ON - Earnings call transcript Q3 2020 | ON Semiconductor Corporation

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Operator

Ladies and gentlemen, thank you for standing by and welcome to the ON Semiconductor Third Quarter 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. [Operator Instructions] I would now like to hand the conference over to your speaker for today, Mr. Parag Agarwal, Vice President of Investor Relations and Corporate Development. Thank you. ahead. go Please

Parag Agarwal

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

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

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

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

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

quarter, XXrd conferences. Investor to two Conference virtual During on Virtual attend the on and NASDAQ's TMT Wells Summit include December These plan we X fourth December X. XXXX Fargo

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

Bernard Gutmann

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

has demand, quarter, geographies. our due automotive third in striving meet strong industrial, by saw we and previously COVID-XX the the the key acceleration business of economic the sharp in macro upsurge market. During Order with in picked-up to recovery activity accelerating. global in across recovery to meaningfully end-markets conditions activity, is end-markets especially and cloud-power pandemic. are areas our strong in driven automotive, strategic Along disrupted business, growth which was in momentum Manufacturers

wins and design expanding design accelerating rapid are pace. at Our a funnel is

primary As earlier, the is we improvement for gross company. the strategic stated priority margin

of ongoing discussions conditions our our expansion. tailwinds various near-term, announced mix shift In favorable the regarding ongoing fabs parties We help previously track manufacturing and sale consolidation should drive end-market on Belgium business with in Japan. the are intended margin the and are Niigata, recovery in and plans, from with revenue

as net loss diluted per quarter the to global Non-GAAP XXXX margin gross in Non-GAAP XXXX XXXX. share a for diluted third $X.XXX quarter in related slowdown of by XXXX. third diluted decline in activity the third of of pandemic. year-over-year a share, $X.XXX compared as the for and the revenue of third third margin was in diluted quarter Now, to compared of the compared macroeconomic as XXXX. third quarter quarter net $X.XX COVIDXX due of let the me XX.X% on of of quarter X% in quarter revenue discussed $X.XX results. quarter provide decrease quarter revenue to of XXXX. compared for billion, was as share you primarily COVID-XX primarily a XXXX. to third the in revenue Total net GAAP XX.X% in quarter by XX.X% to XX.X% was the lower costs. driven per per of third per as for The income income the of of the in to the was for gross our $X.XX was The decline third details was GAAP XXXX quarter XXXX third year-over-year XXXX third earlier, gross $X.XX driven compared billion margin as share was

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

XXXX an property $XXX.X quarter margin impact GAAP intellectual with Third Integrations. related million operating Power the of included settlement to

of for and as $XXX.X quarter $XXX.X operating third of as to the in lower was XXXX. quarter quarter impact margin due in operating decline margin operating was Our the by margin compared XXXX. non-GAAP million, driven compared year-over-year to percent were million The the of revenue third XXXX COVID-XX GAAP gross largely XX% in third for to pandemic. on quarter expenses XX%, third

and expenses to $XXX.X operating property compared Integrations. $XXX.X were Third Power the the XXXX GAAP year-over-year decrease strong of and expenses Non-GAAP cost to undertaken quarter by The $XXX.X the measures the quarter on by settlement front, operating in company. cost intellectual in saving included for execution quarter third non-GAAP as related third was million million, million operating with by expenses primarily restructuring the XXXX. driven

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

expenditures East enabling indicated are most our XXXmm in towards directing previously, we we of capital As fab. the our capabilities Fishkill

the In third continue balance to we the at In days the inventories. of our within in pay the days cash $X.XX Therefore, were the and sheet the in The expect primarily intend billion at balance $XXX to of exited XXXX quarter $X.XXX expenditures pandemic. days, to quarter, despite distributor the with We hand higher weeks compared levels channel the our by quarter-over-quarter. in We At shipping $X.X of COVID-XX our fourth very At distribution brought decline end of a quarter it a as response the XXXX billion, the of of as to as we inventory, our In drawn of due for reduce in to position. quarter, compared time, be to down our range fourth quarter to XXXX liquidity cash level even in utilization, cash significantly with comfort down approximately revolving decreased run as revenue under through zone. was the approximately the use the of of $XXX to maturity. end capital sales to with XXX down XXXX. at revenue, channel days products $XXX approximately plan XXXX. increased balance we debt we on of to note billion, million third of we inventory this two Instead are second total quarter. quarter, inventory fourth XXX million. for comfortable third precautionary current distribution million to was cash factories expected amounts in facility equivalents pay-off X quarter, expect second of channel though our measure principal convertible

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

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

Keith Jackson

Bernard. Thanks,

plans, first manufacturing me current provide on business environment. on Let I will update the then an update you optimization our and

parties We planned Belgium are various of and Niigata sale regarding in our discussions with fabs. the

not to milestone and third of our resolution we We but diligently in annual for begin per achieved from of expect seeing as these this an progressing the to working on in We at quarter quarter $XX process New make do starting quick time. first a Rochester, to The operations savings plan, have products. announcement as our XXXmm of XXXX. major the first are York, is our we revenue fab million ceasing fabs, in get we recognized

to XXXmm fab our in in York. solid progress to East Fishkill, make New manufacturing We transition continue

earlier, a meaningful indicated see our expect XXXmm impact in our have the positive yields I for processes As manufacturing margin to we and as have coming gross spectacular, manufacturing on ramps been years. XXXmm our

us Additionally, our fab in capability which significant optimize afforded Fishkill enabled to has network. our us manufacturing XXXmm flexibility, has East

to make expand our continue substantial We key gross to margins. initiatives progress in

mix cost expect our towards margin increase remain portfolio as continue margin. benefits driving by factory shift margin automotive, At additive expansion. to the higher we in should and and end-markets. our With We designs utilization see our industrial, aggressively drive in to and winning manufacturing be ongoing unchanged. to increase, products meaningful recovery, revenue. our fundamentals we optimization, same portfolio fall-through The see shift, time, of we gross cloud-power optimize optimization incremental are revenue structure from The to from

Now, current let me comment environment. the on business

near a regions. the such meaningful momentum in environment, contributors seasonal automotive, demand as and seeing grow momentum. across in our quarter, global activity at environment data to our accelerating will point with globe. term. and acceleration to third From industrial order business towards a in we PMI above continue in seen perspective, the in and recovery and have strong in acceleration We activity the are key geographic GDP the levels expect industrial, end-markets macroeconomic business cloud-power we in that all Along are design-wins from Economic improving overall

our business, secular our trends Although of the our business COVID-XX fundamentals unchanged. underlying affected temporarily business pandemic driving remain and

electric key cloud-power, continue and in automation, to strategic and momentum ADAS. see strong robotics, vehicles, warehouse for factory, initiatives We

ongoing trends from cloud-power and products, are end-markets. well automotive, recovery to key which in highly positioned our analog, enable sensor secular We power, with industrial, benefit differentiated and

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

by primarily production. declined decline in COVID-XX revenue automotive due year-over-year, to X% driven automotive quarter Third

with We wins Silicon customers. at are seeing tier-X OEMs Carbide leading strong our momentum offerings design for and additional

these winning designs, new and addition we customers engagement many In for of expanding Silicon currently Carbide, new are customers. our with are products sampling to to we

front, with On automotive designs win to we continue global the players. major ADAS

viewing for are also attach ADAS seeing We higher-level and a rates of applications. both

increase the low. as dealer benefit our newer technology, to customers. to positioned leading APD of LiDAR well are saw seeing transition regions. third solutions. Despite strength and in production, all strong automotive in a strong geographical traction in that across automotive LiDAR products well very automotive and are SiPM from quarter. actuator we steep technology from inventories our Other and From growth lighting, it ultrasonic, SPAD strong areas are saw in perspective, technologies with We were we appears We for

recovery we wide fourth in continue by recovery quarter-over-quarter XXXX expect vehicle specific customer. modules global $XXX.X decline our are to the margin. Silicon global that Year-over-year, annual are alternative energy on third our activity a party market. annual outlook In production. power growth in production reduction of the Revenue in and the aerospace, X%. light The for of to the military, revenue expect of which third revenue rate automotive due quarter to This to in our is the We global in related automotive seeing a quarter. COVID-XX declined the automotive related by expected we continuing revenue in end-market we [industrial end-market, represented near-term. current and industrial third end-market, revenue] should and driven XXXX applications, strong as production reports, solar Industrial to includes our Carbide customer growth Based believe adoption the Industrial expanding contributed our Industrial in we exceed rapidly base be million end-market our XX% see issues up automotive for global of in pandemic third The XXXX medical, rate and geopolitical was quarter quarter.

seeing related that power activity management in the front, are are slated Energy and control regulations motor enacted design to control are and activity. On be automation. power beyond for we efficiency Industrial increasing driving XXXX building motor and

quarter-over-quarter elective the as procedures up. picked in Our grew medical third business of the pace strongly quarter

continue image market for sensors automation We leading to in with players to and work machine design vision our applications.

$XXX.X large represented format Revenue We professional and have is XXXX the The million camera industrial both includes to movie of the of third for wireless, end-market Communications quarter fourth contributed applications. expected be design revenue wins the networking for of for up quarter-over-quarter. secured the and which quarter. during sensors image our third XX% end-market, in in revenue additional quarter,

business year-over-year Third quarter by XG communications We in third year-over-year. infrastructure quarter. our revenue saw declined in X% strong the growth

part in communications to from to geopolitical for quarter-over-quarter, computing revenue year-over-year, of the is geopolitical third of down end-market customer. flat be XX% due business factors. quarter expected revenue Smartphone our in customer the in third contributed the a the end-market quarter. factors The Revenue to in expected Our declined related XXXX to to $XXX.X decline The due specific Computing revenue quarter. represented million of fourth end-market

XX% Third by both quarter computing in year-over-year increased server and businesses. strength due revenue to client

seeing increasing and gains. content leading are business platforms Most requirements share with in server power projecting We server new are processor strength generation our in their next products. makers higher current in

the this for expect consumer demand intelligence. in of quarter end-market Consumer third primarily to of end-market is XX% contributed fourth for million near end-market the driven revenue the our The capabilities, due third quarter. to increasing of trajectory the in be computing We by continue in computational quarter-over-quarter. revenue quarter. Revenue XXXX represented artificial expected $XXX.X up to mid-term to The the in

consumer broad-based are expansion. to due Third expected year-over-year. COVID-XX accelerating and of margin to year-over-year The to consumer fourth up the in Consumer selective the for market. summary, XXXX be weakness In end-market by is due quarter-over-quarter. declined our our in pandemic we decline quarter revenue this Revenue to the efforts electronics in X% was quarter market participation drive

We recovery expansion. should shift growth in by footprint. our cloud-power at are time, to towards are At rationalizing also business, mix we Business aggressively in In and strong conditions have the our to near revenue near higher of drive driven fab term. further term, contribute and should ongoing expect end-markets, manufacturing margins. continue help Fishkill expansion. in designs our winning industrial, have Ramp-up improved fixed which meaningfully margin XXXmm to automotive, the same processes East cost margin gross improvement the the we

about of and most and medium drivers prospects. secular intact, to We we geographies. our business remain long-term recovery megatrends excited end-markets broad-based are seeing and Key across long-term our are

for warehouse We accelerating electric ADAS. vehicles, are factory our momentum robotics, seeing in and and strategic cloud-power key initiatives automation,

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

Bernard Gutmann

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

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

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

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

reinstatement We quarter million our compared in by decline of expenses expenses, COVID-XX variable quarter of $XXX the to resulting quarter. compensation those The reduced the and non-GAAP In salaries pandemic. driven increase fourth to expect $XXX not operating benefits that XXXX total significant. planned were expected the from million component of the operating third our fourth in business due in our to is as was operating expenses in

quarter Net of $XX cash million. $XX expense, million, an million $X an expense to about to $XX quarter will income meaningful However, be non-cash includes in expected increase anticipate operating that expense into million income other will expect expense $XX $XX XXXX. to the year. expenses GAAP enter XXXX including net accrue to fourth $XX income net in expectation million. as expense, a million. million be million of quarter we of $XX expense, $XX to interest plan in with $XX is We an we first XXXX, of we million interest We for fourth and interest of Consequently, strong XXXX expense, which our of and other to anticipate taxes will million including be variable to quarter-over-quarter that of the be paid compensation XXXX

to paid For expect $XX XXXX, cash of $XX million. million the in range taxes for we

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

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

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

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

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

Operator

ahead. comes Bank. Ross show Deutsche sir. you, from our Please I line of the from go Instructions] first question Seymore Thank [Operator

Ross Seymore

guys, let I you on want thanks to on my ask margin. the Hi questions question. to congrats results, a focus and both me

So, gross side XX% to the see the on quarter. the guiding margin of fourth incremental first things, one a you're margin is about that in gross I

understand closures, you're why the the gross first aren't guided that the you business? incremental assume all the the need historically how ramp strength can to utilization XXX utilization above increases, fourth first, quarter. that and Because beyond the just we millimeter the I And layer to would even I in and XX% fab Given not quarter, in in margin? talk that that, guess you've go then you changing utilization, to if given changing but I the that be would about

Bernard Gutmann

This questions. your is for Ross you Thank Hi. Bernard.

on the correct the substantially also And getting are utilization We we on closures. working the to our our [indiscernible]. start that. to We keep continue intending you're inventory of plan on benefits don't increasing in working as factory

XXXX. a as savings of starting result, that to closures annual million about its about from completed. coming of first to the to million or quarter of on is savings in talked we sales. closing Rochester $XX way The And of get those annual have We being $XX be expect

function what negotiating end up other and ended when that's buyers of intended now. of is and up fabs, ongoing we a The with progress we these in right two the up and

should better answer see XXXX. than XX% go fall through we to the yes, throughout expect we yes, So, is as

Ross Seymore

thanks effects on side and of up Great, sticking those for front things. follow the my And margin question, again, the details. as moving to then

changes I think But in a variable there everybody comp first have up if might is why COVID-related year, step it's look I understands what's it why you and year-over-year, flat sequentially guiding, guys basically guide this given at OpEx the the why you impacts your of quarter. in had would the flat some been down XXXX, cuts still earlier and first first figure for structural struggling I'm this XXXX quarter to out quarter cost the the be but in would year, of announced year-over-year.

Bernard Gutmann

as as So XXXX, the variable we any said in remarks, in well we comp prepared no as XXXX. in orders have

which we variable is being are is So, right on on some variable points direction then the cost we distance should be direction, now And actions, not layered. the] will obviously, and did addition the we assumptions basically, that our we're comp, will of reduction in take comp permanent. not. what have that significant temporary significant Obviously next year, strong if a result a some year then depends year [if the in the

Ross Seymore

you. Thank

Operator

Thank from show next our of you. Danely I the go question Chris ahead. comes from Please Citigroup. line

Chris Danely

just margin. clarification quick guys, gross a Hey, the on

was pricing basis something upside that it was than why points it or all was mixer the guide? driving or higher? So, Was that XX better else there some revenue

Bernard Gutmann

Mostly revenue upside.

Chris Danely

any CEO on Got the And search? it. update then

Bernard Gutmann

at announce time. to nothing there's and ongoing It's this

Chris Danely

thanks. Okay,

Operator

question comes from from Chris of Please go our Caso show Thank James. line you. ahead. next the I Raymond

Chris Caso

morning. Good you. Thank Yes.

know, sense like to to would more right the now? generally, inventory internal what's and for us planning you inventory you on get a would inventory and you to both on your with production. increase before the doing Could cautious channel approach where you're you question a reason the And what Just of inventory, utilization? give

Bernard Gutmann

we it inventory fourth said and at channel, XXX where in second remarks, to been down within have it the feel took good quarter, XXX we decreasing decreased continue into So, inventories, quarter. going range, there's that that. year the days, an on appropriate in we two think quarter to weeks the peaked room so days the comfort we the In level next we’ve we into are for to we prepared still in general third gradually we our

Chris Caso

right. All

if year. single-digits the I you the Where the As on talked [grow]? of back you anticipating half second Last know, and gap back once down, getting kind then a kind follow-up you're you the flat, are an at quarter, their that regarding, automotive running running that update you guess normal with of delta you know, what's to, What's eventually between, Could customers that? the give market, that, and And you own a running are now guess would in year-on-year. know, there? customers the get you're production? of mid-to-high us your full year-on-year? I in down of And be still sort year-on-year production to about know, customers the you you of

Bernard Gutmann

Yes.

and quarter. we me, customers So, the was only There that levels, would in that replenishing at in inventory be supply in running chain. went largely the it would any, COVID-XX it would auto I the really pre-COVID chain caution definitely change supply here [own be above will even our excuse in start XXXX And the there rates]. was fourth in believe the if some in expect difference, as

Chris Caso

Thanks.

Operator

next Gill & you. Please Raji ahead. go line comes the show Thank Company. from I from Needham our question of

Raji Gill

as congrats and results. on solid you Thank Yes. well

automotive there going see Obviously, production specifically terms rebound sensors a the would a on color much you're and driving by semiconductor momentum helpful you layer in be production? production the top margin commentary that rebound we're that, wide business, to in Regarding post-COVID, of outgrowing the wide how talked EV? auto of auto going Any top about but what's content of on in to in margin.

Keith Jackson

Yes.

you two, of we're to at seeing content. It two, more at significant to vehicle kind more the And bit quite above internal but one more a still combustion, there level the of from that SARS content again, perspective, nonetheless, production know $XXX. significant has drive topics. an So level I And transition a be goes there goes which $XX now, very think vehicles. level you the the electric dominated $XX on rate. from, will From two electric move the growth $XXX know, amount we're vehicles, ADAS so dollar seeing would up $XX, bucks to by then,

those if magnitude order of an of those things, look at you change. there – So both were

as we that, so, And a significant of would very a expect result outgoing.

Raji Gill

I if guidance, back. know, And at you we're XX% gross you're at can't were in but know took look more this a the looking COVID. XXXX, provide of kind margin if kind dip just year year. for But follow-up, half obviously, at they And of big of my trajectory, moving margins you it for you of the in the first because

know revenue? talked into fab, we we margins that expecting [indiscernible] So, and to XXXX, to XXXX? closure know, you saw getting moving that? levels normalized what progress but as function the get how beyond a be of we do think the and about, more you XXXX XXXX should I normal, we of there in to then, of levels, about be Is kind going maybe beyond to in of really back of kind kind back

Bernard Gutmann

It a We lot expect expect premises XX% of be just year depends forth will revenue a the the have on few put true. holds terms of in of that do good the changes but and past XXXX the in a we fall-through same on revenue. that factors,

margin. our the question, costs to and with have we contribute but We’ll and which to do that premise power, lingering better some expect – COVID to in revenue that will some our mixed be we another layer And closures do the that least, numbers. savings we growth response sale] call gross have or cloud announced as industrial not average still taped previously. than We to top last and automotive in of gross get margin [factor all earlier, mentioned [tailwind] from the corporate in savings on have

little of mainly that addition a We the out, a on pressures most what to should and freight expect as that those logistics bit of costs, those we mentioned. to in while also just eases [indiscernible] I tailwind will take get get

Raji Gill

Thank you.

Operator

the Mizuho. Rakesh question line from from our I Thank Please Vijay you. comes ahead. show go of next

Vijay Rakesh

morning, good Hi, Yes. guys.

Just a here. of questions couple

you're weeks. inventories coming XQ disti I the distributor quarter I On you wondering down go exiting of inventory talked Typically about inventories what side, levels know two are? September just and down terms normal in XQ Thanks. was where versus disti seeing

Keith Jackson

sure operating Audio but got kind ranges. of not normal side, quarter all down low-end the in issues third our of I of inventory that brought the on question. we the I'm disti our to

from we're we're take lower toward down particularly not kind substantially looking the hold but end. So, right that think market of is us does if there, it than to more robust now. We this seeing it flexibility, more give

the plan. question get Vijay? your Did that's So that

Vijay Rakesh

And it other one question does. lot. a Thanks Yes, here.

you margin near-term COVID-logistics gross know, On operational the side, some obviously, costs. there's costs, logistics, and costs

as Just Thanks. wondering those do you year? from subside are? go what headwinds first next into And the see half those you

Keith Jackson

flying again, that's logistics. Yes, when normalize we second airlines in less so what we definitely It much mostly commercial. than had the costs are more see first and quarter. The will lingering

big a question mark. that's So

But more So, first had seen less probably, be the we it's than it’s half going to of what protracted. year. the much in

So, significant. not it's headwinds, just lingering some

Vijay Rakesh

Thanks a lot.

Operator

Christopher Rolland comes next ahead. our question go show from of I from Susquehanna. you. Please Thank the line

Christopher Rolland

automotive Thanks of you we silicon carbide? carbide, side your position should following the and silicon pipeline can win on I IGBTs the things guys. the question. for guess then, there about think talk your up And there? first on also, Hey, about how after and

Keith Jackson

continue wins and IGBTs we carbide. silicon for see to both So,

lifetime the carbide In solution. cars, designed much solution. the range silicon still lower oversimplified, who smaller it's with dominant the powerful more becoming IGBT predominant cars, are or longer You is in the know, but the is maybe

Xs this at different both have Tier IGBT OEMs wins stage So, at we many for and and silicon carbide.

Christopher Rolland

of other us your footprint any consolidation. update And Belgium and I an updates could you I opportunities? on update wondering if guess, potential on or Great. targets give was in any terms

Keith Jackson

In we'll to know, are final In that still we into able now, be and would Year. you round negotiations find New what Niigata, we having, expect there's there. call, ongoing, of during quarter, – solutions [ease] Belgium, the right process I the probably the

Christopher Rolland

Thanks. Great.

Operator

you. Thank

Our next question from go Please Ellis of ahead. the Craig Securities. B. from Riley line comes

Craig Ellis

ups. And ask taking for much the so questions. Thanks a I'll follow just of Yes. couple

clear get COGS just amount quarter, help XXXX? calendar can it's that that that the fab exact XXXX, through you it's wondering would us so realized overall? $XX by efficiency gentlemen, in come margins, gross you'd in much on gains of calendar scope in expect to And I'm the sale, the XXXX? if but, not how could in then, to timing a just First million but much handicap be hard How of of

Keith Jackson

in It's Definitely, a talk QX. question, about that the will we immediately the which the is tough Rochester [first] start million $XX Craig. can one,

The in other with drive takes somewhere that we months, on the already parties XX is a what closure working terms Typically but it. buying XX of will still we end negotiating a in the obviously, savings function fab of of been to the up [MSA] months those what have are.

Craig Ellis

And just together, it. then, Bernard. could follow-ups if I bundle two Got

the debt quarter? in should back with we is actually question, year should quarter, the the but FICA, expense expect the first first beyond down the in to first what interest from goes half some XQ away? The things Do comp, discretionary we get what only of in not expect fourth would And convert, then, quarter, include the as FICA which the Ross' decreases you also through for XQ? calendar pay like OpEx

Bernard Gutmann

good $XXX down we the million the expense, tend amount from debt be paying year, paid a Interest next will how cash the free just down. of pay a start so of interest me continue last function away. debt Let the Definitely, generate little of down bit as that first. we to much it's of question flow

go interest expect trend over I to of the down expense So, time.

Keith Jackson

OpEx? The

Craig Ellis

And then, OpEx?

Bernard Gutmann

you're we step expect trend, improvement the The OpEx And in first or this indeed, correct. quarter. in increase function OpEx

payroll within In addition assumption in a U.S. that expenses. of to seasonality based is other or timing FICA there that,

expect may the the the don't up flat. expenses They year. rest will that materially trend So, for more I go mostly of

Craig Ellis

guys. Thanks, it. Got

Operator

you. Thank

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

Josh Buchalter

trend is wanted Hi, this Josh to your sounds – charges the the the are Ramsay. they weren't confirm mentioned still on guess on you is behalf utilization expecting Buchalter last Congrats to Matt congratulations second and flat call, see results. on the any utilizations Can downwards? I you given you under retirement. And this case to inventory it, you Keith, on in you're going on start keeping the of like know, I half.

Bernard Gutmann

do. we that what disclaimer the with don't control obviously Yes, governments

at So, place governments. don't mandates – mandated no shelter stage, expect this is there from we in

expect it [indiscernible]. So if additional that expenses which see we will not we to COVID-related continues, any

Josh Buchalter

I bigger assumptions you And for invest the half deal again. Thanks, a through changed was plans obviously picture the in different the of since XXX-millimeter or congrats a was any strategic fab, you know, the environment. then, announced guess When this Okay, year ago. to a it volumes wondering your thank new if environment just fab question. very and plans porting I'm and you. made a of

Keith Jackson

No.

that We continue to about addition our to be excited network.

to brought. And more we to maybe the so, factories been The a has we would about processes, from that that lower the that perspective, [in] acceleration of little of environment continue products, qualifications ramp closure of I change that brought continue there, the get is enjoy and some and customers get COVID only other overall on envision. by

Operator

the Sachs. from comes Please our ahead. show of line go next question Toshiya Goldman Hari I from you. Thank

Toshiya Hari

morning. taking Thanks the question. as two Hi, I well. had good for

your in talked having all, of as business on you I guidance your in and well. geopolitical QX impact believe First do about QX guys factors

could in headwinds what's your geopolitical were you you. guidance, QX, associated in embedded helpful? and with that would meaningful be Thank QX factors If confirm how the

Keith Jackson

In granted, business an the you and QX, licenses there's the there in but, top until of no is answer was are at were one primarily certainly know, they all customers. impact, QX

Toshiya Hari

In have a you I still click the think that margins. Got could XX% I order quick plus well. drivers guess talked you you intact? gross which that for much throughout there? wanted it. a target this get still on you've about, the the is is long-term to was talked as guys rank And it then, Is to as case? double the margins hoping follow-up, past, gross obviously, I is, call, And done. very extent to I that Rochester,

Belgium. You've got Niigata,

or rationalizing optimizing your portfolio. You're

of order And you. some You've XXX-millimeter drivers would the expansion time, couple so as which years obviously, next margin got of over Thank the gross be COVID helpful. the got you if about can costs, rank the go away transition. think you've you over that hopefully

Bernard Gutmann

believe Pretty actually and a billion much Thank we on you when did true. well revenue, that $X.X holds we, model, you. know, Definitely, that, summarize that was which our predicated very still us. for XX%, we

the well get as us a in be will that [fall-through] holds catch-up to that also one a mix, amount as from good X.XX and of footprint So, [indiscernible] consolidation with that we the there. a fact will different good we of as a have that the have true. do benefits on the is XXX-millimeter still of levels significant factor third one level The help the that

Toshiya Hari

you. Thank

Operator

you. Thank

next ahead. the from Please Sandler. comes Harsh Our of go from line Kumar Piper question

Harsh Kumar

two Congratulations first Hey, questions. guys. Yes. all, of

color of question, if part modeling and same do industrial First would there us you about mentoring think in how you the you think and able excess should about of know think, that I should up, we auto, they but about automotive the particularly said many at auto? distribution weeks us talked particularly maybe markets? how help system, is another in then, give them? be you And be all, on some all, to

Keith Jackson

there, excess believe Okay. no quarter. I'll start with distribution entire auto, chain there that going into and is I supply fourth

I think of. care taken been that's largely

fact, In year and have having us next may set do anything replenishment. for up undershot to if

that So, and chain [badness]. I at supply know market, there stage any of lean is pockets don't this the

QX auto to earlier, where rates expect they to be largely I As production in mentioned in we XXXX. were back

see, excess industrial. the on – out know, From largely we QX. rebuilding no but again, channel, moderate of by So, showing that We supply is you again, is from recovery that perspective, there's industrial seeing can there. improvement so an the think, quarter-over-quarter, recovery we're

Harsh Kumar

closure Fishkill, Fishkill? you getting us time? going on say, this where prior like going you understand to be, And know, want production if XX, your Maybe XX in where then, total. to you this to to Is of kind to? in a is Understood. at And, if point think control you where X mentioned it help of are I you is of do fabs, scale you you three, know, you of started think,

Keith Jackson

into those Fishkill, doing other [XX] a we're And know, the the relative going fabs. is are ownership what two [indiscernible]. particular and into other get to a And of to little East out full in moving volume and fabs internal of internal – bit So, runners so process two-step most our production of you in factories is running. full taking high selective

third ramp around at in the down in from this and manufacturing there. are stage We're We quarter starting our two. the just there ramping

Harsh Kumar

guys. Thanks

Operator

show comes ahead. Thank go next Please our Lipacis you. from from question Jefferies. I the line of Mark

Mark Lipacis

that's Hi, old parts question can facilities question. thanks qualification that is new the facilities, my to had is big How one make a are down matter transferring a process what for practice also for about question, for redundancy the too. at process describe the When you factory? of always just factories other factory. first it taking from you of to a a That's follow-up it shutting selling your your and qualifying re-qualify a Or parts. or [indiscernible] You know, that, them you're I not you like? primarily deal have does long I sake take?

Keith Jackson

Okay.

volume So of first a most have in, run to risk one, than perspective. for the from just our chain one processes factory high more supply

may year. those factory, by from the that in customers. specific products, you you're And those reliability running, that you take anywhere not some run in and products the those your processes, XXX a for alternate days essence, it's tests to to run have For to have be

nine much new you first a to up don't to bring year, the do that factory. in the have process kind have started as That about processes same so for here, then other to For range take volume, can out have months you that. we're the talking factories announced anywhere those transactions. moving qualification, that in before for of the we had two-year run things gets the that We from you

customer some that of time our required. of customers getting in And By well now factories, of into be agreements, selling second amount the so, we're the qualified. phase the there will

you're kind months or factories, that take of into range. so from will down still product XX but We now those

Mark Lipacis

Got And mix did you your front work – you. to a the outsource mix translates margin of bogey, your a higher you way speakers]? longer-term, to helpful. that gross boundary to higher [multiple think as That's or end very Keith, internal you on

Keith Jackson

that do So, products yes, [use less we nodes] end boundaries the do become with more more external, and will but consolidation the growing part end, of front for. with front to some use fastest that's our to

Mark Lipacis

Got you much, you. Thank very very helpful.

Operator

Thank you.

line Harlan of from Our Sur question ahead. comes Please go next Morgan. from the JP

Harlan Sur

Morning, end-markets shipping the then, auto from question. guys East terms taking Fishkill and grade you when to has fish achieve – in what fab And are thanks And not, of revenues Has East expect kill into? you and for if in Fishkill, qualified? today products my qualification?

Keith Jackson

content EFK. So into of out today, we're shipping some primarily automotive with industrial

for qualified both. are we So,

Harlan Sur

guys the Great. average, XX-week XX-weeek booking And with then, lead you times you quarter. Keith, into know, to on March are

a view well. is to I a flat for the have good team You couple points of forecasts customer also percentage in as seasonality on believe normal down March.

in seasonal trends orders talked seeing You wondering above near about for March you're the demand this term, if quarter. the

Keith Jackson

made Yes. will Orders are past good we've and above the the comments extend seasonality market, on this year.

Harlan Sur

Thank you. Yes.

Operator

you. Thank

Credit question line ahead. go Our Please comes from Suisse. Pitzer next from John of the

John Pitzer

Yes, thanks.

is question. margin gross in the and the variable to XXXX Harlan’s calendar the despite in profitability? on there not be that isn't seasonal the about first Why some just comp growth leverage case, second why more think maybe quarter, question, And you you re-establish there Keith, ask when until revenue me to can follow enough a of let tied later the variable OpEx? So leverage wait margins op if not increase on flattish, have above that's comp? to

Keith Jackson

doesn't may want a quarter revenues have for objectives. really we rate time. is we year don't fully entire meet accounting it do to the nicely accrue the guidance give way next QX. the a will We for the works, continue though there you you the even to expected quarter have in I expect to What at So, And you throughout at somewhere for would certainly, to that year increase tell one year.

John Pitzer

in SARS sector percentage But points. That's as give to calendar kind guys XXXX, next think down, growth the viewing we given down, really, you what you year? to XX XXXX. calendar you outgrowth do XXXX SARS all you of been weak the a end XXXX? the since just end be significantly look of calendar a overall into semi-market fine. year on how was SARS to outgrew under I'm by go us And and are back going view almost how your side, you And have the on XXXX, year the XXXX of bit to can year kind up when will you auto is was being for you auto little has curious market down XXXX

Keith Jackson

answer the we is, wide margins. So, yes, [indiscernible]

did As for significant tend we I a being conservative and on the EV. of we XXXX. we think SARS comments, SARS in on mentioned mentioned look percentage earlier, basis. drivers appropriate. try to XXXX in But there kind been the away. chain which SARS margin levels] that again, overall the higher supply have to perspective, and took in But XXXX, some with re-stocking as ADAS think a I very of cars out, some a [four year We lean the hit X of have think next outperforming my From that on and we more may level levels as be to be right,

John Pitzer

setting by up SARS points, XXXX be think percentage Keith, if so [indiscernible] an So, XX outgrew XXXX for an you you? XXXX, you to

Keith Jackson

I the think outperformance opportunity double-digit is for there.

John Pitzer

very much. you Thank

Operator

you. Rosenblatt show line of Please from comes Kevin from Cassidy Securities. next Thank go I question the ahead. our

Kevin Cassidy

question. my taking for Thanks

utilization, Can utilization, to to you more coming there gross margin at any a factory efficiency back in? know, the higher couple same compared going get say is years you of Just ago?

Bernard Gutmann

about, talked help have but on we a we increases. There is that The… as – on lot comes revenue some from mix depend definitely

Keith Jackson

a just XXXX of necessarily but traditional XXXX seeing is to pricing. lever a year, better forward, not course, XXXX excuse our add is little the as that environment. but would not as And, I looking a – was up be me, year, shaping good we're other pricing good we're

Kevin Cassidy

manufacturing on follow-up process test want Do been of qualification does customers your know, or to the there – they internal with your has do the great. one agree too? from can you customers? you they have process, in relative just kind parts any your your And to qualification Okay, qualifications, the change that data just

Keith Jackson

way need exactly Most the takes are that reliability still that. don't of to so functioning the duplicate in need do them their They agree our same products they applications, them. data. with to verify But

got the know, to on do of check their they've part month six You that of that's kind side.

Kevin Cassidy

Okay, great. Thank you.

Operator

the ahead. Please show next Exane comes you. question O'Connor BNP Paribas. David go our from I line Thank from of

David O'Connor

questions. being go contributors. outperformance, Great. talked you the main mentioned, for about my the points ADAS thanks you XX on EV as and that Good Keith, Maybe morning, and taking back to

As can a XXXX, the I you of now business? us follow up. give And sense how for a have these we big exit are

Bernard Gutmann

up automotive. XX% it's we The beyond. is, ramp So how at sensors, know XXXX the is ADAC total a going to it sensor our smaller, pace about and but fast we of PC electric is very disclosed but haven't strong in much and

David O'Connor

follow-up, then, giving ahead up the seem these Thanks. helpful. yields? schedule? which maybe where there products That's be talked [XXX-millimeter] fab, about on in pull East yields to And volume my you the ramp spectacular as the those there, to And Fishkill you of are you high is an seeing you're know, there opportunity

Keith Jackson

Yes.

voltage MOSFET, ramp at our are that products medium pace at customers the our qualifying So, IGBTs pretty are we then, much there followed and and ramping by first this to stage. are our

David O'Connor

you. Thank

Operator

I Thank Please question the Baird. our from comes ahead. go Gerra show you. line next Tristan of from

Tristan Gerra

afternoon. good Hi,

utilization correct at to [indiscernible] given lead your some rates the just for there are share being you and because actually parts will your where Or still least rates way? of opportunity be utilization elevated I in normal Given competitors level, looking actually in of at your business, your times areas below, am opportunities to below industry not an tight? wide, be may the of gain somewhat market

Keith Jackson

No.

we have that we're And it, I due excess or customers directly upside can have little a mentioned in faster. those opportunity EV may to earlier, particularly additional of may the grow be we some side ADAS for think channel. and inventory the that ensuring really that some the extra in the positions go capacity opportunities inventory taking think to where actually capacity the with do I factories

Tristan Gerra

the was Is that the Okay, great. know business for after are you the that waiting it's fair quick close? haven't worse And incurring [product dilution you any new additional ramp]? action dilution business to initial then, just taking Quantenna. quantified besides follow-up. the consideration assume giving now than the And from I right to just it a on that

Keith Jackson

appreciable that's where been not there's So business, headed. you're that decline if in

so so… came that where we not sure and declines seeing picking the are additional backlog we're pipeline not design seeing up, So, from, and

Tristan Gerra

thank Great, you.

Operator

Thank show Please America. from Bank I comes of line Vivek you. Arya ahead. of from our next question go the

Vivek Arya

Keith, my a margins. question. Thank question you I conceptual on for gross had taking

gross such Infineon [on much I XXX-millimeter really best the You revenues as margins then, XX%, largest never power current be in have quite know, levels. been XX%. you for the for companies XX%, to industry, space, I history], even at have when discrete the who when around at higher some look exceeded gross in look margins time. they than tend And high quarterly running at know, fabs And were even

which much are fab just closures margin to gross much or you selling is how regardless dynamics this kinds the products, gross result says know, to margin, So, of how XXX-millimeter expand a of that, or limit just you]? there of run a you [hypothesis capability, of by revenue wanted can certain I levels so

Keith Jackson

that But product answer inherently manufacturing, to power get business bips, number and able XXs. XXs. when see disclosed We XX%, of utilization product simple perspective, that gave process the fully are the in expectations a up. still think being there from can think reach over stuck XX. there we the it comprehended into don't was think mix getting we It get which we we take we mix a on mix our leaning can market in does which out our of the we rates some is we definitely is So, we se, that while for per but And here. and

a EV The margin modules new is other piece a of is we the is stuff devices. discrete for the the of the lot better think for that and there than equation modules in opportunity

Vivek Arya

into than – anticipate to have any European of your any far? other year? effect you next Huawei, competitive as do more Thank China Got you. Like in that tension tensions, or gaining and And, Japanese trade going of seen landscape, in to you follow-up, Keith, helpful. have competitors? you you see going it, share China just terms given share U.S. my headwinds effects perhaps do so i.e., very trade Or the any

Keith Jackson

positions want based certainly company, to think will economic to their U.S. the they're they and a they're accept of best going to supplier. on from for don't customers wise for reliant source still but there reluctance sole result more companies very do I buyers I the U.S. trade the be as be completely thing tensions. think

Vivek Arya

you do European competitors? But to see shifting shares

Keith Jackson

certainly We elsewhere. mentioned at account you saw the

have We seen it. not

Vivek Arya

thank Okay, you.

Operator

show ahead. our comes of the Capital. next go Shawn Loop from Please from Thank you. question I line Harrison

Shawn Harrison

the you foundry seeing Hi, supply speak good I either and thank kind for well you, the of as for taking morning, of distributors. my given Keith, question. to are [indiscernible] supplier kind on raw anything material – you guess

in pre-buying capacity year just trade some press materials the reading about of tensions? you given next either, the You're or know,

Keith Jackson

we've seen the some substrates So, communications in things market. like tightness and some

fairly that's think I widespread.

overall, market. is market expansion itself been] spot areas in in chain supply I the is there certainly [has the think than And growing. pretty the tightness some shape. slower there's in foundry a good But the

Shawn Harrison

can leverage speak follow-up, some a thinking if you looking you're before you're a or just of the share buyback either a as return? What's how Bernard, And about metric could maybe buyback helpful. to in XXXX? of at share ratio return Very type the

Bernard Gutmann

Shawn. Sure,

that net we historically, a Board until have would get paying we about strategy, concurrence be from need done what down towards to debt two we So obviously, on focused general the And approach have to buyback. is reach times but a share leverage. our continue the we

Shawn Harrison

Thank you.

Operator

you. Thank

ahead. next Longbow go comes Todorov Please Research. from of Nik question Our the from line

Nik Todorov

Good guys at be talk fab utilization Yes, revenue non-XXX maybe thanks. Once you optimizations, full about what three footprint? of your everyone. approximately complete [indiscernible] morning, can you level you'll millimeter

Bernard Gutmann

[indiscernible] on lot question. sure is where difficult mix. spots will I towards I’m like the sweet to it that operate of have depend which for not because upwards Definitely it a was we a That's answer at. the of

Nik Todorov

it. Thanks. Got

Operator

Thank you.

Our next question Please comes Stanley. from go Morgan Craig the Hettenbach ahead. of from line

Craig Hettenbach

Naturally, a you any interesting lot in discussion is industrial Yes, applications carbide. perspective, see you market? from but question industrial of a EVs, the around I opportunities can or talk had on Keith, an silicon about the

Keith Jackson

energy. are solar in from there that big significant. pickups an seeing get pretty you perspective efficiency We're pickup The Yes.

for but charging $XXX We charging, worth then, to opportunity there. not actual silicon seeing about And up stations, have traction so of $XXX carbide we're the EV opportunities inverters, in an there. also for

Craig Hettenbach

OEM be next to And and the could expect? it. that the opportunity on geopolitical you issues just follow-up just Ultimately, then, is with something customers, point year? at that another some revenue go Got a that will

Bernard Gutmann

a it's The ship unclear. way the written, rules Anyone are can without license.

And interpretation. so, that's at least our

to the critical ours. benefit most I who so, process right and is There widen, advantage now, the be in think should to And license customers us also that and [indiscernible], this of take other get that is answering might opportunity the we providing wider to of [indiscernible] our for approach.

Craig Hettenbach

it. Thanks. Got

Operator

Thank the B. from you. show line Please our question of Craig go I Securities. from comes next Ellis ahead. Riley

Craig Ellis

just taking Yes, end-market follow thanks Keith, wanted up some for to to commentary. your the back going of questions. start I

there content should mentioned some You in be and [indiscernible] that gain cloud power, gain. share

also cloud year? we base of wanted production customers next could that see I And And station then base station with power, get growth for power? signaling in So, to XXXX? your mean around for for does that some what specifics in what interaction if cloud that part calendar is

Keith Jackson

second content, I Okay, if seeing kind stations kind correct? ramps and of that the so we're what is cloud gain then, is generation one of share base power change and got one in

Craig Ellis

yes. Right,

Keith Jackson

you China. XXXX, late in you driving growth. know, going And see maybe is into the base from there do we So, growth U.S., most basically of that cloud know, to current the fourteens, out moving XX the station, we get coming about of the of in $XX XX generation will out some in backbone, a significant kind substantial. which and From content, become year. VR much server are it with next more our perspective, China, goes

Craig Ellis

we something That's know right is IMM, energy happen Is the market probably later like that military are so extraction, on now, than of that year? efficiency XXXX areas will come the you. happen something that when strength, their next it then to could back areas do when the good etcetera, broadly think of or of broadly is the that in off this, great. up be is And end really etcetera. medical, was different first question industrial Thank last The No half and you industrial XXXX but growth? to would weakness follow good that energy bottom. to that seems segment in

Keith Jackson

Yeah.

always experiences had we accelerated do warehouses in broad both a piece COVID-XX by we and so dependence assembly industrialist and should that electric see of so Okay, of the like kind kind is has general. following actually automation, improve. automotive looking much in it of in base you different less companies Craig I to more believe, they're. for on the and make in GDP the seen would What We've the been, supercharger. that see [ADAS] kind its vehicles They're people being of automation their be and know,

I for industrial. automation think, supercharger this the in case, is

Craig Ellis

the congrats Keith. and on retirement helpful That's

Keith Jackson

Thank you.

Operator

closing. like I further to questions have the the go call queue. you. Agarwal, show Vice of Investor in turn Parag this ahead, back for Thank no over I'd President to Please sir. At Corporate time, Mr. Relations Development and

Parag Agarwal

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

Operator

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

disconnect. now may You

ON Semiconductor (ON) 2 Nov 202020 Q3 Earnings call transcript