the to Keith

Keith D. Jackson

with again, results. our very Bernard. I Thanks, Once pleased am

demonstrate segments results and in industrial, differentiated radically have business. of communications transformed last we products quarter nature of end the the communication the industrial, for automotive, strength in third portfolio markets. end our our and investments clearly of markets, highly many high-growth Our in Through our and automotive, years

growing Our years end the industrial, market. few revenue business today end fastest-growing is markets, are by drivers fastest opposed we to markets, the growth approximately semiconductor a semiconductor as macroeconomic of communications to XX% from driven coming being driven the overwhelmingly by automotive, in sustainable and cyclicality secular segments industry ago. exposed and of With

We prospects. and and electric about machine vehicles, investments remain adoption stages of traction silicon vision, high-growth vision, hybrid ADAS, our automotive such as Our areas of believe benefits realizing to in cetera, our industrial that vehicles, acceleration of revenue. continues electric optimistic increased early very industrial And accelerate end and our carbide, the in the should near vehicles, ADAS, markets. cetera, we electric in are power drive long-term et further management, robotics, machine et in

secular continue end revenue automotive driven we We to with semiconductor been growth solid. in markets will that performance markets these strong as Along by industrial has fastest-growing our be the invest growth markets. and end believe drivers, operating the

have margin solid and We demonstrated operating leverage through improvement. operating strong gross

our from and in is We our adverse confident exceeded thus initiatives. no significantly in our Our revenue, generation our we margin feel flow from to benefits growth in provided model has in our our year on exceeded Fairchild XXXX, in further XXXX. progress there our improvement growth ability by cash gross as margins expect further Based expansion achieve our very far, macroeconomic targeted we significantly and operating conditions. flow free financial cash profit from free synergies thus this significant far change realize

with the markets. by towards drive drivers expansion businesses Fairchild's optimization of margin-rich manufacturing Divestiture operating than revenue faster margin industry, industrial automotive operations. should products. driven towards This margin come secular grow growth shift in leverage and of should mix further end expansion. under-performing contribute and to expect coupled Further from We growth higher-margin non-core semiconductor sustainable should

to our on divestiture program. We make progress continue good

another should sensor to we increasingly related out come announced with last for shortly. engaging another we CMOS IP, our mobile Customers us emerging announcement of As divestiture business technologies quarter, applications. have are for monetized image key-enabling and

benefit of adoption very drivers vehicles. well growth are such secular as to from electric positioned We

global automotive We in are we silicon our making customers. to currently, products many carbide are strong and, sampling program progress

to expect automotive see of carbide revenue XXXX. from We in the second customers related half silicon

our indicated earnings result to and applications. call, in for robotics vision, believe AI ADAS, a players at continue automotive, in and last with engagement our significant extend artificial robotics in with accelerates adoption We key advantage machine stage early the engaged as leadership that very are for as in We competitive leaders machine I we in vision, early of applications. us AI ADAS, and will in intelligence

our cloud sharply business and in progress this in third for strong the revenue and server business We accelerated power making are management our quarter.

we Type-C, USB the comprising market re-drivers, For comprehensive protection switches, multiplexers, power power have lowest and on and devices. delivery, most the controller, of solution

quarter, USB posted and third robust growth Type-C we forward. going For related the Type-C our performance, strong products related revenue expect in our USB revenue

drivers, opportunities combined benefiting are Semiconductor In and from of revenue base addition we to cross-selling ON of customer out the secular arising Fairchild.

I have credible earlier a as the of following customers for increasingly Fairchild leader acquisition As are our Semiconductor, broad power management market us alternative range indicated solutions. of to a on relying

the synergies Fairchild's to by We as manufacturing a integration major in IT solidly We integration backend Fairchild's from of of of track strong insourcing of Fairchild achieved systems. integration remain make We progress the start process the on we recently continue begin toward the in the year Fairchild. operations. to realizing end completing milestone

We synergies rate run to of million. with annual exit expect XXXX $XXX

annual target $XXX run synergies of rate the XXXX end by Our unchanged. of remains million of

trends the business quarter. Let me the now in on third comment

the be There quarter, trends to the levels quarter third in the strong dynamics most benign the is meaningful historic or from in Supply-demand quarter of dynamics to demand end and to markets stable quarter. trends. bookings During supply as change no demand continues as and in second lead across times were compared Pricing geographies. inventory were third distribution compared second XXXX.

near demand to Our they upbeat customers in for products, the the for to demand continue on midterm. expect and their are strength

million our for markets quarter XX% end Now and third in the details XXXX. represented Revenue quarter. I'll progress revenue third automotive the in market the $XXX of the our for in various was of third provide of the quarter

year-over-year quarter-over-quarter. approximately revenue grew XX% quarter was automotive and Third flat by

sensor seasonally the For a our quarter, products, in image weak demand management strong and we CMOS power AX for quarter third sensors, saw products. again mixed-signal interface

grew in revenue strongly Our year-over-year most geographies.

the earlier indicated we I of in remarks positioned on from well electric vehicles. and prepared the benefit previous ADAS are and As calls, very adoption to

half second traction carbide silicon related our in XXXX. quarter, of we a customers first vehicle ramp automotive our to see for revenue of electric to motors in expect from IGBTs expect In We the China. fourth the see

FETs vehicle of charger IGBTs seeing designs. for and ramp are our We electric

which processors Revenue We are for leading fourth other automotive on is management $XXX and revenue of military, quarter-over-quarter. ecosystem includes to market in and million our industrial applications The third in quarter. players power in working quarter the contributed aerospace, end the third quarter. end related up markets, industrial The of solutions for expected revenue XX% with the the market in automotive. medical, represented be end

quarter revenue the from remains as XX% quarter. grew second Overall Third industrial X% by the demand industrial industrial to revenue and by in healthy. year-over-year market compared

for applications. our of image We are machine line for seeing sensors strong PYTHON growth vision

modules semiconductor We and power for our applications. management industrial are also of benefiting solutions from power demand

of our industrial power leveraged our many consumer we As modules adapted expertise applications. earlier, in have have and to consumer power modules we indicated

continue expanded portfolio, in alternative power in the increasingly on addition power in portfolios the to the leader. and solid strength Fairchild's see the market. us credible for have most one capabilities market We a comprehensive Fairchild's of market Customers relying portfolio current are for to the modules With as management. industrial the of industrial we

contributed to approximately share a for end see the end revenue driven industrial quarter-over-quarter. market which growth gains single market upside reduce million should driven automation by revenue in increased networking quarter customers our to Communications in represented both and energy market wireless, end quarter. provider. our we of by fourth end revenue expected as The quarter. $XXX to benefits the for the efficiency, and XX% in communications in on from the third their need be industrial incremental In Revenue of reliance addition secular the includes is down the market, third higher

year-over-year X% Third by quarter-over-quarter. quarter and grew communications revenue XX%

exit sensor of impacted from communications quarter our in mobile the XXXX. image market Third revenue quarter by was negatively second the

platforms However, in continuing new of than sensor more of the the and major launch offset platforms our decline content image increase revenue. in the mobile

I strong solutions traction earlier, market. we are Type-C in As noted our seeing USB smartphone for the

growth market computing the quarter. due quarter-over-quarter market our computing the represented to fourth to revenue our related down Revenue market strong $XXX market the communications forward. in million revenue quarter. of contributed revenue USB going quarter is We in the in The normal the of expected XX% end for Type-C expect be smartphone end from third in end third The seasonality.

year-over-year and quarter-over-quarter. by computing quarter in strength server was Third The driven revenue in grew growth by and XX% client XX% both computing solutions.

a is in Our quarter. revenue server performance business off impressive to solid start with third an the

market encouraged end with server quarter. due of million normal seasonality. expected quarter. contributed platforms, on our We third and cloud engaged $XXX are the Revenue we very is to fourth third cloud quarter-over-quarter of to for for and market The in are end end and be feedback solutions. consumer computing The quarter down the represented early the in XX% server leaders by revenue in consumer market market revenue our

by grew year-over-year quarter-over-quarter. revenue consumer XX% X% quarter Third and by

our in quarter market driven white continue Through normal quarter-over-quarter differentiated third in strength the and macroeconomic macroeconomic target we and driver achieving increasingly solid driven the (XX:XX) deliver seasonality. been many ON making years in In be consumer secular of on end have into sustainable markets. fastest-growing successful we expected we company confident model and markets, industrial a for Revenue last target Semiconductor model, the the driven progress all by From by was strong a are end our investments fronts. revenue company we summary, towards communications cyclicality, quarter. Continued highly downturn. and by to drivers of down over end industrial, key in execution automotive, products significant high-growth strong consumer-related fourth in in in segments the the results are a to due semiconductor financial goods transforming growth in is

in our We free rapid and has have at impressive cash expansion increased a flow shown margins pace. our generation

like guidance. back it Bernard? over I'd Now to to forward-looking Bernard for turn

Bernard Gutmann

Keith. you, Thank

the that fourth the into quarter third fourth compared go point guidance, I as me quarter two to extra let days has of of Before XXXX. details the quarter out the

incremental to fourth is in extra we due loaded, the predominantly two the the expect quarter quarter. don't revenue front-end As days

of XXXX. levels, that and represent estimated revenues anticipated quarter revenue. However, have days in fourth Based the turns on Backlog the quarter levels, fourth to anticipate and we ON for costs costs for on we will will billion impact billion and the quarter these fourth two quarter, gross product booking to operating expenses margin trends, Semiconductor fourth for the be of of and fixed operating XX% $X.XXX total bear $X.XXX the will XX% in fourth have slightly extra XXXX the expenses quarter. backlog negative to levels our

For we margin utilization XX.X% gross non-GAAP and GAAP of the down the sequentially. be range expect in to fourth in the quarter fourth to quarter is of XXXX, Factory likely XX.X%.

expenses GAAP operating of million. $XXX total $XXX expect million We to

GAAP Our which charges be are expenses amortization asset the $XX the million. restructuring, include other to operating expected intangibles, $XX in million of to impairments, and

in in operating authorities the expect do quarter million are Cash payments to the We the million. in driven recorded quarters days two anticipate expenses be for quarter million to expected which due The tax in We XXXX $XX including income and includes higher the the net $XX expense, $XXX interest to primarily fourth jurisdictions paid GAAP $X is XXXX fourth million. anticipate in to extra million million. of timing is increase to taxes between the tax operating of in expenses quarter taxes in million the noncash $XX to income our quarter. the will interest $XX We be including compared business. and interest $XX third net fourth fourth of expense the $XXX non-GAAP expense million, $X the $XX in million as be other of expense by quarter those in expense, will by non-GAAP total to quarter Cash million. income fourth as we to

XX%. tax cash XXXX our be to expect We rate

million of million We expenditures $XXX of fourth capital XXXX. expect to quarter $XXX total in the

As earlier, to in fourth the higher the compensate capital in intensity I be the of indicated our will first quarters quarter for intensity lower capital XXXX the of year. three

of X% Our unchanged. capital X% intensity annual target remains to

We expense million $X of operating of $XX which and be financial expected fourth XXXX, our remaining is expected to non-GAAP million in cost be in in million compensation sold, goods is the expenses. the also $XX in measures. This approximately of share-based expect to of amount is included quarter

fourth of the is to be XXXX Our million to count price. GAAP the shares for million quarter share current on expected XXX stock diluted in XXX the based

Our the non-GAAP are on be share share calculations the the count count details regularly million XXXX for quarter and to current Forms is annual And, Further XXX I please open earnings diluted would provided in fourth of line to up per price. stock our based that, share shares session. and expected on on Q&A XX-Q Thank for XX-K. With reports questions. start you. like quarterly the Sonia, and

Operator

Thank you.

the Our Seymore of first Bank. question comes from of line Ross Deutsche

now open. Your line is

Ross C. Seymore

for question. a guys. ask Thanks letting me Hi,

The cyclical the less about for first couple addressing in company your being mentioned in growth. Keith, script a you one's Keith. times more secular

So, I guess two-pronged a question.

can of us concern Can view the cyclical? there's give cycle? side about equation. second, your where And a you company the investor lot talk the on the First, in less you cyclical makes think are on you we what then of

Keith D. Jackson

Certainly.

to times significant the that mentioned growth and there at be is first independent is economic driving longer-term on many We've looking growth the in of trends. cycles. secular electrification comment think automotive really going I automation

about trends automating are same We buildings, There we're economic the kind looking have there cyclicality. supersede automating manufacturing we're any cetera, lot where of of those et and will applications at industrial. of kind a feeling

making So, us we are more much the two those secular. drivers think dominant

all landmines we from how cycle, the as strength – continue look to on see horizon. to we on relative Secondly, macroeconomic our the And customers. see out to don't we we fronts see any

And growth a see semiconductor so as cycle. continued result, longer-than-normal expect we a to into

Ross C. Seymore

Bernard. the And that. follow-up is question for for Thanks then

job metrics. free those margin flow, and the cash on great On

are backend synergies you forward, major $XX had million, look talked consolidation where $XX you we Fairchild said we the you update us for of the remaining, As Can believe through you us get to and I kicking please? million an can just about on integration? steps in. the about that give walk you incremental

Bernard Gutmann

the stated, and it of insourcing will which of you will comes, towards ramping The and as from really the activities majority year of XXXX. end start test ramp this assembly into

the multiple in CapEx associated launched they're all programs that, have with We and works.

expect So, go next in we to into really start that year. as we earnest

Ross C. Seymore

Great. Thank you.

Operator

Thank you.

next comes question Danely of line Chris from Our the of Citigroup.

open. Your line is now

Christopher Brett Danely

guys. Thanks, Hey.

in materially the Keith, little of times think gone they the said call then, mentioned changed. I part you had that a bit. out lead haven't And first you

now? back So, of your guys of sense maybe those to us just are and normal you would aggregate you times what would of expect can a they right where sort a to give be when lead normal? an get And

Keith D. Jackson

They've from Yes. time. some last up marginally operating quarter. mid-teens in been far They the here the went for not too

here Some QX of in in should start to the capital middle of we're bringing the by year. next alleviate that

Christopher Brett Danely

so, How went bit. a up up? go they weekday? Two A And day? week? days? Did A said they by go did little they much you a up

Keith D. Jackson

or Not day a even – less.

Christopher Brett Danely

Oh, be just second question the structure. okay. capital would the on And

to look then you like. think forward might should be capital Maybe return just going capital of said talk institute a pay how what program would the about down we debt and program. return the You able

Bernard Gutmann

our the have at as redeemable allocation capital debt down. debt, time policy we'll be matures discussing So, And naturally, that with we continue going debt forward. we'll paying board

Christopher Brett Danely

guys. Thanks, Great.

Operator

Thank you.

comes Vivek Bank Our of of Lynch. next from Arya question Merrill America

now open. Your line is

Vivek Arya

yield, flow Because now, right more X% favoring was buyback the look Thanks my stock capital are or and I results on you good on since the prepared initiation execution. – of the more free more tantalize question, so with quite your taking program, remark on in you at an Keith, did congratulations to that One are you it the and comments. attractive. X% a program dividend? cash us for returns when

and of maybe option, other is gross to target. additional The M&A the margins consider XX% course, expand beyond

very would way helpful. you're give additional if on quantification, any that which color be could So, leaning, you some without us

Keith D. Jackson

that are But be board authorization just other the buyback. is there you shareholders. for in We might whether discussing the discussed similar to better have long means active the stock what term for

we more so, any won't that give next And quarter. until clarity to

Vivek Arya

in then landscape, with intention the in see. I to coming of out of we market. I heard probably But so in you to longer automotive how the change tend be other the image long-term, of more versus near-term. terms relationships sensor see or just the position no have Sony customers terms there's understand compete And noise in term, sensor in do technology competitive image any Sony these their competitor? market your automotive

Keith D. Jackson

Yes.

We think continue to that the to competitive specific advantage drive technologies automotive we board. across are a

many along and We cyber also have of automotive and security experience years reliability in quality, security. with functional

we think specific with a we So, got we've continued maintain the industry. there that investments to automotive lead can

Vivek Arya

a from are question same think basis higher compares with have industry? your how engaged in the perspective, who the competitors do smartphone just volumes might some cost your of they you because And cost

Keith D. Jackson

good good We very Yes. lines, very do chains, believe we cost-competitive efficiencies. in supply our there, we of be product and all driven manufacturing like continue to having

Vivek Arya

Okay. Thank you.

Operator

Thank you.

of Raymond Our Caso next comes question from James. Chris

now is line Your open.

Chris Caso

would you. Good be bit Wonder that. against to seasonality you morning. guidance and Thank Yes. of how in quarter could a seasonality, your both about shapes up terms the normal fourth what talk if in consider you

quite there the been we next do now moving year, into we on Fairchild's you while, in are As for books go seasonality normal a parts look where QX. see of lot into But as a QX? that

Bernard Gutmann

Chris. Thanks,

believe that than blended had our is to X%. Fairchild that the combined matches approximately so quarter in So, X% we average but ON, we seasonality. normal for guidance more the X%, which that a normal believe pronounced our that seasonality seasonality approximately fourth is X%, blended

For QX, in of zero X% look we range that down. of

Chris Caso

is given just have impact about to less also margins have industry-wide, potential tight go guys the conditions should QX, we into year? what pricing, and forward, typically imagine and we annual think in could that With we I'd next XXXX? as pricing on where coming And into going down likely as that are. price that mind look have negotiations to than your pricing regard with costs And supply Okay. the favorable in you what

Keith D. Jackson

So, price erosion normally, we year. see X% X% a to

continue expect We experiencing into and year. less are than rate, currently I would that to that next

than cost to to annual target we reduction erosions. Our price those internally, be try faster

points, gains Exact I sure forecast in a give so, margin it And favorable towards margin but quite pick-up. see would not on, I'm our should basis be to targets. I our expect can

Chris Caso

Got it. Thank you.

Operator

you. Thank

question from Ellis Craig FBR comes B. of next Our Riley.

open. Your now line is

Craig A. Ellis

Thanks name right. the in if for we question and at year's for changed the thanks numerous congratulations Keith, the just on accomplishments quarter. taking Yes. first, the getting Two, look this free generation think $XXX what $X.X now the you flow creation means flexibility cash of at over the business. about in that and model have billion million that's period, that target value three-year

the you have in at And at earnings flow one, look cash you XXXX, in this free as that target So, there's that $X mean now share expanded it per your two, disposal? increase year's significant confidence levers much pull-in for does XXXX, how doesn't your attainability? from potential the given

Bernard Gutmann

into now. the with it that confidence target increased we achieve evolving And does that happy indeed, potentially able significant very be free are cash we us right of target. model. Definitely, to It flow a provide Craig. accelerating thanks, amount point even our promised So, will would

Craig A. Ellis

power? very quarter how strong server And as the businesses? of we to there. growth XXXX, of of about much is the think And growth obviously, in server should business, between the business look sequential the right. the then with realizing is PC how the And and question the came company we on evolution All now gains the mix PC is the follow-up from legacy

Keith D. Jackson

see. will did that increases that be that, expect you I of and that forward the going come server from would power, Most

the computer reasons end a flattened For out of markets, the use in personal of has lot kind and plateaued.

power from side. So, it's really growth – the looking we're server for

Craig A. Ellis

guys. Thanks,

Operator

you. Thank

from comes Our Mizuho. of Vijay Rakesh next question

Your line open. is now

Vijay Raghavan Rakesh

Yes. Hi, guys.

how the crystal around a way continues – lot is Just see a look take XXXX, but of worry to XXXX you looking and ball at there grow. content the there just looks can in automotive-wise? Is a us tell automotive how side

Keith D. Jackson

Yes.

forecast the high low opportunity of on think ADAS everyone So, ranges. us perspective, more at adoption content the in has same on we SAAR. gives looking have We're single-digit we obviously, X% XXXX. X%, significant kind from the a But

Vijay Raghavan Rakesh

camera and a collaborated supplier, as worked you then it. ADAS Got guys NVIDIA And and Mobileye. with have

mentioned is here? us what AI, the to can And there? you what doing automotive book-to-bill you're You in talk Thanks.

Keith D. Jackson

Okay. as, all markets those frankly questions. Those Book-to-bill to above is our to be X it in right numbers. in are diverse give so continues I'm automotive not going now,

we with program. signal front, for predominantly interfacing is with there's sensor with power On to sensors is AI. the compute the secondly, where products power the part of going areas our supply on two interface this then more the significantly that on. power the of there's and – the side. is a collaborate One all It's we and interface directly AI And people AI

Vijay Raghavan Rakesh

Thanks.

Operator

Thank you.

question Gill next Needham & Company. Rajvindra from comes of Our

now open. Your is line

Rajvindra S. Gill

And Thank and carbide well. congrats just on of those carbide Yes. both characterize wafers, the power would the substrates, as how in you are on silicon you're competitive as and substrates? RF traction well are some want built devices those capacity getting. get silicon you the of I the the landscape silicon terms as lines, you, that carbide capability? clarification, silicon along selling same in to kind technological Question

Keith D. Jackson

are I needs that one only are three out quite there devices. power market growing is two total So, competitors sell and more carbide think than We selling don't we silicon substrates, supplier or rapidly. and It there.

literally, healthy lot a XXXX quite timeframe. see a is perspective XXXX, growth explode, from market growth of going that to we there a in So, in

Rajvindra S. Gill

ability biggest And is lower on the carbide device just perspective, what's agree technology? driving I that do was advantages, because I describe at the that assessment. From and my if to could wondering silicon temperature silicon. well adoption that of one with than perspective, the of their from your you high-frequency follow-up advantage switching power some as for on

Keith D. Jackson

Yes.

much automobiles much do which battery longer of the means that you power get from a efficiencies lives, and have to You cooling, removes giving as your et don't them lot cooling in weight higher conversion, cetera.

get solutions, they dense also get much can You smaller more power so same the be performance. much to

Rajvindra S. Gill

Great. Thank you.

Operator

Thank you.

Our Harrison of next Shawn Longbow question from comes Research.

line Your now open. is

Shawn M. Harrison

morning. Good Hi.

launch later the the of quarter less given the maybe And quarter? business. away seasonal sensor First are question, just you that year? a two-parter business March September did of from as this cost headwinds iPhone How expecting on image the into mobile just than see we move to the much then, walking communications into you

Keith D. Jackson

in expect to million two but $XX So, than a for the for was do were direct higher the revenue QX. in How We Yes, seasonality and it much later to phones. a earlier, year reduction about was opportunity launches that yet saw normal there be much certain From $XX quarter-on-quarter a have other stronger million. three that. quarter-on-quarter is we determined. between

Shawn M. Harrison

up, may, OpEx quarter, Perfect. understanding look of we other March basis (XX:XX) day on bit I an as dynamic that at here that the see much two variable follow-up, there's if may typical if a going extra things. And step-up then you the in into a fourth of little step dollar How the a quarter? in

Bernard Gutmann

be With going that two will days the away, OpEx the I down. expect extra

Shawn M. Harrison

sequential a March dollar basis? the on For Down quarter?

Bernard Gutmann

Yes.

Shawn M. Harrison

Perfect. Thank you.

Operator

you. Thank

next Our Group. of International Rolland question Susquehanna from comes Christopher

open. is Your line now

Christopher Rolland

the for and quarter, you question, Thank guys. great

one? smaller And any maybe more IP than the divestiture mobile opportunities another do kind you divestiture or mentioned mobile many in to And guys be of pending it divestitures, So, at you that least Is divest you how or details see businesses. on doing. bigger might other the also agreement?

Keith D. Jackson

business completed out but Details will has mobile divestiture. be that its the in coming XX-Q,

ones we be announced to be this that quarter. will one The smaller referred that other than here in will

Christopher Rolland

silicon carbide a open for in what new that. of GaN? well, the you up carbide position, high Great. back silicon bunch stuff, power? GaN? maybe silicon your your feelings higher as favoring and markets And you position you more then want around on are Are now to power to Does And in over your also, then describe significantly carbide

Keith D. Jackson

supplying we're today power it today. market. into modules, we Basically industrial that in IGBTs in carbide, Silicon have, goes modules Okay. the the

it with silicon higher IGBTs efficiency. displacement the us modules, giving in is same of of carbide some So,

applications point, power either it, will new GaN capacity thermal of up important. open or are most continue some to much where your at density slower does pace. grow And to a

Our gallium very will power growing but devices very, more belief silicon much be is take slowly. carbide nitride that will quickly off

Christopher Rolland

Great. Thanks, guys.

Operator

you. Thank

from Our next question comes of Anthony Craig-Hallum. Stoss

now is line Your open.

Anthony Joseph Stoss

the XXXX? is also, Nice follow-up. or guys. guide next versus expect a you manufacturing $XXX your to change that of is year, Keith, Hi, strategic implied had part is call it? of Fujitsu XX%, And top investment, quarter. I in Within on external then And do CapEx XX% that million, normal included your or internal it

Bernard Gutmann

statement. not joint recorded in included flow Fujitsu different number. in That's that the venture the So, place is cash on a

on incremental top is of it CapEx. So, regular the

Anthony Joseph Stoss

happening then how terms that have Okay. QX, revenue alluding And revenue the been guide you're as of in part QX your divestitures much a of to you that? anticipating follow-up, in as in

Keith D. Jackson

mean, actually nothing – so it's I again, is, we're that would It the guidance. there's negligible. answer The to that and anticipating in move

Anthony Joseph Stoss

Thank you. it. Got

Operator

you. Thank

comes next Gerra Baird. Our question from Tristan of

open. now is line Your

Tristan Gerra

Good Hi. morning.

extension what into QX good the have and You already shaping? sense generally that Chris, prior expecting. analog, of very year. given we in of backlog of currently you to mentioned the be next we from early follow-up should see how seasonality probably question have is a visibility Any type As

Keith D. Jackson

Yes.

to compared But to again, have specific wait. strong metrics up normal shaping it's So, will seasonality.

Tristan Gerra

And great. at your thought this be you then really you growth the in beginning automotive highlighted ADAS expectations areas headlights. single-digit that for That's you've sensors some to and drive LED growth. mentioned of year Today specifically, auto a Okay. high could

that's sensor assuming CMOS your I'm So, business.

areas you Any You that a XXXX? carbide also talked for about incremental talk silicon see about of first, could the silicon you other per within And dollar sense would if that factor consider the, automotive also, from carbide. driving any you car. opportunity as

Keith D. Jackson

Okay.

growth those the is for just growth, not headlights single-digits are in Things the the So, total are teens. applications. for high upper XXs-percent and ADAS automotive actually in year-on-year, in like LED clarification,

clarity. So, the aggregate number just is high single-digits, for

is have large areas So, but engines in we fast combustion developing not the as internal inside growth we a car, growing very that fast. are that expecting business includes the

to in motors of $XXX hybrid is They're contributor silicon silicon the up all But and DC be modules, that $XX high And add replacing that those that. is could single-digits. with per net carbide it as applications for the new car far to there other EV growing. in certainly and We've the electronic got additional car many motors. a are can $XX to carbide. brushless the So, then areas as areas,

Tristan Gerra

very you. useful. That's Thank

Operator

you. Thank

comes question next Goldman from of Our Delaney Sachs. Mark

now open. is line Your

Mark Delaney

the Good questions. taking Yes. for Thanks morning.

utilization quarter. I know is First mentioned it was on rates. factory question this as ticking up again

of in as think I the it was XQ mid-XXs.

you point where is at us XX%? it can factory level on set utilization and this over is So,

Bernard Gutmann

It It's high-XXs approximately not the XX%. above. is to

Mark Delaney

for for then seasonality specifically and in years I Got up. is know I my And industrial for market, fourth a years said some down the on it. you question always know some Keith, been model, it's follow-up quarter it's down tough, been the that. Thanks and

If you the could what's just and elaborate a bit the more sequentially XQ? to on the guidance market for reason lower what be you're seeing in in industrial

Keith D. Jackson

in broad-based is that stands a nothing Maybe pause, no out There a We're see we guidance being on there's problem. marketplace. the based just but giving that the as exposure problems.

Mark Delaney

Got much. Thanks very it.

Operator

Thank you.

Our of next question John from comes Pitzer Credit Suisse.

guys. strong Good is now to understanding open. assuming John that line you wanted deal CapEx - I hope me P&L. to incremental and and Fujitsu the bit incremental little result. questions for Pitzer back that Credit letting CapEx LLC morning, I'm what Your give the of And running can us (USA) a through on an burden an there's the deal, the to there's would incremental burden go some William Suisse Thanks if be. the congratulations Securities Bernard, ask Yes. positive

is can quantify that? part it of the target beyond and you XXXX that, Fujitsu above So, plan is margin or and

Bernard Gutmann

XXX have us it we that us announced to it equipment, the Definitely, much getting we that our will XXXX definitely in of John would amount some packages of part the or give will relieve plan incremental a it's October of clarify, and beyond? if plans. LLC in than Securities Pitzer some margin way very, tightness millimeter of (USA) getting William - of help above markets. it's we in Credit the of very to said Suisse us Just this capital, ownership capacity significant $XX just incremental That's cost-effective our When XX, on better buy incremental million. cost XX% that to pure part basically factory will footprint a had and we

Bernard Gutmann

William No, Pitzer helpful. (USA) of John Okay. it's Suisse Securities - LLC Credit That's it. part

Bernard Gutmann

numbers question look aren't your the are EMS, in It's about Pitzer part the to to William Ross' would to suggest first back cycle. overheating. I LLC John of Securities then, Keith, getting direct deliver and get revenues capacity to clearly (USA) the Suisse of associated Perfect. the Credit business, wanted go we direct sort plan. that disti at with things the just When required where - I And

sort I would and think a at disti on it's know an – you year-over-year trying small the the that XX% there much? the get growth things EMS up anything XX% of look I year-over-year, revenue of towards sequentially, that the more moving guess to you X% disti? mix of going just program EMS can disti argue calendar what's I EMS were about But sequentially at when and And specifically in quarter, there up third side XX% up drove X% that year-over-year. sequentially understanding is in and then just you but driving part, up and was a business there.

Keith D. Jackson

factors. areas use significant have primary couple significantly in and their A distribution Yes. phones cell is of grown we with very One model-year-over-model-year like that customers sources. as EMS

So, basically, customers. outgrowing some of those with

much on legacy distribution well. perspective, and as through than was flow big They ON numbers Fairchild, that. from course, of more impact those a were Secondly,

was down. very very we to sell-in, we changed are OEMs now of and number. have the plus really track traditionally what more the a continue combination of inventories track But though closely So, nature drive sell-through, moving closely to – we EMS channel continue Fairchild into the disti that on even

for But one the of quarter? see raised don't Bernard, guidance in Suisse (USA) fourth And just Credit quarter. see to of William also QX of costs for months level John it number free I'm cash flow are there that shows free cash flow $XXX impacting Pitzer a conservatism on in $XX only But million we the in. talk full-year calendar that done million the overheating. quick So, flow, - if period nine might any there's LLC just can the you that. cash $XX assuming already, one kind you then be free about about a to I last sneak given for great that signs to million. Securities we've the could

Bernard Gutmann

way are to in be as to lot the the mentioned, we a as I trying fourth quarter spend are first going in we compared Definitely, prudent what But we more also we months. in spent nine the to CapEx forecast.

to compared quarter. quarter - million as $XXX $XX in Thanks, for William $XXX Securities fourth CapEx in the Credit million Our LLC the Pitzer John million Great. to Suisse guidance (USA) third guys. is

Operator

Thank you.

of Hettenbach Craig Stanley. from comes Morgan question next Our

Your line is now open.

Craig M. Hettenbach

you. Thank Yes.

(XX:XX) cycle, peers further. Just if had you're across managing the lead of the through at extended heard some industry been particularly and question look on versus what's times how times a lead titans I we've

to able as you've the much to that times have anything Just do not maintain extending seen. out kind others some lead of been help as

Keith D. Jackson

there. increase been I inventory biggest with think sure to that our distribution. impact is working is this on we and impact typically cycle has now, did lead distributor right cycle, not a times has That which what biggest partners the the strong overordering is make

Craig M. Hettenbach

the how ask just mentioned, as it. if kind design on Got a market. you a you in from building then you this that perspective programs, about I of follow-up players talk and there's over as of Can couple up talk time? visibility are carbide, silicon where can you you to XXXX see a And your

Keith D. Jackson

Yes.

to automotive visibility As going for of QX on growth. win our I a that offerings had so, mentioned, in the sector, we've industrial first good XXXX. and have while production is And

Craig M. Hettenbach

Thank you.

Operator

Thank you.

Our Loop next question Hees Markets. Capital from comes of Betsy Van

Your line open. is

Betsy Van Hees

guidance. and so us for QX. for for the my on Thanks providing much typical seasonality thanks Good quarter questions, the congratulations strong morning, so and taking and much

the that I is quarters and through modeling combined for got It would quite purposes. long for Thanks. helpful be your what wondering a QX, you've walk Fairchild QX under was now, the belt companies. of if for seasonality you time could very Given us QX, typical

Bernard Gutmann

you. Thank

quarter X%. second in X% typically to is the So, that

The just that earlier. approximately the fourth third about X%, quarter then quarter, down we the like same. And is talked

Betsy Van Hees

it's Bernard. And past, see been the time. you don't remarks wireless your I Keith, mention Thanks, you've That very in and this it talked was about charging in and then prepared helpful.

could So, things Thanks. wondering I with an give on charging. wireless update where stand us you if was

Keith D. Jackson

Sure.

devices to expect to but The big was a introduced driver So, develop applications see, here slower has significant there charging of anticipated. now. not the we new, wireless and expect going charging XXXX for most in much be than which we for some to we've for again, And improvement event. handsets, to XXXX we nothing been, again, be appear multimode

Betsy Van Hees

Thanks once the congratulations strong and so results Keith, the guidance. that, again, on Appreciate much. and

Keith D. Jackson

you. Thank

Operator

gentlemen, any conclude remarks. and does ladies Parag Thank you. to our now the Agarwal for like closing And turn would this over question-and-answer call back to I session.

Parag Agarwal

We to during for at Thank today. events the Goodbye. various you everyone quarter. joining the look you call seeing forward

Operator

gentlemen, participating in today's and conference. concludes for program. you today's thank Ladies This

great all day. disconnect. a Everyone, have You may

Parag Agarwal	ON Semiconductor Corp.
Bernard Gutmann	ON Semiconductor Corp.
Keith D. Jackson	ON Semiconductor Corp.
Ross C. Seymore	Deutsche Bank Securities, Inc.
Christopher Brett Danely	Citigroup Global Markets, Inc.
Vivek Arya	Bank of America Merrill Lynch
Chris Caso	Raymond James & Associates, Inc.
Craig A. Ellis	B. Riley FBR, Inc.
Vijay Raghavan Rakesh	Mizuho Securities USA, Inc.
Rajvindra S. Gill	Needham & Company, LLC
Shawn M. Harrison	Longbow Research LLC
Christopher Rolland	Susquehanna International Group
Anthony Joseph Stoss	Craig-Hallum Capital Group LLC
Tristan Gerra	Robert W. Baird & Co., Inc.
Mark Delaney	Goldman Sachs & Co. LLC
John William Pitzer	Credit Suisse Securities (NYSE:USA) LLC
Craig M. Hettenbach	Morgan Stanley & Co. LLC
Betsy Van Hees	Loop Capital Markets LLC

ON Semiconductor (ON) 6 Nov 172017 Q3 Earnings call transcript