ON - Earnings call transcript Q2 2021 | ON Semiconductor Corporation

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Operator

Good day, and thank you for standing by. Welcome to the ON Semiconductor Second Quarter 2021 Earnings Conference Call. [Operator Instructions] I would now like to hand the conference over to your speaker today, Mr. Parag Agarwal, Vice President of Investor Relations and Corporate Development. Please go ahead.

Parag Agarwal

Lynn. you, Thank thank quarter and joining Semiconductor ON Good quarterly you results second XXXX conference Corporation’s morning, for call. I’m joined and CFO. CEO; President our today by Thad Hassane Trent, El-Khoury, and our of on Investor webcast being is at www.onsemi.com. call Relations This section our website the along of website for second our quarter our replay recorded available call. hour one this XX following will A days call, with available webcast and be release, a be XXXX approximately following webcast, this on approximately earnings this conference conference will

our business markets, to channels, geographies, XXXX and calendar count related website. Investor on share information Additional our end fiscal segments, and of Relations XXXX section is the posted

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

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

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

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

later look in to Analyst Our New seeing York for We in person Thursday this is X week. City. forward scheduled Day you August

Now, over Hassane. to let it Hassane? me turn

Hassane El-Khoury

in and by billion, us everyone execution We broad-based you, results and an and year-over-year for driven and a QX our the result restructure $X.XX been streamline thank record revenue demand. grew doing of delivered as increase of diluted Thank $X.XX work strong quarter-over-quarter. joining of record and share per Parag, you posted today. earnings the We year-over-year company XX% quarter-over-quarter we XX% of significantly business. non-GAAP have strength The to and

value results sustainable basis by will points sharp margin Our on current beginning improvements with These gross we gross basis focus to rationalize strong points our QX year-over-year. XXX gross in margin XXX our by and increasing non-GAAP as is margin show our quarter-over-quarter continue accretive our portfolio to to high product and R&D price margin and portfolio value capture investments products, to strategic our our manufacturing eliminate and the new any we on our continue To growth full evaluate to reallocate development. focus products. of discrepancies

we optimize markets. efficiency across drive demand addition, chain throughout and to continues robust our to upstream supply continue all The costs. our In operations environment be end reduce to downstream and

revenue second automotive and posted quarter, for end markets. For the the record we industrial

these will manufactured and in products, half the quarters few we outlook, by current the benefiting strong our partners. to strength through that supply The of first macroeconomic markets, to traction X supply continue ability broad-based from company’s the year. our expect next outpace to certain power those over continue last we booking on and of especially demand trends our Based that outpace foundry to demand the addition In seen have strong are we products. the

engaging same time, visibility demand them agreements supply or supply with outlook. guaranteeing and LTSAs better long-term agreements with expansion our many already with and at ensure collaboratively Long-term the long-term actively working in products our and the of uninterrupted committed are having customers entered us customers into to plan a our supply in several both future, of discussions allowing to allocation capacity We the customer, for providing with capital others. are by towards better us win-win and a to the supply

discuss markets, product highlights new in end starting with of now We million. strategic automotive The set of in a our few automotive. a me and in power with our revenue by driven revenue $XXX our record Let was automotive QX success for sensing strength categories.

advantages customers emerged of solutions. our power as supplier electric high with efficiency a for and strategic vehicles on placing We highly footprint technologies differentiated provided the value have by

Our global expand, the growing continues electrification and over OEMs the our next I’m in bullish market few Xs years. leading engagement to and vehicle potential with very Tier on

and heat they of competitor to The get between fabs, no of critical make trade-offs and smaller our both. addition vehicle, a of weight module. expertise power is improving our of in of module the closest output of is and battery our reducing our for range than the cost performance packaging, dissipation, the footprint to our our increasing In customers source industry-leading the the efficiency allows in power differentiation cost which the key

four million cases, vehicle for displaced see has With demand wins strengthen on enable X our Generation sensing increasing ADAS sensors in XXX of business. to industrial and remain representing aerospace contributed approximately medical, our secured especially announced continue Taxi. platforms, significant the in vision our selected military, new spots content, recently LiDAR $XXX on for technologies wins electric and we Asia, new The safety automotive powerful of and in bullish in in key includes that We active autonomy. image revenue. and XX% our of On its and sensors sensors. ultrasonic this the safety, revenue XX XD intelligent penetration and our platform, QX, Driverless AutoX increased features Robo image in QX, few sensor with we platforms blind sensors we which our to Fully sensors In end our market, a leadership design We image eliminate driving incumbents. strong

year-over-year demand and our to geopolitical customer, by industrial increased performance related from factors driven impact by quarter broad-based a second power portfolio. and our Excluding by specific strong sensing technology the XX% revenue

the We engagement to are modules installations the seeing in momentum applications to power fuel-based a grow scale key market fossil higher impact worldwide well-positioned energy grow with expected the plants. power investments to given of utility and solution in alternative we broad our are early solar continuing market. climate With reduce for power that range of and disruptors, are

On machine driven saw our the automation scanning we revenue applications. vision in front, year-over-year imaging industrial steep by growth and

to over will to turn Thad? our call performance on provide I and Now the financial details additional guidance. Thad

Thad Trent

realize earnings to which potential impact seeing strategy and our in Customer initiatives plans outlook, second will strength for Thanks, in demand pleased sustainable I’m a strong a half and through quarter. design really Hassane. and of to have technologies for it XXXX. on supply We’ve and full win our remained sensing pipeline innovative transformation the the flow record revenue quarter long-term and at cash free actions to we of current company. that from has as our first operational financial on we’re record and results. to expect In the revenue, Analyst of high-end resulted Based our company internal as our we few continue the The share our of executing Day, optimize days, in at the contributed power manufacturing long-term to successful been continue been expand. securing demand we our guidance. announce our efficiency, additional our sites

Total second revenue. an of XX% revenue increase second X%. broad-based X% was over megatrends We of markets revenue for comprised sequential end seasonality of XX% a together of versus to the the end normal and quarter and all Secular XXXX both these contributed quarter business to $X.XX turning growth quarter. markets, quarter-over-quarter record to So billion, contributing automotive and and across results saw and for XX% in industrial strength regions of the sequential increase revenue units. in to

automotive XX% Industrial and revenue grew Our and year-over-year XX% X% sequentially. grew year-over-year XX% revenue sequentially.

$XXX.X the business increased industrial million, Advanced Power Turning in PSG revenue Group Solutions due ASG, year-over-year million. was to for to Group, or of Revenue year-over-year. the was markets. or automotive increase Solutions XX% the strength PSG for an XX% and by units, end $XXX.X revenue

in year-over-year. automotive, XX% in in card. for from million, ASG an high-end especially in benefited $XXX.X ISG, increase In strength Intelligent second was the the addition was Strength or gross the XX.X% XXX XXX computing, margin GAAP point improvement basis and by sequentially. of to a margin Revenue Group, driven Sensing year-over-year was strength quarter for XX.X%, graphics quarter was non-GAAP second gross automotive. the primarily in basis and ISG point improvement

performance products, improved company. gross Our to strong our last margin manufacturing in over initiatives cost driven sites efficiencies strong the containment execution, margin been and quarters favorable has a by across higher the mix few

utilization which factory Our XX%, XX%. at consistent relatively with QX was was

$X.XX demand footprint earnings structure, per of second per reduce and the lighter strategy will diluted was share allow per while forward, share second capacities quarter and compared to customers. for for increasing share the move $X.XX the fab earnings we Non-GAAP on was XXXX GAAP continue cost to overall manufacturing per in quarter per As our our diluted QX. to $X.XX of in share the $X.XX share. as us

ever reported the earlier, highest this quarterly is EPS company. the noted non-GAAP As by

a numbers some expenses million. of we $XXX.X Now of to Non-GAAP cost the XXXX decline $XXX.X for impact let operating our quarter-over-quarter additional in for operating was initiatives your million, me as reduction $XX.X continue give GAAP expenses the QX. was launched see you quarter models. of million favorable second

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

level highest coming the since to as in in X.X% and second at QX. XXXX at compared XX.X% quarter was margin operating non-GAAP XXXX of in Our XX.X% the

shares share updated various Relations our XXX you share prices. an Please our was website count assist calculating GAAP Our to of diluted with XXX.X shares. share table diluted on at million non-GAAP count count diluted have our the was note, Investor included share we section reference and million

from sheet. which expenditures was and we balance on or we -- XX% was free revenue. million, our equates was $X.XX during So Cash XXXX of X.X%. billion quarter sorry, to had was million the intensity million $XXX of cash of and a $XXX.X had revolver. cash $X.XX Capital $XXX capital operations and turning flow and Cash equivalents billion the $X.XX undrawn to million

to billion was of a our in Distribution inventory to and increased weeks. in million the our indicated and is billion range Once the our reducing than Fishkill $X.XX XX million we weeks needs East we million towards sequentially fab. X.X are $XX.X capabilities days days. again in supply significant $XXX from rather inventory which we customer more to building inventory hold in down to chain. on inventory quarter. QX, Total debt balance our proactively below sheet $X.X our distribution are again, of days. As target $XX.X to Inventory decreased support weeks expenditures the X.X weeks enabling was of of millimeter paid previously, resulting by XX million XX days our decreased at of $XXX XXX Accounts to we X inventory directing portion XXX receivable capital DSO

So results. our and turning quarter. for table provided guidance third our A second in the detailing press related the quarter to GAAP is guidance non-GAAP to release

Let now our with key elements guidance of non-GAAP you for provide the the third me quarter.

we for strong mentioned, the demand the As will year. believe remainder remain of

limited supply $X.XX be revenue working for backlog continue to trends, levels, support. and our through we $X.XX we efficiencies, current third the billion. range to long-term on by Although will supply the in quarter operational provide billion will booking the constraints customers we increase our to strategic are Based of be with anticipate

We share-based compensation and to million. includes expect XX% gross $X.X between this margin XX%, of

will $XXX million expense operating be We million, $XX share-based including million. $XX.X this million non-GAAP our and to OIE non-GAAP $XXX of million. includes expenses $XX expect anticipate of interest compensation We to

So this $X.XX. share $X.XX earnings the to results in of in range non-GAAP per

million of We of the in XXXX, is million to expect shares. $XXX quarter count range share be million to diluted expected the and in third expenditures XXX $XXX non-GAAP our of capital

seeing to all the call in a I you pleased our our And work of summary, Day extremely back operator will open worldwide for commitment forward in that, our early add to With to line unwavering turn my execution at New few Analyst initiatives. transformation for over with York look teams I and the and their Q&A. So, our the to in thanks I’m days. the I our progress hard customers. to

Operator

from first Your from comes Instructions] Ross Deutsche Bank. question Seymore [Operator

Your line is open.

Ross Seymore

Thanks. guys. Hi,

year. last on Let me the thought the few quarter, would results. I Hassane, you and demand questions. demand talk ask shortage Congrats little believe bit commentary the the to a I that you a about abate want shortages had, kind It half second in like seems the stabilize, increase velocity slow, next into might -- the that but out the the pushed of you've would the of year. first of half might

guess on what's with there's confident demand I the changed no ordering how side? within And So you any that double can that? color be

Hassane El-Khoury

interactions, pushing it's have stated, the on on That's customer LTSA the in or based our we've backlog it always That's into really Sure. with out We based that demand basically good active see on year. a environment signed question. customers on of next very the as dynamic. and been engaging half Look, -- either based first we engagement.

far as doesn't we're in supply make channel. the happen the managing far as Now chain as as our to ordering, sure double it having that

So as That accounting not on we from closely. end customer we been keeps call very demand between have customers reducing for any, the managing the [indiscernible] us the sheet, in without our but OEM. distribution or anywhere or and that buffer stocking inventory strategic balance to may the really serve allows channel see may it in you and see inventory

ordering. the tactical. now sure we're But do to call we're going make suffer managing, double not from how what right that's it that So to that's need we to

on inventory that end demand been our balance direct that sheet with one-to-one customers. reducing up we basis So the are of building confidence has that gives and literally numbers the tackling our given me

Ross Seymore

color, for my I Hassane. for either or that follow-up Thanks as guess Thad. you

a gross guidance bit higher similarly in things, and the the the from learned at guys cyclical And even it just probably the that Can level the the structural is the come most and how can benefiting times? challenges for been your some we've talk in about tailwinds you strong you a as go third believe different little pretty face. of of just versus On much that you has past do drove line, quarter. question, second what where side quarter, ON to historically that's upside margin given impressive

Hassane El-Khoury

Yes, going look margin of thousands and we have streamlining and and the margin have structurally Those been quarter working operation see always cylinders -- our guide said to if firing for strength, are in benefit That's items we we our the business. you're that gross seeing on we've the of we that incrementally, on second our in you to components gross all the improving expansion. obviously, first at going now, probably line are drive and QX.

those So would call I structural.

last because see structural. utilization, look jump really utilization utilization quarter. from But tied a at you is If utilization would I per also what flagged that is call margin It's se to been has big not gross you flat.

QX from we other to on is that So all the jump QX been have the doing. work

rationalization, shift my delayed and asked that to commentary it's So going operation streamline mix quarters to and we a I environment, continue demand of force margin. to couple products, our portfolio our strategic take has the drive higher ago, out of cost was to products actually portfolio been, that be us be because our faster it's to would going accelerated because will

some portfolio you're than that we anticipated. mix seeing happening of So earlier

our these it looking. of expansion. I'm forward is you bullish tell very will margin gross it all the structural, And So sustainable. that capability of components on is

Ross Seymore

you. Thank

Thad Trent

helping we at -- our just I out were guidance, compared Hassane, that of that would making mix if the favorable getting we're you think we're able I But margin. changes of as obviously, get Yes, with manufacturing our supply the it's to out absolutely well, gross more company. I [indiscernible] look agree, think then to structural upside And the sites. inside which is

Ross Seymore

Thanks, guys.

Operator

Danely comes Danely] from Your Citigroup. from next [Chris Charles question (sic)

Your open. line is

Chris Danely

involved, I think any more great. specifics the utilization big the for a guys. product there Any It's be drivers. there I'll but you It's Was unborn gross they that kind be a name, any given speak rates pricing didn't just name son on my specific little do Chris. just wrong got margin would Hey, of up anything. specific lines? Can jump Charles.

Hassane El-Khoury

the across spread board. it's mean, I Yes,

some, is what value referred to price Of the to course, I there discrepancy.

what market looking extract but pricing to products be a not costs, downstream is and customers. strategic been we our chain the big Cost that they our what and for provide a costs, costs. the supply supply to perspective, have pricing in value we chain need factor, just So at from upstream product

of we on Some customers, those we’ve that prior them the described pass calls. seen in increases I've to as

a There's I of -- really, not we because owner timeframe, drives the in, it's the would I all specific have it Chris, that And range. December guidance where when the about, that And see for it, been I chain, to, in to across supply big these that given quarter incrementally really get those swimlanes gross function the continue swimlanes launched margin. came have look when that improvements now. delivering margin time it. in gross since QX the company. on, at since the takes we're now said step going call and starting -- X,XXX to a have structuring it on anchor the it's working to and board. we So I we a we are as from come came company we those looking through the are out and forward quarters Because they're well, is

Chris Danely

into mentioned about for times then you during or sequentially? Or are my And the expect shortages Did where Were down? you what next to quarter? lead the Can they up talk follow-up, they you extend did Great. they year. extend just flat these days? your

Thad Trent

last were see up supply the XX, Yes, that, now on us but we limited we're reason in constraint by about the working why about look they've more [indiscernible] visibility Chris, the lead quarter, XX It's that range. given XX being and weeks, our we that's given as sequentially. up that to gone times forward. low another Obviously,

Chris Danely

Great. Thanks, guys.

Operator

comes from Vivek Arya America. from question Your of next Bank

Your line is open.

Vivek Arya

next especially the on could are levels the are on based taking supply that as peer with congratulations Just for gross basically at from staying what to until improvement. stay supply strong pricing is, to the current margin, now? cash response Thanks free and views grapple So is about you from first Hassane, from change investors and question could your level My very investors and the the where, dynamic your is flow half? the that you the situation supply or the my right what question, going question, persist right is demand trying be give that the discipline ON industry mentioned, and demand Is the is year? is group strong. that industry industry comfort to the the benefiting first response specific And the But this how disciplined? now? undersupplied will situation environment not your mentioned they

Hassane El-Khoury

good for doing that's I speak question. what can here. we're really Yes, [indiscernible] a and

what with if of fear the course, capacity go or and board. looking we reaction, the and margin why Of But comfortable really specifically, the at posture you gross with I'm is capacity, strategic our is our build the looking. are where the selectively and look are doing you margin, and the forward forward across view we our expansion products adding we growth see

So sake capacity not for we're adding the capacity. adding of

first lot there. to call growth capacity are legacy strategic and We adding we the what of shifting the a from portfolio and

So from line, our our increasing as getting are supply given growth the coming we strategic products. those chain, that relief top through are supply we're

So a at equal our color capacity. where and It when for is forward, give little we're that's not Analyst I plans look the expanding more all. we'll strategic bit Day, moving at

on are we our to demand not servicing visibility customers are that there we So our our today. -- in signals beyond can what

I'm capacity not adding So there.

very We capacity, looking. driving will add and on be we where are adding our we're products margin it are gross that We're forward in the growth strategic selective. very, disciplined and those

very approach. not So the selective, shotgun

Vivek Arya

Got for a follow-up it. my question. actually And clarification

prospects related electrification you Hassane in side. really confident side, in supply issues about the On And COVID the impact side? from or shutdowns Asia sound any Southeast then, from ON's clarification very

kind help towards And industry side ADAS could So Thank more exposure the powertrain you the what do is as and your the on what moves both us you. see to understand current EVs? content you growth of EVs?

Hassane El-Khoury

the me EV So, first. answer let

even very Our bullish. -- it. exposure, to is I not I'm starting can't hide to this going I'm obviously, grow,

picked So glad it up. you I'm really

very on automotive up. We're posture, Electrification their safety with penetration I'm strategic bullish both So, through with starting supply X the OEMs and but electrification. is chain. also our pick Tier well-positioned to directly,

at forward are investments our the market So really and that where R&D I is how look happening. really looking,

it see beginning If markets. you the and as the into relates more of LCSH, in I at Because wins, have electrification, all the of these importantly, I have markets. me potential make very personally vehicle design the capacity these and a bullish, we big but customers, year, those moving R&D to recall, with we on of restructure did capital that's engaged excited very ON

disruption, your think again. supply able of we've question demand the direct But our yes, -- really our the indirect. chain, demand mix back seen to wide, to disruption the were service COVID For shifting I by redirect have our manufacturing environment, or seen were COVID and some we teams related more operations about and to we in

on was disruption. And that overcome back there track. we're disruption. We now So

let's it that able work blip were call releasing we we're the So on sustain and to the capacity. more a demand that given doing given

Vivek Arya

you. Thank

Operator

Hari Your comes from Toshiya Sachs. next question from Goldman

Your line open. is

Toshiya Hari

Good the the results. two-part morning. gross strong taking question Thanks margin. had I so Hassane, on and much a for on questions congrats

talked addressing value about price to discrepancies. You

you. in then part, on of millimeter And believe form Just at what price couple very of margins? tenure the go? curious the years how I much curious, XXX that you as still able early transition, in how next to been have evolving But it's on left discrepancies the my the see Thank impact But Guessing in innings. of over is execute your ON, early of percentage you I'm to very much gross it's do there second the is left? and guessing process. again, And how increases? terms

Hassane El-Khoury

Sure.

question effort. ongoing as first to is price this overall. obviously, it I portfolio the value, under put would So rationalization relates an the it

because the because out all or of are price material. So I it break of because don't shift, those of

customers. ship moving the start the to without the touching provide you you to value price products, impact going value that's If to high

And importantly, the opportunity. is That's improvement. So I we company look, getting. done more it's we're say, that the continuous would momentum you like mentioned, not Everywhere yet. a there's

you quarters, of about part it's pushing a are moving strategies our part it's culture, that top. first Right products from now thinking and it been the lot from couple about how new pricing teams of think of have forward. of the If the I

it where we're time environment, the a because forward. we're how value, oh, not able in structurally is to of So moving extract blip that it's

going value delivering we new at to the having are new So they exactly because not be products pricing those issues provide of price customers. new value discrepancies, are the products to the products and

that’s how look Does I help? really that So it. at

Toshiya Hari

XXX came And end as sorry, the you just does. I below think of the your low transition? follow-up, things, in It range millimeter -- And the side on for of QX, compares then to sales. guidance roughly management XX% the of XX%. And your target OpEx ratio sales around an That implies teams then for OpEx my of XX%. of long-term with QX prior

So sort just thoughts OpEx of higher, new normal, bit be little little curious, lower. the XX% a a helpful well. going is going bit be to on would is it as Any Thanks. forward

Hassane El-Khoury

Sure.

a the on strategic obviously XXX millimeter, So asset. it's

We transition. working Globalfoundries have our under been with

We ownership fab have that not yet. taken of

we're working starting volume on move very fab. that However, to closely into

ownership, more with the the review that, have track. as to in 'XX we're is gross far going for into margin I products of we to Where on that be how there, we that efforts are able us have ground importantly, the running many ramp hit fab but of and we we So this to millimeter qualified 'XX. them perspective. as over customers supportive regularly XXX and fab, a when our be product qualified take course, from cost

let the the comment Thad but OpEx. for asset So be all to from track. I also with is will both so capacity in from us on on a progress, a happy run, cost structure. the that's favorable I'm going And long that

Thad Trent

we're FICA to did savings to you're guidance. favorable we'd We QX, of becomes we'll OpEx that going and in more Yes, the of recognize as a Obviously, when much the and a obviously, of that course year, our we realize somewhere rate, of quarterly year got said restructuring than able run we pace on over that but some things, then on we and grow, we that new year. the exit becomes and next seeing [indiscernible] that's things here revenue back the million of impact we activity, you've our maintain. earlier, side that to into and believe accelerated had a that the the baseline. of rate a $XXX kind like run that We the that’s still at growth. cost OpEx just are north going And the benefit that slower of reset

Toshiya Hari

you. Thank

Operator

Harsh question next comes from Kumar Piper from Your Sandler.

Your line is open.

Harsh Kumar

First Yes. In congratulations. the think $X.X Hey, years like are like billion or going results, gross last or I it push all, of at a the I'm stunning something These to peak strong XXXX, X little bit. you margin, think happened Hassane, XX.X% guys, that. was results. I

You're XX%. talking almost billion, now $X.X

So higher run of function that the margins, rate, a is I've my done got your you've question it got that a is, much actions in you've how a opinion? implemented higher and the actions you've follow-up.

Hassane El-Khoury

Sure.

that one But Of It's all stuff working answer of course, been there's based talk the only that. it. on we've to on. let me about timing the

the putting and That taking about we I strategic plan value, markets of to talked and has taking, high that or since us next to products faster always been years. growth into lot from mix over capacity of these, actions of have I X part industrial. to of our is strategic of high before. restructuring got our high We've shifting and margin started with grow always portfolio of we products high target auto demand value, in capacity They shifting joined. environment on the that we've the accelerated wanted will products XX to my I the the release that strategy, commodity a will done we that environment with start away part constraints. What legacy had as part and demand helped the high course, is call capacity accelerate what because from Of that structural we've move

current accelerated was all timing The environment. actions by there. are So the and held the

Harsh Kumar

got I you.

Hassane El-Khoury

… did Harsh, your I question answer

Harsh Kumar

cuts. does. And very want to on Toshiya's and then, following it you Thank question, very on fabs cost talk Yes, and up much, helpful.

remind products be things you're could timing benefit through running have factory don't and well, also, you because you -- go running Fishkill, great of us [indiscernible] actually that could the the that will can So empty. very when it be a

of utilized sort fabs be you angle? well eventually many And you away, with when then they think that will you when at XX-inch will do coming fab how from So a timing a big need? point

Hassane El-Khoury

Yes, first. Fishkill me about so talk let the

today We today shared part Globalfoundries revenue original we agreement. Remember, fab of or capacity with a are and the and at out their running Fishkill. running of has it's capacity have allocation that of part volume our fact and capacity us Globalfoundries,

that product already on revenue through that will fab. shipping based qualified to as are quals. I are own customer and we're products revenue keep end That on 'XX, quals customers of mentioned, We track out our increasing and generating

And by talking progression is But right owned about through we will 'XX utilization is an of So fab of still more 'XX. the in and ON. shipping be once on there. because allocation we're need we what our get, based ownership the in with now shipping not the it's we case, that we obviously fab and on because take I quality that that. to be that's track are latency you to really customers this But measure usually that

that As today. manufacturing is as many comment I we to more fabs are to I have to have it on fabs, to a will going need My our on that's our communicated obviously, really we can as far to less footprint specifically. ready, on how fab lighter, run so something but not focus plans be comment operations, and we we rationalizing will ready

Harsh Kumar

guys, Hey, very Congrats again. helpful.

Operator

comes from question from Jefferies. next Your Mark Lipacis

open. line is Your

Mark Lipacis

for Thanks my taking questions. Hi.

different ON or than the gross it question, margins. the to last on sorry But something with there's come like sounds XX First going back to years. really XX

[indiscernible] And execution script, gross So, talked you pricing you said Thad, think heard and I about upside, cost you margin think when the don't your then, I I containment. Hassane, there. in to it mix efficiency in I sounds products. value mix capacity for the prices. But you're shifting limited to price if code which discrepancy, was the a use word expression higher the on value your like thought

pricing this Is that So a the when I -- last on -- things XX right. sure so business are hear is, last the I and much -- now I X% And question the part when follow-up. you subject is had X% much covered to improvements. about I pressure, then the over business to of your to want are bad, years for a guess things -- XX% make less to and hear gone? clarification, is price just ON good, a the on question got that price so there's pressure. me, XX, XX% then Is lower volatility you I And about on,

Hassane El-Khoury

on focus do need and if I've short are that now. two improvement put So Those of margin as I that gross far them, was right in we rationalization. back the where as conference it CES portfolio footprint the strategic you Strategically really answer is one I first conference directions to the manufacturing product yes. my think -- through what set rationalization attended I January,

going to and So accurate. not we're that portfolio strategic we to which what products where to going in start want where products legacy describe, is, in that one you rationalization terms mean, we at are which the grow does which in One shifting investing to products look be the are, are -- play. very which high and

are structural better shifting where mix. are products maintain XX the to the Now, those going that's to next to goes a are more That's that we strategic see the you have to that products we're years. in the now said, is market done. grow seeing that forward growth will not is And we we and the starting when X looking. portfolio have point even the mix what way, over What are other to X%. time it Meaning

we're keep filler in path, you the shoving the low When them from go So value, -- years, is XX away to the front taken discrete away are fillers. been are commodity don't from the grow and volatility. with has over once which call to up fab that moving moving that down I products value I product, and And that time. products, products, discrete you have that, they from the strategic need going last fab high market. commoditized capacity We're

but in it's volatility growth. growth a it's That's because to still that the that's strategic going maybe a So portfolio shift Whatever growth, and it's mix when growth, structural growth of not trajectory growth summary, only. rationalization. be does, disappears you high impact demand the your products, trajectory to

Mark Lipacis

That’s helpful. very

Hassane El-Khoury

I’m your follow-up. ready for

Mark Lipacis

cancellations you any out can skis are maybe for you indicators outs on customers about Thank their that you. for talk really Thank That's for any seeing me. or orders? are -- on And getting great. on spilling their you're to over dynamics tell you that? or Yes, The looking like helpful. that you leading what anything push at

Hassane El-Khoury

I, hook phone in able to XXX% always about not sure don't stops off often in than escalation at. make from be that we I we see know joking more times times it, the are look but the many customers not and not biggest Thad are visibility anything. I see analytics miss week we're the corner. ringing there biggest the Look, calls I you're around be I to it, to the with how day, When indicator. have obviously then But Yes. to order comfortable once to my where review going a But get. we today. stopped ringing I'm is a many gauge we XX get Both

me 'XX. have you both you So going it subjective that those that, of get. half this is but you of into first the have analytics, to And field of also lead these, both the call believe that

Thad Trent

And, we're push Mark, as direct. making just the or down this inventory outs escalation seeing add, that it that and inventory is sure We've at time. stockpiling they the getting rather process, that customer in taken channel the manage can to or And need meaningful cancellations channels customers we essentially just so also it. the are whether not any than

visibility what's think we're analytics it. and to I got we've manage doing of good best right So our happening now. And

Mark Lipacis

great, appreciate Thanks, it. Really guys. That's color.

Operator

from comes Raji Needham Your question from Gill next Company. &

open. is line Your

Raji Gill

and you, well great as on congrats across the Yes, thank momentum board.

this that sheet on reducing to talked right in Just about how is your constrained holding channel, inventory quarter, sitting how channel. a build in last right of inventory on the allocate the think excess own in picking that inventory strategy commentary do balance the customers, had reducing and preventing on supply over wanted that you sheet, while And quarters next balance in about couple the you playing to think quarter? more we actively to while inventory, products any inventory, you're channel Wondering inventory out the up environment. your that the therefore your around the continuation I order of

Thad Trent

X.X a channel weeks are this so quarter. We're weeks at last at the X.X in quarter. Yes, we

in balance revenue a slightly channel million, decrease was down At X sheet of it almost the $XX that a $XX in days, on inventory terms went same days. but went inventory. up of value, up So dollars, down of time, our million in in terms

to we're goods executing Obviously, still finished of available, that putting that we're available, becomes showing as So become them. inventory. inventory strategy

the think forward, year. remainder this strategy we the look continue of we'll we as through So

flat I slightly, of is think kind minus. the going or get relatively our on depending inventory in to capacity on stay just inventory our to probably channel balance more And [indiscernible] our remain level to down plus will think I supply. sheet

see of in remainder So, holding strategy through we inventory. year, the of that don't our this change a

Raji Gill

or about just the online, internally did externally. in question couple a you're supply increase you revenue. alleviate mentioned think order Wondering elaborate you had Thad, just on we What And supply secured supply, additional whether further supply much kind supply can have if more the that coming again you how steps on get? to Hassane, And able -- that more and I internally. follow-ups how just, a more on automotive of you that to and were

energy, shift thoughts Thank Maybe and your energy on revenue, You've renewable you want vehicles, electric onboard you. silicon products to us chargers. power updated power obviously and infrastructure. had record for automotive carbide modules some stations to give charging

Thad Trent

what out. was of saw flat but the quarter-over-quarter, terms we our and in Raji, supply relatively got so, Yes, we utilization supply, more in

but efficiency on of XX% this more remain the manufacture on optimization own our got in-house, product of we've site. can really outside. inside do. So our XX% constrained severely We what outside, about manufacturing We with the we the control is still

of more if see squeeze up QX day, And as executed, well. our to forward footprint. you we've which more existing been our is has So we're manufacturing then look QX the getting team coming the as you supply midpoint, able to at can out in just

So optimization that. really the of again, this is just

Hassane El-Khoury

mentioned as which for and energy, as our I mentioned charging. me about traction products, obviously, and Yes, far onboard question I your renewable power is vehicles, both second electric

from or winning charger is we the on efficiency the whether we and as a is comes is for the province also distance. When it's power from importantly, smaller demand are our module. you charging EVs the far and goes we together, road, LiDAR two think off as good good about charging, more attraction, competitive lighter need our customers, winning for get that onboard as technology where The that LiDAR you infrastructure. packaging and obviously those more packaging. flexing, So or are fast highly metric are why but and technology. put traction the for efficient But

output the the better about being of our able the went. power we're same I competitor modules. is silicon than to talked and packaging carbide where and So equivalent equivalent quality we module silicon power output. get the And That's device,

But the we're competition. You'll look R&D winds leapfrog are they call bit and taken about customers I've to to the to. talk lot ones do day. that I little on over lack putting a I the more Why where I'm we our our say a what do I at of, hear tie the more funnel, current the we since customer, of in those pick do order is why I and analyst strategy when that's And at to you win? that into pushing

confidence; our more me growth. the these And where one, a win our investing with momentum looking to going date, posture posture So forward are forward sustain give our to that's all of to importantly, looking. design we on R&D that fuel

Raji Gill

Thank you. Great. Excellent.

Operator

John Your next question comes from from Credit Suisse. Pitzer

open. is line Your

John Pitzer

And inning kind Yes. curious, Thanks the the upside over to you're for seen you've couple the to repositioning margin as ask go away significant of of to June what out in of you do Congratulation that I for yourself price Hi, guess, September walk to And growth didn't far let gross I'd I'm the good some of portfolio gross now? to the morning, businesses of customers back kind the advantage sort guys. pricing to think last either me trying cyclical advantage results. saw margins? margin? was like there higher any right as quarters. meaningful the so question. of margins, certain just we solid kind

Thad Trent

Yes.

we're any where early far call, innings. in So, look, as as

haven't starting the least to actual the QX of of haven't the seen manufacturing work fab you're to talked do, that see ones of we've we've able As and the what come yet. momentum some about in the benefit that to the done we're you that kind rationalization, starting from far benefit at seen QX, divestitures, we as about,

the to product, feel product, looking. more that's product now of So it's forward on, value, cetera. cost, gross product costs, Right margin et going expansion mix,

All you're are what seeing of those today.

as deploy and So strategy, there's we as to -- more forward execute you come looking. our

far in as me gross that comfort gives trajectory, margin are, where our So we the as of expansion. the and

John Pitzer

your cash website, And gross I And even impressive. would price more Hassane, that your the free then on stock as the the dilution impressive. was down a margins you looked stairs, goes lot schedule, if your there's at That's share which were for. up. flow, argue all not of coming

So of of use guys sort you cash return. the I'm kind are and about cash thinking of curious how

strong was the in how Given should free the cash quarter generation flow continue that. like looks it and

Thad Trent

Thad. its John, Yes,

right. You’re

new heavily a out convert money. convert out and that swapped was took in one old we if the that Now it that for

million to guidance, So [indiscernible]. up small the our it's dilution you impact just next in you're if quarter, at as is shares, look in and past XXX seeing for what the significant

now So cash but generation, the its balance right about down flexibility. balance its it's the pay now sheet continuing in flexibility, the to business long-term, we'll as capital have sheet and look shareholders, returning right debt. we think reinvest at to

John Pitzer

guys. Thanks,

Operator

question Your JPMorgan. comes from from next Harlan Sur

line is Your open.

Harlan Sur

on grew and solid is outsourced. and results basis. of business sensor Image on business, year-over-year the they The again, And most Congratulations quarter-over-quarter both I execution. morning. industrial know this Good and auto a

next year. You about of supply the first half previously into talked being constrained

is and team just As then your is a that segment And sensing in-house. to seeing? product the thinking strong about supply you're the strategy bringing technology portfolio, pushed nature the actually that this potentially strategic of and normalization actually demand given out given

Hassane El-Khoury

of [ph]. constrained so foundry Look, is that absolutely This or is it all big majority you're right. very of because

and over more strategy have. as we R&D. to not internal pick Because now, technologies more we'll long-term something is needs or strategy. There's up And imagine But work go far you that fundamental specific the Analyst qualifying into on outside running sensing can that get do a as expansion. through, of a CapEx we be and we're talking about facts what partners? the it, 'XX. out required that to various lot whether more now not and at that foundries options, all solve that existing therefore, image Right can the our Now the chain our some call it's now. right R&D Obviously, fab, supply It's that what constraint or external Day. it optimize can right about looking is supply inside, and technology of is we but get we in

Harlan Sur

down team the Got backlog then better it. trend to with a than flat December second would strong And coming growth is for perspective seasonal visibility anticipate demand quarter? [indiscernible] the the normally, the seasonal but from half, velocity, given a team's sequentially, given into December just the on additions quarter your the combined supply

Hassane El-Khoury

our seasonality don't of supply can don't and seasonality, we were let at is the out based our this demand. we on our mix, we I to the forward I'll Look, -- is top talk able Thad line looking really, footprint. think But point we get have comment. the Right and about now but

Thad Trent

Yes.

We're supply is by right. is and Hassane there. demand So, limited the

fourth we're our the kind quarter, the going top at within which So is X%. we of normal of end think flat seasonality normal to seasonality, be to down

Harlan Sur

you. Thank Great.

Operator

Vijay question comes Mizuho. next from Your Rakesh from

open. is Your line

Vijay Rakesh

guide. great a on Congratulations Thad. and Hassane Hi, quarter and

the side. give ADAS, the you with sequentially? on the what revenues? gross color see, grew the a EV mix growth on as that Thanks. especially [indiscernible] mix EV can as to us wondering that percent you of looks And you the you Just how traction like exit on How talk Could there. really EV some and year, strong if year-on-year

Hassane El-Khoury

We're by not breaking by up at just sub automotive. looking the or segments. technology We're

from I on. what the to are prior imaging, and its We mentioned constrained Obviously, expect the growth. ADAS question, automotive supply which to maintain highly limited the by side we on the and earlier

through team power it that's to been footprint the out our supply far chain able our supply to on as on. of products, that As how or products on our working product-- non-imaging much we mentioned silicon going Thad based the call are has chain of be as power rest the more get efficiencies

So growth now how built there. service. in. there. is I it's is we momentum don't right And the Demand There that can see of demand much

Vijay Rakesh

out, [Indiscernible] But the more idea is some the QX QX, give QX, And as it. are know there was of trending? orders Thanks. idea you like flattish. in? how end can I in we top in How some see you mentioned going how coming if terms look into wondering how Thad Got book-to-bill on QX? it

Thad Trent

think mean, or the just We're supply it's year. the strength major I book-to-bill is the the right, of Again, We strong, Vijay, continue consistent that’s it's it outs. We're not now. seeing cancellations remainder remain issue. to push right Yes, seeing going through strong.

book-to-bill. the not we're any So seeing swings in major

Vijay Rakesh

Great. lot. Thanks a

Operator

comes Stein Your Truist. question next from William from

is open. line Your

William Stein

Great. my I congratulations I outlook, appreciate hearty better taking your and to add want my and great to results even questions.

particularly market First, the in was quarter. compute strong the end

in in market. the And to there? as end aggregate what of in I wonder think I'm market a there. talk perhaps out the we about you do can look success if might couple attributed that over hiccup then I concern or least outlook some cause There's quarters. highlighted you you graphics trends that a terms cards that mismatched wondering the part about that of in inventories materials of end bills you're next follow-up. been I seeing or

Hassane El-Khoury

server trends seeing we're the look, market. and cloud Yes, both in

and are growth. in market more is doing, over more demand. it's But what if for -- we're there these that correlating that's what customers our expansion So look you markets, on and capacity

customers pause I customers. now that a that an maybe and and market 'XX and through are like adjacent markets, from pick kind we side. other side the demand But are the limited their our the and that confidence investment we me and think competitive on to are would able call and going where of we of there's in the to expansion directly, to we be up. what From have and beginning -- very our get see these to the we Those markets every want on products the and keep down. the to I that science our compelling it's do side, So that the pushing and in just product visibility at to service from I what XXXX, focus took is starting capacity going don't to slowing our backlog monitoring have in on gives these for we're these on We're data I markets. market

William Stein

And is about it, in quarters. Great. an dollar follow-up, aggregate expansion but next capacity as talked few missed the there in a then as I growth -- growth may built have of sort or into you've you demand first a or total coming that's that getting next the into highlighted. somewhat year think capacity a timeframe? your we supply think as rationalizing, as should What of we and about half progress we about thesis in perhaps of unit

Thad Trent

I we've would look got Bill, constraint, millimeter But of couple just through things in I supply our we supply line horizon. our difficulty] say, XXX We've the at -- We there. would on. continuing least coming continue at fabs got time [technical production optimize. going and push a will to as in the being

year You're and talking pretty small half get next been optimize the increase steady of continue about to some first has more output. we with as

William Stein

Congrats, Thanks. again.

Thad Trent

Thanks.

Operator

Christopher from Rolland question next from Your Susquehanna. comes

Your line is open.

Christopher Rolland

just on well few a the Congrats guys. you've progress made as in quarters, all

end percent LTSAs markets do deal ultimately, of kind guys a you The for first of they're were you [ph]. revenue guys Cypress looking there, being agreements big to agreements? goal question long-term deal And under of Hassane, -- how perhaps at Can you supply you're you strategically. for, expand is long-term Hassane. what a you want have used what what for ultimately

Hassane El-Khoury

a they my our -- buying customers and the our plays That's and cross we it's so based Are want markets. where selling number I'm we're strategically is of, that's about goal far of our impact wouldn't support get us decision? obviously, customers maintain within strategic in for is focus strategic one, it So we role. products on Obviously, how in automotive as priority the the starting where breadth to automotive breadth start [indiscernible]. Chris, with to perspective. our more remain from the the those growth, happens, are. because that's customers importantly, big once start before you taken all one to a start and our product? strategic -- lock multiple strategic markets I where think customer assess doing Yes. product, are And broader we that the as example. are strategic is comes of more in a that strategic and we customers with: kind products not industrial because stickiness market I going company Or a what's perspective. our fuel, to going that it sticky of supply value helps because are, the that that a But that's then and because customers from all and of LTSA, care that's and of but two, we one, going in, customers, to and from have, but

to click growth for not they or are lines, want you go it have we the I looking a we new example, level, have meet dynamic really LTSA. will below we from because up customers the to I'm ends given I I yet for percent, a ends the is at throw behavior level, target. it. percent there, a where right product I up, the but out keep not XX% want to a view want at may of XX% but that XX%, the guarantee at drive percent it we [indiscernible] My that strategically, to percent that's so to up, not on we targets that if do do don't whatever the an want group have So kind What strategic is based that get because

play So we're very account and surgical of lot very, taking there. segment a there's And on an market [indiscernible] basis. in a

Christopher Rolland

footprint. fab the around question a then And Excellent.

any have an First management do on $X.X additional for on the could higher? East billion update then environment, fabs sale? this team in your that updates existing all, think substantially In of And about Do revenue. you talked prior there? you Fishkill, be secondly,

Thad Trent

publicly two it in discussions -- look of footprint, the with we parties continue the quite to terms announced. actually In well, couple we fabs that sound deep few at a a on

tracking So along. those are

it the more exit than know, time in the you is place a to exit. of right. the fab, important As Getting structure timing takes

along still but though progressing our even announced we're So timing, does it but something, of things we nicely take there. haven't time, are path

Hassane El-Khoury

strategy our to yet I based a direction. EFK, to we on are obviously new in the that in on even wouldn't number of on it. path a Look our fab, the Fishkill what East the and goes new we're path -- changing put mix

Of how fab. we that and because incremental that it, of course, drive part have we're But be I'll getting once ownership against target comfortable to it more it's we going is number the that disclosing and growth progress that of strategy.

Christopher Rolland

Great. Great progress. Thanks, guys.

Operator

El-Khoury, now and Hassane to CEO. Thank would you. I turn call President to back over like the Mr.

Hassane El-Khoury

all hard all all work Thank us on for and We driving thank our our worldwide been an few I quarters once Day It's unlock remain in cylinders. for joining again at to transformation for today. and streamline and are transformation. a solid seeing exciting you forward team their results. few focused firing and we value. our and you look our our our our execution Analyst business and look our drive on days I strategy to our into deeper a

Operator

This concludes all Thank call. conference for today’s you joining.

now You disconnect. may

ON Semiconductor (ON) 2 Aug 212021 Q2 Earnings call transcript