ON - Earnings call transcript Q4 2019 | ON Semiconductor Corporation

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Operator

Ladies and gentlemen, thank you for standing by, and welcome to the ON Semiconductor Fourth 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, Vice President of Corporate Development and Investor Relations. sir. ahead, go Please

Parag Agarwal

CEO; Good Relations" Fourth thank Conference Quarter by at webcast President joined Sydney. This our ON is www.onsemi.com. of call Call. for our Semiconductor today being and our Jackson, Corporation's XXXX the Keith Bernard morning you, Gutmann, you CFO. "Investor and on joining I'm and section Thank Quarterly site, Results Web

XX approximately quarter also one of to days conference our for posted broadcast, site. following on will script XXXX our along earnings channels, fourth release, this The related business XXXX on call broadcast markets, will replay and call, A for Web geographies, our approximately conference our segments, Web today's following site this end share hour information this recorded and are and calendar available be with the additional available count, call. fiscal be

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

performance future the or projections or identify statements. "will," "plan," regarding will expressions intended of the similar this are make "estimate," During forward-looking The to statements forward-looking future "intend," conference we other words company. "may," "expect," course call, of financial "believe," "anticipate," the events "project," "should," or

our actual Form that and Commission. affect results materially other cause wish with XX-Ks, our cause statements from We risks can factors factors subject events uncertainties described Important statements, which Securities are from including differ and our that could such or to caution Exchange in forward-looking to projections. that Form actual to to filings XX-Qs, business, and results could differ are

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

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

business. event, will the City community an community will strategic this At host in we XX, August our markets. event on New strategy, investment York update a we and provide on to XXXX, On business, for our investment update

will our provide our plans consolidation strategy. XXXmm of information we addition, manufacturing In manufacturing and on economics

for invitations the send event shortly. will We

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

Bernard Gutmann

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

Following stabilization supply in in driving is Order rates. that improved have trends trends improving the the to throughout in third of demand the normalization improve quarter, we chain, order end-markets to fourth most quarter. business We continued the quarter. across improving seen believe addition

risks believe Macroeconomic and conversations our on order crisis, from activity recovery that rates Based of is are economies potential than are evolving customers, coronavirus is with situation. showing increasingly modest of we improvement. favorable, is time, we the major data in industrial from At sharp a emerging upturn monitoring demand. cognizant diligently and the same signs and the we of rather most arising the moderate rapidly this pace

Our to pace. continues our at strategic grow traction our to and in a rapid accelerate, continues design-win key markets pipeline

cloud-power markets and to Our industrial, continues of content segments growing fastest increase. in automotive,

continue products and Our solutions fastest in rate. to growing at applications and automotive, are of peers. believe our the customers We growing of market most enable industrial, our in a should base, content us diversified adopting of outperform for semiconductor cloud-power our customer life highly an that market, cycle many accelerated long to

that gross sale begun exploring morning, we target, we structural progress margin we our six-inch announced footprint. the To to to accelerate towards our fab make manufacturing are our changes our of in This have Belgium.

production further fab we transition the our updates this later firm plans. Keith up will impact will on Belgium call. these during plans of as We financial on provide expand our actions for

various in gross our making our investments with changes to improve Along structural we markets. margin, streamlining are

nominal impact took Towards should $XX approximately full should by this the of XXXX, fourth be million to restructuring apparent this year. second per in and see the XXXX. quarter in quarter end, quarter We of limited reduce of begin operating to we by expenses impact first actions action our the

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

fourth income quarter compared income the net as $X.XX XXXX as non-GAAP GAAP XXXX. the quarter fourth a fourth in XXXX. net per in per the and the net of to share diluted of for for share XXXX XXXX. of XX.X% in gross Non-GAAP was quarter as of to of the fourth compared to fourth fourth for compared GAAP $X.XX was of quarter XX.X% the $X.XX quarter $X.XX quarter margin diluted was income

to margin our our combination of during and the due high operational an Fourth segment We low-margin a consumer quarter. than mix line the lower product transitory quarter fourth in was expectation for issues. unexpectedly gross had certain demand

continue as well. We intend expect first after prices the either first significantly this the raise or We quarter. to strong product line quarter in demand discontinue to this

had we related facilities On the and issues. operations front, certain scrap

of end see our XXXX. gross to expect from by will issues the the the headwinds first to be In costs fixed near-term, we these expect quarter margins. We of resolved

you manufacturing aware, in and As are capacity our we expanded XXXX. XXXX

Therefore, addition revenue due lagged and geopolitical with depreciation well-understood revenue charges we However, of lack and expenses. and growth, are expectation our now facing underutilization manufacturing macroeconomic to capacity of higher has factors.

to we should depreciation. revenue from and expected offset the With XXXX, be impact underutilization able in growth

the quarter than incremental in for XXXX gross margin of starting We second the expect XX% year. higher

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

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

two operating $XXX fourth the $XXX as million for quarter quarter were $XXX flat of fourth more of fourth million, our The fourth control operating aggressive XXXX than by compared Recall expenses expense accrual. of expenses and XXXX. quarter in to from quarter operating driven XXXX. Communications. for quarter the of decline bonus for zero were compared in the expenses Quantenna year-over-year to was million, GAAP operating that fourth included those expenses as expenses the our acquisition Non-GAAP quarter

negatively cash intellectual operating free property million quarter Power and and cash million flow negative cash $XX free one-time litigation. impacted $XXX previously free Integrations was settlement $XX flow flow to by Fourth was million. disclosed fourth for payment flow cash of of quarter The approximately free were operating

capital fourth equates X%. a during Capital expenditures the intensity which of quarter $XXX were million, to

inventory in customer Distribution end days quarter, hand the days, within The a of and will CapEx Fishkill on compared of quarter programs. of spent by anticipate XXXX. but as the our driven third was of equivalents that by $XXX quarter million XXX forward, part increase the million sizeable of the At with fourth down cash inventory zone. the our enabling as increased the third slightly fab. Going exited our of specific XXXX. to XXX days $XXX is on XXXX of cash quarter we five were We end to days compared fourth be East XXXmm at comfort

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

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

Keith Jackson

for Thanks, Bernard. most I and our to our our semiconductor and will and analog Despite by outperform our macroeconomic challenges power start progress in objectives reviewing in of the XXXX, peers geopolitical by industry XXXX. in XXXX, on we and touch semiconductor faced the group. was solid, expect then execution the

our business strength XXXX the Our transforming model, execution of and our nature performance in discipline. and demonstrates business, clearly of

in megatrends megatrends and macroeconomic cloud-power end-markets industrial, our key remain outgrow most business driving secular secular to has exposure us to peers. Despite of enabled geopolitical headwinds, Our our intact. and automotive,

and and solutions cloud-power our electric continue continues the applications as infrastructure, automotive, leadership ADAS, we high-power in content servers XG power such key strengthen for and to in growing for vehicles. Our industrial, applications to markets fastest power and management grow, in

plan to IoT our power expect XXXX, Quantenna at soon. and Communications, start products this Also are of launching acquisition progress facility applications. we fab, we and production first in our solid to for making our announced We Industrial toward XXXmm of solutions we acquire closed our connectivity

measures While accelerate to the take we towards immediate our progress XXXX, are our we in pleased substantial, with our margin aggressive, and targets. need understand performance to

are As this in announced Bernard morning exploring sale our earlier, indicated that fab we six-inch Belgium. we of

smooth for beneficial and to that are enter into both an parties. for that partners We arrangement terms willing transition orderly enable looking on mutually are

proximity believe East attribute. and our in We very a that efficiency and asset XXXmm with flexibility network. manufacturing continue affords us is Belgium fab automotive highly to world's of to optimizing front-end is workforce. innovation leading qualified, manufacturing to will and footprint, tool-set Our compelling work we attractive our significant close Fishkill our It is hub automotive skilled an improve fab in robust and its manufacturing

process third in down fab quarter we initiated that of Recall announced in New earnings six-inch our our closing Rochester, XXXX conference York. we had that the call

initial expect and our towards East now middle At schedule, ahead We in results runs of The significantly expectation previous to XXXX, are our production been tracking compared point, are of to wafer in strong ramping at we latter fab progress in this XXXX. making of yields we XXXmm Fishkill. initial and spectacular. half have as of begin production begin to

our of we this structure be to experience point for transition East the confident fab our end-network. a front consolidate on production even we thus cost fab, manufacturing Fishkill our Based inflection more major as far that with are will

XXXmm our August the New financial XXth at fab in Update on of provide We impact details further York. will our transition Strategic Business on

structural making our operational taken our optimize changes operating to structure, have expenses. to addition measures In we cost to

savings and actions our took our our investments result we certain annual of these to progress reduction intensity of are towards discussed, $XX accelerate XX%. per target previously actions A As expected in $XX year in limited of approximately should markets, to million. restructuring expense million approximately operating streamline

current now the that modest saw from driven most GDP manufacturing in resilient improving We activity in has current improvement business and macroeconomic environment. improvement and supply been quarter geopolitical suggests far on Macroeconomic pointing in the rates geographies quarter. in from improvement encouraging. activity. of improving outlook by is improvement relatively and believe We manufacturing fourth this comment China especially continued Let towards conditions, our and has Data order the moderate me data chain normalization inventories. thus

the Based our outlook. on believe demand near inventory that are current term inputs and data levels we from our publicly partners, in-line available with

environment, geopolitical are term Despite on are of fully diligently and macroeconomic we crisis, coronavirus by we ongoing markets. monitoring key the focused aware we from evolving remain near While gyrations strategic trends, in emerging encouraged and situation. are rapidly we risks this our

analog, highly markets. differentiated the are semiconductor expect our fastest portfolio we cash cost At industry outgrow further grow margins will we structural we our in to taking content are our with of to operational years. meaningfully margins the measures to the We positioned that our and and strategic time, well flow. manufacturing next expanding improving improving connectivity and same our free growing the industrial, With industry five goal expand growing our X leading substantial power, for structure. products, footprint sensor, cloud-power Furthermore, end-markets make and with grow efficiency, changes we our fastest as semiconductor of believe be automotive, in to applications

fourth represented for our fourth XX% X% for provide end-markets I'll Revenue automotive fourth the of revenue XXXX. automotive $XXX quarter. in progress of year-over-year. revenue million the was in details in Fourth Now of quarter and quarter declined various the quarter the market our

to market the revenue see our improving declined in trends recovery Although we China. with in year continue over automotive ongoing year,

and momentum to accelerate. vehicle in Our ADAS electrification continues

of key During for incabin design viewing and XXXX, we for the applications. fourth platforms secured ADAS wins quarter

robust continues to a pace. Our design for ADAS funnel at expand

XXXX we in the XX vehicles. earnings have we previous noted level-X call, eight-megapixel our XX platforms As awarded two-megapixel and of for won in level-X and

enabling are these with gaining of a and for products of We is to of design that a pace. other strong LiDAR traction, our radar fraction Our expand funnel a products and at democratization believe continues which LiDAR solid-state existing solution, solutions. cost rapid we are

top based Our global win on cost that is leading share Based to with by materials. a module design advantage enabled CMOS to on our have architecture makers. low based we exotic expect pipeline, five LiDAR as opposed

as announced. upcoming engagement we our radar our a feedback and Based a very been contender have with we radar In integrators, gain for emerged very on customer are design market positive, leading solutions designs wins. of expect as share addition, this of next round to has meaningful Tier key round in X on

On front, engagement modules automakers electrification vehicle continues our grow. for major with global to Carbide Silicon

vehicles Europe, ramp We and IGBT in and are of on Asia for design expect in backlog, our continuing drivetrain electric and seeing based during we of wins and acceleration XXXX this modules our strong in ramp beyond.

beginning to analog for see power We ADAS are management processors. in ramp

providers engaged ecosystem, line. product are all this and from automotive We with expect contribution for leading processor revenue strong

We power instrument analog expect to management see growth solutions our lighting. networking, strong and clusters, in in-vehicle advanced for

Revenue automotive aerospace, end-market, The be fourth quarter and in fourth Industrial end-market for revenue revenue Industrial industrial in the includes the the up revenue our declined quarter. Year-over-year, quarter XX% XX%. XXXX expected quarter-over-quarter. of quarter. military, The first of in medical, of $XXX our million fourth the to which end-market represented contributed is

in customers. still It activity, process significant realigning we that While haven't in seen their activity customers industrial from inventories. order of industrial macroeconomic moderately data improving are our appears improvement points to manufacturing

conditions, trends business driving end-market our intact. secular Despite remain soft key

We and shipments of our we An these OEMs. leading growth Carbide of our commenced for is are have seeing business modules strong global modules, emerging Silicon e-commerce. to traction industrial industrial for area

We strong have built for design win robots. and CMOS image for warehouse sensors our pipeline automation delivery a

contribution e-commerce the expected quarter The expect are quarter. to on in the of the wireless, includes the industrial contributed programs, we networking end-market market. XX% industrial which XX quarter-over-quarter. $XXX revenue be communications represented quarter. and segment The strong of flat revenue our leading end-market, down Communications Revenue fourth to in is fourth slightly the in end-market of many this retailers million first for both from We with the engaged XXXX of and

communications related the first fourth to business be was the quarter, quarter customers Fourth the year-over-year. quarter weak smartphone business. due revenue to expected down as in On The our end-market weakness XXXX we quarter to smartphone in for basis, declined X% was primarily saw strong of decline quarter related business is Revenue XG quarter-over-quarter. in continue inventories. in communications realign but over their our growth

quarter $XXX of Computing fourth end-market The the quarter. Fourth revenue contributed The revenue X% our computing declined computing XX% in the revenue represented end-market million quarter. in of year-over-year. fourth

We momentum quarter-over-quarter. the our our of business. driven continue XXXX supply by see quarter the processors. saw computing computing end-market basis, to of server On down strong growth business is in client related for to we sequential in improved first in computing slightly expected Intel be Revenue

normal should that the expect impact strength help in business our We mitigate server of seasonality.

quarter-over-quarter flat a a of consumer continuing in our declined The revenue fourth contributed Revenue The basis, of demand of is On end-market year-over-year fourth of decline revenue due our the to represented $XXX unexpected weakness end-market The margin XXXX the XX discussed expected for the Consumer was as Fourth to revenue low for to XX% end-market first expectation due end-market million consumer quarter. in in to in for consumer quarter. quarter previously broad-based line. electronics. product year-over-year. the quarter-over-quarter. revenue by compared down consumer quarter consumer be decline was XX%

taking towards are accelerated cost target to goal production to the XXXmm we long-term the at for intact, the our same anticipate we initial to are of the progress with as upbeat prospects. production of our model in fab, Secular start remain model. accelerating substantial we time, our as actions At year. opposed of changes business middle our timeline In our our our now about have summary, financial the half make prior structural and megatrends will expectation medium that driving of to we second XXXX, ramp

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

nature discipline. demonstrates business our performance Our model, XXXX strength transforming execution business, of our and of clearly the in

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

Bernard Gutmann

you, Thank Keith.

of for Our from XXXX guidance the prevailing crises. include does supplychain first the impact coronavirus not resulting from quarter potential disruption

situation, earlier, we As business crisis. we the information but this evolving indicated we time, potential monitoring on on are enough from rapidly don't at have this impact diligently our

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

XX.X%. and non-GAAP annual XX.X% pricing quarter-over-quarter is by first between quarter decline gross of margin driven to contract GAAP margin gross first in primarily quarter expect we XXXX, For The reset.

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

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

total other variable by quarter operating of fab, We accrual net anticipate process acceleration our non-GAAP GAAP million our million We million, $XX non-cash expect primarily is which XXXX to for be quarter paid at XXXmm non-GAAP interest million of fourth first expense, expense expense, $XXX $XX in driven anticipate to income anticipated for including includes expenses expense $XXX million. expense, will in activity $XX will interest be million. The XXXX, cash $XX in other quarter. of $XX expense, of of transfer XXXX. to and quarter-over-quarter expected measures is tactical We first quarter and be million income Net million control including of expenses net resumption compensation to increase of non-GAAP in to and and XXXX income the interest to of operating $XX GAAP end taxes first million $X $XX million.

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

an for CapEx an at enabling pace. fab proportion currently our overwhelming our XXXmm accelerated are We targeting

the We latter expect half to our CapEx intensity current of year. in subside the

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

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

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

Operator

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

Ross Seymore

but guys. for side important see of Thanks revenue I that's margin investors. Hi, ask side big for and the to question. a think gross me corner, concern my step, lot turning an the letting a It's is good the

margins scale a and when fixes up forward, be up, Keith, or gross margin as Bernard than about work your XX% like target some through shown little step towards Will second year-over-year. quarter they four take So, going start be handle to look fall of bit should talk side greater big will that? a gross that these the sort of Revenues any that on incremental have? really you the you way on

Bernard Gutmann

call. couple comments. greater of So, revenue we resume expect as the do Ross. patterns quarter as XX% a in than We seasonality the through normal mentioned fall Thank in second you,

in have also mix you remind quarter transitionary XX% to let at the of by contract. that allow one-off probably and wise us that XX the to low better that subside certain due me to first that OSA we points quarter, have margin about expect grow we items the also in We fall the will us to improvement starting through second quarter. than Also, the end and affected factory-wise second basis the of XX elimination

in tailwinds nice and sale margin. our which Belgium, -- of we we result as six-inch in also some exploring mentioned, will for our So eventually very facility are the gross

on for in secular drivers our are line the confident automotive, quite top and We XG. industrial, growth about

qualification tailwind resumption how fab, also going So, XXXX the very is into a we growth, to millimeter do we pretty further at which furthermore XXX move expect as our and XXXX. some good and feel the good we be about will see of

Ross Seymore

big where back OpEx difficulty] squeezing with pretty like How that as follow-up it all color some but tight should cuts those it [technical that, guess to be, OpEx of I get I think coming Thanks trajectory you sticking equation, to million at the XX% to things of a details, my of target about us with of – still step to up. when still moving margin helpful? expected be for into the intensity the the side most $XX on seems a like any can you're had seems variable the so Even side, the bit you guess that target and costs and and going were be above we come would end of and kind out? on

Bernard Gutmann

have Well, XXXX. laid for out that we

the out we OpEx, that We XXXX taking but which XX% should higher. so get are higher had million of reason be being running before the level. still been absorbing should Quantenna at than we been is the help end , looking closer what that by XXXX, get us to XX can for has we Definitely

Operator

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

Chris Danely

Thanks, guys.

questions Just more a margins. couple on gross

of margin the impact, So, that were low scrapped exactly facilities up, how facilities the big you and and ballooned how was the that and then was and then product kind impact issues the had? issues big of what scrap

Bernard Gutmann

lot one-off So, the those the half details, the getting half. versus a can and underutilization/depreciation I not but say about of -- mix is between we're items into that like

Chris Danely

the And through then or with the like a work with [technical fab, that sort around plan anything something of sale the a there's costs over like associated that fab? Is stuff to what's in of doing associated great. Belgian on way of Okay, Belgium. there that doing getting the lot with generally difficulty] like on

Bernard Gutmann

Yes.

arrangement be we at don't encounter we made looking Fishkill costs exit kind that we've who a and Chris, facility interested so sales So, as it, to. where situation exit both renting find in referring of we're you the a an that East will that's and Gresham similar you're any party,

Chris Danely

Got it.

Thanks, guys. Okay.

Operator

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

Vivek Arya

on a had I margins well. Thanks few taking for as question. my

what possible gross level to think you historical of do QX those or is to at margins gross year? do your margins, expect get QX XX% XX%, to this of kinds you getting revenue in back and First,

Bernard Gutmann

in those better fall the for the year get should than Again, XXXX. XX% if you fall to the to levels or rest we take back be through able XX% of through,

Vivek Arya

I'm I because how and it, mentioned hit, margin prior of gross of how contract a of does margin to in and there try the the versus for curious underutilization we're contract to I somewhat facing negotiations much pricing think this challenges think and year follow-up, trends. QX, is gross is my reset because years be one those discern to some price relative were QX you that Got appear

So, if you much points due this pricing could below roughly of so that underutilization because how or versus basis of XXX is how to quantify trends? margin, how trend; of much the much gross QX Thank you.

Bernard Gutmann

So, our as a of a amount are you for have year, per OEM see know, we we good once bigger of reset that year that annual result per contracts so impact. as once

Our normal trends. that to been is as compared contract pricing has historical characterization pretty the

Vivek Arya

underutilization? from impact that a that, disappear? quantify any there way when and will to And Is

Bernard Gutmann

We us that underutilization. definitely help increases absorb to need revenue

goodwill have we second patterns, if we and So, see recovery in beyond. quarter seasonal some normal should the

Operator

you. Thank

Our next Please question comes from Chris Caso proceed with Raymond your James. question. with

Chris Caso

you. thank morning. Good Hi,

saying just clarification about in a changed if the underutilization the other clarify Is to production regarding what in of you half. made to just charges will you you're with I the being upside. I contributors that and Were more was fully slight it don't that please? a comments why expected margins one understand expected? what think had of I revenue the charges. said some guess is you the was came gross than below underutilization be Just half I quarter, during there one

Bernard Gutmann

there. comments of couple so Yes, a

has based thing, internal external, bigger, also demand external them had towards versus the underutilization of caused the mix is on the that in for. more overt our quarter, the inventories the did which we hasn't was of and and be to mix we One products reduce helped of second us

Chris Caso

understanding the saw you short-term that the gets us of guess kind kind issues of of and was was that year margin goes forward struggled better persistent. with it which I lot go Okay, is gross as transient

the you As you margins you said just get the past, what XX% XX% cost revenue gross absorption. better think I on increasing fixed incremental in is and said, plus typically

we away XX% transition the in and at some rate some to these and up of go So, get it a during point that? around is sort year, just then some back see of that you clarification gross issues step margins

Bernard Gutmann

QX transitionary Yes, most should QX we and after part last said these and disappear. the items that QX,

Chris Caso

should see as therefore? into we of up So, you some QX step go degree

Bernard Gutmann

correct. That's Okay.

Chris Caso

you. Thank

Operator

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

Raji Gill

to trying could flows any there get Yes, business, that of to do If start to And the discuss past in in terms of look in you as that kind of importance six-inch of some the the XXX you how weigh just millimeter the of utilization occur impacts, sale XXX increase that What percentage fab, process the transition of color of cost COGS? facility fab? kind we of margin qualifying you. in you'll thank terms kind that? in of the tailwinds more color your to of margins, can millimeter look manufacturing, any that in what in of you terms terms Belgium, will the is temporary rate think of benefit gross and manufacturing of the internal your impact much

Keith Jackson

when of XXX-millimeter kind we're to models mentioned referring The you ready get that. directionally very is market. allow products factory, do going August, give that specific the I'll give we'll in some to, we the to to cost you're effective us as to Yes, impacts the

We nice expect quick ramp to there. and see some

better selling contributor to of to on It the fall more XX% in-sourcing back a strong the do factory that of year. also we going We're rationalizations, the year. the to through, think in more those comment that. fall a will also time to of but to in all confidence through XX% this through than at numbers contribute as are factory specific give you Belgium there's not much factors enables us second the in Bernard's that's than go So half that

Raji Gill

any margins and this just margin again you but and touched what might And products percentage those were? is for on consumer how have low color a products the gross those the follow-up on

Keith Jackson

going we're get to by but substantially definitely into We're corporate product line the not details below average.

Raji Gill

Okay, thank you.

Operator

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

Vijay Rakesh

also in but talked gross like I it following was Hi headwind mean, looks inventories a up lowering but again, guys, you just utilization, of quarter the about terms margin year-on-year in utilization also, you year to where QX in wondering on you had the if some that expect and given just how in were progress? that QX numbers, you expect thoughts past utilizations through

Bernard Gutmann

So in QX. flattish utilization in expect general terms, we

Vijay Rakesh

back side, do growth mentioned, on alignment on. and you return you, some kind to realignment it, industrial half? inventory some Got in you through going still as of of that you How the mostly be the to QX, do to sort go you there's expect industrial Thanks. expect done of

Bernard Gutmann

expectation quarter half We the but think is it of and be so, the second we the by don't definitely year back know done. our for by should sure,

Vijay Rakesh

Thanks.

Operator

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

Christopher Rolland

Hey, for that been at This the stack a the this doesn't that I the about into expecting you not time Or kind the products, margin moving product, question. last volume. consumer for the it's story guys price margins with optimized have would thanks for was gross was the more ask decade, product up the profile talking It bigger considering was follow. the and a you like reason product want. after of probably you picture the buy? seems the last and value your QX have ties what for guys, ON About dynamics is again, it

entire So the product helped margin Thanks. I some businesses? even review of these pricing eventually really structure, low optimize your there shutter are opportunities to to guess line or and margin

Bernard Gutmann

Yes, thank you.

a in our is QX some weakness demand strength time, you've in unexpected industrial story had for company. really same is XXXX QX were we but that which and deliveries. It consumer highest there, At we controlling strong of had segment. margin tightly we the pretty businesses So a segment both the the the in very seen

steps the QX margin inhibitor. have not taken and the dramatically we need profile there We past from change expected continue a to to now

you we onwards, So get do expect see the and the in you'll continued increase if QX reduction profile in industrial. consumer

Christopher Rolland

Okay, of distributor things, I great. And inventories the think on distributor increased. you said side

some day what could there Maybe describe of Maybe was specific talked you for could programs. to customer the think give from we us you you they had maybe I about changes XX those programs XX the last if are and example? to increases then update weeks and TI at there. an update related also

Bernard Gutmann

within general inventories can't increases on So terms, those still of they but were but I linked, increased customer zone, programs. to like were linked the we is definitely differently we comfort the programs, at. said in operate to the our comment some we're when

Christopher Rolland

Thanks.

Operator

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

Craig Ellis

for taking longer-term look Yes, a FBR. thanks Bernard, wanted B. gross the Riley at back to margins. question. take It's go and I

help characterize to how the point a trajectory the XXX as and that hoping got from in that difficulty] we've towards of the there, to you do much closed is target have the we I'm guided gap getting and is basis it how that needle? of go March what are target, the So level, levers can you we're just move big linear is [technical what quarter, XXXX, through XXXX level

Bernard Gutmann

itself resolve the They're that that a the period. same the rest planning that that XXXX fall we definitely in headwind will definitely plays role they our have enumerated analyst revenue and and in better day, expect significant an through with incremental in was of macros a

So, mix basis expecting the to or help grow good manufacturing achieve XXX as some growth points fabs end short-term, of growth The back expect factor some secular again long-term, contributing consumer over thing the savings, also that with the that get in pretty as one-off in we a being be us certain to margin manufacturing into growth as we allowed we're fund. get businesses, we structural will XXX-millimeter but which will divest we high help nice will us that managing, being in come step more continue rate contributing drivers where the cost fairly changes factors, significant the us continue doing markets and and well ramping making has continue is rates. the which a helping back the expect a us from portfolio to will should time gradual we're should mentioned took in faster on we the to -- this continue

manufacturing it about, the us will ones the take the fab on including talked amount of we It have definitely take will and the mix. XXX-millimeter growth. good cost us revenue it's execute to same, So savings our same that

Craig Ellis

But established. much was than that, target was the the is it the just when to more are but first drivers the same, gap significant clarify

close do gap you get those that it can that of can which think to and variables leverage we on, So incremental so you make XX%?

Bernard Gutmann

more manufacturing I that think the can a we chance on that front. there do good was

good done need new the definitely definitely have have in getting the pressure the a flexibility puts we of we X% started we the target amount We do timing four-millimeter need. with bit on that on that with a tools that we of model terms can the in XXXX and of but in negative, it we capacity and the revenue so little a CAGR, was predicated

Craig Ellis

given follow-ups quarter switching trajectory is a then it to no growth has last on seeing sustainable good given it we're industrial, here that like quarter, in be that risk helpful, down see the second industry? trajectory That's think the global further recovery see Keith. since continue sense at automotive may of your we're the then sense that gears business the and extent that and you Keith, ISMs, seems but on a and the that the March growth you for do the your you ease of is year, kind is surprise or there's just industrials bottom from to bottom, some what different dynamics

Keith Jackson

automotive a both piece industry. a Yes, positive we to I is that think there. and return automotive feeling cover see The I'll may more there

it see equation. side the back to portion like be the been control. the of inventory has kind XXXX, we about which out, past, excited go the business I the faster think through is which pickup of to we've dynamics to is seeing do automotive in getting the side our sectors, the very we're increase seen lot large the order at of of a going reflects We content, see and in in industrial patterns a than lot us of gets in and weak bottoming growth appears the electrification vehicle more accelerating that be piece starting has rates generally of GDP that as pretty good a of the all

see expect I the in to So would again the industrial floor. side start second up picking

Craig Ellis

Thanks, Great. Keith.

Operator

with And from Lipacis question comes your with you. Please Mark next Thank question. Jefferies. our proceed

Mark Lipacis

Hi, thanks taking for questions. my

that back like, the increase so sounds I ASPs. wanted the the the to either options, going lower demand just it products, it strong Just margin or explore gross for that. discontinue to

because that process, is or continued then the are is lower costs want decision to utilization products challenge that a is outsource to also, you if operating products that the That's lower for question. be it products? the margin your and in out So hit also gross he if total the made just margin get discontinuous of and lower business? and first that absorption cause discontinue, Would rates the these a fixed decided would rationale Thanks. profitability

Bernard Gutmann

and is is say yes. operating is prices it terms helps of This I significantly So would outsourced. gross margin Definitely in the both [indiscernible]. and raising margin answer

Mark Lipacis

makes That got Okay, you. sense.

happening? Okay. that's Is had. particular a And And is activity end read sense manufacturing in Keith, end or markets is this do extent Thanks have that's the you of all market -- with you then, there? the have mentioned resilient downstream to further restocking I you on a China. due real our consumption this this to that any if

Keith Jackson

and the in economic broad-based China. in is This it's being no. Yes, seeing inventories back still in line think China. growth reflecting I And

removing a there. basically the it's headwinds broad-based. think it's So just pretty And of some I

Mark Lipacis

thank you. helpful, Very

Operator

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

Harlan Sur

Good morning. taking question. Thanks for my

business can in quarter, in improving in start think guys in continued stabilization weakness trends, them guys to QX here flatten auto QX? just saw and discuss see out U.S. China geography. demand the and you in by by Last the you improvements profile I Did you On geo some EMA

Keith Jackson

rest a world lot on the in pretty incremental of what China, with the change, not in So, in in some much Europe strength weakness saw U.S. par and the of incremental we

and early QX QX.

Harlan Sur

year, the How options the progression of Bernard, restructuring the about think that. for OpEx today. And the as combined higher with announced we unfolds? on the Thanks should Great. OpEx year space starting

Bernard Gutmann

Yes.

So I to higher QX OpEx, expect not flat and than would slightly turning towards down. definitely be

Harlan Sur

you. Thank

Operator

un-mute. question our mute. Srivastava Ambrish, is proceed with BMO. question. you. comes Thank Please And with line next Please if Ambrish your on from your

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

David O'Connor

of driving you and much ramp in-source Great. and fiscal in How to pull type we the the millimeters, outsourced that, products us of morning. ramp question. that as Bernard, this Thanks the initial my you And fiscal? fiscal can the will could taking that today Maybe, initial to XXX if there what there? for a back go Keith you XXXX bit. much are and production ramp how is then business maybe can only Good seems aggressively remind how of the be -- this you related

Bernard Gutmann

designs to deal all in be industrial in patterns, it XXX medium seeing areas the driven will for across great all so automotive demand millimeter and pickup in sector, of see the be Yes, we're by high ramp is XXX and sorts of the ramp good of voltage so, where our we the MOSFETs, that'll a the largely demand first millimeter. one segments, pickup growth and our vehicles in of actually part order

the external XX more middle the right outside XX do to in outsourced. So in-sourced we like our the we're front-end model for particularly now utilization, inside, and middle, XXs and XXs

David O'Connor

Very helpful, you. thank

Operator

with comes Please your next proceed from our question with And Goldman question. you. Delaney Mark Thank Sachs.

Mark Delaney

Thanks taking morning. the Good sir. for Yes question.

related to those and been previously you. synergies that the Quantenna announced, million much $XX or realized so then now, how COGS been to taken of OpEx, that be OpEx from is entirely that synergies going leaves new plan OpEx reduction to that synergies second separate has $XX the were the of I'm touch have of that my on synergies out and understand of million some And So from were Thank particular you that that question if of capturing was supposed far? to realized in the the Quantenna anticipated? the Quantenna Quantenna

Bernard Gutmann

other. realized, the that little most nothing a the has good the completely but good bit see separate Quantenna, be already will the to sizable one would a One and the coming do and has all they're programs. a the XXXX, into it's should other we or been drabs portion with I for say incremental. portion, dribs part, OpEx on So all still of done

Mark Delaney

Thank you.

Operator

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

Tristan Gerra

seeing you're inventory you're what very on color coronavirus, and what whether at understanding you include shut there you QX this terms could risk provide saying, that outlook, color so is downs some your any holding, potentially your early benefiting the there's some could Hi, of not guidance a it's far some some any impact good process? on and in be morning. I from of but of know revenue ODNs if the factory does the could in provide

Bernard Gutmann

rapidly we've a utilizations in any Year to shut would course and request developed it's actions some for opportunities is quick. were quite have holding there looks Yes, We is remain there going than think China are on system be. to approximately What the it's about, longer normally down seen in of It inventory in have slack as talking prior changes the any we China. capacity don't not factories been the And, been New Chinese they week. like after full. for

So we extra down be recover the will shut anticipate that first people quarter. looking to during most

data. impact, stage, at least don't much it So at really this will like doesn't visibility look that. have based But significant it more on be than today's

Tristan Gerra

you of if sorry would then And removed mention percentage in did what fab great. capacity it, Okay, missed I Belgium? from the be

Bernard Gutmann

We didn't number have we yet. a didn't, no

Bernard Gutmann

thank you. Okay,

Operator

Fargo question. Please Wells with your next question proceed Gary And Mobley our Securities. comes from Thank you. with

Gary Mobley

SAR automotive taking thanks the relates for you in that so against backdrop environment, roughly then to automotive back X% of see to flat it single-digit not confident you want guys, appears and Hey, side that are percent in I to be mid mistaken XXXX, in a to sales I'm sales growth talked high auto go having you've as your views years question, growth consensus business, can the specific that sales? and against my auto past about to

Bernard Gutmann

electric more and we it's and I though, think toward XXXX, The are, comments acceleration that in numbers the if made there's today We of hybrid the type I think earlier rate. vehicles. at look we supported

better us year. that this we go actually as get expecting high for are that through single we're So so might digit better XXXX,

Gary Mobley

I out verify follow-up the than to the question. want Okay. had just a the sell distribution, just was selling greater during forward I quarter?

Bernard Gutmann

Very you slightly. right, guys. All thank

Operator

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

Ambrish Srivastava

you me hear Hi, can guys?

Bernard Gutmann

Yes.

Keith Jackson

Yes.

Ambrish Srivastava

this lagging under-U much the in response and on that. wanted to contributed, we and have as to caught away get quantification the I back also I'm of understood Yes, charges How well? QX, or margin sorry there's sure I underutilization factors. is as going to I'm sure three question not go about [indiscernible] gross into the be just to earlier different QX not of underutilization go then I charge to going the an

Bernard Gutmann

impacts dictate quarter issues will So the one-off were seasonally lag what is is how of about of be. will how said half which underutilization the the much impact we small characterized this the were half depend strong terms transitionary rebound and and we underutilization/depreciation as There in items. of second obviously in revenue, a terms on will utilizations quarter, the it of

Ambrish Srivastava

Okay, thank you for the clarification.

Operator

next Thank you. from comes with with question our And Pitzer your John Suisse. Credit question. Please proceed

John Pitzer

me guys. Thanks question. ask the Good for Yes. letting morning,

into seasonal? up to the the June going try what there quantify revenue sector businesses to into you going quarter be in might way extent to maybe getting to that of consumer any second wanted the end quarter, relative purposes, impact to some is up for the out to the Just modeling follow

Bernard Gutmann

seasonal behavior we expecting We're better still or go this through as year.

business. be not you a really so that should we you economic significant stable and mentioned, the consumer this those we're through attributing a of be headwinds, correction should a so, in year relatively I think seeing without with As environment, phase we're inventory seeing better and performance lessening the

John Pitzer

that and march quarter I'm levels? start you target to as guys percent CapEx What important the and curious, that Fishkill? kind But because it like helpful, out does for just towards think December XX the we That's depreciation gross cash especially doesn't look really probably facilitate flow. plus you as free do about East Bernard, be of from build margins. impact How shouldn't

Bernard Gutmann

for XXXX. the aligned. So in and CapEx At a XXX go a devoted of to and for I view, we in year towards good converge to then from the and off for expect basically, we that taper the a this to stage, mm CapEx and depreciation to when level would expect that XXX CapEx guided that the the said lower throughout we short-term fab, pretty said XXX is quarter, portion of point very first much

expect our increased on CapEx. as significant don't I of amount the So we P&L depreciation normalize any

John Pitzer

Thank you.

Operator

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

Shawn Harrison

and apply Keith, well. good Hi, few to of allowing as me questions return infrastructure also related kind difficulty]… that a seasonality, does commentary morning, XG to normal on [technical thanks to ask the the portion for

Keith Jackson

in behind again pieces think inventory I QX. comments be are so similar, absorption us on the think to Yes, track I here

look secularly also that expect it's more seasonal, grow. would much going I So, to however

as basically no that growth you this through so to get can And you year. see headwinds

Shawn Harrison

that up, a from fourth on it's follow dynamics percentage or And or -- it in quarter tracks the cash on quarter, quarter? not then how any much I with associated dollar basis. as here but Bernard, maybe post-March basis maybe is March just changed up I basis, tax the dollar the a basis know a percentage on

Bernard Gutmann

Yes, CapEx by nature so cash is its lumpy.

tax it $XX So, I QX. [indiscernible] would lumpy, for say million is range the is is $XX and QX in to the million

for expect Thank We less or lumpy. XX% percent all of as but it again, is year good to be the you. profit, a the

Shawn Harrison

Thank you.

Operator

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

Chris Danely

Hey, thanks guys.

or did gross anything else somebody with either gross has do follow-up a Just issue from the on margin consumer [indiscernible] margin the Chinese issue, there? to quick out competition

Keith Jackson

decline, No, and this not at that upside. all, to there was a going a was surprise just business then thought was we

new nothing had to competitive that with any So, dynamics. do

Chris Danely

follow-up. for Okay, the thanks Keith taking

Keith Jackson

Yes.

Operator

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

Craig Hettenbach

like you over just, but year Yes, industrial XXXX. a said lagging takes of end of markets thanks. by autos, kind the of near-term on for high bit, puts as course markets? thoughts the of It and could kind you is Keep growth, your lead end single-digit the see sounds kind up

Keith Jackson

industrial right quite in yes, kind of been go there drag has buildings of we the is now piece. nicely. piece think has So and that portions residential new that The into that buildings strong side, and that's still factory new on been primarily medical the lagging growing the

will quite that expect well. continue trend been We [indiscernible] holding up

wind be more we in through that and We're a So, the as we're see the installations. go installations, a have industrial perspective here we from hopefully then we through in the are change after the see that. all this think growth one, will building cleared QX secular normality that solar seeing positive. and and to you side, side return seasonality inventory energy on infrastructure the looking will year, We in will a twofold,

Craig Hettenbach

Got it, thanks.

Operator

I'm showing for Agarwal you. not back further Thank any turn this any questions I call Parag further time. to at And remarks. now will

Parag Agarwal

for everyone call to We quarter. during the Goodbye. see at today. joining you conferences the various Thank hope you

Operator

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

You may now disconnect.

ON Semiconductor (ON) 3 Feb 202019 Q4 Earnings call transcript