ON - Earnings call transcript Q3 2021 | ON Semiconductor Corporation

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Operator

Ladies and gentlemen, thank you for standing by. My name is Brent and I will be your conference operator today. At this time. I would like to welcome everyone to the ON Semiconductor Third quarter 2021 earnings conference call. All lines have been placed on mute to prevent any background noise. there a remarks, session. speakers the will question-and-answer be After

today's question to time, would If Mr. turn ahead. like please a Agarwal. now over during Sir, Parag to I you would you. ask this go to Thank [Operator like call Instructions]

Parag Agarwal

Thank section along today thank this of for webcast recorded website, being by conference quarter call. and our conference and Semi available our this website morning this Hassane at joining www.onsemi.com. conference following the call. Thad and our XXXX Investor Relations with [Indiscernible] will the CEO Immediately CFO. after on is be Third El-Khoury on webcast approximately webcast, Quarter quarterly Good following And third one This available hour our Trent, for I you On XXXX call. [Indiscernible] Brent. you 's am readily call our joined approximately President

channels, XXXX also information to segments, our end markets our of the calendar is this in fiscal website. and share geography's, posted Relations section XXXX Additional count, Investor on related and

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

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

described Additional Third in the for of factors reviews are XXXX. our earnings Quarter

or results. that Our the to actual by the and Forward-looking Company other [Indiscernible] reflect update statements has occur obligation are statements law. Forward-looking change except as to elements estimates no may required other may

Now, to let it me over Hassane. turn

Hassane El Khoury

Thank results non-GAAP you Parag of towards you quarter in just joining Incenting by believe exceed made outlook, our EPS. significantly target results record solid delivered the of and record QX outlook the exceptional for innings expectations, another early Power have business. Intelligent With we for posted and execution a financial demand results operating driven QX thank transforming start that worldwide we model. margin our we and though and achieving today. us products. everyone by and Even We revenue and yet strong our our our quarterly teams We are

of further our growth our Today close our see transformation GT in or automotive as acquisition power and customers, to with make we and and Sensing sustained As progress announced we win Technologies Intelligent design expect revenue Advanced expansion. industrial margin we of initiatives GTAT. the and

and Analyst our power carbide investing at customers modules, capabilities is player Day, automotive with highly Semi markets and market-leading and to outlined goal end-to-end substrates. is the we sensing encompassing the the differentiated in As to technology GTAT now achieve industrial that On provide with and goal. our end substrate carbide devices, industry silicon With in solutions, are our intelligent we silicon only

critical GTAT impending a key us, to been GTAT of of business. automotive in engage customers acquisition be our silicon in can Our carbide catalyst has enabler a our we and long-term with strategic ramp to expect for partnerships

to grew be carbide excited our Semi for expanding our On GTAT ON X/X the of utilizing we QX, welcome its the Over and XXX Power $X support a revenue XXXX. industrial in have XXXX, our plans. silicon automotive millimeter power Third capacity revenue applications design inverters win carbide committed a Silicon am silicon committed devices for in GTAT will Solutions. product revenue X shipping basis, ON for our to of first of growth electric GTAT also at this year-to-date We or have based revenue the has to solutions manufacturing we team bowls, years which billion that the Quarter, processed over fact, announce XX% and substrate. January we committed we'll billion delivered be In sampling end for year-over-year. Semi our this facility forward vehicles. for family and look our to traction the At is and Carbide $X.X funnel is signed by of I LTSA

strategic ADAS, XXXX Carbide fuel-based billion. Solutions We $X supply end to current our to Power continues of generation. of about from strength electrification, demand The trends Industrial by Intelligent expect run and energy to as capability. rate, secular Automation, and power exit our transition such is and Sensing with Silicon markets, The revenue outpace vehicle driven fossil our in demand mega alternative

funnel For third quarter, growth XX% revenue. future us year-to-date for giving excellent these our a together the grew into basis, and year-over-year. design automotive XX% markets year-over-year, end end industrial On visibility went markets

and are Sensing. for In towards in markets addition Day, industrial automotive products we expansion. driving performance being end factors, make-shift margin our our and our Analyst products with our at to Consistent outlined industry-leading by drive strategy of Power driven to demand a Intelligent both secular and

as ago. compared in low-margin non-core we facing of continue out For the XX% will And a revenue year. third quarter, into next together XX% year automotive and to quarter the revenue industrial contributed our

through of we Looking robust outpace most remain to expect demand and supply forward, XXXX.

relieve are investing We selectively our our lines. strategic for to operations in capacity bottlenecks product

and are capacity. have foundry strategy. obtain mixed supply XXX while are lighters our supply Longer-term, with we to our of of many we long fab products our and and of of us largest commit same to and the revenue and facility the to high-value working a our entered partners our with with into Coupled These network we with qualifying pipeline sustainable to shifting efficiency providing support. them. development and higher Along industrial many the enable a co-investing our agreements our customers ensure time, products. margin. of of Fishkill supply, to our expanding are the millimeter supply While model. collaboratively allocation automotive strategic production increase with with have ensuring entering of At customers LTSAs term expanding our solidify multiyear our end-markets, we automotive LTSAs, uninterrupted working LTSA our customers into stable in stream with nature Along products, fab into executing industrial support the of margin investments us. with This are design in our outstanding win visibility strategic support revenue target and and we by and

highlights and million. discuss now and both grew QX Sensing our of and me Markets, in starting strength represented Automotive our for set few driven automotive a Automotive We Revenue Let The revenue of of product strategic in automotive. year-over-year by X% Power XX% was with in record and categories. our XX% quarter-over-quarter. $XXX.X key our a QX

based our in IGBT electric seeing strong and are Silicon momentum vehicle for solutions. We Carbide both business

and few for committed s QX next approximately starting silicon years, of LTSA for to signed doubling few traction inverters. XXXX year-over-year little for a have next $X XX% than ramp carbide less revenue for committed years. ED, billion in is the the solution this revenue for We Over over EV

closest dissipation, lower modules our our of of battery trade-offs competitor, facts and The differentiation and is As between industry-leading our in the a to power make range the key increasing expertise a indicated weight they earlier, and source a cost improving module. get is than at the cost performance power have heat we smaller our in packaging, of reducing the customers of output which addition efficiency our for both. to vehicle, allows our footprint critical of of

Our more Automotive and revenue year-over-year. XX% Imaging than grew quarter-over-quarter, XX%

for by power see XX% and increasing design automotive sensors, to CMOS with year-over-year. our imaging Year-to-date, new design-win image wins continued We Automotive in our grew funnel momentum content Safety management. and

power pixel ASP. to number increase further automotive the management compounded requirements power content of higher and as shift and cars million a by QX, $XXX.X of will need increase safety our safety which market and number systems The approximately in As includes industrial-end increases per The with increasing revenue military, these of features. of is XX% our higher have density, active higher for around sensors ICs medical, solutions contributed car representing and aerospace, revenue.

strong year-over-year XX% and Revenue third by and driven Power for quarter-over-quarter, quarter Sensing Our our demand Solutions. Intelligent by increased XX% Industrial

investing power power growth, more driver expected to are of be scale business area alternative reduce seeing in a Xx are alternative tools plant climate Power for energy of reduce Solution to are than strong from brushed from customers operations another fuel-based our XX% to us. to worldwide customers as We funnel installation energy our Industrial remained long-term increased content design-win a impact tools growth applications demand The shortages. for are from and and and with volatility driving motors both Industrial base industrial quarter-over-quarter powered, battery automation growth. in improve imaging to and our social for motors mandates transitioning due to distancing efficiency and our power expect fossil the the to for automation market AC utility power grow labor brushless and significantly at higher to plant. as are trends products an

in automotive to offer high industrial high-resolution, image industrial for customers experience We and applications. the our have our quality demanding most leveraged rugged, sensors

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

Thad Trent

another quarter pleased Thanks to record announce Hassane. results. I'm yet of

operating for revenue expanding record and of generating to units share As achieving markets, business funnel ongoing and quarter. and flow Power quarterly our targeted and record X With grew All free well sequentially, towards progress sustained we cash margin Solutions, record per model. rapidly our changes a XX% financial of non-GAAP our margin Hassane record we are revenue, of mentioned, quarterly our structural make end Sensing and business. win posted design reported targeted levels. earnings and positioned the revenue Intelligent industrial automotive while for

complemented transformation XXXX, Automation be all of While quarter. lighter increase innings to sequential and significant period by to third quarter ADAS, for team demand X% margin in performance. quarter the a of drive the pleased increase revenue revenue I The was sustained remain for execute recap X% in ability the our X% our internally billion, we From revenue XX% on shipping our growth accounting and more in of the increasing perspective, as X% alternative also like for long-term across of early QX. of by we for a a over and units Power Industrial revenue significant portfolio The focused our thus some and externally, we at would $X.XX our and ramp energy. our mix the Intelligent on time, Total far have the predictable quarter-over-quarter. total in an and QX, Baton ahead performance driven lot including Semi financial than us for opportunities both end our growth Revenue with strategy. to short markets. has growth our Intelligent vehicle. respectively favorable record accomplished expect Sensing the third expansion in are the and initiatives, sequentially, revenue turning We're and to XX% of products results were business while to driver of in a revenue was optimization third increasing supply levels, and pricing

year-over-year sequentially. X% total and in Our compared contributed Revenue and of Automotive QX year-over-year quarter. Industrial XX% revenue as XX% in sequentially. XX% industrial Revenue a the Automotive XX% to XX% year-ago of grew and grew

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

in to Intelligent was an ISG especially Quarter in Growth high-end improvement strength ASP cards. year-over-year. margins for was computing, million, of Revenue in by GAAP automotive, from industrial-end margin increase improvement gross a and both automotive quarter-over-quarter. gross Group graphics In Sensing the the for for benefited basis basis strength driven year-over-year. quarter XX% and or XXX $XXX.X the addition point in was non-GAAP ISG XX.X% and XX.X% XXX Third was And markets. point third

efficiencies favorable and gross continue manufacturing examine is to Our our pricing expansion discrepancies. we improved improved original for of price-to-value margin portfolio with our plans sites, our mix, as ahead of

QX non-core of with have of X non-core gross an Over revenue been our Over the pricing last margin allocated we rising phasing have we Day. XX% million and margins. costs our by successful our the adjusting we this quarters, XX% expect $XXX average Analyst navigating and in out at manufacturing in approximately accretive to this capacity over accrued as at gross next to customers. outlined we continue exited input low and of strategic revenue Today, exit margin to products two years, August

increases likely these we more will on impact don't negative expect gross in see While early we a our cost increases margins. have XXXX, to

slightly Our down facilities due slowdowns factory utilization XX% from XX% primarily back to related end of Southeast Asia. our the affecting QX with level COVID in

QX. Non-GAAP our the share expect we $X.XX to XX% per in as previous was earnings operations utilization the stabilized, share XXXX, remain per was of low consistent compared per third third earnings quarter quarter for $X.XX the share GAAP and share in with the As quarters. diluted per share. for range in third per quarter $X.XX $X.XX to

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

some operating XXXX. million million, investments to were the third million reduce third compared $XXX.X of in a to for restructure our Now areas. million decline continue our additional GAAP $XXX.X strategy operating and expenses our expenses quarter operations as of quarter align new of we financial. to as XXXX with $XX the give I'll non-strategic were in numbers $XXX.X Non-GAAP quarter-over-quarter,

areas in will expense saw APEX to into there increase our achieving capital run we benefits strategic to therefore, operating redeploy normal we lower back while XX% QX, an QX. spending in expect of And our levels rate be While target. in

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

in at the of quarter as to was and margin in XXXX XX.X% third XX.X% QX. operating compared record non-GAAP XX% of level Our a

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

free $X.XX Sheet, undrawn of a million flow XX% expenditures cash billion, recover. QX were of during million, cash are Capital revenue. quarter Turning billion from intensity to which $XXX.X and equate to cash with Balance had operations was equivalents was $XXX.X and Cash $X.XX the and X.X%. we million third the or $XX.X capital

the Fab our inventory decreased progress significant through days for capacity. indicated by of a times. ratio was supply and our inventory and East inventory customer debt previously, more our carbide than we wavers capital be As capacity finished towards million, in from was XXX inventory vowed support directing of Once work are needs $XXX days of to and and XX QX. days. proactively one not rather expenditures that Fishkill net chain. an Total weeks at we in receivable millimeter the million hold resulting again, Distribution to inventory Accounts processed our XXX in weeks capabilities portion we're reducing expansion inventory in distribution enabling sheet AFL X.X at balance was in of days. $X.X increased $XX to increase the building now inventory constraints. back-end $XX bridge X.X outstanding inventory is $X.X approximately increased to billion Inventory three transition leverage our build The is million initial sequentially in billion primarily an to silicon driven

detailing Turning our table provided guidance to in guidance to is the our for and dealing press Third our release Quarter and GAAP the results. related quarter -- non-GAAP

roughly the guidance includes results GTAT acquisition for X Thursday. Our expected closing the last weeks after our of

the for on strong Fourth remain trends, year. you of now non-GAAP believe much booking demand we will me Quarter. provide elements our guidance key next of Let Based through

anticipate fourth long-term, billion. trends expected Based of million on uninterrupted to Fiscal. qualification with $X.XX by quarter. $X to external and for our increase XXX revenue and $X.XX strategic we we millimeter We're range accelerating and fab approximately be backlog to bookings, will the with additional supply current ensure supply. to we're that at at partners will in levels, our through This customers the the quarter revenue $X of GTAT be constraints also limited these continue efforts, efficiencies working includes million for supply We working to nice Despite obtain operational capacity. product our billion

We $X.X XX% between of and includes million. and expect this compensation non-GAAP margins XX%, gross share-based

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

per the in result earnings for be is of $X.X. this range includes a $X.XX to This non-GAAP the GTAT share dilutive impact So business, which in $X.XX to the quarter. of roughly

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

be the expected count million for Our is non-GAAP shares. to of XXX XXXX share diluted quarter approximately fourth

teams of questions. worldwide summary, open in am that, I'd work add commitment to back on With their I start our Brent like So my to and transformation it for to the hard execution but I initiatives. with progress Q our customers. to over and for pleased line turn extremely unwavering our A, I'll to the thanks our

Operator

order to [Operator Instructions] Your comes At this like Ross would time Bank. I to question in Deutsche first remind from everyone with Seymore question ask a

Your open. line is

Ross Seymore

over And Hassane, revenue the update is Hi headwind couple we XX% today, XX% and transformation you line. on exiting Meeting of revenues an to years. or about is come? much to if that's of on the your on strong talked is get next see Analyst the of a guys. my first question yet for still your want that results. that, to the how you. that on Congratulations At I

Thad Trent

of quarter. without remarks Hey, approximately Ross. on the next X XX% continue roughly The our the X it plan over Thad. exited in We exit third to being that. business business In over about, we've I I'll It's average margin last talked $XXX million the take XX%. my was prepared quarters, years.

about X capacity. and we the shift in being think will continue to fairly talked capacity next about, higher-value be that as we we've and higher-value I the products years linear -- execute, As it for

Hassane El Khoury

the market years. you And about for We're that with to strategic the we next mix capacity to just customers. able, through of the going that keep course our talked to and to the are that's environment, we'll demand then we're able in couple strategic through add And demand of headwind. going with shift our that shift that,

Ross Seymore

how you those view for there. margins structural that job thanks your cyclical? how gross versus the much details. with my And going I do you And it's Great, of on the up-siding know tailwind just truly I that that you're about to increases, etc, the you price guess are answered side. you getting cyclical think but Can going are you say because to be Great expectations of even follow-on structural to question, a be of first way forward? much would talk sustainable

Thad Trent

Look, this changes making definitely is efficiencies the a favorable market. again. it's pricing shift it Thad driving There's structural. operations, majority of as to pricing is been of think well. component our We We've it's there, it, manufacturing the mix a

stated, we'll gross I coming cost passing increases we've our to As way. expansion. that We continue been we've on that get believe seen the the margin

structural Our and target over said, here like nature. at most time XX% remains I in of is

Hassane El Khoury

the at for day, value. end Yes, pay of customers the

devalue and forward. And And margin. average it X both been reducing we visibility move it we of when you LTSAs structural revenue price and like the discrepancy about. long sustainability nature on years. the of of longer-term have the to talking provide term, gives we're We an talked the That talk about about

Ross Seymore

Thanks, guys.

Operator

gentlemen the limit and in Ladies question. one time, one interest Thank you. yourself follow-up to of and please question

America Bank of line Securities. Arya the of with from comes question next Your Vivek

Your line is open.

Vivek Arya

or your but confidence that execution. somewhere. ON to so and rather auto on mean, or maybe how shifting my as pricing. benefiting Hassane, from which that, love lot lot really opposed a very you are you're and that the interplay been just that units year concern weak pricing Would taking industry, an you I inventory between an are from very the or views pricing then giving that mix obviously suppliers flattish, specific or perspective versus do in there's sitting to what's of strong driven on being content Very saying see this for automotive from question, a Thanks production mix. -- by are content exceeding much inventory the chips than the impressive and has content congratulations right? results

Thad Trent

look, can speak Yeah, for Hassane. I

content customers few we the in we design starting have that on point that First, of going view, that expected the wins know a we over time-frame, demand. it me content are 'XX is had based ties that's products, ramped story. have for content has From track the can't beyond why we years what support and our that so using growth confidence how much I exactly and that to the last up gives ramp, that our been

as Now gauge talk inventory being people I look, about as out, that. built far

can We where is order tell for escalations cars the with it, data to going economy the out peers gauge an I go all We're is go our customers intense the cars can the we good gauge pretty getting lot conversations where and lot. customers. that but That it's one-to-one of cars it's and me, that personally ensure you if not being have our of escalations content our that don't in a given level main we're ship is at to from my getting. don't of is gauge to the ship. going. correlation still a part's into a because my validate cars That's I built up, to

is pockets, we inventory about these or know will maybe for not it. are X there? here constrained. tell or our of are me there the still Yes. get one next until not There last we in supply they Because customers Are weeks to But -ship, two that and both shipment. weeks we pre inventory. kit of sometimes So and that X able

these of are things manageable. all So

visibility We our and confidence. we it internally track with giving by have customers fully on it and

Vivek Arya

as the margins take it's of importantly, this of low part areas. could before QX QX, a is already the the what at kind then But you're help supposed actions it the side Very from I when of bridge margin? lot to helpful. non-core and XXs us But the of I original job incremental gross at these of margins in your midpoint over was that you coming the a follow-up, for assumption the margin completing exit Alright. And levels? XXX%. Why my great on were journey. but gross look also these at XX% you then for to gross kind imagine

it's still your have of gross or this confidence there start end or do very that, the beyond that's think margins Thank XX% strong are you contemplated. you. journey, leverage what So a you of given destination maybe

Thad Trent

Yeah. Hi, talk seen pricing. is always said, we we've Vivek. that not through improvement operational has would What mix, We're we target. we've milestone, a XX% and been efficiencies, got favorable there. once that The that changing clearly and then

longest fab into the the and (ph). that's consolidating the the more about would exiting And on. If an fabs of to it's ramping really you footprint, back Day, we've fab-lite is said efficient next chart get. manufacturing, the bridge. take the we go leg got part big to that Analyst the improvement And And we've next hardest that's provided I be always we the that meter execute showed The the or no right? to piece fabs the and that the

I So as talk goal the we've XX looking And be milestone get never we But once there, end on what get that favorable able was operational of the would I then environment much pricing about efficiencies. as is manufacturing is helped. think that forward mix, a going pull what XX, we've next But good is clearly to to has us been goal should think what level to And a to be end we'd achieve. then the we'll be. it piece. stated

Vivek Arya

Thank you.

Operator

with next Toshiya Your Sachs. the line of Hari comes Goldman from question

open. Your line is

Toshiya Hari

any Asia taking much in the Then prepared I've a the your remarks, quarter. and the Thanks morning. to today. there your your and a question where Hassane being Southeast got in gross and on a speak for little congrats margins so strong are bit you Can the in revenue talked on about disrupted you little follow-up. impact bit Good operations on results. quick operations quarter

Thad Trent

not quarter, will were we this on of impact minimal down XX%. capacity pretty that and XX%. that's sites stabilizing had it. into they and we other but that will We came back about, The it We and full are comes quickly there because normal why into back this be levels quickly. able think so into talked run our resources they're is rate to hi, return to sites we recover from allocate yet, speed up back normal low up Yeah, think levels we to very Thad, slightly think primarily the think utilization now, those utilization

Toshiya Hari

of as Got year. my QX ask follow-up, about And to wanted it. next then I That's helpful.

I a environment think little pre-Covid would hit business the would make just what QX disproportionately. some historically historically how I adjustments how the you down given into thinking think would should drive about pricing strong seasonality, bit? year, Curious next that be we of QX is.

about talked You all have wins the into you quarter. the design on visibility the

of should into above be seasonality? margins should QX think So quarter pricing XXXX gross about again, how as the and you. March And we well? Thank

Thad Trent

is that guidance and than number not to on more down Well, a we at we're seasonality better perform than terms we're to not flat probably QX see provide X%. looking be. to that. and see Based going what backlog going X% are QX to to give you time. guidance and But going to in we're going But normal supply of at for we X for quarter coming can QX. We our today, only online, we what guide is

Toshiya Hari

you much. Thank very

Operator

Harsh Your next comes line with question from the Kumar Piper of Sandler.

Your line open. is

Harsh Kumar

Yeah. Hey, guys.

$X First tremendous -- you your diminution, Maybe ask wanted that revenue the of How you heart, effort us help the on said dear do bet in think pretty you get you'll I X from much you your And then things. billion that big front. you're and and are here. just data. all, broader a question can XXXX. to I once execution know strong I -- to EVs congratulations, near think start EVs above a today? making to to get for

do? of guys that Let's and will say point much EVs I'd your you all other throwing that business stuff in XXXX, time attaining in [Indiscernible] be how at

Hassane El Khoury

gave see up Silicon We're to a run efficiency over billion. seeing. I to it, the revenue breaking the $X highlight the Carbide, technology we're IGBT to customers Carbide highlight to the Carbide. -- coupled with EV getting We've rate Silicon that is always co-existent But importantly, our the growth penetration of next outlook as accelerate today. see just to of not of breaking the the Silicon down we're But and packaging. said years, going starting on few more

But So comfortable that's getting above and very the run ramping. is content are us ramps more which very about meaningful start doubling EV have to providing get Carbide for that building as is ramp It's few a is for level by billion to of Silicon we where today, people with I'll basically But of this from XXXX, that point, at now. in going talking be the trajectory been revenue lot we and every that EV talking $X going to I'm year. rate a color our the years be about. ramp. that to accelerate

have starting. with to it. be ours. It's their along guarantee for have going supply. we And they we're LTSA Customers to supporting Now growth their

Harsh Kumar

Vivek Hassane. Thanks, you've for well. question, target -- mentioned, And then my you've got second think Very I XX%. got long-term a of

the of utilization. would forward calculate Also, also. you're I'm FABS much business that sell looking can I color we structural. at as strongly just near-term You're ASPs things I Why seen you guiding saying but that on us and to going you a maybe helping that all sell need how on supposed already sure sort give you here we even much wanted of fabs low that Could you to you you're reduction, then are make haven't which versus to there's legacy some no progress think XX%, grow? guess helped to I and it's just XXs front

Hassane El Khoury

Thad at XXX is said unit that Yes, so million margin margin look, talked self-help. in mix from it already for and away to always it favorable that you're at business pricing based are actively away driving to We've units of auto on most from is walking this a higher shift. increase that us already are of and starting We talked XX%. Mix will the those environment, I've it margin. move the about walk we margin, even industrial -- talked see low and low -- sold, increases lot about

of All these sustainable. self-help of are things and course,

the is is worked the the that that level mentioned do with reduction some sustainable year, and XX% that optimization, to other that and be XX% And fabs wind to The manufacturing even in in and other non-core of as at utilization. remain we the restructure utilization down fab that's favor our going over business. higher you thing the as thing we our last

All say self-help. would of these are I

two neutral us. As you have the our pricing increases there are the are as passing price current because of is neutral the margin gross we can far margin so on to on that pricing. in think environment, increases we talk to customers, that's us, it cost will as that customers to One I things our for passing that incurred about

shipping adjustments other The market. product where the other one that, is value that, price And below we're reason customers many whatever devalue have sustainable high the that's value those of of the we for discrepancy, historically, products because buy. are

to get business. So we're And about the we ahead wind utilization of our these all remaining as we structural manufacturing margin Analyst of and the have talked of going that in there low are Day. just as stay we to down XX%-XX%

of go All to about sustainable there, when to to talk the a going we we'll to model. are how financial And get next structurally yield these level.

Thad Trent

I (ph) we're side, would online the coming well. the fill XXX-millimeter add got building that We those sites. later. But that the advantage we on we Yeah. saw to And in ownership. got you Fab year XX take that Fab as manufacturing [Indiscernible] support were out us next we've a inventory to Sheet gives cost the Balance on transition. that better manufacturing still

ending it's about the So we've always Qs. said not

Somebody is exit the the process time. and qualification about the exit and of

divestiture in and qualifying that building the we're other transition. inventory we making though And locations more those haven't announced progress we're are products that a even for those of tabs efficient. So

is the progress underway. So

Harsh Kumar

guys. Great Thanks, stuff. Understood.

Operator

& comes Your Raji line of Company. with the Gill Needham from next question

Your open. line is

Raji Gill

Yes, thank a in little congrats you long-term and my your that agreements excellent I bit results. want in to deeper echo the you're the to delve business. I want seeing Hassane, on

visibility the a capital in business, that committed industry transition your -- you in on committed better customers to the shift, and align response Could billion traction just seeing EV are from customers seems talk more massive little broadly, commitments, $X Can You future inverters. about the you longer-term a maybe this talked into market? with engagements your growth. s, describe shortages component the qualification right enter the process, you agreements about products you're that behavior supply to you related $X.X your seeing that business, seen seeing to the that for you a from in It like longer-term to in have supply? products, a and to of are the the bit we've year, particularly to billion change committed to customers access get in X/X and you. SIC for was more what Thank

Hassane El Khoury

absolutely And Yes. right.

talk one. the me Let about first

I purpose range, is you're is capability. a one on. design for would -- product model different inverter, performance car traction is very that a heavy-duty, for its When whether different, a a engagement and or fit so first and about say, talking or Every customer inverter. the The for

in and is you All run concept. product, concept the variables long-term longest team LTSA have what the they natural the the better a of our supply visibility the the customers solved and take traction side, step. that a to they account through we give and these that at [Indiscernible]. either the give and of design agreement are competitors, dual then them is a us our highlight in. not any than why order that leads source team win, design provide that and their And that's I if of get into least it's the that LTSA us customers, that a co-invest problem inverted much or give efficiency on or rate Because and once time, will give It over the when next of to to design period

and us, our to equal second There they're which different. where everything. I stickiness level swappable. to. that talked products perspective. providing a that is the that customers. commitment stickiness of the thing also customers the about something strategic not leads of model revenue It's potentially are But Stickiness the are not design-win is that's the from to major the for to answer referred yes, It's I not So from is

that agreement. image not like to important. or sensors. components the ADAS strategic our with theme when are talk they going long-term cameras, silicon However, I've for But IGBT, that about We're go lock the the carbide, rail, we like up XX-volt about along like talked capacity like strategic with a

with long-term the are where customer, on supply stability and and it these want not a but of provide that traction customers. to our they it want surgical that key to we're the enable ADAS, All to resiliency those technologies when do is through LTSA. able to products vision always to the or that about customers differentiated it's talked do moving there's we like -- strategic I've agreements. is them Again, lot of comes XXX%, that's And model are with

Raji Gill

And for my follow-up [Indiscernible] Go ahead.

Hassane El Khoury

go No, ahead.

Raji Gill

on again, follow-up on for would Hassane I does pricing that. of, No. insight but thanks relate And structural question, positive side. it's to the the my It the think more a

favorable You're seeing ongoing heavily for say semi's these price of not view an be more would obviously very price increases, the still structural think temporary? but you years do importance start Do where strategic but pricing -- as some for the will coming the Automation. is the high components declines you you're over environment in come to more it forward now, Industrial is deflationary of pricing to that at be least, are this for or starting do the end, of or in to -- continue days nature and could to the you this you EDS, maybe ADAS, because abate as as

Hassane El Khoury

we sustainable. for these year-over-year the be very pricing going new disappear. is to that, also give it I think historically is definitely our ramps. muted think But customers don't I will benefit

required capital over ones. the to get those strategic year the X percent or under them products and your intensity, ramp every me to else. give going days Those that be hey, traditional, up, Given they're is not for are

that of customers our We Capex and me to demand. we $X able comfort match to or our efficiencies that gives they're on customers get. $X because are to shave efficiencies order what in allow that's to or increase if with look, our able Because work the to metal So off -- in investing that in get products heating.

more products, lot don't which an savings drives the efficiency our of That's savings, still of efficiency semiconductor. but that's very the outside to car. to unit semiconductor is money. the have our if on And Given give attractive it's that's enable is because still end customers. price, a I that reduction what it, attractive in cost makes than solution the our the I

Raji Gill

Okay. Thank you.

Operator

question comes of Raymond from James. Your from Chris the next Caso line

open. Your line is

Chris Caso

Good you. Thank morning. Yes.

agreements? you? what demand that those within them? And right provisions than will in flow the could they you are different are in -- you winds promising Just concerns a now you level. X the obligations What are the the are question follow-up on you being promising the agreements. those protect envisaged these from LTSAs. of clarify, that over both those one event if and up over What and demand day them from agreements investor the is, there protect what's What the probably and customers

Hassane El Khoury

talk strategic When LTSAs, on intent. about we we the are focusing

and Let about an as Carbide or Carbide example. Silicon me talk IGBT EVs, Silicon

and happening, customers me, are EVs EVs happening. is themselves. demand ramp that to driven by and Companies by driven So are that

quarter the do getting when to what support one their and customers customers, we or with will is shifting is they quarters ramp the if they are able supply So get, will assurance ramp, two what you that work or whatever, know what ramp. be

an with credibility with ramp the that me for to money winners high says in where be market say our co-invests ramp will world co-investment the ramps signing they we doors, capex intensity customers mouth in order order is their and same to customer it doing of to in support supply is. gives as the support That's our what order you tells in are get they're assurance. and through because the confidence they're a their the talked that And the their comes That because EV. easy and when a increasing going in up puts money to everybody confidence is, be a Now, it down to their of We're that to a that me we But be to putting are when high the on when about. Company pretty Thad going ramp. kings ramps.

of the it. we the visibility, the we the margin and get long-term So associated revenue get with sustainability

will customers the of the going capacity when then time to time investing the get confidence Capex the get and for LTSA. confidence for the on the comes that ramp. they our that when it ready And in timeline ramp to customer We are expand they're given have

confidence. very me not about and give our for being that that not about. LTSAs order issue strategic you talked what in of to very of I'm all get selective I'm the going very, Again, after LTSA So these that to have all products.

Chris Caso

Great. very That's Thank helpful. you.

and which of that's will you're within made large the both even with the business, for there sounds framework. your What can industry the up strategic us part the in I in cost sticky some you business make LTSAs, about And years rest how some it's pricing reductions. prevent a of time with the within ON seen business, the different typical it's for things down of are we've not. that and now give framework that working for that of more I the question As structural guess, price sense On a like over you is, guess But an a much suppose follow-up, industry, decline is It year within maybe event Semi things of? of of and downturn? some a speak I of X% happening

Hassane El Khoury

good, a is business we're those the and perspective. of that business walking to sustainable talking XXX an that the you When business, to at care maintain and describing. carbide are of sustainable you as you're XX% about, Semiconductor new margin that's Thad margin up business, ON pricing focus financial that the from the proprietary pricing to, are products not share. even an we're away the used both our Semi behavior you have example, about are proprietary have the that silicon and the customer. adds about give only I care value from, million don't that that is lot to down I was Part on ON strategic that Look, we and Where model.

chasing in no Company fillers longer fab what is are has done. a downturn, We historically the which

the mix the what not going That's are. high-value market goes market And new of those what delivering the forward and sustainability today. are moving the results into that be of the [Indiscernible] products. regardless of on does. we the That's does. fluctuating confidence against we proprietary And to the the model are to new Company are We based that our our moving me Company end fabs gives

Chris Caso

Thank done. you. Well

Operator

Credit Your comes John from of with next question Suisse. the Pitzer line

is Your open. line

John Pitzer

they curious, as Hassane, your for Thanks question. structurally ask Chip the great as idea forward. sector, whether letting chain, read miss quickly reports, on if curious have going auto they think LTSAs capacity? billion build work guys. going morning, think the $XXX are I'm as you the me Silicon they're of especially because up. way you good inventory to the you to you going back just inventory. just auto supply much some third-party the to I'm of and this if don't And Carbide out the of about talk change as Hey, some might industry you're their revenue not, to year the their you've capital, actually explored kind out partners customer taking

Hassane El Khoury

Yes.

touch Let me the one. last on just

have customer form through our expansion. in investment the taken or of We co-investments capital capacity

is and model customers it. that up customers, new and -- are some have on The up we've changing. model is us it So taken opened to

this it way. put me Let

revenue. in spot billion $XXX Nobody wants anymore. to the that in about be talked You because

the importance the that are customers are the of it of that supply. do for there in doubling to -- the secure mobility. customers to Those importance still So in unfortunately sensing future the okay okay jumped We're opportunity of get that's okay have and for down not are with me. them, denial on that's the power and understand customers who semiconductor,

the but there go That Suppliers may locations years. you ability than strategic only as talking our supply It's credible not Because process and is more a personal independent to business inventory, it X the COVID, to that. with to have supply way have about supports credible to is to had to give product to of all that get to about We've don't last lot customers we the they proving products not continuity. efficiency resilience disruption. hoard today. resilience have in to not in Having their all in resilience, the are customers, just products, cases, matters selection the button the with thing, scale. of for high disruptions co-investment, supplier My and of but one for resilience important. much hot in build for very OEM. and a have proprietary a mention OEM a are have X inventory that supply with assurance. suppliers. we're win, And can longer-term it supply about engagements be always where of I'll course, to customers the on the suppliers That supply be selected they our shift customer, a two done Now, running us. able geographically depend Because is

John Pitzer

cyclical other high a away there back laying that billion thesis, great out $XX coming little get about idea And almost, old what this of leverage add where my believe versus XX% divestitures, single-digits be worried sequentially, the is your structural? to up as wasn't think outgrowing of it's have of structural industrial that's to which the tomorrow? or I that the pricing -- somewhere might today the a auto other was is to might over And then, to one a I bit If Hassane, buckets year-over-year job about about pricing the think the I'm your underwrite. bit. When right, that other I business. that little in discrepancy want of fairly your even and I guess follow-up, so cyclical done assuming to and business, bucket kind bucket, auto easy up in you've I value is other most about back we want you of that go

Hassane El Khoury

don't that now, million that accretive of other, by other, it in you or it the in a is not industrial actually example, $XXX getting is the margin the we or that. that's worry to look, we of of it lot already. lot that into about necessarily XX% that at Yeah, commodity our high about equate have we goes quarter When not either. have declining margin. non-core or that doesn't put to a talked Well, power this of What there, very XX% margin you're diluted seeing benefit is other bucket, that for

are fall even describing to our most just the growth to Company. the other. the under across $XXX that not the equate it that's of why And see Company. is bucket. there in I highly -- from They Power in our don't proprietary want So drag important don't others being and Sensing. products, is board, you million of the to but That's the -- other part

John Pitzer

Thank you.

Operator

Your the next question Harlan of comes from with Sur line JPMorgan.

Your line is open.

Harlan Sur

Good results on morning. and solid Congratulations the execution.

look it, industrial, businesses at has know quarter-over-quarter, your are this improving year been constrained right? Intelligent first a the has auto supply every months of and the outsourced. business, heavily trends Sensing quarter year. because and however, But I both on On this undergrown have actually there I been year-over-year of if this X single most

then of most are So of supply, in-house? to just it some XXXX? expect guys do can update like looks Hassane, manufacturing bring also their constrained give to image And the you partners an you the in your be foundry increasing to segment on us efforts your but sensor

Hassane El Khoury

Yes.

impact that being of So on see seeing. a all Harlan, the you has starting of external has growth that it because primarily and XXXX, constrained of been throughout explore, And we're the is automotive. said is manufacturing to that more it, little right. business That it to capacity directed bit because really we're us

getting have next to course, in-house. And that, you're effort secured said bring do Having year. going we to new for increasing through of that -- secured we're So an supply. more see products,

just You're existing we taped of products not healthy of have in. But products, going East Fishkill a And to product development. see us products. have imaging them do already do a very out funnel new big in moving shift we

Our East Fishkill. new are products and taped imaging on

Fab internal have the to call our fab few also it Strategy externally, the -- going going double for in Imaging, Flex we're to on expand over supply maintain I we're order to the years. but we'll So next where down

Harlan Sur

maybe I then the And that. And a appreciate follow-up to insights as there.

until in you I doesn't midst to the qualifying millimeter in of Fishkill the of year, XXX are numerous but transition products. next occur guess the end East of on hand So

better manufacturing. guys economics will from XXX the You millimeter benefiting be of

those are For and at be I yields it to critical being increase that Fishkill? how costs yields strong it's are early, on lower trending achieving driving the East know processes capacity. will qualified but

Hassane El Khoury

to have full technology Look, where East yields that specific are yields compare be the and exactly to run they of yields -- the for to fab are I concerned production we every course, in need yields our production millimeter a in about A already, devices now or of quarters the yield. yields. at out lot environment. shipping been of the Fishkill are XXX I'm for few not production power have

when course, like, work sensing, move that your boards. on will you you yield. product Imaging complex a Of have we do very have image But tell our that is on today, is, technology you to I yielding

actually keep XXXX. of So out it the through again, side products it. across we'll we're of side in our We're that of and research development the a production lot doing of and

Harlan Sur

execution. continued you. Good Thank

Hassane El Khoury

Thanks, Harlan.

Operator

next with [Indiscernible] Stifel. question the line comes Your of from

open. is line Your

Tory Stanford

data from share the and this if know Yes has ICE numbers, transition transition. on record clearly really points, to on It there's like you that the is question Hassane, any could with I end? that accelerated us seems transition from Any anything because results. don't pandemic that your is materially. congratulations EV. first the accelerating

Hassane El Khoury

transition? do me just part, tell you you [Indiscernible]? first I Can IGBT the say missed what

Tory Stanford

No. to EV. From [Indiscernible]

Hassane El Khoury

Look, it. pandemic it's don't accelerated [Indiscernible] that think I the

that and corporations driven driven have are by focus responsibility things. few I there One a by is on heightened by driven investors, corporations the and boards, think environmental employees.

governmental in whether is Asia, government of U.S. a dates lot All -- statement these really and cases, Europe in mandates mandates. the in is, it's of or in or

to and That factors accelerated models accelerated these ICs adoption launch driving from an of are car EVs. investment in happening. is All of

Those business because highlight the very are or X a our of inverters, EV on That's EV our to by otherwise, new for cars hard targets hear XXXX their in growth. and XXXX, incremental will government, the meeting X don't You where EV, in that those Carbide Silicon by to is be going to of years. of of be either they be percent themselves somebody there's by the the a more A you own and buy want they demand it growth Coming today. time. change net growth us, of car EV the XX-year sustainable milestones to pure times. out cars percent of to in automotive, a of over on it's XX% baseline to right targets lot numbers to a by for it as to what's those car it. in spot. push far But That's just want That's makes XX away X unless everybody, the our accelerating exciting next or now, that's defined pandemic lot can't are power the would And the all LTSA IGBT, EV. or EVs push by that's the Company X to positive sustaining a I as what course, of in for what's a lot be car we're XX from. we're impact walking will period gave the buying

Tory Stanford

very quarter. next That's rate potentially XXX will kind quarter. XXX, follow-up there Capex year my or some run helpful. the next the following And the for will another use of for be that that's Is we million step-up should

Hassane El Khoury

fiscal acquisition investing, said make then the we've And we Carbide, to GTAT to support starting with got we've make got that, there But moderate and be and it next No, each about the after the next up in year Silicon to investments of as to investments for then we've intensity capital more roughly obviously, XX% X%. will then well. go the will years. to will couple down

couple the for next XX% years. So of

Tory Stanford

and again. congrats Thank helpful. you very That's

Hassane El Khoury

Thank you.

Operator

Pradeep the Rahmani comes Your UBS. next with line question from of

open. is line Your

Pradeep Rahmani

little on guess I would basis? But lot follow-up. How have And assume of I consumers and your had is so. a your from a which of question. much I'll like-for-like much is There's can a us products mixed shift how benefiting around versus like-for-like mean, to my actually one, portfolio. I product more couple some bit taking actually on pricing then longer your for a of thanks structural it how you Hi, it give of pricing lived. I of -- is in much is color a a

Hassane El Khoury

about capacity mix a Look, XX products gross driven margin. shift. order We I a are walking because actions talked our million to shifted earlier call. gross margin the Those on products. average XX% at away they're by -- structural mentioned Most XXX of of just from higher the much mix of

replaced more we structurally as $XXX a So with million far the that much favorable margin. a as mix

and in value we're more we that products And X% not talked We today. are increases For customers because that's sustainable to the mix forward. the are is XX%. We're more Everything we earlier, the about to it business. about customers. not it. about it. true benefit neutral a still They from of costs cost, It's XXX are or the going of sustainable. expansion that that directly is margin X% to that We're to margin the the just units the we're market moving because on to did we earlier passing mentioned well. and passing sustainable and else is that's about see shipping X%. price than therefore worried before. I to condition, as dent units the upside by walking a benefit Those XX% are talked the in the XX%. XX% shipping on from benefit demand is QX The driven That million X% unfavorable away from sustainability the to it I'm we're margin

Pradeep Rahmani

it. on can in customers GTAT, potentially GTAT much GTAT the your products is you guess, revenue look versus Thanks. when of there supplying in contribution And terms is versus at I to basis? from Got how I speak your EV actually revenue, of GTAT coming of other overall EV your context a

Hassane El Khoury

mentioned just based in substrates coming acquisition. revenue is from more we portion GTAT. I We already and are the Today, on closed that we'll small GTAT be shipping QX.

outside to internal. we Semi Moving that GTAT forward, be we're from substrate going seeing will be done ON into mix more will going which of based a forward. start more historically Obviously, it substrates substrate moving have

also substrate shifts because having a course, cost structure than grown vertically better As an is that created margin benefit that substrate, or will the of source. mix externally in-sourced, internal internal our our of integrated from to

the come We that prepared that's That transition I more that about And my haven't over of benefit that margin. we GTAT as seen in will substrates. ramp talked into remarks.

Thad Trent

customers the Yes. with third-parties, $X just that's of And QX that other are would revenue to guidance, in is million $X million of GTAT add there ON Semi. and I outside with

as going can about run the you So that think forward. being rate

a not Company. material to it's amount So the

Pradeep Rahmani

you. Got it. Thank

Operator

from next Stein comes William Your Securities. question Truist with

open. is Your line

William Stein

Great. taking Thanks for my questions.

or aligns non-recurring on it I a of ON their co-investing First, more hoping of customers this fab? with guaranteed own investing that a then they moment. or just do like to Is perhaps have follow-up. might actually linger that engineering, in investing Semi I your capacity own, capacity you for was the in or is are And theme sort

Hassane El Khoury

Yes.

for will So in when get and talked Primarily, the their course, sustainability are stickiness they in for investment on the to assurance are and product gives investment side. But me revenue is the that, investments about, for is customers and order that I obviously us products development on for to the need of late-stage the -- assurance that the supply they on our investing of I'm that their the Both side. depend investing that's that is, go of are investing, ramp. obviously that supply confidence their side. to late-stage will they referring they're And applications. these is from the what R&D and what

course, they parallel to. vehicles. up referring to to I'm what their run that's Of not in own their that, well, building are capacity But

William Stein

they much end Can as narrowing the scope trend, and or as expanding to off comment expedites. or on Chase maybe that upside real you of please? cooling to And the try that sort of ago helpful. behavior buyers about you their to then their follow-up quarter if That's where buyer of is tone about the today. we will. relative think propensity it shortages behavior, scope versus We is Great. When think can a about the and or thing

Hassane El Khoury

Look, tackling mode. I think everybody and is in blocking

customer's and that's in blocking the they which because we in a between making running, we're sitting us important keep transparency, constructively line are is of been in shutting quantities engagement is that the We just their OEM, As line longer chain. supply get lot meeting all purpose make Or transparency the minimum at where line. lot need the all a to tell and anything what line financial That's And running But running but unit you of real it can't than gives how XXX% then two-party running running. sales. engagement of is side. forward-looking the now go versus keeping And either deal have. order and at triangulates OEM with it's side a I to the one with focus what many a mind, level the everybody a tackling. with directly no Tier-X, pockets. their targets comfort have lines the to and a our sure to in on. the comments basing It's the lines our our understand get we across sure we our they OEMs. OEM. of customers and down three-way give the the That's of enough that's have running what somewhere they demand when enough me and are what hiding us more a full far from keep sure but engagement. our keeping the It's with achieve and everybody has the There's we products that as and not It's That's supply of around capacity, the to is at directly. Tier-X their nobody they XXX%. versus XXX% lines work in make our the maintain to

William Stein

congrats. Thank you and

Hassane El Khoury

you. Thank

Operator

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

Hassane El Khoury

again for us you in their I hard worldwide sustainable results. once today. Thank and all transformation thank joining for driving our team our solid work

and you. of marquee with financial solutions our over we Products, the have the by to focus Along sustained on remain of worldwide. quarters silicon deliver vehicle few our leadership in about become our ramps very foundation towards We the revenue, model. the execution Sensing We're last have driven offering growth semiconductor progress LTSA, excited names enable in supplier funnel to electrification products, front rest us, all we vehicle. broad carbide choice along to for the with of with a make Safety, our and of strong Automotive Thank in a target leadership opportunity established the of our position our

Operator

this gentlemen, call. and Ladies concludes conference today's

You may now disconnect.

ON Semiconductor (ON) 1 Nov 212021 Q3 Earnings call transcript