ON - Earnings call transcript Q1 2022 | ON Semiconductor Corporation

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Operator

Ladies and gentlemen, thank you for standing by, and welcome to onsemi First Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the presentation, there will be a question-and-answer session. [Operator Instructions] And please be advised that today's program is being recorded. I would now like to hand the conference over to Parag Agarwal, Vice President of Investor Relations and Corporate Development. ahead. go Please,

Parag Agarwal

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

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

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

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

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

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

me it let turn Now to Hassane. over Hassane?

Hassane El-Khoury

and am first joining us off I execution everyone, Parag, today. in our proud by you, I start team's how saying thank extremely the Thank will quarter. for you,

and we challenging Our expect continue automation end another ADAS, efforts Key We performance and to solutions their and worldwide of and accelerating, with in in vehicle we employees favorable and industrial strong are push as of such XX% XX.X%, sensing continued quarter the increase Along solid agreements through improvements and from over to megatrends expand term reallocation shift, driven price-to-value customers of our ago. year our basis XXXX, and to power products This the elimination driven was points efficiencies, in new performance of to and sensing including we intelligent manufacturing high-margin outstanding drive favorable products an strategic quarter, and infrastructure sustained delivered year, markets. revenue a of strong achieved times, outstanding see we margins. growth yet by of the a have of automotive revenue first performance at factory growth implemented electrification, pipeline capacity under had gross results. energy as by margin long intelligent supply our margin power our mix discrepancies. X,XXX of service

X% and vehicle industrial of electrification. we in and driven to unfavorable per quarter, do macroeconomics trends. continues strength industrial year-over-year growth ADAS revised end highlights see and flat we On cancellation of by automotive the automotive our supports vehicle increasing for delivering automotive in the while quarters. customer the dynamics, expect focus both XX% quarter-over-quarter pushouts of was revenue, or record despite down, strong. In and environment, The not market grew our products geopolitical to revenue, markets an and and SAAR demand the content of XX% quarter-over-quarter overhang our portfolio be first Lead-times meaningful growth and are our

from tensions. higher rates, potential inflation, and interest We ongoing geopolitical are fully of cognizant risks

monitoring been managing to customer to long-term our environment have our sustain business of targets range gross within engagements diligently are inventory, We and and margin target the our and financial our manufacturing XX%. support XX%

have now, lockdowns the of meaningful COVID-related impact on any As China in not business. our had

guidance there already the percentage we this of to point. risk maintain if capacity are the lockdowns, we our a customers Manila much to continuity our To mitigate few supply Singapore due and our these second chance is in quarter to lockdowns potential and points for growth to transfers accounts customers. at disruptions our initiated risk However, of supply have extend of longer, for any locations seeing current

We have in expand to strategic relieve bottlenecks, and investments for been imaging products. back-end making our in our areas especially selective factories capacity

efficiency to expand the improving end shift. strategic mix favorable by of our reallocating allowing markets, us are margin We our are capacity and products factories driving and to

efficiency We our from products than our XXX-millimeter been have our to qualifying our In over to the consolidating in ship as number strategy the years the wafers twice fab footprint. few capacity and manufacturing of our we execute fab partners long-term our fab ramp lighter the we by secure shipped improve and XXXX our XXXX, fab East in to Fab capacity external the next meet needs. are we more Fishkill. able XXX-millimeter of should track additional continued in on network

which occurred have an margin average capacity And million of we revenue $XX margin $XXX gross XX%. the We gross over have months, strategic the products. to XX at million at XX%, an in quarter average redeployed last in exited first approximately higher-margin of of

increased being continue already at will new and XX% year-over-year margin offset gross are beyond. and losses these favorable product ramp of XXXX revenue, with through Some to which

year-over-year. as doubling both Our & approximately customer driven XXX% WINS our engagement by This our wins. see design increase Sensing remains driving wins growth Intelligent increased base strong year-over-year customer design in we is with Power for

revenue and XX% up year sensing power intelligent revenue, ago. makes XX% total of a up Our from

customers on supply growth on a to At $X carbide signed to shipments who as have than with carbide continuing this carbide track silicon us. remain agreements rate for revenue XXXX, and silicon our will run billion on XXXX we are more onsemi exiting be long-term to revenue. in double pace, our silicon make ramp We progress

acquisition, our products, operation. happy broader as market-leading expanded customers addition our vertically solution integrated on differentiated of have efficiency to competitive production to we and our of supply quadruple GTAT substrate side, substrate the And fast than a production. market. to we a capacity In and track closed and of our second and in the XXXX end-to-end XXX-millimeter yields compelling extremely engineering progress SIC are already From levels, our and we meeting more the exiting progress is in environment release advantage. our a I'm increased since building development are the outputs we support constrained all still making our and to LTSA are on with committed

expand with power We significant silicon beyond our infrastructure key the In for carbide silicon for market into automotive modules. with the silicon grew energy made our secured market engagement first wins continue to our quarter, and have modules and our year-over-year, carbide infrastructure power leaders. traction and we inroads revenue XX% energy

business worldwide in with OEM performance displace major Power, our XG an incumbent will reduce on we new and signed high-performance power for to XX% superior based delivering year-over-year of scale climate supply. Intel our by fossil world of to of design win cloud power plants. plant first expected a secure utility point-of-load installations and quarter, XG their In as to the both we impact infrastructure expansion. adopted cloud grow over our solutions, design as XX% a next-generation and of power are of In seven wins, and the providers one players. a the They in a currently Cloud win energy management the shipping five our at efficiency. data product fuel-based three revenue their of to feet security inverters, refresh with secured are infrastructure be a the LTSAs of to top centers long-term largest with The the top global servers have driver We leading power market we solar providers XX energy technical increased were

Our gross gains this market to this best-in-class energy second of half with us together both secure enabled favorable the delivering share assurance efficiency in and support, technical margin year. and supply win

sensing to with sustain imaging continue revenue automotive momentum On we XX% the in our front, growth intelligent year-over-year.

ecosystem Our the with We position. strong presence have built software ADAS key broad time on leading a through over key market we in win driver have a most a China. been and provider in software our platforms leading position ADAS ecosystem strong ADAS our further of platform strengthened

number wins doubling of all past The is the this the in a per growth with five over per sensing at vehicle revenue of average doubling in and years. expect in next attributed of a and our image in again platform to OEMs proliferate years our design vehicle. $XXX content We excess China the cameras to five

XX designed per cameras vehicle have X a fact, In we in vehicle autonomous already. in Level

Our has revenue OEMs been industry-leading quadruple XXXX. car XXXX eight eight-megapixel in adopted and in camera will by already over

for player. win In robot vehicles, for $XX secured we agriculture we autonomous image image ramping in traction with for fulfillment e-commerce are our for and sensors drive in addition sensors a seeing first industrial our XXXX automation, the units the in in to applications quarter, content warehouse ADAS leading imaging of light as applications. in a market delivery use robotic In centers

a which intelligent segment superior In shutter select image market-leading XX global uses for sensors to Customers provide imaging of machine in that complete addition, and agri crop this based comprising solutions solutions. and growing revenue we strong with continue hardware our imaging efficiency players designs enable sensors to starting improving performance, win yields, new year. supporting the business rapidly on software per ecosystem

excess tend cycle with as longer and Awarded long-lived our and sticky of years end products of sensing revenue visibility. products. the greater multiple architecture products intelligent are lifetime multiple gives in platforms sticky. programmability This Our values stability leverage life wins over projects their be typically nature software us span and to XX customer design years and and

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

Thad Trent

quarter a drive reported reallocation for automation trends strategic and results transformation intelligent energy automotive portfolio energy margins and and and power the are transformation. differentiated infrastructure will per financial revenue, to in worldwide accelerate margins. early products product, and adoption, with ADAS, hard stages and for Vehicle cash positioned teams of efficiency flow agreements share factory another supply long-term of end-to-end and of products, well growth execution With in and chain by an execute work electrification, on changes and markets. continue growth. earnings with these our fastest-growing operating The investment our had capabilities our need sensing and resources long-term disciplined to expanding the markets earnings and reflected high business in we free higher and highly the record gross are industrial the revenue, structural of to We are as record high we of driven and to the We Hassane. Thanks, journey. supply

Our operating XX% our strategic markets year-over-year, first in cash XX% basis.\ industrial improved quarter gross XX% in flow of automotive account X.X Additionally, revenue ago. increased increased the an free income times revenue a basis points year-over-year on margin revenue while for XX% and faster X,XXX XX% and and than as increased to LTM year was end quarter of revenue now compared

cost We the our to over will while which and strategy, By accelerating by more double all P&L. time. ramp per capacity lower in progress fixed volatility efficiencies, make our also transitioning fabs footprint continue manufacturing production fabs, the efficient rationalizing of costs wider reducing improving eliminate to factory our unit exiting operational our fab will and XXX-millimeter subscale in

the As fab the X-inch our in quarter. fab X-inch closed second in close Maine expect Belgium previously our sale the announced, to of to in sale diodes of we and

to the of GLOBALFOUNDARIES Fishkill on also in year-end. close track are fab XXX-millimeter We at East the acquisition from

our take transitions of improved we've to building providing and into momentum our our supply are differentiated years along portfolio, These the products ensure inventory execute stickiness with revenue design of these profitability. and to structural a fully our changes, in and driving customers. been As wins, bridge long-term while are consistent visibility realize, to product LTSAs

quarter. first to results the Turning the for

XX% of results. was the quarter over industrial, QX of $X.XX automotive quarter-over-quarter. Total increase and record Intelligent grew together XX% year-over-year increase and of noted, was XX% and to another driven by Sensing grew X% by I Sensing to XX% XX% Power of Power an billion, from and was year-over-year. Intelligent This grew quarter-over-quarter which revenue quarter XXXX and As Intelligent of revenue mix record both at Revenue levels. revenue. by was favorable by year-over-year X% XX% of first Intelligent

Advanced increase Turning Group $XXX quarter of GAAP business Power year-over-year. an for ISG the for an Sensing million, the for first Revenue to Solutions $XXX.X PSG, year-over-year. million, increase non-GAAP for and of quarter was XX% or our an Revenue margin $XXX.X Revenue units. XX% the the or Group, million, was gross of was increase was year-over-year. Intelligent Solutions for XX% or XX.X%. the Group, ASG

Our gross points rising of margin non-GAAP ahead pricing primarily basis driven by quarter-over-quarter, and improved XXX input mix favorable costs.

have capacity accretive structure, The the of approximately with have to Over noncore an million the in confidence this of average we exited us revenue floor last we margins. in market the conditions. year, of margin give reallocated implemented gross structural XX% and products at all changes strategic margin $XXX raising the sustainability

by expect costs efficiencies. raw cost costs, other to material as and in headwinds well silicon manufacturing, and aggressively with our offset We savings increases modest our we ramp manufacturing to see margin start-up as gross additional input as carbide

gross QX the maintain remainder the the within to of for margins expect of we margin such, narrow our range year. As

achieved GAAP the in was at income EPS than and first respectively also $X.XX XXXX for faster QX X.X margin non-GAAP as non-GAAP XX.X% $X.XX first rate revenue. diluted $X.XX operating $X.XX was to quarter-over-quarter record non-GAAP share growing compared with quarter quarter and the in XX.X% quarterly earnings and times our GAAP of of that a We per QX. of operating and

to $XXX quarter Now expenses operating additional were decrease hiring decreased operating give of as compared the $XXX you to primarily year due continue for million GAAP compared reallocate for first and The as sequentially. in to a XXXX. quarter numbers million million the products. let expenses million were first me delayed to focused was models. as the we resources $XXX.X $XXX.X quarter million ago to our $X.X some Non-GAAP in

quarters model We over long-term increase expect next OpEx as the to our several investments trend our for long-term we towards growth.

was we to as Our expect to utilization the compared utilization second fourth flat quarter approximately the XX% in factory XX% quarter. be and

in utilized all our our non-GAAP guided the increase attributes. as XXXX tax will past, As we NOL in rate have substantially we

our quarter, the of XXXX. fourth from first in increased the to $X.XX for This X% For non-GAAP from dilution roughly rate change accounted XX.X% quarter. tax EPS

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

was a and from $X.XX during cash $X.X balance on we free Cash and million, QX Capital $XXX our sheet. million $XXX.X undrawn intensity which the cash to Turning X%. of equivalents flow $XXX of and Cash was the was added million. equates billion, operations capital billion revolver. to expenditures first quarter

As XX intensity indicated we silicon expenditures our expansion carbide increase and Fishkill Day. towards of increase width days mentioned was driven DSO a was Inventory by raw build fab increased line support capital by is days and in at million directing fab near XXX-millimeter inventory in of and inventory additional capabilities our the commitments. the $X.X XXX. of the Analyst and in East and our with This LTSA transition to growth previously, material enabling $XXX.X to of our million, primarily are resulting capital in portion our $XXX.X $XX. billion sequentially higher term, significant of at to increased receivable Accounts as capacity. This

reduce Distribution second weeks. was half in We year. down inventory slightly expect the days of to of at X.X inventory the

one. hold to rather more historically Total to the under than levels balance billion, inventory leverage our maintain inventory sheet $X.X chain. low continue in debt net our distribution supply customers' for was and needs, our at inventory We on remains building

quarter. results. our second related GAAP Turning quarter first press in non-GAAP our to the and to guidance provided the release table The is detailing for guidance

couple quarter. demand for backlog we points the XXXX. trends, of in that billion second and for will anticipated includes elements revenue me provide of key levels, to billion. market to guidance of outpace of Let lockdown on the be through continue of the We current anticipate growth. bookings second believe of our will non-GAAP a you Based guidance range now This supply $X.XXX percentage much China range revenue quarter the impact of the $X.XXX

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

to $X.XX to million. to second of the operating million the be for in non-GAAP non-GAAP and count in share non-GAAP range quarter And $XX tax XXXX, of remainder diluted XX.X% our be be expenses We the of $XXX million to XX.X% compensation to OIE range be our rate million. earnings non-GAAP expect approximately for expect we million, including share the anticipate XXX $XX This per of $XX.X share-based results We non-GAAP million of to in to $XXX $X.XX. shares. to

we to carbide business the in growth summary, as shareholders. sustainable differentiated $XXX silicon the value We believe our focused ON quarter, profitable capabilities. million Semi's expect with in will portfolio drive coupled of capital we production invest $XXX long-term structural our ramp for to In the continue ecosystem, million expenditures changes second in and XXX-millimeter on and our

in dedication I I'll continue teams their to unwavering over them that, for commitment Carmen worldwide the challenges and outstanding want open Our thank globe, up turn line to despite results. customers back to the with ongoing across Q&A. our presses call for and their to the With

Operator

Thank Deutsche ahead. you. comes first with Ross Bank. [Operator go Instructions] Seymore Your from question Please

Ross Seymore

changes Hi, you're going for basically persist know the ask you. lot if through that's you the thanks that side believing investors Congrats to went of question time clearly the it are not me is a hard I But on strong results. from -- question. now. the equation. first the not a seeing Hassane, seeing having demand even any you're that

what recessionary can or on gauge little of So, demand a by versus Any in and cyclical fears? you're downturn seeing, investors could the bit more detail cyclical just that -- you behaviors either go change kind little markets, end the color? go a so comfort into more

Hassane El-Khoury

highest the like I'll is we least our environment demand the as don't is, which demand said, even at as automotive or industrial, in Look, exposure comment Yes. through outlook XXXX. see supply, on far any and where I changes that versus mean, the

some We that long-term through extend of beyond the about most supply time and beyond average. the extend the had have agreements been And the XXXX XXXX, we've of original of engagements XXXX talking of XXXX, first are engaged in XXXX. even these with that that went XXXX path a supply into we in long-term agreements right frame now, that we've we've quarter to

that's megatrends on is about. and up to the are gives beyond they they the XXXX of their very the still are percent to visibility That's get exposure exposure, in our we the XXXX focusing agreements demand long-term highly that outlook talked supply biggest and of their total confident and for it. So, and comfort the fact content and the sign we sign that XXXX a SAAR. happen, sustainability of on of demand growth, and are it industrial, keeps Day willing XXXX EVs customers irrelevant, increasing, XXXX our have that supply based I going highly willingness of are for up XX% and the the in still mentioned growing us on where credible And a are driving as driven by demand. fundamentally or remember, to whether auto or it's customers total Analyst just as -- that's sometimes to

Ross Seymore

done the since want I Thanks or side if to And much that, of what there? if parts into took year. changed? for to a guess puts on color it job is over. sustainability X with on the surprised a Hassane, the XX% and to floor, then of of upside is on the to that you, XX%? pivot of two for margin Is keeping sort could have going Obviously, higher walk for through takes the one the rest the you that gross be color. quarter guys margin flatness you wanted used great handle, follow-up Hassane, things. get confidence now forward for Any you the That, that. the you gross my every pretty I to Thad

Thad Trent

fore believe we it's Thad. remarks, floor, the as we're with our floor I is with prepared Yes. Ross, especially the the in where margin margin, are to the said ahead I confident today. today We favorable about If Look, really definitely of of input kind with impact a costs. the handle. saw We the favorable think we pricing saw quarter. mix gross this

us. on pass customers. So, always input coming we're We've we at our saw increases to those said going costs cost to

increases in look So, coming got side of a as continue input right? favorability Fab-Liter we've the So, forward, in number as manufacturing our by the That's in well strategy. we carbide, half the you numbers. factors got don't we've we play, as to because cost exclude second in headwind a is non-GAAP the costs of year, margins got in those which start-up we've silicon the ramping of as our offset

sustain of that the we're half, between got very you've year. here headwind in a we'll year. a and in Longer we second remainder of optimistic range for so associated that the the the where still we and believe why in with the And going, end term, got to of the QX that that's remain terms we've lot do see margins but

Ross Seymore

Thank you.

Operator

Thank you.

Please comes go with Barney Citi. Your next from question ahead. Chris

Chris Danely

mix Chris your hope of gross now. a by is was on guys, pricing QX versus hope didn't Chris One about XXXX? Barney? margin. I talk purple question Okay. upside the how more I of the the rest I Hey and some pricing Can question. me, in the take expectations I'm Barney you much way. this dinosaur for

Thad Trent

order, guidance in the that's mix what the mix, gave to by Well, the to followed pricing in us was pricing QX. favorable first QX versus our and first upside

continue from increases through incremental we'll get input on our models, pass to either As external forward, foundries. we in we go that or our cost cost

half of we think market. also comes exit business. supply of And we're I products. on in then we've of the said, ourselves pricing close as out year. that And continue price-to-value those the plan And always to business $XXX discrepancy will the we basically we on non-core online, later when exiting second million the that

Chris Danely

you for Got said it. in follow-up, my no And change times. lead

end the the was improvement I quarters? do anticipate in And -- shortage same couple shortage/supply in you guess, for ON as the situation before say would any the last is year? that So the about the overall of of you the it situation

Hassane El-Khoury

would change Yeah. investments to we've We XXXX. see This online from the next have XXXX, done there's is do few in of call Hassane. far main efficiencies not and changing the as Yes, materially coming that I manufacturing for to meet quarters; but We the some no some as don't level date. say it, the supply demand. over supply remainder versus to

we'll constrained So XXXX even we XXXX. the be have supply and with still through outlook for

Chris Danely

great. Okay, Thanks guys.

Operator

Thank you.

question of Vivek next Your Please go ahead. America. from with Arya Bank comes

Vivek Arya

Thank some recover that deliver taking of distribution for help you the my year? are of other, the year? a how that outlook. something you lockdowns, you Manila is or you the can quantify headwind this centers? for I Singapore of quantifying this QX is lockdowns Just this half you your later and Is was excluded you And question. outside how believe, Hassane, I in thought second to in the impact in the customers can I you is even have hoping China something us of mentioned impact could that? much

Hassane El-Khour

mean, we some see I Look, the of you give numbers. -- Yeah. obviously, let me

So what of of is for percentage included already couple guide QX point we our a in top have line.

the of not we've what knowing to going lift based is kind today, a restriction potential see of on when included. be. that's So impact we That's

but we do we in still away. That's as that we it there. challenge see in. short see So to that why term. We put of that's going trying It's other much funnel distribution, as why we the demand can through are our don't

impacting but that So it is demand environment a as -- short outlook, outlook see a I term. don't

a to soon put but supply I be as perspective. short out flush demand. from the are it does in thought is We've you don't of as Now there. more bit on there. have lockdown we will engaged is demand guide the us when All as puts But meeting. I that out It's that still little it as far can term, behind just because visibility a customers expect to risk happen. with it does that the far but all the prudent That lockdowns as do as call done,

Vivek Arya

competitors longer-term And Got sales carbide sense you carbide are from ON’s And who do Wolfspeed percentage the market? are silicon between silicon such you device it today? do material maybe and then and give it. differentiators coming perspective, a Hassane, differentiate of focused at [indiscernible] us as in silicon are going? as could carbide, it Infineon of others some your a see who such where of side, what then does or main you represent ST? on your incumbency the how What

Hassane El-Khoury

sure. Yes,

revenue And revenue Those in to kind agreements. year growth. of run So the from $X all and the I'm we're and part ramp up breaking of for all just to and puts of breaking us billion supply on -- just the this, I'm XXXX. rates for -- those committed the the high first track the double this giving long-term more remind the rate in expecting are again, carbide. rates, ramp not everybody silicon out question, to than put it our perspective, are

more From now, ways of -- kind of sits it. two our in capacity support customers that sweet across we're multiple service onsemi are have already at our variety right actually with customers. a spot vertical geographies we've as and middle, wide to And decades the is building where importantly, the So able device mentioned that built two -- the our the we committed you where integration the to revenue substrate, the that we of differentiation, from of customers packaging. know-how and with coming the demand and over support

why been few come. design our But for win ramping we've from and GTAT, all substrate customers talking way been of have our solution through packaging right to why is up that the the in device, the need get the know-how I ramping our carbide business supply to assurance, ability the have best is mentioned. us we awarding up substrate to our order that to a quarters So fit customer lot and to over last supply chain, more focus now about silicon as the the

some of committed our customers, heavy LTSA have we our it a ramp to continue win and funnel on and commitments to keeps focus our is converting as to coming, revenue. quarter We our but this

Vivek Arya

Thank you.

Operator

you. Thank

go Hari Your next Toshiya with Please comes question Goldman Sachs. from ahead.

Toshiya Hari

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

the I speak silicon funnel? exit Hassane, update think XXXX. on on billion infrastructure, be I XXXX update automotive and number hoping was an reiterated energy First But And give I an win can mix you hoping that. on the last if your us rate design XXXX. $X.X carbide, you and for was quarter, view a could Obviously, on helpful? between to through gave that get you would to you

Hassane El-Khoury

reiterate number mean, lot I revenue to to $X.X have be a in that billion. 'XX level, Obviously, revenue close silicon sure. is TAM. the about of – out. coming the of from I'll these committed at quarters high over next that the we But because the hoping I'll just look, few Yes, talk highest offer EV carbide. of for as is a design percent TAM of biggest the from the we traction a

say, I in therefore, or So rest so, talked traction. that $X I biggest is would the that $X.X our about XX% of of in – traction. billion nonautomotive automotive The is billion

being first quarter, from XX% alternative So, that quarter that ramping. about has been XX% it think or in XXXX infrastructure as the the growth. XXXX last about, growth about we side closed energy at of I industrial talked I talked

remarks. the So, very automotive mentioned and the XX, we're importantly, top And of we prepared are my broad geographies engaged across with I very just business more that nicely in that's outside as growing and customers. across broad

Toshiya Hari

the And as margin you. for got I've Thad quick then gross side. Thank a on well follow-up Great.

Is comment rating super helpful benefits Thank a and for beyond it being billion? couple run positive the about guess, and carbide a you'd headwind it that this $X talked hoping to I this be there year would guess, you but business? Fishkill. of I and us Belgium, you're well, know probably quantify when more about I helpful? and potentially at can be takes tailwind you of expect silicon Is that be and when that the it 'XX, to XXXX. to could as for ramp if East was speak your Any that? you. and the late years, into I there Maine You from reverse later would

Thad Trent

Yes.

us headwind starting accretive. half through start be be for and next half first headwind the for probably of as a year, be a of really will then year. second carbide silicon this the well the We'll So, go to

start-up the LTSAs. are ramp we to the those it's accretive. cost margins So, as the product support Obviously, production

fab will me the side about $XX get first fixed about to time. $XX is costs Belgium overtime, let In Maine we million out terms over come – of the that of talk million

buying acquirer that from overtime. products be we'll Now

So, we scale benefit. fab. lower that's the a as see to Belgium we start exit, is when

that. as than fixed million So costs about that time it's disappear less roughly $XX of over well. It's

Toshiya Hari

you. Thank

Operator

with go Stein Please William Your next comes question ahead. Truist Securities. from

William Stein

end of you the that the the by question. And thank next if what taking exits couple to revenue remind Hi, exiting my wonder can are you with level expected product I over you quarters? Thank do year? of for us is this you're of those products done you.

Thad Trent

Yes.

And you than that exited would we margin roughly we in second this QX. been margins. next past. this $XX environment We we than there's gross dilutive overall think of see another done million, pricing in million higher in so we What XX% the in the In So, is that we've a about XXX exit. can has $XXX total, still what QX. to we've meaningful margin million that, half don't said about higher exited anything $XXX year, think but just because the far, of is,

our it year, last of as said Analyst at be would said August We back we Day we in XX%. are to XX% –

$XXX we've total, to million somewhere of in losses. So got $XXX to million get around

still Day, capital more our it Analyst manufacturing still the free products, that allows capacity, favorable So more come move that into in us money the at mix. put in obviously, the and we products, it high-margin to to higher-margin will into into so we moved rather than up detailed And -- we more capacity XXXX. as there's

William Stein

And up Great. the if channel. in with or through I sale could follow order of point any change patterns

Thank I you. think and there's in wonder is channel if direct if that very stable there? if that including I or any you still -- the were strong said change demand business. the you in

Hassane El-Khoury

make We across customers, we see that. contact direct distribution is just point. This I have or Even direct We with our Hassane. don't through -- it's include distribution, whether them. demand to Yes.

in we maintaining inventory inventory across and distribution to We're at order point we mentioned. the that point, We have service of this need that our maintain touch all as demand a visibility the the So that level at for able holding low the to see Thad be historically a demand. on board quick and customers.

demand, we about yet not demand all the and in that, and constrained commentary through distribution within are demand we comments supply meeting make XXXX. when the and direct set So include of them that we is highly

William Stein

great on congrats and results. the Thanks

Hassane El-Khoury

Thank you.

Thad Trent

Thank you.

Operator

Piper with from next comes the Kumar And Harsh question Sandler. Thanks.

please. Your question,

Harsh Kumar

Yes. Hey, guys.

and kind into the else in something industrial congratulations of amazing is color how should business automotive of we your What implementing and similar amazing of degree guidance, about? Maybe on same June Or an just you have to has you XQ something where on been do of could far. sequential that go done us the the basis. Hassane I'm and grow think so a we revenue you some think expect breakdown? look Thad, provide of on sort quarter turnaround. as -- what guys happened there like First we the all,

Hassane El-Khoury

a to yes. answer So, order, is first the

is by the we industrial, really, auto second led in our strength. LTSAs guide ramps under And for about. see more as the of the Our more customers some that we automotive by and of talked the quarter, driven

automotive. be So the it will by same but growth, about led

Harsh Kumar

stuff Chris And question March set earlier This incredible Great. increase So think in price implementing change? that mix clarify prices you're or dollar response Danley's ASPs element mentioned was in I this on a of question channel, is you've increase quarter, maybe there the getting to the rise my absolute you out an margin. cheaper -- sort of there's Are you in gross and an sort of was here. on if stuff this could shown in that then, specifically raising you implementing? just legacy of of

Hassane El-Khoury

Look, you mentioned. it's all above of the that

by value and and products. So we industrial, that first keep -- us where we and drive talking as we that sustainable price-to-value that expansion across are shift all margin, do I higher that mix recalibrating demand that higher off, about, margin ASP our the been discrepancies we've our of When it the seeing. we auto which gives is complete led more to

are, increase price a quarter, about, increases. That's these value increases more have favorable shift is the both Two, $XXX that products XX% and in this or we've that talked we that of one. mix exited in million of to far net $XX pricing so the that So our we margin we've these environment. million a all do with exited

So, not in that, there is but increases pricing sustainable. that's included

about, we As that revenue. talked lost we

million another dilutive $XXX at XXXX about in We margin. expect

exit will our expansion that out price net because an we're more But margin have we that So, pricing market. because when ourselves business, of was a it. of increase that of

shorter-term term be can it. take two not at you the and we will longer One look So, forward sustainable year. dilutive, buckets see the that we still from looking little where increase but net was bucket year that a that's next this bit is and throughout the and and a were sustainable exited that bucket historically,

Harsh Kumar

guys. Thanks

Operator

next go Ramsay Your question ahead. with Matt call at Cowen. Please

Matt Ramsay

from a I it's design that the get internal of levels in your insight Thank you investors margins? capacity you that you visibility of another ask that can at how GTAT that scale Hassane, And scale much. so forecasting. revenue have, of being carbide. that Thanks. most the the you're good are confidence question and And I the maybe I give not Good you morning. to question supply could not to able confidence bit to going inside, silicon little is the with operations with guess quickly wins it's wanted very about

Hassane El-Khoury

output. the And or substrate of guess in already of it millimeters remarks many and as far I outputting that I to. first building biggest vote prepared my expected as full and yield the exactly Sure. that is what mentioned confidence I we how capacity factory does

about metrics. it's more all expansion. now, those secured longer on right we're or manufacturing track with It's of the another site. the engineering the side no development. And about So, We've

We our furnaces on of confidence. again, as confidence, translate to of that track in output very exiting summary, are substrates. far as, guess, height I High number high quadrupling into XXXX the millimeter

is Our revenue there. already CapEx on going based that generating material. We're

in -- forward all, all support about our order bullish in we're the pushing supporting I'm and very So, prospect LTSA. to

that be would say. So I what would

Matt Ramsay

helpful. Thanks. really That's

sustainable make from see you acting of space seeing rationally? as in with be profile from power your guess with gross in that of the of of do been your for yourselves than sort remarkable of been. is back seen sort question, players was a of view changes follow-up what of that I call. lot have this to yourself results everyone there's My some there, forth you've the response of that on kind and this is the Do sort question how increased well. that think have for margin environment semis you and we're of higher margin it's and competitors the the think the given the results competitive entry should pricing peer the on in Thanks. own it's margins done. you competitors' or rest might And out and barriers the increase of any I my temporary? you As some put And guys your competitors companies, that pricing group this

Hassane El-Khoury

very pricing is. today The comment later, on. And do is pricing thing and my will on so view what our a can't market I control competitors can't obviously, or environment and environment question. in Sure. of view of That's especially the good on I what an our is the only

on acknowledge portion and So market. everybody out I'll the by non-core answer we exiting on focus I sustainable, of view We my is as this driven because ourselves we remind value. on But is plan we that. not it's will price sustainable the that the that

not down. to future supply and does that mean? we're where chase to starts in the what In come that going demand So balance,

what out the Our on end in to themselves, see hashing about. a pricing amongst our not going value. onsemi were company is not competitors going engaging keep it That's may but focus share. down to up you market to We're

that not is And going today to provide are out, don't strategic the value on it see focusing are market, we're going products else. to based we that Our it stable. anywhere let growth customers, pricing I on them down. the it for rest of chase hash and but our we're

Matt Ramsay

it. guys. Thanks Appreciate very much

Operator

you. Thank

ahead. go JPMorgan. with comes Please Your from Harlan question Sur next

Harlan Sur

and congratulations strong the and morning, on results execution. Good

business you as margins. But this you've another second growth continues exiting you're to second getting that profile, and external you the supply team low like the seem and more in well. actually manufacturing million full would does non-core year half efficiencies, exit it mentioned, temper guys as Previously, the drive half. On better-than-expected margin $XXX the are strong but unlock revenue thought

So I half think guess, the second should revenues versus how of profile half? about first the we

Thad Trent

said, As What it's strength we're supply. we Thad. seeing Harlan, now, right? continues right we're right out is look there outstrip demand Well, now -- seeing to

supply own we've extracting partners. more our from footprint. more foundry As noted, out are our manufacturing We're of we external getting

in give second us upside half. the some will that So

again, million keep the XXX got the off. we've that in will roll mind, of headwind Now

see will second but significant growth, So if look QX we QX the QX. we QX, don't half versus outperform you see the that and first actually half

Harlan Sur

growth have you follow-up, in Perfect. I the as low-margin still this drove my exit there. then And market a but and voltage portfolio, markets, the XX% margin You pretty right? mean, infrastructure a products. segment, center medium have fast power of you cloud the XG growing, actually core quarter. this data segments a MOSFETs, despite analog high businesses, insights strong the focus, upon other which non your end appreciate year-over-year aggressive little bit, strong your I management, do In is touched guys

compute perspective, can fast going revenue business the just on us a spending XG build-out a the part strong I have you an this from forward. at about design strong about But activity, how year-over-year But targeted given trends, to data growing a strong market on XX% you talked currently go sense center You give non-China this win guys just of is pipeline. basis? rough guys know CAGR

Hassane El-Khoury

about and But our I Look, designs is growth that new as XX% fueling that the specifically Yeah. was supporting year-over-year. XX%. far design as replacing is break growth. incumbents, it up win further This didn't

and other which is expansion do segment So the the growth XX% we absolutely talked for a us that by margin cloud, right. growth business. driven key about, and you're that's We in have from

wins, design Our XX% our growth a today five years. the next supports over comfortable revenue

Harlan Sur

Thanks, guys. Great.

Operator

you. Thank

Stanley. from Morgan question comes Your with next Moore Joe

Your please. question,

Joe Moore

Great. Thank you.

either were is facilities from the disruption impact And that talk you. about, that you out customers' there China. your those? specific of talked about some manufacturing? Thank Going just talk from press coming there? – that you supply Can back an you much China any disproportionate press there impact if in of then you impact how to sensor your can commentary Do potential of image versus see there's China was

Hassane El-Khoury

material Yes. so Look, in the logistics, about supply of primarily think disruption so it's factories getting and about out and overall. Think on.

don't ground. We see to it So comment sensor. like mitigate come I judge. we're I rerouting, everybody from on versus of product talked lack able but has on – specific the from on about. hard guide the about, know that mobility that because present really is we to the like source. And I into already. not that. that we that I onsemi do said, our you're some any impacted the logistics what see just, can't by commenting referring put been That's image is of what don't commentary to their did

So depending we'll loosens second the that it on talk in up, about how quarter.

Joe Moore

very Thank much. you Great.

Operator

ahead. Please Your comes next from & go question Needham with Company. Raji Gill

Raji Gill

congratulations strong Thank Yes. and board. you on results across the the

about point the between Is speaks unit the of out versus in impact of break growth? pricing some growth respect there back with margins. of to the about Just I segment a year-over-year if to really kind combined. way we the the the favorable larger grew it ASP on going to that of to And business. XX% core that, But talked pricing, can, revenue, pricing the auto industrial sustainability

As agreements your you part increases. have of LTA price

of So want about little talk to kind versus units? price bit just I a

Hassane El-Khoury

we of is that was we lot about a by because driven of content our strategic that growth talked implemented about, in core in a lot price-to-value the the Look, that discrepancy talk primarily XXXX. units the

done units So content. will we've growth margin, is low the it the lot is a volume. is exits moving of high a forward lot lot low a because overall, ASP, of of But down be that

it's we been that focus the more to to more content, and apples-to-apples, also whether there's prepared imaging per have just lot EVs content. where been, content, So our by focus car, that's but into driven much not unit car mentioned in my where a more I our shift power, as remarks, we strategic and from that increasing, has or car,

we're ASP ASP perspective, calls that we driven units. benefit we and of ship by from a it's in move first that in my to industrial, as we've going The the is the throughout And the in forward. view order. from done So as sustainable reset which more it, baseline auto to XXXX,

Raji Gill

on you my as some if about better helpful. – of is getting Thad, follow-up foundries much of driving internal kind half. going XXXX. from that second upside talked really is your through kind the demand you it. mentioned supply that's to of as external and Thad, capacity your factories in That's I capacity Got you from also the just But heard well for correctly

the a So, to demand of Thank way a XXXX. be in of of supply year sense If terms to want to you. terms there as I it there tight conditions you in out a assess look kind less of just environment, we get play it? very any of going be continue constrained, sense kind balance? and the to magnitude supply is kind in demand of to still constrained next but Is to

Hassane El-Khoury

a that's Yes, Yes. good.

the bottlenecks up demand. and in So I from internally But reducing our like manufacturing. some are enough foundry obviously not we to some catch said, getting increases to

them and talking times and a capacity has XX increased where going and us keeps we supply get demand these demand because all in on to the question demand the But constraint a based I rate, see behind I supply where directly, days which it's 'XX. takes it add everything. And of of supply at that's So, if the increase lead little been about not increasing. it's XX 'XX faster into side. do balance. Both the to increase, bit through because answer has the to even keep months is, Demand with

net-net, making specifically But not our we on but technologies. investments been in very CapEx, up. have we're catching So,

on CapEx board the signal growth some increase exiting. net-net, margins. accretive all us silicon analog just carbide and of capacity mixed But We're because For demand don't across we although that drive that on example, investments high we're plan catching EFK, not on up. adding for still the on products, to CapEx our focusing noncore is see we

Raji Gill

That’s helpful. super

Hassane El-Khoury

Appreciate it.

Operator

And your from next question with comes ahead. go Christopher Please Susquehanna. Rolland

Christopher Rolland

the results that gross especially Congrats guys. Hey line. on margin and

Just kind that on of last up then. following question

XXXX, getting guys assume East the filled? is that external East is what full internal you once at is then versus your external, as we are what's fab forward – Fishkill, you Fishkill assume to that So, we full? look are facility? then moving that, that in Should plan the And Thanks.

Thad Trent

Chris. hey It's Yes, Thad here.

So, over the as January over just been years, to we take they'll into continue There facility. last to move XXXX. production ownership of ramping ramp up in we that a as for down is of years three plan we've exit couple GLOBALFOUNDRIES

they we that but said to full down, accelerate a are where doubling in beyond that this a our period we've And yes, is year our fab assumption XXXX. three-year wind So, actually now units is, 'XX, We'll up. there that continue wind have time. right at we

improvements for a that at we're 'XX, portfolio. in years, to past, foundry with that's a as well, and at time GLOBALFOUNDRIES a low a offset in of get able that this bit is the which little headwind Now be we'll the cost going we've across couple be said business but that the margin, a we to or of

Hassane El-Khoury

And America announced fixed as long capacity like have be long exit for fabs low-scale XXX-millimeter East we Belgium increase our North the about and the already term, our and overall, fab. up, that we the us we've to exit about confirm net-net, ramp that I'll better when fabs. Fishkill talked term will do that numbers what those for we will But Thad X.Xx -- will on costs other are and

capacity, better gets much that we'll looking see footprint. costs, a reduced from fab-lighter net-net, for in us our So we increase be the growth fixed which

Christopher Rolland

fact that XXX -- there to are And the there the ability increase would or to East the of what second Great. considering to is Fishkill capacity kind happen somehow? consider have it's at XXX, spoken a for, fab,

Hassane El-Khoury

go course, address Look, headroom capacity for we we next need facility. event. that the three five look exits last GLOBALFOUNDRIES for our then the where over do, and over additional of we as can the And to as years, have at outlook a there within years, manufacturing -- XXX-millimeter of we'll lot is

Christopher Rolland

you, Thank guys.

Operator

Thank CEO, session. the turn our you. I El-Khoury, final And the to Q&A for President back will this call concludes Hassane and remarks.

Hassane El-Khoury

revenue solutions as in to energy once vehicle hard teams and sensing exposure for and accelerating you well joining us for work sustained in long-term our I their transformation record and and expansion. all to and profitable automation, factory ADAS, electrification, results fast-growing growth Thank intelligent with megatrends, worldwide today. infrastructure Thank leadership are again, positioned thank power our you. and deliver margin such we driving

Operator

And Thank we today's that, participating. conclude you conference. with for

You may now disconnect.

ON Semiconductor (ON) 2 May 222022 Q1 Earnings call transcript