ON - Earnings call transcript Q2 2018 | ON Semiconductor Corporation

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Operator

Good day, ladies and gentlemen and welcome to the On Semiconductor Second Quarter 2018 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. [Operator Instructions] As a reminder, this conference may be recorded. I would now like to turn the conference over to Parag Agarwal, VP of Corporate Development and Investor Relations.

begin. may You

Parag Agarwal

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

earnings financial which non-GAAP our measures. include the are Reconciliations certain posted under in the release, on in release section. Relations is Investor non-GAAP our most GAAP separately these measures to earnings financial presentation website of and Our comparable directly measures this

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

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

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

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Bernard Gutmann

strong driven for our all outlook thank Near Parag, us you, related not guidance quarter business to today. our policy results industrial our which We strengthen in another had our street or joining and everyone, exceeded and consensus of remains automotive, our meaningful and business impact business to Thank by for continues financial you, on and trade for midterm strong delivered to yet metrics. outlook. momentum any accelerating in server and theories markets. outlook Long-term overhand key has

in Global the stable near expansion margin midterm remains are seeing environment Customers geographies for about demand and upbeat continuing Our strong strong we in end to macroeconomic margin and gross and margins. operating remains most both market. are performance outlook.

strong sustaining supply the However, has semiconductor chain. strained the demand industry

prudent accelerate call in and our revenue expansion, further previous As investments our are we we infrastructure. the indicated margin momentum manufacturing making to in

was the for quarter the per the second of and margin quarter million, of revenue to second second per XXXX. improved net gross was year-over-year let second X% as as quarter details by contribution an and basis, Total second $X,XXX execution Non-GAAP margin as $X.XX XX.X%. quarter to points a our in of of the income our basis points strong the of for second net XXXX for $X.XX second On to results on basis, $X.XX share $X.XX basis improved compared gross improving was our of share compared million in XXX XXXX. performance increase server the second quarter diluted non-GAAP GAAP Now, from non-GAAP GAAP a quarter by provide margin second year-over-year. in quarter quarter income XXXX. GAAP was and you me for XXXX on results. industrial XXX the quarter additional from $X,XXX was revenue gross mixed business. automotive by driven higher The gross solid operational margin and compared

input impacted We capacity. by wafer ramp negatively anticipate quarter additional gross Second the certain internal in costs. margin was rising

expect increased of of additional mixed Towards the With from raw progress margin quarter the input for we strong XXXX the XX.X% XX.X% GAAP current expect synergies, of the improvement, our in end capacity we'd tailwinds to year, of wafer second continuing ramp the internal operating model as manufacturing of quarter in compared costs. impact year. towards the second offset partially to to make and was target XXXX.

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

We the towards of intensity XXXX we non-GAAP to make in non-GAAP as to the expenses expect progress strong target operating a of expense and our percent revenue XX%. of expect operating decline for year remainder

in of current for steep wafers, rising higher the intensity Capital the equate we of $XXX next and XX%. $XXX of during flow $XXX million a operating cash was demand that million Second and capital flow prices year. expenditures free second Recall quarter were million. accelerating to meet to the of quarter products to mitigate intensity cash our impact raw and expect level was capital to which

in with the balance days equivalents delever the We quarter second At driven inventory of to first the pay $XX of the of of certain increase second the Inventory cash quarter, the continue on quarter million terms base shares end by to the down were by the $XX We used quarter. compared of days, $XXX X.X of the inventory XXXX. We of repurchase compared our quarter and to second a second materials. as raw first of to used in in in A as quarter we as build increased our to XXX in part day million, and our was cash cash exited compared million absolute million hand quarter. debt. $XXX first million XXXX XXX to down sheet strategic stock. of

As supply is our customers. products and continue to to I to intend of material chain our prudent semiconductor the indicated making to investments strategic strained supply stabilizes. raw timely inventory situation we're We ensure supply of build of earlier, continuity till

our expect decline inventories inventory base the of quarter. continue to terms third Distribution in to in declined We the internal in second quarter. quarter-over-quarter

managing weeks distribution channel. the range in inventories channel, term. inventory of XX-XX of To in risks to distribution near are We the the inventory remain excessive proactively our we mitigate within normal the in expect

carry distributors resales. inventory to systems than to ensure XX-XX weeks needed is more support don't that We implemented have of

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

was quarter-over-quarter. for down the second utilization quarter factory Our

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

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

Keith Jackson

Bernard. Thanks,

performance quarter was ON for for and culminated strong yet quarter in margin which second delivered strong XXXX The of the robust company. We expansion Semiconductor. revenue strong growth another earnings

accelerate Our traction of our strong and server driven momentum products to automotive, industrial markets. in continues by

Our power, demanding solutions design and with win sensor the continues analog as engage for customer pipeline semiconductor for expand us most applications. to increasingly

emerging key our make automotive towards to continue financial target position and tail business, from we and conditions a and macroeconomic progress We our technologies favorable With increasingly end to in in our applications industrial disruptive ends model. for strong as provider markets. enabling strong newly of continue strengthen momentum

are be are related demand manner strong benign to in server key and businesses. leadership impacted as Overhang overall industrial of to demand near continues for any our and market. trends. about most hasn't and from to meaningful markets, upbeat tariffs we to compared automotive, end continues midterm trade historic customers segments favorable across environment Pricing benefiting business policy While conditions be remain their in to in the outlook

opposed products as enabling high growth industry growth and been on few in of secular today our I've industrial in industrial front differentiated strong has applications to Customers driven the the technologies newly macroeconomic in Through fastest over markets, by in automotive growing our end on transformed earnings our driven last provider increasingly ago. Along sustainable indicated markets. radically automotive the end business. As cyclicality for highly we business momentum, and nature key our are semiconductor and of years markets, outstanding. as in emerging have many is operations recent us disruptive revenue drivers in investments being a years execution a end segments with and relying calls, by and

has shown model Our operating strong leverage. operating

non-GAAP revenue our increase operating for impacted margin the increased of pace remained by increases earlier, certain our XX%. of quarter, mentioned year-over-year As the in income which margin Bernard drivers input intact. second our on Despite X% has negatively cost a expansion,

wafer capacity expansion. make additional industrial increase the to offset cost. margin-rich of With and able our same this partially margin automotive should the internal towards the drive year, in should shifts be we markets ramp end raw input later time, At

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

grew impressive revenue year-over-year. an XX% quarter Second automotive by

demand design market. segments the For fastest accelerate we win pipeline strong quarter, automotive most saw broad-based second to driven the product robust and continues by momentum market lines in leadership the our for automotive and the again growing to in

During strong sensors image we saw applications. the for for ADAS demand second quarter,

Our continues to in traction image ADAS accelerate. sensors

sensors complete autonomous continues line for lead generation the growth Also, complete a portfolios Other a for growth believe applications. X pixel line driving image in of for automotive densities Demand a in including our grow. to automotive a drivers provides over platform provider the image With working the see revenue one complete to applications, to that significant automotive we the for for the of the applications range of continue of platform extend broadest products strong power power-related With our systems. second next are of only our instrument X and and we clusters, products advantage in ADAS we megapixels, we applications. X, XX-volt single for silicon-based competitive continue and on sensors lighting, with power single quarter automotive us EV/HEV our ADAS We growth competitors. on technology alternators revenue included the start-stop power power in market. management seeing strong LED and for are

to automotive market from Our we and launch silicon track silicon in the year. for former of remains automotive carbide we silicon this announced revenue diodes see Recently, development carbide on of half carbide-related our the expect market. second

pipeline expanding design rate. Our an win is silicon impressive in carbide-related

Infotainment, aerospace more are automotive vehicles The regulations to well-positioned being transition as are higher light in vehicles increased improved the market economy, quarter. expected XX% to need light technology. includes as in systems end systems in end represented ever-tightening the be to electromechanical to devices. the due full electric and MOSFETs, gate burdened by for XX-volt $XXX ON XX-volt second XX-volt automotive XX-volt expanding to of power EP The is We XX-volt to global industrial line emission system third quarter. revenue for systems electric efficient COX of systems. electro demand [ph] a and million contributed in transition which including and the is our second from integrated of quarter-over-quarter. systems. proliferation products medical connectivity, power power in currents driving full Due and of need for market up highly of drivers is fuel ADAS, The the industrial quarter in automobiles. offers to military, benefit of end transition Semiconductor market modules, electric from portfolio Furthermore, electric an a amplifiers, Revenue revenue such etcetera,

modules. portfolios broad a very year-over-year growth. all revenue range was market industrial robust grew and and a devices in solid voltage, of for starting to quarter by the spectrum the the strength power XX% comprehensive posting voltages power products industrial broad-based complete sub-segments year-over-year we most with second of from voltage have low of of one With high Our

as with emerged rate. customers in clearly a an leader have power in market semiconductor credible us alternative engaging We consequently, increasing to current the are and

continue products expect market demand for for to to the We our accelerate. industrial the power

EV/HEV business, seeing the our for is While rapidly charging in emerging Along also business, growth market driven a is are our for complementary as of products, by stations power driver with key our a automotive we revenue. EV/HEV. machine industrial our IGBT key driver vision

indicated ON leader we to image As have applications. independent in according firms, earlier, industrial Semiconductor for the is research sensors

million face environments. leverage harsh demanding automotive applications both $XXX second to networking is range to in in operating down expected second by vision third of the our wireless to markets low The most represented such the quarter. challenges high our XX% end be revenue expertise continue and end includes market markets. Communications as conditions, the contributed similar artificial We communications in the of in in quarter. market industrial are end Both of address revenue the and which intelligence and market quarter and machine quarter-over-quarter. these industrial light driven for Revenue dynamic market

Second year-over-year quarter declined X% communications due smartphone to market. in the revenue weakness by

While has new smartphones generation increasing in slowed been every quarters, devices. down our during the has smartphone last content market few of with

in revenue launch normal end of the Computing models. on new communications continued seasonality, content a up market second to the market in is end $XXX near quarter. contributed million due second smartphone increased growth Revenue the and in for The the quarter-over-quarter expect content our be new competing represented market our third to expected devices in quarter midterm. to quarter. end XX% We of the device in

The Second year-over-year. quarter in growth ramp was year-over-year computing server by a cloud and revenue by driven business. XX% grew primarily our

strong We are server seeing traction in our business.

leading silver with next-generation cloud providers we engaged are are platforms. and working and CPU on with players We leading their

in customers servers ecosystem with cloud to server and grow. engagement Our continue

in growth near our in midterm. continued to expect business We the server

in the our are the quarter. acceleration The demand for market Revenue we is addition market power to up $XXX of in normal end computing be ramp in management, continuing In our to consumer the third and server on-board quarter-over-quarter the supplies. seeing power in due for power server Consumer high-voltage quarter. for mid-voltage the products to expected in second a million end contributed represented second revenue seasonality and end XX% market business. quarter

in the our structure. demand for log of and industry-leading sensor in second remains end markets. quarter-over-quarter strong second the up seasonality. normal of quarter. fronts. and industry, demand goods server strengthen cost the was customer to is increase and year-over-year our revenue products XXXX Driven expected supply our quarter market further our quarter as strong was power revenue a products industrial is of In Second for all environment face consumer and end acceptance in constrained by of semiconductor X% accelerating. our XXXX. manufacturing automotive, Strength conditions the summary, Revenue compared capacity and driver solid investing We're In in execution consumer be consumer to for due the third in white up in the key to market in growth quarter consumer end to

We analog of revenue are leadership differentiated solutions. as and highly have significant a in and disruptive enabling strong emerging margin and end power, for increasingly key established Along newly semiconductor sensor relying are on applications expansion. Customers technologies in driving automotive we performance, provider industrial markets. with us

solid to financial continue make towards target model. progress our We

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

Bernard Gutmann

Based turn quarter Keith. on levels, XXXX. total levels trends, we billion the will booking be $X.XXX estimated of Semiconductor $X.XXX product in to backlog you, the Thank revenues anticipate billion ON and third

XX.X%. non-GAAP in as gross Factory XX% range XXXX, in to likely second XX.X% the utilization of be is GAAP expect and range to For that in the of third gross to margin third XX% of to the be quarter compared the margin flat quarter we to the quarter. in the

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

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

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

expenses revenue from anticipate operating $XX income million be third net will non-GAAP during remainder levels the million the to of of million, interest to our expect expense million. year. be Cash pay will of of We as $XX including to which percentage non-cash expense net expense to anticipate interest expenses interest our and and expense in taxes We income to includes third million. $XX million. quarter GAAP current non-GAAP decline is including We quarter $XX $XX million $XX other the XXXX $X other in $XX income for expected be to the million

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

third We toll expenditures million expect of the capital XXXX. million $XXX $XXX of to in quarter

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

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

count expected Form-XXK. the quarter count Further Our XXX provided annual reports earnings is share to on and share share stock and diluted Form-XXQ are XXXX for shares, on third be per the based calculations and of regularly price. quarterly our in details on non-GAAP million current

Sonya, expect For session. would please generate With of start the like the approximately the that, open up to year cash to I for $XXX of we flow million. free Thank full lines XXXX, you, Q&A questions. and

Operator

Ross Our Instructions] [Operator comes Seymore question Deutsche of you. from Bank. first Thank

line is now open. Your

Ross Seymore

strong the expansion and a online cyclical a you argue the one versus with high question. will magnitude At cyclical But Keith, about industry Hi, an demand of know macroeconomic people Thanks for level, the long a about CapEx first lot putting that drivers. the talked guys. when sounds drivers of board across duration this me elevated that capacity the and secular I for letting you and think you. ask you to do in much you're versus the tooth? is how bring work, CapEx a the to want

Keith Jackson

Yes. Understood.

match been digits, overall we've specifically to growth couple at capacity put double-digits. and the of have to the in years a That has extend ways capacity. last high investing we're our We low single had that looking in for the looking economical strain frankly,

So putting we things, be place expect certainly capacity we're ahead in we're not idling. to getting not of that

we've of automation the is piece lead to of cost with it been investing. been is other going doing overtime as all work to further The reductions we've more

at we're growth. least So a expecting return more and X% single net-net, year that growth. we X% should to then much investing digit for high We're another of normal to

Ross Seymore

as for Thanks you then in to quarter. you, OpEx up bit typically guidance side your the what OpEx But for of on in revenues even intensity quarter, fourth talked same better able falling that go Is math year back going about OpEx to that. do into the fourth And how be to you're Great. down year, the on should obviously next guided my through Bernard, the follow of the half the can the metric? on one we a third that things, the about you little think actually And we quarter? OpEx leverage get your seasonally. then just

Bernard Gutmann

there That the year we had first something and level equation. expect into we quarter, few XX.X% nevertheless, XX% to we only half. the a still be we extra -- the the is have last the days. The will that on clarification from fourth But have is -- down to Ross coming in thanks, have play

Operator

of you. Thank Citi. comes question Chris Danely And from next our

open. is line now Your

Christopher Danely

guys. Thanks, Hey.

a on of above the of high-end QX, In either the follow-up think or that this range high and for end was it it. range guide was I quarter you at OpEx. Just the the

to talk what expectations wrong you going has middle gone doing what of so and it it guess about the or fix I can forward? you're far So just why missed has

Keith Jackson

slightly the have We we below end within the quarter. also range, within in the high of been the but range second still were range, the

carbide, We little a all areas -- have like that. to discrete talked power LiDAR, decided increase targeted our about stuff, the certain a in have invest of in in investments to things we bit have we silicon R&D more that

had have also cost. We mitigation strong higher

percent absolute dollars down. of third main So expect Those although revenue causes. be go investments. R&D we It's are to quarter, up the will in still as in coming mostly the the

Christopher Danely

your well? doing then Yes. just are talk or times the doing about as the times competitors are the on And can tightness what at you what lead in lead industry,

Keith Jackson

expenditures ourselves that We are We lead everywhere. believe that I in will times expect up not quickly last start board it the did continue second sure the the quarter. in will to to catch capital across finally a extended have I'm half. that normalize increase expand. slight as

Christopher Danely

Keith. Thanks,

Just you and just us what a were times tell is normal? clarification, lead what the can

Keith Jackson

are and is that above this Normal of low-teens time. at kind we

Christopher Danely

Great. Thanks.

Operator

our question Lynch. Bank of Thank you. Merrill next from comes Arya And Vivek of America

now is open. line Your

Vivek Arya

on meet and something actually is driving, capacity off gross when, Or congratulations helps your they beating target? Thanks that you on sort these execution. the know that what and of that and is we investments, cost the XX% Keith, good for there investment, investment benefit question see growth of can taking on all my wafer should think margin you and target? see? is I much how the but that what,

Keith Jackson

Yes.

again, actual the growing offering cost capacity It's opposed frankly, to increased total, of we it's the but demands offsetting the there. now. increased wafer a reductions overall need lot because real right we as need On supply costs, in handle to all chain the in moderating that side,

Vivek Arya

And was to about line to growth Okay. expected then started when top X% be you X%. your

next to how Just of X%. the closer macro? product Is specific growth your Is quarters? is kind growing handful this maintain visibility your over You're of this cycle? this to

Keith Jackson

encouraged target very growth by it's our applications specific We're Yes. driven being in and high markets.

charging stations just market for it's to a electronic frankly new and safety the and automotive automation, acceleration like in strong economy, of power support place. industrial for the applications in savings So things usage and not it's

it's strong economy. is not pipeline, it than and win expected encouraged, accelerating a design we faster very a So just

Vivek Arya

aggressive us on Bernard, would one quick buy buybacks what is and side? And become just more in much left the back can clarification. the how remind you be the last to trigger

Keith Jackson

quarter still $X the around we about million available. presented did are $XXX,XXX in $XX we we billion, which $X.X have second million. we We used, buyback, had about The for

down still also are debt. we Now being our

by million. we in prepared As reduced $XX debt we mentioned our the remarks, about

Vivek Arya

you. Thank

Operator

you. Thank

comes Our Research. Shawn next from question Harrison Longbow of

now line Your is open.

Shawn Harrison

and the right. table right the input press congrats mitigate there now will clarify much that to how you result. second in half that you're way or on to are the profitability of Good morning Is living from begin a maybe the All margin on year? the seeing cost

Keith Jackson

had year-over-year We've good to from maintain Being lead area declines that. XX% our that price the increases significant around able has see substrates offset we on We've there. increase year-over-year. are on and been to pressures. the to then partially XX% XX% very frame Those partially able having some not pricing that side, offset normally that with

Shawn Harrison

free Okay. the weighted. Maybe second flow Bernard. the for components the half. a little end you acceleration just Getting year big step to requires and free cash into to if back typically flow question million it's and the maybe And of a you, knowing could bit a $XXX up the for speak then cash

Keith Jackson

the small that X% beyond second be we investments about substantially that normalizing so up in X% and us and in you. Shawn. the capital. to that have working shows even as historical to will quarter, CapEx and Definitely, expect We pattern that back generation pattern X% we step that is talked to did Thank free on Yes, our lift, will low X% that flow cash continue. some we expect

the performance also us operational numbers. will those we lift of will slowing down But and help be fourth in Some expect those third the quarter.

Operator

Thank you.

Gerra Baird. comes Tristan of question Our next from

open. is now line Your

Tristan Gerra

good Hi, morning.

an question. on up follow to earlier wanted Just

the you've was the in QX mentioned your in So the and on your of gross own be guidance? margin? What best impact increases percent will price And what embedded ASPs substrates wafers. change-in

Keith Jackson

normal, guidance a and but is not Take in expectations benign our very slight decline, relatively ASP not Still much. order, compared reverse increasing. to the

far pressure represents the the margin contributions for costs results, side XX% in or our of products. the or more As roughly raw equation as materials the of

if get rough you of percentages use you, was. a there idea I So gave how pressure much the you'll

Tristan Gerra

QX whether was change us sale great. QX your that in then And of in sequentially could Okay, guidance? he the and the of you on percent point [indiscernible] embedded tell

Parag Agarwal

Tristan, please? can question, you repeat the

Tristan Gerra

percentage sales, and... so through change I sequentially in sell was looking at at point in QX the

Keith Jackson

that were Yes. out. of up inventory. internal own than in Resales revenue allowed reduce weeks and in channel higher up to of print was our number substantially definitely even the us It

Tristan Gerra

And for QX?

Keith Jackson

and to about We up expect it be seasonal.

Tristan Gerra

Thank you Great. very much.

Operator

you. Thank

Our Caso of Raymond next question comes James. from Chris

line now is Your open.

Chris Caso

you. Thank Hi. Good morning.

in you that is a on your Can the the little talk expectations. better quarter? The It you're looks came space about question in expectation you what the September base. than communications move and that seeing first into like as

Keith Jackson

is September would you as the quarter piece bigger phone new guess revenue launches, cease which of there. the

So year-on-year Again, gave similar our returning are remarks per normal. down. to comparisons sequential we there continued expecting should in increase see last we QX, very year. QX which something prepared were things levels for certainly to

Chris Caso

just you And a thank you. prepared Okay, in mentioned follow-up, your remarks, silicon carbide.

the second into in bit a talk silicon space? that this about couple revenue? XXXX. Just the expect Maybe a when the build half in becomes year you talk of terms carbide guess that questions of on differentiate expectation to you about I that. Can what material of

Keith Jackson

we to portfolio. performance-based. our is In get we where it modules there performance full happen sales, Basically, expect our most in match with of to

revenue. do here starts of efficiency we be we in by to is therefore, second second a competitive significant in the XXXX it half expected growth again edge the in So That going next on total will provide half, and there but year accelerate think significantly marketplace.

Chris Caso

Thank you.

Operator

you. Thank

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

is Your now line open.

Rajvindra Gill

on Thanks and and momentum. results good congrats Yes.

one demand if could level other thoughts kind as and of is gives of of the that's Any wondering and on You was I the happening? played explain happening? environment you and talked the has Did competitors about underestimate of industry constraint capacity well. that that one the capacity why the strength reasons? entire industry

Keith Jackson

levels several reasons there's of for Well, constraints.

expected. number material the will, Again, on much, it substrate taken the get future a lead combination frankly you a That than years. of of frankly, that's of the product think that, the market. applications supply quite on occurred demands in investment if frame disruptive for people you and piece raw can chain some of much markets off if the both creating side, markets constraints the have I last under that provided few and and then through is has in silicon the side under-calling lot pressure faster

Rajvindra Gill

that you you'll able reach was with gross margin Bernard, your in be model respect target about growth to believe achieved target you to have XX%, year. I your Were XXXX. margins? believe mentioned you this talking

Bernard Gutmann

We but need say we and target is and working XXXX good for are nice progress have towards it towards are do to The in XXXX. be accelerate going progress it, and basically not in out some good it. -- we'll doing it still we expect model

Rajvindra Gill

thank you. Okay,

Operator

Thank you.

next [indiscernible]. Our question from comes

line open. is now Your

Unidentified Analyst

morning. be In typical mentioned Albeit for prepared play normal quarter. or effects Thanks seasonality? else you is it of something in down Good third the that the is is my here? Or year-over-year, there to meaningfully question. sequentially expected taking in industrial up just comments, the

Keith Jackson

mostly It's seasonality.

Unidentified Analyst

great. you you then that keeping typical generally in well, seasonality, been track that to Have almost from years. couple other as past of historical on speaking altered Okay, your or And referred you trend? businesses seasonality of that over has are some the still seen peers in

Keith Jackson

materially. say because it's And to combinations a front-loaded, terms, It moderated directionally, it's and is we've little company little X% a in be correct. I now more changed M&A specifically change automotive hasn't that computing a with consumer the and industrial, still to more think X%. more that now our used number. the with but I QX to and bit the seasonality around had you and in had QX general has bit would we've done, in that profile, but

Unidentified Analyst

Great. Thank you.

Operator

you. Thank

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

is line now open. Your

Craig Ellis

of follow Thanks and Yes. Q&A the guys. the taking wanted execution, Keith, to congratulations one up comments. I on for the on question

was in Ross' question think CapEx. I about to it response

investment digit some that into persist and like that the that visibility the auto, or wanted a groups related is now because across single is XXXX. overall? better industrial exist where to high view product the that that mentioned growth there's understand really you think is could to business being I and I of might strategic groups made

Keith Jackson

agreements then design next design the are call, have by to server enhanced wins we're quickly. situation in supply up wins also market, long addition mainly driven It's we those what in mentioned the and those and same industrial Yes. visibility term getting that are I auto and The we last that, adding where strong for there secured on. year know and

at much than normally confidence looking ahead. a would So have year we have, more we

Craig Ellis

for Then is Bernard. the for Thanks that. follow up

still and should we years, XX% next year it or coming in is lower for the Bernard. this Just of Tax housekeeping item, couple rates, expect than that?

Bernard Gutmann

it to for for XXXX XX% that's a remarks is expect good said XX%, XX%, I prepared lower and in still be why the I and number. the

Craig Ellis

guys. Thanks,

Operator

Thank you.

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

open. line Your is now

Christopher Rolland

view didn't your obviously know inventory. talk any and were you think but hold Hey, to -- fears guys talk the there were reluctant prepared that at there. all question. finished about have they I box customers for from competitors them, you you you Are broadly. market white done guys. Perhaps any in effects goods Thanks said of just that And more actually your you out there well pretty one how said maybe remarks But fears you seeing that of could tariff in that? that? sort tariff about effects -- for from guys mentioned the

Keith Jackson

piece, any goods goods ago, businesses that yet. of white got the quarters implemented time The not consumer have the tariffs several the We ago. white on seen in some

in we've any plays to have no air out sure and ordering no of not seen how I'm of and those their demand market, that concerns. customers not Quite rate. hesitation run from So conditioner seen we the frankly, lack

Christopher Rolland

gives for and was for narrow what confidence expect your there? I And I a changed forward? we wondering Great, narrowed you one noticed that guidance you and range, margin gross looking Bernard. you more it just range should

Bernard Gutmann

our at looking feel we performance tells Historical should able us be that range need as purposes. that patterns as don't just and range. for we to were a within historical that confident wide guiding we We

Christopher Rolland

guys. Thanks,

Operator

you. Thank

of Our comes Cassidy Stifel. from next question Kevin

Your now line is open.

Kevin Cassidy

data Thank result. interest you you XX-volt center higher power and at higher -- seeing better power power of supply. voltage great congratulations your seeing... Google computing I for on in the have coming mentioned on remarks prepared any you mentioned Keith, efficiency. into the you know all? has trend Are Are in supply

Keith Jackson

Yes. Definitely revenue today. that, around lot not planning a of

Kevin Cassidy

Okay.

you're that able be the for to into With products developing play automotive, same that?

Keith Jackson

The Same technologies are same. products the are different, technologies. actually the but

Kevin Cassidy

Okay. If other. one I ask could

slightly have What's to than How think target? total last usage. you the XX% percentage there of of expect wafer, said internal quarter, have I On high internal the your less you wafers? a was

Keith Jackson

continues unless difficulties. to it the that's target industry that expecting bring point and We're up experience XX% to to our about

Kevin Cassidy

Thank you.

Operator

Thank you.

from Our next Sachs. comes Delaney question Mark Goldman of

now Your is open. line

Mark Delaney

your My you and and in-house morning guidance follow Good a XX% to Yes. wafers? you any the increased when same that that question thanks question. topic about is taking have supply. internal from 'XX Are first for expect up benefit would QX raw supply on the internal from full in wafer seeing

Keith Jackson

those Yes. which our up fourth. third The equipment means get won't the and doesn't P&L until substrates the till running really fall through quarter,

seeing So benefits fourth should start by benefit and we the in QX. full quarter

Mark Delaney

on the It's industrial helpful. prepared and the up question follow market A comments.

gain gain of coming year-over-year scent just do and from mentioned you that it a growth, on-demand cycles shared shared is have strong that to? you product about and guys the just much much spoke how how is of You and

Keith Jackson

figure be can year-over-year You and delta to from all half the it's that look of but I be half, know gains. the something order market and if at shared the out industry what would magnitude. numbers in it's don't gains would

Mark Delaney

you. Thank

Operator

Thank you.

comes Our Sur Morgan. next question from of Harlan JP

Your now line open. is

Harlan Sur

are of talked on about the hiding guys term job quarter growing of previously the fast combined, down auto ISG kind Good industrial the some That growing growth when Is auto-image your that now? the the it's year-over-year know headwinds business some know out XX%. X% segments might you sensor have right of trending about of areas. some as -- more revs of guys talked Great I XX% was how you about on about market of that be you focus the I market. ISG the have about execution. longer CAGR. morning. commodity move

Keith Jackson

Yes, sector from by better getting total the markets. somewhat offset we getting XX% that growth we're it is. automotive was in handset at and the but level, the masks They're automotive than and consumer performance expect. the It is of out

Harlan Sur

spot Great. of single it's high driving quarters consumer, break rates last healthy there's digit here you pipeline and a growth insights Analyst trends been long-term better and to few high the view term last been your for versus do is this suggest outlook your us been declines. single there. driving the longer put mid Thanks and where a And the for digit, year-over-year actually growth year-over-year the Help what's the Day? guys strong win versus year-over-year what out your design at understand

Keith Jackson

That bills a Yes. Most of more a on been doing. efficient they're and their people for us goods. of it are driven there white percentage it better-than-expected be to been by going used solutions good for than much total market looks has like has

getting our we're So there. modules good traction on

Harlan Sur

Great. Thank you.

Operator

you. Thank

Our next Harsh question Kumar from comes Jaffray. of Piper

now is open. line Your

Harsh Kumar

quick Hey, Congratulations solid numbers guys. and on questions. had I solid guidance. two

into us QX growth exploited you of that's sort XX% down have to on giving don't guess business industrial seasonally delta in insight year-over-year, that a growth driving XX% follow drove pod that, what if I up Your I then up. QX. some and coming for mind, a and falling you guide what's embeds

Keith Jackson

Yes. factors. It was driven and that the year-on-year efficiency Mostly entire stuff was used for across increased market. many products by being industrial power

as the a that this flattening solar in in those been is market. areas have relaxed. the in some slowing caused down Particularly of China One subsidies of

expect basis. on general, the and a bit in robust again down, the creating growth that's strong but remains market yearly we So of very little the

Harsh Kumar

a there companies for back or us end. idea follow that up, Thanks, some front color product some manufactured given think can basically Keith. of to Is about about have other our us help from some how you us is way couple And their have number? much think China, provide and us to then of that reported in

Keith Jackson

test assembly range today, of I probably do a it's and total. have in specific operations me don't dollar but value China numbers third on our in the We with

Harsh Kumar

Thanks.

Operator

you. Thank

Our of comes next question Stanley. Hettenbach from Craig Morgan

now Your line open. is

Craig Hettenbach

time. lead just follow you. a Yes. Keith, Thank up question on

as think of lead event around QX a or QX in comes in? that's online. quickly You Do capacity terms coming used comment normalizing to times you

Keith Jackson

No.

the is What expansion to industry expanded the happened or slowing. think and I I us equipment happened times think quite will lead across has start that rapidly.

quarter. ordered and be is that equipment offset into just actually by things you What growth that the rate last expecting now will third fourth coming arriving. So I'm year

growth So looking quarter the third QX, QX. lead opportunity stop with in to the some times I'm a in for for reduction towards the

Craig Hettenbach

just question on a talked of Thanks. see center. context growth And just about going terms the forward? data computing researching terms market, and in of there Any contribution Got there things Fairchild portfolio as and it. some you in legacy, you

Keith Jackson

or what's the arena right growth really is the Well, from Fair from the is power that growing servers developed fastest legacy, but in the a acquisition. legacy, a in stage significant sever There or now. not they

Craig Hettenbach

Thank you. it. Got

Operator

John question Credit from next Our Suisse. comes Instructions] [Operator Pitzer you. Thank of

Your is now line open.

John Pitzer

a question Thanks seasonal is someone in about to ask think -- auto, Good industrial Yes. letting QX, I on market. question. only guidance me same end ask which the morning, I'll relative guys. ask the guess the Can the for I

didn't You seasonal. reference relative to

four the September? versus up. last years, that drivers two How it's down, doing growth content two years for been think you're I has of out other up, guiding out last been you four seasonal of versus are

Keith Jackson

Yes.

models it's content us for content this piece that. disruption the makers has them convert automotive the all and overwhelmed new most in the down and down of causes because And lines part. growth take For the QX, the their which year, normally

John Pitzer

suggest go is just going guide year, back the of back thinking and like given QX half acceleration asked That's peak The just real the free quarter. $XXX,XXX just half other to coming cash the there of get about first second want CapEx full and flow, helpful. into And XXX% I is versus down question the from cash guys thinking seasonality how half over and a you any use of tailwinds earlier. in that then cash your cash But be I know back on over the free be some up Bernard, to to should year, we flow one-offs and of some in free the the you there year the what that the flow June about QX? half are in are the looks should

Bernard Gutmann

million pay generate Indeed. and capital working There $XX did debt. as of CapEx well will generate $XXX,XXX. as we have is do that program. as cash of flow, our The use no QX in $XX generated did We million additional moderating free -- things help share we buyback as the P&L well that except us just will

We similar path along will same approach. continue with the

John Pitzer

Thanks, Okay. guys.

Operator

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

Parag Agarwal

various during you at quarter. bye, Thank to call Thank the the and you, We today. everyone, joining conferences look for forward third seeing you bye.

Operator

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

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

ON Semiconductor (ON) 30 Jul 182018 Q2 Earnings call transcript