ON - Earnings call transcript Q2 2019 | ON Semiconductor Corporation

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Operator

Good day, ladies and gentlemen. Welcome to the ON Semiconductor Second Quarter 2019 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 follow at that time. [Operator Instructions].

call this reminder, a maybe recorded. As

now conference, Parag would Investor Please like Corporate to today’s for Relations. ahead. host your go Agarwal, and introduce Development I Vice of President

Parag Agarwal

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

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

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

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

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

third the will Semiconductor, quarter, Hardware Technology Communications XXth, XXXX Global Chicago we Summit and on During in Jefferies attend Citi Infrastructure August

New and Deutsche September Bank Conference in Conference XXth. September York Xth, Vegas Las in Technology on on

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

Bernard Gutmann

saw thank quarter Geopolitical you impacted joining automotive and than in the a driver our to today. law. was the of inventory expected as federal correction, factors in Thank for lower you everyone customer in us especially and our quarter. halted revenue Furthermore, major weakness revenue temporarily market, the macroeconomic U.S. second than second shipments expected to Parag, revenue. we with Sharper broad-based comply we communications

Despite and current post downturn to and earnings headwinds continues semiconductor execution to to performance. the our during continue we industry, our solid, strong cyclical in be margin top-line

lower been downturn, our in our that than revenue peer has far, and the current in margins group. So cyclicality of

nature automotive, for to connectivity and markets. industrial, sensor and and Our end of highly far our power, analog, on the speaks transformed performance focus products thus our cloud-power differentiated business,

in and to improve investments to industrial, trends secular industry and and our further markets, strategic prudent Key we strengthen intact, structure. automotive, markets our continue make leading in our cost position to cloud-power end end remain competitive

a win pipeline continues Our pace. expand to areas rapid design growth key in at

QX of We and distribution third complete be customers revenue end booking should early was from quarter believe from the nearly have bookings communications customers inventory challenging stabilization the that automotive trends point trends XXXX. a second improved. Though of perspective, business conditions. the stabilized, by in towards current Demand quarter have from or correction

seeing we any of level meaningful demand in in recovery lower stabilization revenue, demand. Although, are seeing we are evidence much of at not

conditions, of in encouraged our are and stabilization are business near-term we we in to events, cognizant the are the risks volatility to arising geopolitical by adjust we demand. While managing business and from macroeconomic unforeseen

measures compared to control operating analog taken products with and exposure better of soft life navigate diversified line slowdown power growing highly that demand We in relatively believe of current conditions. have our markets, customer and We our the us long help should semiconductor to expenses cycle base, broader the in fastest to as a industry. many end business semiconductor

upbeat markets leadership as future. our to noted And to remain strengthen key prudent making our the structure. investments and about improve We strategic and in are build strategic I earlier, cost we

second in connectivity In will presence our automotive and of Communications, our Quantenna closed we believe applications acquisition strengthen the markets. we quarter, industrial end for which

billion cost recently XXXX years, to years. $X The capital addition four our also our manufacturing to expenditure announced next millimeter add a We process phased provide fab the support competitive model, first our savings transaction structure. a and in should our XXX to enable towards in capacity of financial growth at accelerate plans sufficient highly staged target a our progress in network several over approximately next fab this long-term of over

quarter factors, XXXX Now, by $X.XXX well-publicized results. in decrease of revenue second billion $X.XXX compared have let as year-over-year our of industry. to me primarily provide XXXX second quarter the of you XXXX. which decline on impacted geopolitical overall Total billion, revenue the details of X% for was The the macroeconomic and was second in quarter semiconductor revenue a driven

second income per diluted for quarter in Non-GAAP income share XXXX. of as for per compared of second the quarter diluted the $X.XX compared was the as to in $X.XX $X.XX share net GAAP was $X.XX XXXX. to quarter quarter second net second

the that quarter quarter as the revenue. second gross margin second second points, XX%. Non-GAAP quarter, margin gross basis XX.X%. revenue to of margin our the quarter the quarter. delivered gross Despite quarter-over-quarter compared gross for XXX we for meaningful decline to margin lower with in margin a in solid first was performance flat by gross declined primarily non-GAAP GAAP second due was Year-over-year, XXXX

GAAP operating XX.X% of margin of the second for the quarter XX.X%, in XXXX. quarter as XXXX second compared was Our to

XX.X% XXXX compared operating in The was gross the was lower Our margin. quarter quarter non-GAAP margin in XX.X% operating by XXXX. as margin decline driven of year-over-year largely for of to second second

expenses $XXX compared expenses quarter zero bonus the quarter second first million, in $XXX in accrual, control, accrued for year-over-year of operating compared $XXX XXXX. million for expense of second quarter the driven aggressive the operating quarter by decline to Non-GAAP as GAAP were second the million, of to expenses XXXX. The and reversals bonus during the $XXX the second second of XXXX. quarter was quarter were operating for as million

of $XX We Capital million. cash flow was cash second million, XXXX We operating during and quarter of million used first $XX second the $XXX million, X.X of of quarter of of quarter capital to cash the with to the flow $XXX million as cash $XXX compared free quarter. equates equivalents million intensity end quarter during was shares second XX%. exited which our XXXX. and $XXX repurchase a of the expenditures to at cash Second were million stock

At in XXX up few inventory by days, of as inclusion value fair second of quarter inventory increase the by step days XXXX. on days four results our the market during compared first the for fair of XXX up step of second a in the was Quantenna’s we inventory to days results the Quantenna’s as in to XXX quarter, XXX hand on were and third end quarter. of This of end intend in inventory. lower the compared for market nine without Had Quantenna’s primarily days value days balance days quarter. up entire included quarter, driven would the of have by the second up inventory We days days the the to been quarter, the sheet at second our of quarter days, first

in terms Distribution first Distribution declined quarter within meaningfully the and increased weeks in XX XX now is resales over second our to the target second of quarter, in quarter. of inventory range weeks. quarter-over-quarter the

expect in of reduction quarter. in third terms We inventories see to in the our days distribution further

are in inventory channel. in addition that noted inventory level growth calls, conference believe distribution previous to our We healthy of to we managing industrial, automotive, our in As earnings ensure distribution drivers we secular aggressively in a of quarters level compared revenue has revenue lower our markets, as of proactive relatively been behind reason cloud-power volatility the our over several in our volatility and last management in to key of distribution peers. inventory

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

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

Keith Jackson

Bernard. Thanks,

macroeconomic we quarter, in remains execution overall headwinds weakness strong, factors. Our strong and In geopolitical second from strong despite earning the market. demand semiconductor and the margin despite performance delivered

to While in megatrends tepid, and discipline, With demand. business of the secular automotive, positioned are solid. execution exposure soft foundation well to markets industrial we the navigate strong cloud-power remains near-term conditions are current through patch end in business, our with

inventory channel conditions commentary end towards Based partners, correction distribution in quarter recovery quarter. ongoing on of the should demand anticipated booking has fourth it yet, materialized stabilization the that early third or in demand of not Much nearly by current point but complete appears be trends distribution from trends. the our

well forecast. what factors are a conditions direction distribution matter and into we visibility macroeconomic in are While business we manner. expeditious to prepared an respond the have take, strong geopolitical to channel, difficult No

Despite competitive our the cost to to slowdown current to prudent structure. further strengthen investments in position our industry leading continue and we make improve demand,

of of capability market. success semiconductor connectivity During leading Wi-Fi. primary provider announced for the our that Communications, market requirement second believe Quantenna a the IoT we solutions industrial is completion acquisition the quarter, in a for of connectivity We

Quantenna’s earlier, Quantenna market the the leadership IoT. business. grow to connectivity we we in industrial invest continue connectivity to intend As to technological same market announced carrier in for time, gain we leverage will At capabilities its have to leading

ON combined very customer about customers the the and and synergy on resources are of is excited them. bring to are has the Integration positive will of achieving product Current on Quantenna of and of been feedback on roadmaps financial, working technical, Quantenna targets. and market teams and Semiconductor track, benefits

Due has the to softness a is third to slowdown quarter. in be experienced dilutive ongoing business and Quantenna it semiconductor mildly expected industry, the in its as well, in

accretion. Quantenna synergies as However, expect deliver we and reduce targeted costs, realize that we will

ramping and towards millimeter process rapid We strong a fab is production our power are New Fishkill products has our progressing development Process for making York. porting at upstate pace. East in also at XXX started

to power East start XXXX. We are first track on in millimeter XXX Fishkill shipping fab solidly our products from

major a our XXX cost structure. our leading millimeter indicated We network, in point enables will XXX model, our towards fab and have inflection and ramp target our our in our that our East Fishkill believe efficiencies we millimeter manufacturing industry cost of production XXXX manufacturing be As progress our strategy strengthens in earlier, manufacturing accelerates structure. further the

secular Key intact. trends driving business remain our

our strategic Our accelerate. continues momentum in markets key to

increases continue the industrial, automotive, We cloud-power will that content applications. see a be cloud-power semiconductor growing automotive, end for believe in time. and We meaningful end markets in to among markets industrial our long and fastest

requirements power semiconductors, by servers vehicles infrastructure semiconductors efficiency strong for products power our power adoption safety market, markets. semiconductor our market, we and are accelerating and analog businesses. seeing the market, our industrial growth for industrial automotive cloud-power driven in should robust the of seeing the XG In power systems. growth power we electric and In In traction management for drive are for higher for active sensor strong

view geopolitical macroeconomic our factors, The our current does long-term on not growth demand, slowdown and change in potential. by driven

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

automotive revenue by Second year-over-year. declined quarter X%

this Asia, primary contributor including Greater was China the to year-over-year decline.

in the markets quarter-over-quarter to Greater U.S. basis, quarter. from China in On and stabilization saw automotive also some decline. in the automotive European second this year-over-year region contributed we revenue Weakness a

that expect year-over-year second year. light decline half production We moderate the vehicle to of in units China current in the

units automotive units by that X% vehicle of will XXXX. year-over-year by likely in and X% in global a light production basis, XXXX. On X% terms in we global to will U.S. decline range decline to X% year-over-year European expect

see content active of and safety, adoption in to continue continues and automotive vehicle We our a our applications products to various strong analog grow. in power in electrification, applications, management

is manner. Content a in in-vehicle in EV/HEV, network applications and LED such meaningful as lighting, growing

customer We our customer our growing carbide interest is engagement are worldwide. strong and seeing for products, silicon

been has in we for interest silicon Customer very invertors chargers for carbide many with modules their EV traction our customers upcoming on-board platforms. are and strong, and engaged

we power power MOSFET Demand in electrification high-voltage are for strong continues quarter current starting accelerate, IGBT the we for in our in and silicon-based to business. our fourth the products XXXX. are pre-production growth modules quarter, customer In seeing and to vehicle ramps support of

for products In to continues sensor our ADAS applications, grow. momentum

portfolio customers them traction gain complete us to suite on to continue of We applications. increasingly with provide automotive and sensor products relying automotive are our for a image product with

indicated have only autonomous X of provider automotive X Level and portfolio X surround well we rear complete from continues I Adoption for megapixel As before, the as and X a ADAS as of megapixel growth. image image a be sensors. are megapixel, with sensors volumes cameras, and to of view increased systems X vehicle and catalyst

we We for samples delivered engagements to first continue our radar to evaluation customers. strategic have grow products and automotive

rate. solutions as power analog well products Our as a instrument healthy to in-vehicle networking clusters, management at for ADAS, continue grow

management lighting our advanced within solutions strong power and to continues driver globally. LED Growth be

our as is decline seasonality to The revenue medical, end represented seen region industrial our end quarter-over-quarter of the automotive the opposed the aerospace, but for revenue. the source recently business slightly be the quarter. industrial includes in has have in second The in and second been industrial stabilization quarter. end-market primary trends. XX% in quarter to military, contributed third the revenue second in market, industrial of market, weakness Greater sequential $XXX XX%. in million up China declined market Year-over-year, by of of Revenue we expected revenue which quarter

offerings power the for efficiency believe that product increased megatrends allow systems take our us advantage the for ahead. to industrial We will secular of requirements

industrial as end semiconductor our and modules to high and the with see and products momentum continue in such voltage We market. increased IGBTs, mid power FETs

our continues to We strength China China power in of IGBTs, see engagements solar with in and our modules market the breadth expand. and customer continue to

in Within with are we industrial, gaining medical traction Bluetooth our products. low-energy

expertise recognized we future. design growth customer is base, and our and well strong in technology by Our expect the

and for market. in diagnostics strong continue We in personal implantable products hearing see health our devices, to demand

market. market the is third be industrial end in to for due quarter-over-quarter, expected quarter softness to the Revenue seasonality in end ongoing the normal industrial down and

networking communications our second XX% represented The market $XXX The of end includes quarter. second million revenue market, both wireless, end quarter. the contributed in the and which in communications of revenue

by year-over-year. communications of X% revenue quarter year-over-year Second was by increase ramp. in the strength XG Much increased driven

meaningful quarter also up quarter in have closed Quantenna We Smartphone the the was June related revenue the second year-over-year. as second did from acquisition revenue in on not XXth.

in as we in shipments major law. our the second was quarter As accordance federal XG to noted revenue earlier, a related halted disrupted customer with U.S.

We near with our rates U.S. shipments points to accordance in for near-term XG uncertainty, resumed mid-term. engagement Despite in have this partial now current law. customer the customers with to deployment to meaningful systems

front, On the grew revenue year-over-year. smartphone our

increase We this launch platforms in expect year. new to slated later see for in our content

in for new up end expected smartphone of due the and be Revenue communications platforms, to quarter. the of full quarter-over-quarter results for quarter Quantenna’s is market to a launch inclusion third

our computing The The market in end XX% quarter. represented $XXX revenue of market contributed second in of the revenue million the quarter. second end computing

Second year-over-year. quarter by X% revenue declined computing

basis the on posted during business solid second server a year-over-year growth our However, very quarter.

pause adjust our In in inventory the generations customers of we their servers business temporary meaningful a expect seeing content. server levels. current increase quarter are in as our platforms, We future in

be in expected Revenue market quarter due third our server the quarter-over-quarter for end the and is down decline computing our in businesses. to client to

revenue consumer market quarter. XX% end consumer in the our revenue The $XXX quarter. contributed of represented second The the end million market in of second

white decline year-over-year end was to due these quarter-over-quarter. XX% selective broad-based Second the electronics for The is be quarter markets, weakness in in consumer market year-over-year. down our declined markets. revenue participation quarter the goods by expected Revenue third continuing in consumer consumer and and to

been far cyclicality margins summary, our peer and thus In our downturn, that lower group. than current of in in has the revenue

business, for nature on sensor of connectivity focus power, differentiated analog, our transformed cloud-power our and automotive, performance to products industrial, Our and the highly speaks end and the markets.

We are trends in business markets. our seeing key in stabilization

end third and XXXX. continues quarter weigh demand as inventory ongoing However, by demand. on believe continue complete be macroeconomic fourth of to early be should the that of We to the nearly factors or sub-seasonal distribution correction quarter geopolitical end

remain prospects. the long-term the to trends current in we weakness driving upbeat our secular medium megatrends are across about Despite intact, our industry, business and business

on will we in our growing markets our We focused And expect that automotive, semiconductor and fastest cloud-power are to grow. continue content of industry. with wins, applications design the the industrial, end

are with To our controlling we managing environment, adjust focus slowing expenses. business to on prudently macroeconomic sharp

Our operational execution remains solid.

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

Bernard Gutmann

billion to Keith. you, total Thank levels, $X.XXX and range be we of trends, billion to turns Based quarter on backlog $X.XXX product of XXXX. is revenue booking the levels, expected in that estimated the third Semiconductor ON anticipate in

XX.X% be margin non-GAAP of of of gross For and to to XXXX, XX.X%, range GAAP expect the the XX.X% quarter the gross be to third range in XX.X%. to we in margin

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

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

of quarter, transfer to by annual We quarter. third in costs millimeter for of The related and expenses the expect the XXX non-GAAP expenses results for fab operating inclusion operating absence the expenses. Fishkill, quarter over Quantenna’s which primarily driven those total million second second lowered increase, the quarter the East is significantly merit at third $XXX quarter-over-quarter of the quarter process full operating the bonus of to $XXX increase million reversal, in

tight decrease are savings Quantenna Offsetting We we operating targeted meaningful increase as related expenses costs. expect synergies, see operating third realize resulting quarter in in expense control. and to the operating reduce from expenses

be million. which expense million. $XX and million to $XX million non-GAAP our We anticipate expense, be income net $XX $XX quarter million $XX $X XXXX of interest will other including other to third and including includes anticipate interest interest million, of We expense, GAAP will income net expense, to expense, non-cash

is million. million third in income to expected Net to for be cash quarter the $XX paid of XXXX taxes $XX

the million capital of expenditure XXXX. quarter $XXX total in third to million We $XXX of expect

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

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

open Thank please you. the would I session. up like Q&A that, With Chris, questions. for to the And lines start

Operator

Instructions]. Deutsche Bank. of the question And with line Ross first our comes Seymore from [Operator

line Your now open. is

Ross Seymore

know one guiding in bookings the basically talked you As gave that my back first, confidence X everybody as sub-seasonality the in about improvement for an Keith. I the about by are guys But you quarter, sort to you same last points of else. half.

about and the think war it time done tensions and that confidence talking you're stabilization to you last Now can the the after this willing guess the quarter optimistic? the And you you're is gives next. too trade what more corrections a make I something changed proving of rising? end at quarter-over-quarter, that be what this is obvious projection just inventory time

Keith Jackson

I the during happened as second more was are piece quarter. much impacts as went than on, the things those you geopolitical The think anticipated. question quarter Yes, significant. aware, two without got And pronounced more

than see going trends on we more The piece sides going inventory well. as we anticipated of is, the OEM at the on had some based backlog quarter second into did correction

led that's had. the we weakened results to combination think during And So what I the quarter. the

what's not on As stabilizing we have impact into things going quarter. we U.S. at second we dialogue customers did looking geopolitically, sanctions, this in have the forward more. believe comprehend look been the going and biggest at Certainly which from stage the we with

more at what got stabilization call in will this we've point. so, And confidence I

Ross Seymore

one inventory and doing that's term? talked as for over quarter. well little that out good great. to that I on that now your meeting? a margin you about near you pass as follow in or Bernard, XX% about know the of That's Can we my Does margin inventory. bringing Quantenna as fab follow Any year down talk steps gross margin third talk the updates laid about question, on have we target? millimeter the should next XXX gross target bit And up the to sort acquisition, in GLOBALFOUNDRIES the the And at the of expedited? gross you what analyst towards the so your low-XXs acquisition

Bernard Gutmann

you. Sure, Ross, thank

the expect inventory our you inventory -- that slightly quarter correction on a our have We will East is be tailwinds impact for better that, in as quarter guidance acquisitions Quantenna that of us approach margin gross margin for So significant the we and both will announced on for but Fishkill internal margin is Definitely help should that gross target the of mild a corrections overall expected sequentially can this and than occur gross the third phased see -- to our achieve basis. don't QX. XXXX.

we’ll those. with bit secular about So we drivers our a But that through to feel It’s expect we inventory of been follow revenue take And normal the in to incremental the on a pretty good continue little short-term. correction as course. in XX% the headwind. act

So help. we that being expect continue that, a also will significant

Operator

of Chris question our line from And comes Danley with next Citigroup.

is line open. now Your

Chris Danley

date At you I macro. according we’ve think one billion little impacts tariffs bit out after the guys came a in XXX Twitter downside How more that got that do there there? in of guidance did question to month. the your here down do you or you coming next change the be on think guess could and pike another least

Keith Jackson

the saw as tweets well and reactions to it. the We

would tariffs is from to expect not as have They our is customers not potentially changes the market is in destabilization. a of themselves our think tariffs issue see the this we’ve we that overall I for this. share are markets, end comprehended What so result But our significant given. far. and expect that belief I been revenues the some the guidance

Chris Danley

for down questions. drill Ross' couple to just on follow-up And of a then my

couple on guys some as synergies? inventories think for you start when can to the your squeeze then get OpEx, on inventory you you for there? and quarters do drift And dollars So down on the to would next goal what's we the think of I internal basis guess OpEx

Bernard Gutmann

come the being talked being as OpEx in come when about expect reverse about now that those for right in in about to OpEx, about down down about talked synergies million, benefits for the those we of and inventory The -- XXXX mean and quarter. we the we I get which I $XX $XX to stabilize, in are of the we the we per million the in actually expect XXX XXX COGS. forma you that those at and mid-term for goal million to $XX days Quantenna Quantenna, full

Operator

next Thank question from Vijay the line comes you. And of our Rakesh with Mizuho.

Your line is now open.

Vijay Rakesh

Just When a in now you content at the your just going into what on couple in look questions. wondering is see EV I of and orders you year? was next China do China, so the general market how

Keith Jackson

On and macroeconomic expect growth sold cars EV the despite we globally. of continued number conditions

expect China. be will percentage continue in rise it led that to to and We

would we a sold. automotives on So in that total for cars not some of China recovery though, expecting units we're be basis. large in Globally, there looking for pickup

Vijay Rakesh

China? terms in content in of And

Keith Jackson

you to about the year-on-year to for it’s vehicles, Level battery car. $XXX then systems, a get X move $XXX you basis. up perspective, per another car from if per content a a And electric From ADAS

content So significant changes. pretty

Vijay Rakesh

talked the Got your and it. Thanks. contribution corporate assume you’ve today, And right? that’s about above again I quarter in well September Quantenna’s

Bernard Gutmann

the the we ASG Group. therefore, being with integrated we're So sub-end for on And synergy corrections. the the integration about don't And weaknesses but are with the our inventory we customers third the details, suffered and as we within call, long-term markets. disclose will disclosing also we talked we macroeconomic the plans. quarter, has market a the It mildly plans. believe the be same plan on mentioned or Quantenna, Wi-Fi dilutive And in on not in track normally individual and

Operator

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

is open. now line Your

Vivek Arya

for And the my improvement Are I'm here? other in mix? utilization from question. Will Thanks will from how putting gross was what operational recover are in things QX? margins an that it of wondering drivers goals? term there you're help be managing place? there taking in good kind any curious It what in hereon hold to now just to gross QX. your are But I'm in you margins see longer

Bernard Gutmann

talked also the closed the so should ones the in the just margin Analyst two be effect, East incremental to same revenue, accretive two the gross follow we cost on we Fishkill The mix we have -- manufacturing should different divestitures The this the scale. acquisitions about in in through quarter. long-term. And that Day Quantenna some savings, elaborated and small for acquisition. and the

also that the short-term. the practical us the tighten just level. more at discretionary spend we also shore short-term, And take the cost In in up normal numbers the reductions COGS in-sourcing even help on should and belt the

Vivek Arya

QX, market just it more Keith in the is And that on the unit I'm in Could is is then on it on with trying that I to the sense new CPU coming out the computing headwind, business content a side stabilization believe business? you. in because the QX. for could mentioned you you it be PC give reconcile a side, down. Thank your growth, us of the where computing seeing you're more and

Keith Jackson

the units related and definitely Yes, it of to is macroeconomic some definitely impacts. has

increased. ship some QX with amounts over One believe of we do the had aheads is being imposed and the concern of tariffs the that things significant numbers

Operator

Thank with question Craig-Hallum. Stoss of our the line you. next And Anthony comes from

line Your now open. is

Anthony Stoss

ability Most of be does can your clear, go that visibility, questions it business were color ship side? you 'XX for silicon include or to just your and of provide asked, see the related that the to carbide Thanks. more but Huawei maybe expected to you have size And XXXX? do where you more comm to comments on also in the size

Keith Jackson

the to to the one into be comms can impact an still XG ship Clearly area the shipped. pieces first, be last our seems more business that. I the on Taking handset and think we do visibility of there is portion have but that ability

a as clarity we the of ‘XX would exemptions triple-digit of stage in of carbide perspective, and at that on are millions. at see towards do further hundreds silicon So From dollars, we rapid not a to Huawei pace. to more continuing but expecting applying you be millions the for We're extremely certainly course grow expect. an

Operator

Our next of Matt with question Please Cowen. the go from ahead.. comes line Ramsay

Matt Ramsay

us have and in the little of the with other companies what challenges might more how percentage automotive automotive given business China? bit the of outside obviously some be might Thank that if the in industry and in of roughly you. you Yourselves I sort remind on just differently wonder China your automotive consumed China. of guys is business market today a than specifically color trending business

Keith Jackson

I basis took a drop stabilization. we’re year-over-year double-digit mentioned market globally. That steep actually pretty trend-wise a Well that on seeing a

on We you And overall, so, that of significant because things a numbers, imported or clearly of look but think still quarter. ship being roughly in a around an it's is That other at basis. a are China automotive. automotive worldwide world very to that parts the when estimate and XX% we the so action most total China contributes significant

Matt Ramsay

And us. as follow-up a from

commentary deal was customer the technology light that You with verticals had that there’s might closed customer of where around your you on the since and quite discussions that shed elaborate you. mentioned might on and wonder And strong. in what Thank Keith the content deal I been what if stack? feedback that engagement type going you the particular in or you're

Keith Jackson

Yes.

quite a we They we've would base, having there. guess are into the to and excited rest referencing they’ve the the expand the backing from business talking at with more out customer looking taking by about I offerings existing been portion aware our that as their solutions. customers combining ones financial some also IoT supply, piece of basically, solutions it have So is assured that been you of high-performance IoT stronger to been and our there, industrial span plans

Operator

comes Ambrish question with next line from our of And Srivastava BMO. you. Thank the

now open. line Your is

Unidentified Analyst

This for Ambrish. in is Jameson calling

comment you if first what versus wondering peak? they in your And I levels? also are compared they could power, normal lead the where on was guys are times now So doing to

Keith Jackson

Our there's lead is of in industry, and four would for continue normal definitely or times be constraints still still call kind what to power our as longer a mid-teens. ago levels from by year we weeks, five This than the down business. slightly some

Unidentified Analyst

things any affect guys Thank And there? point have there? ramp fab. on does follow increased things sort given seeing, up of you’ll or with Do supply was East Fishkill regarding demand Okay, great. the then that Thanks. my that pushing in I you any your just lower you. this out the are is you plan wondering from

Keith Jackson

expectations No, still it our there. steam of moving any full We're doesn't change ahead.

automotive expecting XG growth mentioned trends, I and those businesses trends, EV significant and the power trends we're next continued year. on the As in the earlier

changes no is there So anticipated there.

Operator

Thank you. comes from line with Sachs. question Delaney next And of our a Goldman Mark

now is line open. Your

Mark Delaney

morning. good much very Thanks the taking Yes, for questions.

is calls question prior company related in I to the First commented? think pricing,

Bernard Gutmann

are previous as general in a compared Pricing still seen to what benign we terms, seeing pretty we've years. environment

no change from So that.

Keith Jackson

him. lost we think I Yes,

Parag Agarwal

on move caller, next you can the please? to Chris,

Operator

And comes you. line Baird. next Gerra Thank question the Tristan of from our with

now is open. line Your

Tristan Gerra

Hi, good morning.

loss In quantify of terms if would the Quantenna quarter? Quantenna you revenue the expectation? any trend, in also there impacted Quantenna such dilution perhaps you could by macro have being EPS your prior share impacted as expect And also that any that events company-specific was versus from the for

Keith Jackson

in they their So all did have mentioned, of kind. of visit cited we And no softness loss the share acquisition. as without business any and I since all customers exception, Quantenna's

earnings like per quarter we said, three. contribution meaningful On there’s in not the share,

Tristan Gerra

on guidance? QX that's utilization And embedded your rates in then you great. could Okay, your comment

Keith Jackson

Yes, XXs. low QX. It to they're be similar should very

Operator

question Thank SIG. of with you. next Christopher Rolland a And line our comes from

is now line open. Your

Christopher Rolland

do think the end In longer more you for others, that have your opinion -- Thanks Hey, specific at Was think long others do these was question. lead are do the guys. to making issues it start market you it there comparison took here? had product to times you that guys so why issues adjustments inventory some you and for or in it guys your much justice or specific don’t?

Keith Jackson

contributor I the and later. less Companies seen seen content it mix have of a power to there. corrections believe is of behaviors with sort do more

Christopher Rolland

expect can this And cycle talk or not? lead maybe down if approach cycle the you times and that you about is Understood. guys in contemplating something you are to times, times cycle

Keith Jackson

or markets On times; have lead times the normally seen basis, manufacturing between a you good inside lead of our bad. times a manufacturing gap certainly product cycle in don't narrowing and collapse

Operator

next with comes from FBR. our question of the And you. line Riley Craig B. Ellis Thank

line open. Your is now

Craig Ellis

that to nice sense term markets. you on few look at of questions. intermediate it some underlying is automotive, Yes. are pose in Keith, along quarter. that dynamics sustained of taking the the Do in questions to growing third the as wanted the quotient Thanks see a for I a couple quarter gains you mean the there bottom? business content bouncing we this fourth an quarter meaning be cetera, that would growth back headwinds EV more where coming the or to et out-rising inflection in could it's end

Keith Jackson

sold, the XXXX not of increasing EV of do years. in of adopting fourth the We're think adopting a models X see globally. be for looking that model units and We Level models that. for will significant number the the number ADAS terms car In improvement we quarter don't

slightly we should that so, offset unit flat even And or QX numbers. in total see down

as we to a year. So exit growth this are return you expecting

Craig Ellis

on helpful. then is And That’s follow-up cloud-power. the

the business strong helping Server just base of So is isn't traction. some because station aheads. getting like it ship sounds

part customers, of will they on talking you year? do about question this those builds The the the next working specifically, favor? you. what are unit with are And be stations that year think first base as your you is, for when Thank their station and in base both numbers for interact

Keith Jackson

to we year-over-year cloud-power and growth over in growth, -- talk XX% When those we applications.

so, I however. yes, specifically any units give have in actually growth. very, you forecast And We don't the significant very can

Craig Ellis

help can on timing And cloud-power? server when

Keith Jackson

to I’m expecting we XXXX. enter that as certainly be

Operator

from Company. Thank Gill our with and you. And comes question next Raji Needham

now is line Your open.

Raji Gill

X%. question continues assume the QX, down automotive. than looks about we A it be segment on less auto If grow like to will in

X%. indicated that to decline you had production to think vehicle is going light I overall X%

the dollar not gets over it just a of color is content ADAS, So if what I kind of that and you unit expecting to you could and reconciled your does with sense, is how if I some gains in decline, get power so great, just as wonder would slight are the like that case that? improvement give roughly on

Keith Jackson

So again, not I units. on-content story think is it the the really there,

of the other industry. far year at so the this automobile correction you've is seen to suppliers inventory piece what The

units the content piece to you'll correction piece, expect contributes or inventory the whatever, inventory the as the do for will growth take additional X%, us. QX, I mentioned into get and we but over before, story themselves continued see So the down be X% can rest. And I as

Raji Gill

helpful. That's

inventory at Or So that? done once out? trends any who to just correction bottom what's Is your your to of on talked And insight least distributors, characterize this Just be based mainly up pointing rebuild finished you just correction, basically stabilization. from driving bounce booking customers in about we're of have follow going kind bouncing we're slowly. question, kind hereon and going my we're China said towards the we're the inventory go with stabilization to on in going off -- purely we’ve bookings?

Keith Jackson

the of declines couple of comments. One, a mention we be it. will quarter. did that And distribution in Yes, continued the end that we we third about expected think inventory

just So in change it's really attitude. big a not destocking

seen from were look they increase. backlog the Those have now increases rapidly to starting done and be inventory We declining the stabilization China, whereas year. pretty beginning with in actually to of correction

Operator

Thank you. from with And Harlan Sur next of comes the our Morgan. question line J.P.

is line open. now Your

Harlan Sur

Good my previous morning. on question. question. that follow-up a Thank you for just Maybe taking

great? automation, signs be automation, to specific you guys would to see So any on sub-segments you China, the are here starting Greater Any stabilization, color stabilization. starting see factory building of weaker industrial this trends, especially where

Keith Jackson

to there. across see China, that board starting of kind the increases in It's the

stands no So market out. one

Harlan Sur

nicely be resales up the Okay. were And down QX, will distribution in sequentially again June. on QX, inventory came then in in -- down

let's you sequentially autos Do sequentially It up resales in you like up industrial So QX? as to resales guide be your well? for say, QX would ex-Quantenna, relative flattish anticipating to, are be expect how up. much looks

Keith Jackson

reflecting see extra ramps side those reflecting but to the much will increases QX see me, we'll excuse commentary see some expecting I They are normal will match in market the resales. quarter, resales commentary. third We ramps be the the on sequential gave the in pretty by communications We in market. -- automotive will be

Operator

question And Harsh comes you. next Piper line from Jaffray. of the with our Kumar Thank

line Your is open. now

Harsh Kumar

to I on question revisit the OpEx. wanted

to you should As term? goal give of -- assuming with you're in? a think Quantenna, How we about us bode that we what look do OpEx basis should a extent longer Quantenna how is percentage synergies think guidance integrate to would sort on OpEx an there basis on And picking you it. you September about I'm into the

Bernard Gutmann

as OpEx is for Day. long-term elaborated goal the same we XX% our our So in have Analyst

the to synergies we synergies XXXX. COGS. When million about and do are $XX OpEx million, and those about Quantenna. in We plans in we coming for million Quantenna on And become meaningful that being of in $XX $XX talked track be about for in announced will

Harsh Kumar

on any with you business my much do would these that be are get could Okay. And how able Huawei you then curious size if is you for you that look us as If to could not follow-up, there licenses. front to I color give helpful? was

Bernard Gutmann

affected. details We shipments partially as any our in normally we specific have But customers. on give prepared don't that to we remarks, on the resumed the said customers were

Operator

Longbow you. comes next the with line question Thank from And of our Shawn Harrison Research.

is line open. Your now

Shawn Harrison

inventory earlier in sell you seem distribution or aggressively maybe managing more demand On I you and tone as the little week. commentary your to inventory of than had corrections, the inventories higher ahead last be products the commentary power others? bit about negative if a was little ending I of corrections a bit And being more wondering a that the guess function

Keith Jackson

Yes.

we've talked on I impact goes certainly a quarters mentioned, As over better little the have we on how mix there, has control what visibility. and much also system better an about but

So equation. and appropriately getting that never reacting overstocked is a too also piece of

Shawn Harrison

follow-up how Bernard, And generation half year? as little Maybe could a this generation if see may. in I cash free a versus cash would curve. expect is light about you bit probably then second the free talk you to the typical of year flow

Bernard Gutmann

quarter. more of cash typically fourth loaded, is if you seasonality meaningful free and in it flow, at look even the back-end in third the our Typically,

playing throughout So we see of rest catch-up expect the the year. to some

Operator

comes line of And Chris you. next our question Caso James. with the Thank from Raymond

Your line is now open.

Chris Caso

Thank morning. Yes. Good you.

basis obviously, you everyone in headwind sell-in distributor and a the third us how the how Can And, on what's to help inventory in is that? following reduction reporting and distribution a a resale. second you been up quarter significant guidance, contemplated now. on has quarter your much are question, Just else quantify

Keith Jackson

expect the and to I both they leaving there, in end for we're is meaningful lower there operating quarters toward So giving quarter Chris. we the inventory. But that guidance are certainly the of third reduction be don't normal just significant our specific know And numbers contemplated.

Chris Caso

Right.

a pieces moving suppose about lot said Any as about would thinking the sell-out inventory, should any we converge. with how look with December? that should to on we distribution and at tailwind be December. And But I obviously, about look As follow-up macro. things you comments of then, a sell-in be there's a -- respect on what other

Keith Jackson

correction quarter to one at distribution I we a largely guidance time, be this give that would only of over the inventory We expect QX year. but reiterate in

Operator

our from Craig Hettenbach question Stanley. last Morgan comes of the And line you. with Thank

open. now is line Your

Craig Hettenbach

understanding Keith that's backdrop, delta. Thank A and Yes. in in on quarter also big unusual to question autos it's reported particularly very But the China. a a it's for challenging you. see

and And What drag so, this just bigger they OEMs seeing if that from suppliers color you can you're much give X of of in and managing inventory how terms cycle. may be led in kind Tier to QX? some a

Keith Jackson

Yes.

as many second fairly might got the some of quarter. you they and remained auto believe expected, through lot have the dialog I take past, more there, Our have than decisive inventory then as in to that optimistic suppliers of decided longer and occurred seen do the I corrections

perspective, this experienced. my versus of others we've QX what's from So the any that's different

Craig Hettenbach

know it. And but a perspective. well, inventory just thoughts then I that's into bit a QX? see commented of distribution and how inventory a you OEM OEM about drag just little you've expectations into from follow-up, quick Got as been any QX, an

Keith Jackson

to qualitative of they be We beginning QX our in more quantitative to same than largely is think time as this talk around this the at sector. customer particularly, we are Again, base and to going corrected QX. into auto

Operator

today's to And for like Parag conclude Agarwal the now would I you. any remarks. Thank back call that further to session. question-and-answer does turn

Parag Agarwal

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

Operator

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

all may great have You Everyone disconnect. a day.

ON Semiconductor (ON) 5 Aug 192019 Q2 Earnings call transcript