ON - Earnings call transcript Q3 2019 | ON Semiconductor Corporation

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Operator

Ladies and gentlemen, thank you for standing by, and welcome to the ON Semiconductor Third Quarter 2019 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. [Operator Instructions]

I would now like to hand the conference over to your speaker today, Parag Agarwal, VP, Corporate Development and Investor Relations. sir. ahead, go Please

Parag Agarwal

and Good third thank conference quarter today our am Sydney. CFO. Gutmann, ON call. for Semiconductor joined President Jackson, Keith Corporation’s XXXX by and morning, you, Bernard you our and joining I CEO; Thank quarter results

www.onsemi.com. the broadcast will be today’s and being following are our at related business for this XXXX this available additional count posted earnings will for share replay markets, to also call third and available script our is segments, Relations on on days recorded and of website. broadcast, approximately be geographies, approximately our end call, following on conference quarter conference webcast XX call. call This of channels one information our Investor The this the our section website A with hour website along release,

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

could or intend, words make that estimate, of that future performance we’ll future The cause conference We the intended call, projections. actual such events to should other similar expect, may, financial or or materially plan, During the company. risks to caution from uncertainties statements are course events statements. wish statements or forward-looking to to expressions identify anticipate, forward-looking this and are differ subject the project, will, projections of results regarding believe,

and filings are XX-Ks, differ Commission. Exchange can results factors with from forward-looking Important Securities described that statements, other affect XX-Qs and factors could to including Form business, our Form in actual which our our cause

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

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

Deutsche and in Technology fourth XX. X on San Francisco on in will December London attend December Bank quarter, we AutoTech NASDAQ the Conference Conference During

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

Bernard Gutmann

and of us stabilization Parag, normalization inventories thank lower was demand. as much in in We that the you, in chain Thank in everyone, We the inventory for by realigned the with stabilization have distributors today. market line third business believe of both driven and supply saw you, quarter. end trends their joining OEMs

weak. While seen we in have market supply inventories, remain demand chain normalization end signals

making business secular and demand, a markets visibility and driving trends macroeconomic poor. our weigh in our on mega remains demand Geopolitical factors remain into competitive to structure. environment, business and and intact, our industry-leading we end still manufacturing key cost Despite strategic improve lukewarm are our improve position investments to long-term

to for expect we goals, continue company that the will success. not our long-term will We to detract the and long-term position from current us downturn invest

content are towards growth strong of activity. Macroeconomic continues I our with our inventories driver market. in of are earlier, economies bookings Global major not seasonal point along demand. from seeing evidence data market we Current trending indicated strong in end tepid historical patterns, recovery market but automotive industrial any as channel believe primary OEMs. has but to We for business the see normalization be stabilization distributors the in are we our soft, been products to and continuing automotive of

more anecdotal and inventory largely, the on term. don’t in have that we Based it normalized near data, inventories chain the supply appears digestion any expect

inventory business an geopolitical chain overhang. trends of and unforeseen continues events in risks normalization are stabilization to supply from macroeconomic While and be encouraging,

prevailing in risks business line conditions. with our are and business We managing

with controlling We intensity operating and have capital we expenses, lower line conditions. current are taken tightly our to our measures market in

demand better semiconductor exposure as navigate many compared to should long of slowdown the our diversified cycles life a end that highly products us analog customer in and of markets industry. power believe semiconductor base, to the help We fastest-growing the broader and current

third and was customer details The XXXX Now overall revenue XXXX Total year-over-year affected primarily of additional provide Also, quarter on XXXX. decrease driven $X.XXX third quarter XXXX revenue the in adjustment for by decline the which revenues well-publicized me one-time related factors, geopolitical results. a to by impacted as quarter third of you billion to were was macroeconomic third of in industry. of semiconductor $X.XXX have revenues the XX% quarter the compared let a significant issue. billion, a

third disclosed a non-GAAP to the in as quarter SEC was third quarter income payment $X.XX was driven the as of the share XXXX. for to by Inc. for loss settle our quarter recent with third diluted diluted litigation XX.X%. the net primarily filings, the expectations, gross Consistent per all in GAAP Power with one-time compared of was property a for the $X.XX of in was $X.XX in intellectual third third XXXX. quarter compared quarter quarter for Non-GAAP our margin net loss of per as GAAP third the pending net income and gross was to XX.X%, quarter net share Integrations, $X.XX third margin GAAP XXXX

until third in quarter reduce related of balance by in one-time ASP portfolio. order in non-differentiated issue keep factory our intend margin sheet margin by to our declined XXX current utilization the on the points. adjustment our pressure, a non-GAAP Furthermore, in gross see and Year-over-year utilization primarily XXXX distribution demand. quarter meaningfully gross a levels The inventory quarter. third our at customer channel, meaningful we and to part We basis we a lowered factory third was to on impacted by recovery our

by XXXX the for XXXX. to GAAP Our in third of compared Power X.X%, driven quarter of of third operating expense the quarter million to litigation negative in settlement was Integrations. an quarter loss $XXX mentioned primarily GAAP margin the the XX.X% operating was with previously as approximately third a related

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

GAAP of settlement. the Integrations quarter excludes Our to $XXX for third third $XXX the third the quarter operating Power for as the operating million, million were XXXX. expenses of compared impact quarter non-GAAP margin

million quarter The for third operating compared the expense by driven the GAAP accrual. expense third earlier, Integrations. million indicated with I Power year-over-year control operating related operating to third and settlement as quarter of the million, in decline include XXXX. $XXX $XXX was $XXX expenses As quarter third in expenses were Non-GAAP to the bonus quarter zero aggressive

million expenditures million, operating to cash quarter the a Capital flow flow was million. capital $XXX Third $XXX $XXX which free and of quarter during third were X%. intensity was cash equates

to that in slowing at with acquisition capital recent fab Fishkill end-market in and will continue levels. mid-term, intensity of near East the XXX-millimeter current With we demand, expect

sizeable East will a Fishkill forward, of on Going spent part be CapEx enabling fab. the

million, our quarter exited of of cash to the of quarter. repurchase as third to We shares at the the equivalents end third of compared cash with and second XXX,XXX cash $XXX $XXX $XX the approximately quarter XXXX. stock million of We million XXXX used during

For of back the were two buying our a for big part third restricted stock quarter, reasons. we from

were with were Power negotiating second, refinancing we settlement a First, Integrations, our and we debt.

as XXX XXXX. the quarter, hand by At the nine third days in quarter to of days, XXX were end of of days the inventory on down compared second days

days, to inventory Quantenna, on the the fair compared days in XXX as of inventory further to in XXX balance of lower to down the fourth We second intend of the days seven hand of were our impact days Excluding step-up days related sheet quarter. quarter. on inventory market

increased in resales of Distribution the the in quarter-over-quarter over Distribution third terms quarter. inventory third quarter. weeks second quarter in declined the

distribution We in comfortable inventory the the with are channel. very level our of

inventory are calls, earnings have noted level of inventory our we distribution to in we aggressively effort channel. previous As in the in distribution an managing ensure healthy our

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

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

Keith Jackson

Thanks, Bernard.

strategy to The industry challenging, potential. factors, to While not and structure. largely view our leading we slowdown focusing investing continue growth on key driven in strategic our and our change on execute our enhance which remain current is demand, macroeconomic geopolitical on operations cost our by of long-term conditions in our business does markets

product cloud-power business our and demand, remain our development to fab, in of end-market we and to XXX key strategic our out applications. markets our trends continue we East even increase secular in and accelerate. Fishkill in continues emerge momentum millimeter meaningful investments slowdown current in in driving industrial, Despite stronger automotive, Key intact, intend ongoing in the see With our current downturn. content to the

electric vehicles semiconductor the strong fastest believe that businesses. automotive among active We growing industrial should believe and we safety be will cloud-power sensor market, our time. a adoption power semiconductor end markets growth accelerating of that long in and In the end markets for drive and automotive,

semiconductor our are robust higher market, In products the and market, XG for we power requirements the for markets. growth products, for we semiconductors industrial strong servers driven power are by our power for power for seeing infrastructure systems. power seeing management cloud In industrial analog efficiency traction

through although we In near-term, the challenging an continue to improving, navigate still environment. business

and Based on stabilized, is complete. appears factors on visibility the be largely inventory continue has low continue it end that cautious. as weigh distribution distribution macroeconomic to commentary correction our revenue outlook. is geopolitical market in Customers Although demand to partners, from channel

the degree third of are operating normal did With we outstanding substantially quarter, balance normalization expenses. and reduced of In seasonality supply in an sheet inventories, managing we supply chain business. some of our our job and we inventories, chain our seeing

business with are industrial remains for near power cloud automotive, outlook secular While solid. to business, conditions our in megatrends soft, term end long-term and exposure markets,

making towards XXX production in East York, to solidly We fab year. and the track millimeter next New fab production begin on are are strong we our also our at in Fishkill upstate ramping progress

is we at final and tweaking processes. solid pace, process our are progressing stages development freezing in a and currently of Our

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

East flexibility improve efficiency are XXX of our manufacturing to network, we taking fab Fishkill significant millimeter Our measures affords and in frontend us network. our optimizing

New action York, fabs Rochester, that we of are currently down result and expect smaller in savings. cost this We of will in six-inch process nominal one closing in our

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

quarter revenue automotive Third X% declined year-over-year.

Greater China Greater region automotive from on contributor in we meaningful saw year-over-year revenue third Asia, remained this in China basis, to the the decline, quarter-over-quarter but primary including quarter. increase

decline. the We see in EMEA also which to contributed year-over-year weakness markets, continue automotive to

design-win our at a continues and strengthen to continues ADAS pipeline to in leadership Our rapid rate. expand

We and and X-megapixel XX platforms of and XX have in awarded won level level X year-to-date X X-megapixel for XXXX – vehicles.

than third landmark applications. the ADAS of image During achieved we for more XXX sensors ARXXXX million shipping quarter,

Vehicle a our electrification is quickly emerging key automotive revenue. of as driver

we During in quarter, modules the for customer commenced of fourth XXXX. third EV shipments of production quarter PIM

for secured traction we quarter, third inverter the design During wins seven platforms. EV

products gain our customer Carbide are and Silicon momentum, to global are Our growing. continuing engagements

FET During XXXX-volt launched our and quarter, low product families. third we the Carbide Rdson XXX-volt Silicon

momentum Growth management, Our management networking lighting, for wins as strong. our instrument remains solutions power clusters, solutions. analog for design remains for automotive in products LED management advanced as analog healthy. We power well ADAS, driver our power and secured in-vehicle

in military, industrial for of million quarter. the fourth end The is industrial quarter and basis, of market the third the year-over-year On quarter. end end-market across medical, aerospace, expected automotive third the The XX% most contributed industrial in we includes revenue industrial saw third Year-over-year, end in $XXX quarter-over-quarter. be to declined revenue market market, broad in revenue which Revenue quarter weakness up our based XX%. represented geographies. our

intact. are our market While efficiency in secular the soft invest to systems. key in of driving remain industrial Customers are trends we industrial market, improving continuing power seeing conditions business

expected such Revenue the to mid market. be high in for voltage semiconductor fourth flat to market power within end quarter-over-quarter. industrial end see Our the the industrial products momentum IGBTs, FETs, continue as is quarter and increased and modules

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

of third in our revenue quarter. the

in communications by Third revenue. quarter communications weakness decline driven revenue The in handset declined X% year-over-year was related year-over-year.

is Revenue XG We be fourth see in medium voltage traction products our power continue end-market the for communications down the for infrastructure. strong to to quarter-over-quarter. quarter expected for

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

Third year-over-year. computing declined quarter revenue X%

in contributed We to is of up our the the continue strong to revenue. fourth revenue. quarter-over-quarter. also computing in server basis, computing growth to see On computing growth quarter related Revenue end-market processors in easing Intel’s sequential expected be supply for

million in of The contributed quarter. The revenue end-market the third Consumer $XXX

third our in represented XX% quarter. the of consumer revenue end-market

Third markets. weakness was by decline electronics declined quarter to consumer year-over-year The consumer broad-based in XX% revenue due continuing year-over-year. and white-goods

continue down quarter-over-quarter. our markets. these in We in selective be quarter expected to in for Revenue to participation end-market consumer the the be fourth is

In inventories chain summary, business have conditions stabilized normalized. supply have as

However, visibility is macroeconomic demand geopolitical low into and end-market as factors

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

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

strong. on environment, we expenses. to sharp adjust managing challenging our business execution times, remains with focus In macroeconomic controlling these prudently To slowing are our operational

our product cost invest are in industry improving We to leading in development efforts and structure. continuing our

out We downturn. even expect stronger the emerge current of to

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

Bernard Gutmann

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

GAAP we expect non-GAAP margin XX.X% fourth of gross and quarter For XXXX, between

XX.X%. to

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

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

expenses million million to expect total operating $XXX fourth non-GAAP in of the We quarter. $XXX

to for fourth We third of over driven GAAP compared primarily four anticipated million. in in interest net be the anticipate anticipate to other $XX quarter million, of expense the other extra in the days We including fourth will including interest million million and The quarter-over-quarter will expense, includes which the interest third $X fourth our $XX XXXX those operating as million income and be quarter. by increase quarter XX quarter income is quarter expense, net expenses $XX $XX to expense, non-cash expense, $ of million. non-GAAP to those

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

million.

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

XXXX.

expect $XX in expected to We goods the $X of of sold, fourth approximately million also which $XX to million is share in be based cost and of XXXX, compensation of million quarter

our in operating expenses. is measures. in expense be remaining amount to expected This is financial non-GAAP included

Our XXX GAAP for diluted share be of shares, quarter XXXX is expected count million fourth to

our be and XXX million our based non-GAAP expected diluted is shares, share to count on

calculations earnings Further price. are share stock count on current details and per share

reports on XX-Q in regularly XX-K, provided and our quarterly Form and annual Form

respectively.

start the Q&A With Thank please session. that, the to and I Sydney, would up you like open

questions. line for

Operator

proceed [Operator Instructions] And our your first question comes from Ross Seymore with question, Deutsche with Bank. Please

Ross Seymore

Good morning, guys.

of so see First seasonal the the I about line significantly But largely other side question for the guide were given guiding are guys heard and to were on is what wonder of players then we’ve equation. players It’s you revenue from seasonal. broad-based still some in persists. good subseasonal the and

do comfort fourth what seasonal So gives think the quarter? you in the you that to be

Keith Jackson

business piece mostly content as continue of it’s think automotive And we our the mentioned, I Ross, be the should to we gains have. up.

think lift. a in And may exposure in little the inventories job frankly, there. normal a quite environment. And chain very to with some more we supply enable give recovery better in We’re we’ve a us content, good that our in in done seeing then, Asia place getting

Ross Seymore

there? looks you know give you little But Okay. onetime margin the reasons just Then on moving a into towards gave guided bit. or us side and temporary? color. the Could you, change little parts itself. one the reversing on up of And handle? And on three was Thanks little to. any all what for the It over any trend bit do be of as reasons, for than onetime these things. you the that. less it’s ASPs quarter, switching to color If I utilization? gross go assume view of these what’s longer-term bit it I the the Bernard, like fourth the happening that’s a your we those three color you for a things four

Bernard Gutmann

you, Thank Ross.

no the So the start drivers affects that the X. in changes prevent this long the structural doing enumerate did us term. reasons from secular There don’t are We for that. is the us latter believe specifics, I’ll we Addressing same. The growth part. from and

a customer. showing issue that. one that quarter first the The really It impacted more of Can’t why is is some vendor lift. one detail is one give reasons the product than specification fourth you cost,

The the in demand second weaker on piece on more is we pressure did – of multisource market. and the see the a reflection ASPs, products primarily in on obviously quarter, that’s end last

third did as we have a obviously, that has the the our long our we one of and on had also is inventories. margin. was utilization in the internal It purposefully a gross And lowest time disties XXs. control reason middle was result, ramifications in and And

We – have will lot little but internally, lower still in will bit in utilization to not channel, portion normal so more be or our more expect to our inventory gross range. a a disti – margin of still the reduction the have our still

acquisition, the will XXX-millimeter And terms far so improvement and gross really us process, be if significant allow margin, flows seeing show qualification we I with we’re and believe, look to will that of – long run, our fab what and at in in very is we’re Fishkill something plant but happy transformative

Ross Seymore

Thank you.

Operator

you. with proceed with your Citigroup. question Chris And Please from next question. Thank comes Danely our

Chris Danely

thanks guys. Hey,

questions of the couple gross margins little to a Just into dig a bit.

business something like, conditions products, guess the like environment, from how to And other – worse is if, stay that sluggish adjustment, remain like this? this Or product sluggish ASPs if this kind and expect multisource it for of that? And is lower business we then can reverse? on when being that? risk this sort back of portfolio much of I customer come get your could could for onetime that the possible on customers then So conditions in overall ask

Bernard Gutmann

are of in me this by that let which of that making end affected take. Obviously, you about weak – that mostly a XX% business. reverse. are give computing – or our products our the That’s end consumer, kind The are in factor. answer those is are demands So

So pressure. in the this will how function continues long weakening of demand – a pricing be terms of it

we believe other there the risk adjustment will – to one, second single we that related The don’t one is customers. no affect it is and customer,

Chris Danely

of I follow-up, is my end your auto like rank for just kind most little you And impacted? them sort us would of from, Great. How major Okay. through can markets? to sounds you It better. a run getting guess, least Keith,

Keith Jackson

Yes.

we’re in automotive, Asia. seeing recovery So a

in server of And continued then in Relatively from in conditions recovery a seeing same so computing. portion in a market, perspective. handset the sure seasonal seasonal weakening the have would as not We’re benign expect, is And I’m abnormal that, that you industrial. you story. consumer,

Chris Danely

Great. guys. Okay. Thanks

Operator

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

Vivek Arya

taking – to also question. of wanted gross the margins you now, about around XXs-or-so for low Since have in completed they gross they XX%. Bernard, are of acquisition my Thanks talk you is range. Fairchild, utilization I kind that margins I mentioned And Right XX%. peaked the first. think,

is forward? construct go could useful So point? as better Do you as still at more XXX-millimeter, it get production incremental be that we forward, as margin XX% a onto you than move the gross some think you that

Bernard Gutmann

of as still the some help still short growing transformative the – in be terms Obviously, through. affect that Yes. drivers secular changes, doing that better In faster, fall also they’re and fall thing. should can the XX% margin, the term, through. gross the also our valid are And that areas should you command with continue we said, as also, a those in that so

Vivek Arya

peers. place, seen in you investors of but from any all deliberately of under diversified chip evidence for Chinese any shift, your whether European some or to right, share asked this to you not customer any your applies U.S. And of specific, move being might your there’s makers Have Got Have from be perhaps away that of discussions some and follow-up, competitors? so evidence Japanese far? seen amongst being pressure it. discussion hardware makers, to that so ON or my some Keith,

Keith Jackson

detected are been specific for customers there’s ship Japan-based or There have supply, alternate share. share products with for unable shared their no shift current European to far sources So China competitors. this patterns. us. but in we’re Those But discussions having small about losing business stage where been the otherwise, about many amounts at nothing some dialogue the of to in

Vivek Arya

you. Thank

Operator

proceed from Thank you. And Gill comes Raji question. with & your with our next question Please Needham Company.

Raji Gill

if But digestion least That’s that’s in Thank important. I I at the end wondering correction? bottom ago, of you correction so of where this digestion, was can a is control. are we kind year inventory A of about the inventory because something demand the characterize This the started we’re could on to harder you. question be in The we out. cycle. think to inventory interpreting terms that that are – figure at a you

to demand those along trade whatever were as own your demand for you’ll internal resolution do chain quickly if to to supply in lines, levels? snap that And as you factor, how back able well a or meet at be Thank then from you. respond think your

Keith Jackson

Okay.

of So inventory-wise, the a nearing we mentioned we we’re place end supply the were and in last as quarter, We felt that. believe area. reasonable chain process. We still think correction with the stable I

inventory in we those distribution a think quickly we’re of look things, if are But they One and shape key with happen our for recovery, recoveries change internally, where response. in and can do levels, generally at the things. good you

Raji Gill

base you power a related little could XG some the year? my position stations as we going we next zero in XG Wondering about to XG great. you characterize go be might relative revenue, the to the How kind the have follow-up pause. of if you increase significant to head because question bit in had at a requirements but there’s basically Okay, supplies, for your past base said a think of that radio And There’s these the cycle. into MOSFET station do infrastructure there for reports access been increased auxilliary been as content. had XG, well of that

Keith Jackson

Okay.

will the players that So we to deployment positioned are, of all and continue well in XG, I expand. with think,

had on. expect little some A trials we pause, went but rapid be a in we very pretty bit a test of to next China. ramp early significant that think year I

Raji Gill

Okay, you. thank

Operator

proceed And Christopher with you. with next Rolland question. Please your our Thank Susquehanna. question comes from

Christopher Rolland

Great. guys. Thanks,

fab? given plans change So you’re slower a slower at this existing or there talk to macro, is does speed Fishkill not for well. how going the would what which to look some projects that like maybe slower macro But lower and Does so? capacity the macro you I’m that your equip years example, and utilizations affect then also, utilizations, next like, given coming can that you equipment equip And three a the Maybe wafer as about sure. for probably and – might macro I as think you this Keith, new have well? new for on given

Keith Jackson

answer profile automotive industrial is The slower expansion. where like That demand it getting a us is enabling simple in XXX-millimeter is deter power. of to key and macro there to and being for satisfy we’d not going our margin growth our the part a able

but network will curtailed out of make mentioned continue. will balance to been that to And that ramp to to Other situation We slow. would see move those our capital margin. have sense don’t to things needs, will in enable us which better earlier, that gross any accelerate types balance So continue total significantly that as we forward.

Christopher Rolland

capturing more margin. particular, some towards and versus then force as there last process one and And Great. competitor company quarter, sales a they moves direct more in have distribution move perhaps controlling been this that

internal know as kind Or guys moving view changes wanted your you of a versus thoughts even? you for distribution you do on more move guys. to here for – opportunity these Just an perhaps competitive

Keith Jackson

Yes.

They they We small the win are quite commitments at the all for strongly customers. world of believers distribution need. efficient those a can are that design reach reaching customers we network. in around And range the also

we even distribution in to an that to continue annual we’ll for gains opportunities basis. share in distribution. be faster looking So them see strongly, grow And support network on

Christopher Rolland

Keith. Thanks,

Operator

Thank with Riley you. Please question our Craig B. question. FBR. comes And from proceed your with next Ellis

Craig Ellis

the to taking just well. guys, clarification some a lot wanted with that to navigating how year? operating But Thanks Yes. expense. a would shield the you flow done much pressures of income trough can the on going moves Bernard, quarter, there’s the question. next from were I And gross on those on operating first more that that structural third Clearly, things were clarify, versus are to margin. on through tactical changes the for for of follow-up congratulations, in

Bernard Gutmann

There of did year some is but general that earlier we were more that the took we in terms, In in more quarter tactical. third were what tactical. the most the structural, actions was

Craig Ellis

Got it. in Can side, for made summarize reduction the was fab X-inch And York. on the some levers of mention what there COGS you us cost New then of just Rochester, shutdown a into are as you that look persists environment XXXX? contemplated have out we utilization year? next demand be if else into is there might Thank And you. anything with at now that XX%, the

Bernard Gutmann

Yes.

more optimization. back at time, we for same on working utilization opportunities fab freedom the increase Definitely, our up give of the the our So the network And levers more well mix. we and as well of degrees normal us in managing as – the Aizu continue same. more regular East Fishkill as the as fall as the that we will levels being through we to have continue terms

Operator

And Ambrish question. comes next proceed you. from with Srivastava Thank our question with BMO. your Please

Ambrish Srivastava

seeing quarter breath. auto. morning, production design talked quarter and while guys. anybody for onwards. maybe What Or is Good to you. you heard buyback mentioned assuming pickup in levels? long thank time on thereof going going out same I that a had Hi, be Is So have the it in you forward? and brought very you? and the buying bottoming This back from question of about Bernard, you Or to due you. say have mean ramping? share China you’re to it we reflective buyback that it China it are because this then this up is the is does follow-up. specific it it more wins in low means Thank – macro? my the lack a stock growth is first just you that ended. a I’m some And

Keith Jackson

Okay.

going there’s made we’ve there. there combination generally, our wins earlier a units primarily And also new has units. new few the that is those been ramp, in now content year, to there’s of a the so On part to so in are piece China got the are more be than sense models starting more But content auto electric vehicles. both and a of business,

Bernard Gutmann

share And in long the on committed our buyback are run, Ambrish, program. we the share question, to buyback

mentioned the have and do $X.X continue We litigation we intend and working be short taken on and we as have In the have that term, issue the billion call, significant go the we outlay settlement a we we as to implies that several Power, – run, have that. through do in will into account had program a to the that times short one. of with during the cash

Ambrish Srivastava

goes well, that Bernard? this quarter So through as

Bernard Gutmann

Yes, should. it

Ambrish Srivastava

Thank you.

Operator

our your you. with from comes Thank next And Cowen. Matt Please with question. Ramsay question proceed

Matt Ramsay

ahead Thank questions two at Yes. guess, automotive business, I I you on them much. very Keith, and expediency. I for ask go and the I’ll guess, have, just, same both time the

sensor on first is business. image The one the

the… I mentioned think in you

Keith Jackson

Matt. We lost you,

Parag Agarwal

the we can on to next caller please? go Sydney,

Operator

Yes.

Please comes question. question Mark proceed your with with Sachs. next from Delaney Our Goldman

Mark Delaney

Yes. Good morning. Thanks for taking the questions.

much to into charge you hoping took margin in there’s follow-up topic was could cost clarify think underutilization the the and a related First so the a because you capitalize underutilization. on gross I quarter only I if period ON is can inventory. FX

And So did charge? quantify if so, a you that? you can take

Bernard Gutmann

whereby gets If above our utilization, cost, off. standard, portion a normal were we our XX%, of the which mentioned used So capitalization we written it’s in capitalized. gets in rules, below if the our terms it’s it of standard, unit

So activity, no there charge. was period no unusual

Mark Delaney

the bookings seasonal? you helpful. on trends. have the and off linearity And quarter? been company could start comment then question was Did saw. that hoping bookings around I then throughout of it pretty quarter bit more the Thanks. a bookings Okay. That’s recently consistent the follow-up little a was weak, more Or largely the

Bernard Gutmann

We has and it seasonal. believe pretty consistent – and been based

Operator

with James. And with your question. you. from comes Chris next proceed Thank our Please question Caso Raymond

Chris Caso

Yes. Thank you.

about you pricing that First is pressure on some question And starting. ASPs. talked was

indication some annual a year quantify back you it know have a performing Can know of they time ago we bit to that’s better help of years of than some could you negotiate And year? of looking kind this you next I several little couple the been for normally where the that now? of of how Is If were have. where the start give to past pricing. years, I ASPs is to that. getting

Bernard Gutmann

Yes.

ASPs Chris, saw cycles. in in year, the is in I is of quarters past. It than first it can what than that we of the than historical, but But like couple we previous in more than less did the we in say historical. less don’t quantify So – terms, still general less

Chris Caso

Thank you. All right.

or going would between in going do look Obviously, reduction By you forward? forward? more much expect grow revenue ON year. how market similar give units some versus What do As auto be think a is auto looks year X% come the maybe How automotive, units? growing. the this units? say spread and of your Semi’s this where you I is follow-up your on relative somewhere falls indication down it to going can so your you to growth And on in auto like to content a you

Keith Jackson

Yes.

you kind chain. in look supply of – the you there we contraction think performance We’re was – this believe a year, if at

wasn’t a So it chain. inventory down reflection just throughout actual of the in end essence, but whole the coming units

So gain we the content market. significant a you get from a believe down even benefit still in

Going X% flat X%. looking to for think of forward, I On roughly is forecasted, up in auto growth basis, kind for which us. and the market we’re X% unit

Chris Caso

Thank you. It’s helpful.

Operator

you. with your Thank question from Vijay our Rakesh with And next Mizuho. Please comes question. proceed

Vijay Rakesh

XX% quarter the side. going handset saw September sequentially. grew back I Just on comm your

look at were look guided quarter, you saw December it XG wondering, if you Just you the and that know what down. you trends versus if I And to at growth. handsets,

Just into segment weaker going wondering was Thanks. December. which

Keith Jackson

handsets a normal was look certainly think the was big it There nothing into don’t handsets, play there it’s but quarter. as down, so third for phones out, there some not fourth and the we were seasonal XG portion quarter then normality. total. content in And other we significant substantial the So a a of than

Vijay Rakesh

What progressing? are you Quantenna. seeing And thoughts guys How Got question, Thanks. then there? last it. Any that’s there?

Keith Jackson

decline like So there. the we’re rest seeing business that continued of to not continues markets, soft be the but

So as more we and expecting stabilized, it are XXXX. we looks it’s get like normality into

Bernard Gutmann

And delivery. quarter, the should are of also integration we result this we in also completing and have synergy work some the also that –

Vijay Rakesh

Thanks.

Operator

question David with our Williams with And question. you. from next Capital. your Please Thank Loop proceed comes

David Williams

ask you the maybe out return on for to in Are terms want subsegments gives there? just – bit you to stands the that or Would side. you. Thank of industrial seeing of a anything optimism growth

Keith Jackson

are same quickly that personal ramping the wins of of medical a lot in to much all expecting the in out like it’s Right breaking design break medical Nothing as now, business showing pretty our segments pretty looks type of start arena electronics weakness. the yet. piece am out XXXX. I

David Williams

Thank handset? see talk opportunity growth and you content standard XG the bit there can to between for going then you is growth? handset maybe a a the XG you. about And little content What the

Keith Jackson

content. around It’s be $X somewhere going a in difference to

Operator

question comes Please Harlan Thank Sur JPMorgan. from next with you. proceed your And question. with our

Harlan Sur

Thanks taking my for morning. Good question.

a looks off in to compares of goods, to is it’s deceleration guys into and for end I On beyond specifically demand sequential appreciable trade more you this continues that QX get looking are and base, segment? forward more the low But macro-sensitive know of like seasonal and normal be But show QX. showing to looking on this expect segments. consumer, seasonality starting it’s one now basis. that white segment year-over-year are better year-over-year it do QX, going a of trends actually the a signs

Keith Jackson

skewing us. also behind some was year. Yes. that I significant which enter of seasonality as some largely We think had purchase there. tariffs corrections, patterns buying more inventory you that’s are would anticipation expect And us. that think normal was There quarter first the was next behind there we of

next a be seasonal normal should more into business it like year. going looking So

Harlan Sur

your high-performance on then But a have on you X.X-megapixel at design the X-megapixel you X-megapixel win and hear X-megapixel product sensors any on that. But guys solution. some traction Sony to And the us have Good competition think the do might on for Great. image for sensors. auto I level? gave metrics front, X ADAS, new front

Keith Jackson

No.

competition. performance that consider nothing superior I there would and have We

at and not winning X-megapixel We ground any losing platforms the have been or traction.

Harlan Sur

Thank you.

Operator

Thank O’Connor Exane with question. you. with And Please proceed our next question your Paribas. comes David BNP from

David O’Connor

for thanks my taking silicon morning, question Good on the on on A the wins side carbide. questions. Great. design my

mentioned EVs. You

carbide? Can I What kind of are detail are And You mentioned silicon have Are more you these And ramping? these actually give exactly transcript. geographies? silicon-based? on in they follow-up. them, – a more silicon some wins the are seven inverter when these

Keith Jackson

IGBT the They’re year and Okay. mixture carbide, a silicon and of from to year. late following those wins next ramp anywhere

So will years. in the I specific don’t front two schedules have of me, next over be but the it

David O’Connor

follow-up Great. Bernard. one for maybe And then

will charges? peak So the be QX just so underutilization to clarify,

Bernard Gutmann

is the to utilization. probably be lowest We believe QX that going

Just utilization like the believe bottom of now. we’re QX, we at terms in right

David O’Connor

Thank helpful. Great, you.

Operator

And from Gerra you. question. comes Tristan Thank our next Please Baird. your with question proceed with

Tristan Gerra

Hi, good morning.

help back question, are what the manufacturing prior outsourcing? any capacity you of to there And follow-up leverage to utilization to rates? is there percentage a currently internally As bring your

Bernard Gutmann

We doing about everything The at our ongoing have as a regular that outsourced process. been you XX%, is including total acquisition. about recent XX% most exclude amount when

Tristan Gerra

Okay. Or process in And how go you a of can that that can is outsourcing percentage? a continue? low terms as

Keith Jackson

that in over we get We down continue year. some to can. But balance there. a of can we We’ve the where we think percentage obligations points suppliers few next general, got to our

Tristan Gerra

Thank Great. you.

Operator

question. with question next Piper proceed your our Kumar Harsh with comes from Jaffray. And you. Thank Please

Harsh Kumar

Yes, hey guys.

of had execution. I a couple questions. Solid

to much China. I in you normal just we mentioned of we’re auto, First, units I half, this that you bit? contracted you think was over second see in to make if is Keith, you’re the sort that expecting kind on the or of – do then China, you more this is you for see when think, year? next up curious little whipping kind demand and around And see trends to trying how customers of talk how do your so a

Keith Jackson

Okay.

would how created kind the the situations continued of describe have year. significant they we year, requirement now, continued in Their should way the though, to bad expansion. middle right We will there policies they’re there is of some continue recovery to be the in think the efficiency going We conditions, a that. current changing government see growth jump do changes from on on see marketplace, they and through part, some some So XXXX. in was conditions. grow. and Not current Then we first some will next economy part think I going regulations subsidize there that changes is in-demand that digested

Harsh Kumar

semis or I over place like your even try the might war. your Understood. know But us for trade how maybe place, over remind And have for industry have business? here particularly been could businesses my to business and think the you even the such we been follow-up, seasonality the all all as maybe and about

Bernard Gutmann

Sure.

to So negative. for fourth so there X% negative a a quarter, thing, normal is seasonality, if X% is such the small

QX QX X% the negative, and on a X% positive, The in also QX and to first X% both – X%, QX are quarter the like QX. is for range. something

Harsh Kumar

guys. Thanks, Understood.

Operator

from Harrison Thank proceed And next Longbow with Please our Research. question your you. comes Shawn with question.

Shawn Harrison

morning. good Hi,

seeing lead pretty times. there now much any right you? First extended product question, is just lead on product Or everything where still times? for Is you’re normalized

Keith Jackson

No.

range. extended a Most unique or general in few the where those but have of times, that more are lead unique are there’s We normal flows products specific requirements. products have still custom-based our

Shawn Harrison

markets, end the are In more recurrent? those products sensor – it auto is

Keith Jackson

more and segment. industrial other automotive be to than any tends It

Shawn Harrison

a have I you off pay on that then Bernard, coming think Do follow-up, cetera? refinance convert And year. et brief thoughts Okay. any due there’s a next as that,

Bernard Gutmann

but billion undrawn We it at – intend refinancing. pay do down. could of refinance want this revolver recently tap about we We our did to we in into of we and stage, explore have debt also possibilities – $X.X case We to that. have

Operator

with our Hettenbach question you. Craig next Stanley. Morgan Thank from And proceed comes your Please question. with

Craig Hettenbach

Thank you. Yes.

back of the thinking and then going Just update Quantenna. just Any about on product areas autos, that? to development industrial how you’re in

Keith Jackson

Yes.

to into added the We that set as looks derivations and now. it’s some the two expectations for from Quantenna to them years be shape months what high-performance we to in marketplaces. those invest. to WiFi deliver development drive continue they’ve going of teams XX got team to ON like That to continue We to took the good

Craig Hettenbach

And Got it, for then thanks. just Bernard. a follow-up

just came XX in sequentially. typical You down XX talk you today? inventory about where target of the framing the that the you channel kind Can of versus guys then to weeks are and mentioned

Bernard Gutmann

Sure.

week comfortably within range. are to We that XX XX

Craig Hettenbach

Okay. Thanks.

Operator

further any Agarwal to session. with concludes our it Thank would like back turn this now Parag remarks. you. to And I Q&A

Parag Agarwal

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

Operator

Thank for conference. gentlemen, and participating. you today’s Ladies this concludes

You disconnect. may now

ON Semiconductor (ON) 28 Oct 192019 Q3 Earnings call transcript