Earnings call transcript Q1 2023

Due to licensing restrictions, you must log in to view earnings call transcripts.

Operator

Good day, and thank you for standing by. Welcome to the ON Semi First Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there'll be a question-and-answer session. [Operator Instructions] Please be advised today's conference is being recorded.

to Agarwal, conference please like speaker to now Parag today, go would hand over the your I ahead.

Parag Agarwal

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

is of Investor posted the website. on information Relations our Additional section

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

results cause in XX-Qs for future that Securities During our factors the Important differ differ performance in earnings other Commission We actual to the conference could projections. that call, our of the from first to Exchange other quarter and forward-looking to materially that with that forward-looking business, can results and the we of filing our Form XXXX. the this risks such are caution release could factors statements statements from affect recent most described regarding our uncertainties course statements, are wish events including events and or make to projections company. future actual or will of or financial subject cause

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

Hassane? to turn let me over Now Hassane. it

Hassane El-Khoury

morning and Good joining Parag. today. you, all for us thank Thank you

expectations continue our did of XX.X%, report billion environment As are non-GAAP I'm exceeded operational and quarter. guidance. with I excellence revenue have the first the pleased results to of where we've the teams our of current around The am deter we have we to goals, $X.XX midpoint margin transformation, achieved who our both above another in market quarter committed proud not and world, from of us they this gross

structural reduced streamlined navigate down in the to Over two the the our price changes operations portfolio, years, of carbide us uncertainty last transformation and the company. our value would product the discrepancies, to we overall We improved industry. semiconductor better enable silicon centered double around that the on

ramp incredible We we solve have to this the technology. in engineering talent have problems of toughest of company to deck all accelerate world's generation hands the next some and been the on

QX revenue team's relentless bulls full-year results seeing QX plan to at anticipated of double are output and from ahead die In Thanks efforts process shift we every allowed our our our internal alone, than nearly greater for of to of the our than stage modules. us XXXX results these silicon to half to more carbide manufacturing revenue.

leadership of track the the market on times setting sourced revenue billion X of are that's and carbide We approximately up ourselves grow the majority to in with our revenue XXXX to for XXXX the $X substrate in internally. silicon

slowdown. infrastructure energy remained and broad-based amid ADAS vehicles, electric macroeconomic healthy a for Demand

flat XX% automotive was our revenue it While quarter-over-quarter. year-over-year, increased

digestion. technologies, We cautiously monitoring across are automotive we still some several supply in technologies, inventory other constrained are while

demand growth to see expect our we and growth. there in our QX, automotive we revenue. infrastructure shifted quarter-over-quarter where In QX, high mix energy In to is high

systems geopolitical of power had is issues, for increasing alternative accelerated need the energy with X% and energy, turn in anticipated. Driven increased sequentially global content silicon revenue storage and that sources the carbide includes industrial silicon instead along by solutions. by we decline installation our Our of

changes supply environment. Also, is anticipate for results. across in and don't financial price we businesses and the as in these walked secured stable our pricing away long-term non-strategic transformation, predictable agreements by years. is A fixed our pricing our areas from part multiple significant business business agreements we drive in Pricing any of business part is sensitive have of to

transformation, our and quarter revenue, total of XX% desired a industrial by the In year our industrial started QX, XX% automotive years ago. our in result two automotive we and business of end XXXX compared we earlier. to have accounted our to achieved XX% we as targeted When be for and

again demand and our new LTSAs reduce exposure as commitments sustainability signed We chain through supply a than in volatility markets a markets. for visibility more an giving our agreement also and them with current Volkswagen production in the semiconductor all $X by example, with increased existing form in QX of devices three-year the the also required help billion. partner, our revenue consumer to XXX customers, committed LTSAs across improved These the from major computing our LTSAs.

them We designs closely while on our with today for are sensing their generation customers needs. intelligent next working supporting power and

recognized through their we gives to a and recently trusted quarter, us strategic over as in provider offering Year high that manufacturing ON key we edge Semi were design LTSA chain technology addition a entire the Customers peers. them its value of announced honored sustainability. from Motor Award provides resilience competitive XXXX Supplier cycle, also Hyundai the last Group, ecosystem, recognize for partner supply as In with the the which a which

stages level to through and early to faster applications customer In time us our March, we power tool low a Elite tool of network This consuming through hardware touch to also to allow our get the Power from broader development. a reach Simulation market design fabrication design in launched products. will our expensive testing with new distribution in electronics engineers system model saving simulations, complex bring

carbide end-to-end with our to superior Global automotive OEMs are silicon partner solutions. choosing the Semi for of On performance

leading third deliver electric generation weight MOSFET has powertrain EliteSiC efficiency These Semi's performance the range range On speeds. electric EliteSiC LTSA we volt increase China, week, improved the and X,XXX announced all a last who the manufacturer to performance Just of expanding reduced devices charging with extend extended selected its ZEEKR, efficiency, power in which and vehicles. size an high and resulting thermal improved faster deliver of in of portfolio to traction driving and inverters the power EV

Group On performance. an with electric their BMW increase to EliteSiC range to equip our for support secured vehicles. drivetrains has silicon to They next carbide generation also future system with selected electric us Semi's level their LTSA technology and efficiency extension

silicon working all and from voltage auto that beyond. we are these Through to to also XX We XX power meet range targets solutions and zero own. by invest our the as volts our intelligent strategic pledged on journey We in OEMs customer volts line our Zonal Architecture, emissions to enabling initiative committed with to requirements set also decarbonization power near-term SPTI and sustainability continue in we move science-based deliver and targets efforts, partnerships, to achieve reduction criteria science-based while XXXX. emission net to

two can X.X QX sensing eight the times revenue our intelligent transition that one XX% image or up new to to where for devices of Our increased to megapixel Hyperlux ASPs be sensors year-over-year. megapixel introduced Family of support sensors. image We

industrial and has proliferated sensors retail automotive into applications. traction smart Our for automation in image

surveillance, doorbell lighting near newest response infrared and with cameras, conditions applications Our achieved stunning security harsh robotics. and as sensor necessary megapixel XK with for such body eight image video optimized cameras industrial quality

in focused of of expansion The than in our sensing expansion with commodity XX% shift and driving applications gap to growth Industrial reduced lower intelligent packages out our and account business. markets. value supply revenue differentiated coupled margin more demand capacity the is products and now Automotive and for

is IC fencing, of image well our accelerator such who as largest Beyond boost and drive to shipped Hela, by one inductive as turbos. sensing and steering pressure actuators with wire the sensors, automotive intelligent sensing, our supplier, and sensor expanding We solutions torque our sensing for systems portfolio. other billionth position X uses our pedal technology as penetration their in

and than the also latest year intelligent sensors from the in power more one the for ultrasonic leading our sensors intelligent revenue, of revenue of sensing our ago. In We European in as in models XX% OEMs. to EV market quarter a XX% total XX compared QX, accounted lead with automotive a

chapters to are what we controlling know. ready with applying and we Operational in for As next our what commitments. we and executing get we our can journey, excellence the

our We offer team we have pivot and technology required positioned to by the market ourselves execute. to to agility have superior customers lead the in to and focused the and markets importantly, environment. our change we to with as And more business have adapt

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

Thad Trent

Hassane. Thanks,

to testament Hassane operational is in to we first the As exceeded excellence. are globe, our highlighted, which who quarter, committed a employees around the expectations

market of areas our focus, the targets, to and invest uncertainty. financial execute and navigating ability while benefits to provided allowed has all across the us maintain business Our

functions, We gross identifying operational opportunities. identify our efficiencies while margin extract corporate in expansion continue to and groups business and

I'll manufacturing $X start of of revenue, quarter. our was billion in carbide billion doubled by energy infrastructure. and our by revenue the past results guidance into for the QX, in output midpoint we In our increasing silicon diving year. was our strength Total our nearly the silicon confidence QX above dollars $X.XX and driven our first to carbide internal ahead our plans

our revenue a original for Our revenue. in margins. and for recovery growth accretive was grew flat automotive year XXXX XX% million total over XX% gross accounts QX it now X% We projections. at industrial by anticipate Infrastructure quarter-over-quarter, stellar $XXX projected offset by with of Industrial business surpassing our revenue business sequentially, Energy at another in

$X and of quarter silicon Solutions gross gross for on sequential margins. ISG's or exceeded an the or $XXX million. Intelligent XX% turnaround $XXX saw billion year-over-year ISG Revenue for a expansion record their up of impressive expectations Group continues we both at and a an Sensing as was for was also record of was margin Group the margin Advanced decrease or ASG Power exceeding million, gross was as and Revenue the XX% impressive QX margin increase PSG carbide X% with ramp expansion Group XXth of year-over-year XX%. Solutions year-over-year dollars, revenue our revenue

and up manufacturing gross first GAAP carbide As a for was guidance, for of quarter margin performance corporation, by nicely. driven than our output. silicon above industrial and our margin XX.X% consolidated the revenue midpoint gross improved anticipated non-GAAP the higher held

bringing $XXX average the exits. We the range, also $XX revenue an margin quarter of gross total an to-date of in mid-XX% business revenue million non-core additional exited to at in million the

with Fishkill. in our margin of The silicon much gross and as headwinds acquiring current higher we points we quarter-over-quarter quarter up first of wafer by QX non-GAAP utilization starts. XX% of had declined factory than ramp was fab millimeter EFK lower is slow and basis East as cost since XXX XXX our Our operations expected to operating carbide the continue anticipated.

we impact than the So previously is dilutive greater expected.

the realign early can However, our based we current to efficiencies we drive structure fab recover on of XXXX. by outlook, the cost confident are and

As XXXX. we demonstrated maintain in to for QX, expect trajectory gross margin our

returned Our $XXX repurchase which strategy new capital remains In the share we up of flow unchanged cash financial repurchases strategy. free us repurchase our as authorization, more our $X XXX% than billion to from allocation to of our does was to through shareholders with our allows This million. first QX, XXXX.

we issued with This billion approaching of loan. term a leverage our in with in basis XX the rate highly X% used points. QX coupon and notes Additionally, a proceeds debt convertible convert of with as rate out a neutral our was we $X.X portion swapped essentially accretive fixed repay variable to

significant transaction a dilution price providing We spread increasing strike effective also the share, call $XXX.XX to protection. entered per

Non-GAAP to uncertain operating additional million, some in GAAP Now the compared expenses below first for $XXX.X $XXX.X environment. compared manage spending were the in you operating for million, year expenses our let the we expenses as first as discretionary $XXX.X ago. me the given were your quarter of the Non-GAAP million XXXX. million across guidance $XXX to give were numbers company as quarter operating models. macro a quarter

XX.X%, margin industry-leading our We structural resources products. by to XX.X% ASG operational operating improve XXX quarter decrease to also development a market to R&D changes to initiatives, and the for non-GAAP points quarter-over-quarter. GAAP was initiated proprietary while margin basis of high on growth reallocating operating was product efficiency improving time and

Non-GAAP was guidance. diluted per share the ago. earnings the end in as tax GAAP per of was quarter above the earnings $X.XX XX.X%, for high rate year our $X.XX first quarter $X.XX, compared was non-GAAP to Our share a

million million our count XXX.X was Our GAAP non diluted shares share XXX.X share GAAP and count shares. was diluted

which undrawn Turning cash and Capital Cash of of $X.X revenue. for flow $XXX.X and flow CapEx $X.X impacted $X.X equates of cash bonuses we QX on XX.X% the negatively was and million, payments. were and cash by million billion a $XXX.X equivalents quarter. was to from was Free free to sheet, expenditures intensity was timing balance during cash annual capital $XX.X million the billion revolver. our had or operations

XXX directing a to to and at intensity previously, mid we capabilities silicon range indicated and portion DSO be by receivable toward in East four next percentage increased carbide the $XXX.X fab expenditures we of our million our As capital high and several of are Accounts significant $XX.X for days. our increased expect millimeter the million of enabling teen XX-days capital quarters. by Fishkill

transitions by sequentially inventory Inventory inventory increased of days days increased carbide This impending to the to $XXX.X of XXX silicon and days includes million XX support by days. and fab XX bridge ramp. approximately

in with million of channel proactively weeks in inventory We inventory distribution to compared X.X low weeks, weeks continue levels and by $XX the X manage historically inventory, at decreasing QX. sequentially at to

QX, $XX balance XX% investment related investments Factories. will and lower in and $X.X was for eventually cash benefit U.S. tax our will In plant we future. credit under flow debt the statement Total income sheet the accrued and property, in $X.XX. associated receive equipment leverage in is our million the through to as net This billion depreciation

of and non-GAAP to table key our results. press quarter. elements is guidance non-GAAP provided for second detailing The in Let provide guidance our related quarter me now GAAP release first you our the

continues increase revenue billion, of $XX.X committed business under of total with Our LTSAs $X an quarter-over-quarter. billion strengthen to

in from our recognize in $X.X to expect months of We next our approximately non-returnable to committed XX orders. billion revenue LTSAs non-cancelable addition the

a be cautious the anticipate guidance. $X.XXX in range billion. $X.XXX uncertainty, we in our We will of Given the revenue to macro QX billion taking are stance

with expect quarter-over-quarter automotive further markets plan flat other We non-strategic as we in our industrial to to markets. end increase and down exits

XX.X%, includes $X.X utilization, This of of remains EFK We silicon due which impact million. expect compensation non-GAAP gross lower the margin to to also and factory dilutive of ahead and headwinds be XX.X% carbide, between share-based ramping plan.

temporary margins a year our manage be As as for we will previously headwinds. we trajectory stated we transition to these our XXXX expect gross and maintain

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

our range second million $X.XX to range for to share our diluted XXX expected to We be $X.XX. expect non-GAAP XX.X% be XX.X% in is tax the rate This count shares. earnings and quarter non-GAAP in the of to be to per non-GAAP share results the approximately in

silicon of up. in in capital which expenditures $XXX of $XXX more the We alternative to efficient million, from EFK, a a expect capital of primarily greenfield than use investments million are brownfield fab carbide and building ground the

and We of our value through this deliver will to for proud are transformation shareholders. continue very our financial results

ourselves equally We to quo the different are company we a pleased hold cultural is On transformation. very We status today. with challenge accountable commitments. and Semi our our

We to on you we'll and shareholders. know, sharing Day of many our May see look hope forward to XX, we New be an York future holding to our plans As Analyst there. value in you for accelerate

open the to the With Kevin to like line over call turn for I'd back to that, questions.

Operator

Our comes Seymore question from [Operator Bank. Instructions] with Thank Deutsche Ross you. first

open. is line Your

Ross Seymore

given ask -- for I just a that despite carbide few adjusted. guys sequentially and versus it's a be cyclically side, thought that's you hasn't bit of were silicon all letting side a about ask of auto me that question. to more about Investors would getting little And that Hassane, guys. want are the business. upsiding. you concerned market what the the up Hi your Thanks the flat

what answer, seeing when separate guess just give could I you're bit parts the silicon you carbide side demand you talk other and of the please? little a about inventory, the perhaps from that So there, business

Hassane El-Khoury

us. silicon Sure. ramping it's carbide, for a for Look, obviously business

team we of doing seen going ramping that's where thought based on technology, we just stellar slightly a year. ramping the be the the job quarter, ahead to progress would throughout in You've tremendous keep the first

numbers. on it about in $X think we can talked those and uptick confidence the -- about year You track we exiting as as second-half more every for accelerate we more had an in billion and the the that the day,

of technologies ability constrained, to that rest is We healthy. remain constrained demand The in that obviously, have automotive, some remain our supply to so we demand.

voltage, just as about to demand. demand, voltage, not think but high that broader can the aspect medium go You a silicon also silicon of that our that EV

Other digestion. the we're monitoring technologies, inventory

in X weeks where quarter said in opportunity of it. uncertainty and $XX up first the of, that's see used inventory, kind drained of from to to set for everybody that my we wanted went the second-half drain We to the ourselves because I where As year distribution the was, a pretty million big you we number a the talking look over we X.X about. weeks $X that keeps at that prepared to wanted remarks, inventory from the

demand, a for rest a we're I'm that's EV, business with The So cautiously comfortable from us. monitoring. the ramping

However, as remarks, QX. my quarter is in in prepared for QX I up us mentioned an

So of from you for test automotive inventory the overall we're can think fluctuation. of ramping to we the so keep kind demand an year, of breather up going took Full-year, and last idea the in it as quarter-on-quarter to that we're going QX a rest gives be to about you see on as we the year. outside

Ross Seymore

well, about just year? trajectory net moving that rest please? utilization same more talk those a part Perfect. line follow-up it the takes the like the Thad moving side through to maybe side carbide those net is guess moving over Thanks but and parts, puts seems Fishkill the as with to expensive, from be gross the Can there quite I of Does East and parts? side, ahead plan. us in all is that. you your few still my the of And things. East of a carbide seems the but Just It walk silicon silicon the plan. for especially little through were Fishkill on in right bit of that out of margin as

Thad Trent

Yes.

XX% XX%. utilization from quarter the about dropped the in to So

we're what to range plus ramp quickly. of that right of, Obviously, remainder up minus there's for second-half the we a recovery, or is now seeing kind expect, stay can utilization year. the We in if

on better-than-expected, nailed You coming said it we EFK in is the it expected. higher than carbide significantly rest performed silicon cost as of I

of of, You can think we kind more about orders magnitude than these being, as dilutive what expected.

we The good news absorbing are that. is

able get we said, finding to cost that. and in company I where across We the got expect back additional time gross the be. it EFK opportunities the believe we've improve absorb we of we're XXXX, margin to As structure would into by we're line to to

we're think I outlook for the really don't anything margin in this changes. So year, confident

we Street we at gross those we -- these think think margin look expectations. XXXX, if for consensus I execute for with even that headwinds, to can

Ross Seymore

Thank you.

Operator

Instructions] next Securities. comes question Arya of Our [Operator from with Vivek Bank America

line open. is Your

Vivek Arya

Is wanted Thanks in-sourcing ask you side you for for a to majority my comment? during that's are gross full-year that year, targeting give a for in-source? going? majority Can taking you to the And on that update I believe that in-sourced the about exiting margin said an how let's an be Hassane, carbide. side? So prepared you your where if how us are help QX the exiting us say just are you an that on does on Is the from I comment? question. perspective? plans give material silicon progress you in-sourcing remarks

Hassane El-Khoury

year. I've majority. reiterating ourselves my to set exiting -- Yes, up the in It's year comment establishing the in stated order is establishing year the our year the growth supply, our plan exiting last look, of throughout Hudson facility that the basically

which the the now holds our quarter, given last of and talked as a we've our just Hudson the about. that drove lot margin more Thad So favorability in progress in in that results gross even had

are we confidence from in our with So I that where the we very remain reiterating happy the have and plans. progress very,

see margin happens. obviously that because the always can merchant, margin As in-sourced gross always better, the there's far is stacking as you

course, ability the a able of move margin year. and to the helps that margin the corporate our expansion us get mix going biggest on implemented. So majority to have as that that really portion we the to to of at carbide track silicon for through remains for the the be cost we've that above utilization business is or exiting, of margin. fixed to And come from But

we've done remain so So far. and really on that focused we with very satisfied where

Vivek Arya

QX QX Got to outlook, the you seeing environment how currents, I think opportunities are changes? but overall of inventory. side? the through versus that pricing your it. Hassane, you way is of any as for any Are a pricing what follow-up, QX, automotive specific across that there the And that, my there changes How some you especially another? earlier, are drain so There's you you thought took impacting through QX to one lot on macro look or autos, in mentioned QX the

Hassane El-Khoury

Absolutely the on our predictable really about with us benefit it’s we've the through very pricing customers actually the that's of with that changes, volume the that and been have align and talking no really LTSAs LTSAs. duration

supply remained customers. that's conversations just focus we the year, about through extent through of the with no but up So always pricing. on The not LTSAs the has have the and holding

So no and very pressure stable very, on that.

business, these that margin margin we're we exiting handle on above and a not you And are that up where not by will that conversation, the what in across products we to the customer. and not is markets the and on is automotive. just that of pricing as bring about talked provide we we the have we've where know, about the value. it’s Thad, business to ahead in way, markets point have and where things how the all it's going the The in LTSAs it steadfast focusing four pressure those pressures, -- It's we on and focusing we're The on had still been -- exiting, would play because to products businesses. come the pricing getting an exiting pressure pricing been holding we it's a gross because and exited have pricing

Vivek Arya

you, Hassane. Thank Excellent.

Operator

Our Citi. Chris [Operator next comes Danely question with from Instructions]

Your line is open.

Chris Danely

where they lead Jewish some exclusively or elsewhere? us Italian time think I didn't in Thanks, you then little from just this situation? overnight. guys. I away? are the can give update any and year a Anyway, in time And point went to know Hassane, and on our you will shortages shortage much the go a is there color for automotive I the business shortages guess pretty the

Hassane El-Khoury

technologies, Yes, our technology look, to always higher for even us. yet of is because than so where High voltage them. refer ramped is across capacity, markets as We they're all the -- course shortages we And constrained goes for provide much increased the Thad me, demand I stellar for industrial for goes very business, And and example, after it ‘XX automotive specifically into alternative this that talked capacity. about that's nicely said, it that into ramp ramping as our we energy. year a in very last year. silicon

technology is that So that is constrained.

have power demand constrained. of Think we've that and about are We where analog both demand it automotive increasing have signal the industrial as added. intelligent technologies some in mixed capacity been in ahead

markets. constrained, the We those of participating but just keeps are demand of So markets technologies of we in. are agnostic accelerating, capacity, because not because remain

our remain times other year, As constrained based in flattening we therefore is constrained. depend some of demand the while But will that year. going our the that is some there, these going to still not your Based And does. seeing outlook, depends we're remain on what technology our outlook, really that in as far the second-half lead and easing. on of on the of second-half to specific on areas, we're technologies, second-half really view can what for see the the in

Thad Trent

two but are board weeks, it relatively are XX times much week would time. Quarter-on-quarter, call that I XX the week lead the stable. to stable lead I to in of, timeframe. kind times on across think down running, Lead And pretty a Yes.

Chris Danely

follow-up, my I guess just for then for And Great. Okay. one Thad.

years, gross ramping guess, be offset the over Thad, the all can a will what the, can from as you road? little gross that's the So the headwind going this five by I those talk is margin and or all about to down the be just efficiencies impact how to margin next farther three CapEx depreciation and maybe CapEx

Thad Trent

would Yes, in we're well. silicon and EFK mentioned. as start saying big making by carbide I've I out investments

situation we're about capital have, to expansion think not this expansion can where we and capacity the we our is right? building So LTSAs capacity you in hoping a that fill support is just it. as Now that

that So see general, we're we would would additional our it I call in tell margin you but is that margin significant, revenue comfortable that very projections offsetting absorb that wouldn't with can to depreciation. offset I you what and gross depreciation.

Chris Danely

guys. Perfect. Thanks

Operator

Toshiya [Operator next Hari question from Goldman Instructions] Our comes Sachs. with

open. is line Your

Toshiya Hari

good morning. I had much question follow-up so Hi, Thad. Thanks as taking a on well, for margins question. the gross

and the we sort ramp of timing peaking? expect Just costs And stay headwinds fab the elevated relatively in that the at it the EFK headwinds and carbide both from think of from curious on in? I silicon benefits part to to or your ‘XX early about you've the second-half thinking strategy, time $XXX light of Is should a how benefits sized should the we ‘XX? those kick also million ramp reduce we be over dynamic once expect

Thad Trent

Yes.

of So the impact there. the start $XXX million, I'll

takes to starts We fab. in ‘XX in expect to years three get exit and to really that it least that ‘XX as at we exit think those fabs. kick We a

of in I roll So starts ‘XX. ‘XX that to and most think

headwinds EFK the EFK, QX. us On the from and in has so carbide already silicon hit

We with. being isn't about the XXXX, and pretty think as we that that that year. can line You it that we got surprised we get can think the consistent in by early back headwind through

by performing On It’s ‘XX, those peaks, this we bit of, that us about ahead get foundries, is a likely timeframe. get is carbide, we've it's so line of ’XX, think year. in the do talked silicon little can And margins expected. as much the the and kind really -- than for continue well. at but we a which better EFK we we of in it’s There we a think average, cost great. headwind drag we then in time behind that's think as global are previously back ‘XX schedule, QX we there, corporate that will it be to to structure as foundry business

Toshiya Hari

one Hassane, my term. longer helpful. And follow-up, a That's Thank as then for you. little

Day, Analyst company guided you previous of range. the X% overall had your at revenue for think growth I kind in X% to the

think right range I pipeline, think visibility have the you the with as that? some several in think silicon you've about over pretty other carbide could and secured, you. you company X% do the your the X% model, Thank the think is Or the given you still opportunities XXXX potentially good outgrow of view was that to years? a overall that LTSA you I range

Hassane El-Khoury

Well, our that you I XX be one. in say, -- for on Day to win. May I'll Analyst at must present would see

Toshiya Hari

Okay, Thank I tried. you.

Operator

Our Instructions] with question Piper. comes Harsh from [Operator Kumar next

Your open. line is

Harsh Kumar

Yes. Hey, guys.

on and a a near-term First environment. then transition of results team congratulations all, successful also so Hassane, in Thad far, very the and choppy

yours results business is had your had could curious, I poor market, what we was China, you're then I the or China, on in position out and question first seeing blame of that they had in the you a I've slowdown. EV a in perhaps EV least given follow-up. of got auto comment at in if peer So China another segment

Hassane El-Khoury

mean, our Yes, China And market. a market all look, that's But throughout China. going in contributing is us the ramping ramp us see the really difference for EV I we year. to for to be is the

out if little it China. even So top the demand demand is a choppy, on the call of

to a it's a kind we're favorable don't we and us very ramp. incrementally good It's for from see disconnected of market that it puts a not and that We're mature going position. to it's ramp so there, us, us, continue yet, For it. given in

Harsh Kumar

to talked about headwind. Thanks, Would one seeing you terms for headwind give in Could us then -- be quantify scale is what and you're headwind? What a timing for Hassane. carbide able you the number? you Fishkill And of Thad. maybe the silicon the

margin. is be that your second think Hassane, carbide that then question mentioned that silicon part comments you a or by maybe I And timeframe, corporate did in your Thad the would business quarter third the of

margin silicon thinking carbide gross So to the are XXs, a we or ultimately as thinking stable we high-XXs business? XXs

Thad Trent

Yes.

harsh, ramped at be it would So we said at carbide, average. so above can at once corporate margins is those we scale, what fully or the

As I QX. think behind ‘XX, got think that said, that we've we headwinds the peak we get by to time is headwind in We us.

of of said We're headwind. of the XXX the better headwind, to than In we've basis a points silicon XXX historically we is that points carbide expected. terms performing magnitude the basis

in good. as our that between at outlook to end we the we're and about But execute here So that think performance very that, somewhere on can confident in based continue that you our range, can there. of feel it’s we very there not high

On in EFK, impact the said, we as full I had QX.

to expansion points, we and it's it it margin said areas. Historically, in higher. with You points XX see that’s other basis XX I've we've offset gross significantly absorbed said basis can

expectations about You being we than as think what year. our throughout the think can we X times, greater it were. can absorb Again, that

doesn't very the we're and comfortable consensus change Our on gross year. for trajectory with Street margin margin

our through So I managing it you confidence gives think -- this. in

Harsh Kumar

fellas. Thanks,

Hassane El-Khoury

Yes.

Operator

Gill [Operator from Instructions] Needham. Next question with comes Raji

open. is line Your

Raji Gill

environment. on Yes, you as in great thank tough congratulations a and results well

kind of to color the about picture of softness and significant quick to hard in mid-range, a that a modest any you market, little automotive. market mentioned it's the in know electric appreciated? market, bit will reducing demand separate seeing demand Can shift then end kind the you the inventory. there's a there's question of the away But the automotive ramp inventory carbide. you're if vehicles on digestion be market turn high-end in overall in just a from you're silicon and automotive Hassane, curious a if Just kind I talk on also distribution for

Hassane El-Khoury

to don't we the in look. I our said, Yes, us second externally opportunity we'll a through this we was to big quarter thing giving year increase have where see It get disconnect We demand. the a the inventory reposition that in revenue use year-over-year. momentary and into it back an kind was of automotive and growth like

if about outlook. think us a really any our that I growing stable But be it's that don't a causes change a or pause If change automotive. the environment really we you see So going doesn't what at, areas it, in we're to take outlook. look in

with confident that. remain we So

Raji Gill

market? about follow-up Very or the LTSAs, infrastructure, Thank billion my $X Can good. up other you the those you. from up And describe significant you on of growth incremental billion you're in that that was quarter-over-quarter. it are year-over-year. $XX.X talked, related just Thad some tailwinds saw right. talking along of kind all carbide about lines, to And in that you designs energy silicon drivers? XX% All what Was primarily

Thad Trent

Yes.

there's we continue engaging about another up us supply, to looking But There's to are again, silicon when stack $X carbide, with LPSAs think want the And customers it’s our four this and locking for multiple it's to how $XX.X LTSAs, So that billion we're of up across they're those that with on mind we non-silicon five broad, entire at average the years. board. these carbide. the in years. assurance billion, portfolio keep quarter

that So it's happy -- and as with Hassane to us gives way. better really said, pricing we continue we're engage is stable and those of customers business predictability that on our

or outside we on by have LTSAs an with get coming then duration expanding additional new been That customers and got in the extending to customers see you. numbers in. adding looking We we've saying that part LTSA need their the are either

trend that think we so And continue. will

Hassane El-Khoury

we if We then a that's components mentioned, that's are compounding bill ’XX, given that's we're But in of year energy, most ramping demand they're with on be power ramping and tailwind of market-driven, LTSAs, in stellar is what you it the to XX of LTSAs primarily the under again, And silicon and in and going eight ‘XX is from top alternative given that all carbide. the have is as material. the from market-driven. and silicon and we're see had to market with now going a energy have And and big world ‘XX here ‘XX them of whole our recall Thad the we content. the penetration for bomb, vendors with us the

Raji Gill

very much. you Thank

Operator

Matt Cowen. from next Our Instructions] [Operator comes with TD Ramsay question

open. is line Your

Matt Ramsay

Hassane, around give you goes how Greenfield But guys order the and are us on silicon non-substrates Good relative of that for focus your support cost is substrates Brownsfield GTAT. in a chain of basis fabs a facilities? might color guys going could other -- Thanks. you on business that some little give guys. space typically morning. ramp the the things much silicon I much to very you wanted substrate. ramping a CapEx into there's as carbide you to so times that few Thank you mentioned to just part bit supply on doing position that others Maybe the are carbide? what And

Hassane El-Khoury

Yes.

really mentioned, So our a that's the fab the an much to in this in preparation substrate, focus, And that's of But capacity, which big ‘XX We look, increasing also ramp has we're us where IGBTs. cost said, you of us and the capacity. ramp XXXX capacity first getting ramp. internal is we been then like -- our are in the I cost because thing fab ramping lot externally. with a in case on as we really turnkey increased ‘XX wafering where started have we've been following very Because a we better EPI, existing that and our structure. the that power advantage gives versus is in most do fab gives increase for

scale. scale, one gives fab edge at cost the can from that power at and a speed which two from us having a And we

mitigation in the give it, the of outlook. cost, which of capacity carbide. So way, these given out think all cheaper does a and us silicon else everyone is two our always fab risk this in already risk on increasing really one power about the the than confidence and and existing Brownfield we're that the power achieving in us given fab it an has always us less has way and ramp, slope ramp, in confidence the there confidence exceeds That to track and our three the way

Matt Ramsay

Thanks, Hassane.

guys the inventory. ask, you speak where my think were obviously, results I you for words company some of you you're overcoming I any your where are of -- of Just would things. and morning, worse? a cautiously the you're this could As growth wanted pockets little the color seeing some you pockets color on give Thanks up? there us they be if little could helpful. clearing Maybe inventory? of guys. bit getting just those mentioned those Are think But they Are themselves both of in follow-up, I the script and to monitoring

Hassane El-Khoury

prior again, markets to We go primarily. are Yes, back pockets I constrained remain my areas from technology. about and technologies comment across there say look, the in when all I'll

You we've this and on the is and draining quarter been dollars -- specifically can mostly you've the the the us seen one disit aggressive think about why in cautiously in that's very inventory channel. consumer it be compute where even monitoring

$XX been decrease we that down channel, dollars in So although And but that's X.X have were million the steep the managing. a pretty weeks weeks almost down. are

managing look, it the across supply throughout been And was constrained whole the even the we've board. -- when

we're really for high We're and nice in be. it's very And our what we big inventory and just holding going for shelf So around starts focal to us seeing is we POS-ing. higher higher the whenever up whether just is internally, its recovery customer really out going confidence sets optimistic going point that to have shelf. us back sitting that on until are bring, get but to a the a be second-half externally. ship out in we confidence what of not not And the to or inventory unless distribution company turning cautiously

Matt Ramsay

Thanks, Hassane.

Operator

from comes Rolland with question Susquehanna. next Our Instructions] [Operator Christopher

open. line is Your

Christopher Rolland

talk Hey, guys. Thanks for the to image question. going I'm sensors. about

several what be revenue of to supply versus much. kind X% so X% You the of constraints some your across of there wanted megapixel check was then the auto it or at And drivers the percent did talk what that. about like X competitive move overall? of, tech. is wondering, X% Thanks or might seems to update just there, I position

Hassane El-Khoury

dynamic my also the solutions them in value we technology is helps of provide near or prepared that specific that across look, and technology. sensor few customers industrial, inherent conditions, high on advantage the very that infrared remarks lighting at very our mentioned in advantage We've the with these where Those automotive whether talked in or our all I and with technology, Yes, board given where examples on it but obviously for. of course the competitive start really automotive competitive bright/light about and a image that I've different applies applies the night. dark in it's range it's sun are

X On a generation that and auto industrial. launched new that's megapixel, have the both across we

be that. can you forward-looking to we a shift as ramp -- to that expect going You're mix

our higher But basis. small. with percent at see a margins always to expansion XX% by to gave are margin products, commentary or I about ahead our have of and new we contributed very the that and of said I the is ASP becoming improved forward-looking products also these to a products is these Both translates today revenue. ramp Thad as on going that So of XX% be will the model, to you're course

-- statement forward-looking always the model margin our in again So destination, gives and confidence the it’s is not that's we've a more a fact not trajectory that it’s the that really the us said, of milestone.

Christopher Rolland

one. and just And a up quick maybe then following there Excellent.

supply So technologies. tech constraints you the several across mentioned auto

market? I just you are think that kind considering on inorganic ton then some, of, a you organically, and still have you how see but do wanted, lastly, that but you list. plate And mentioned your M&A more comprehensive

Hassane El-Khoury

the obviously, us. is get in a a my sensors We're on foundry, across I I to for in some the look, comment Yes, so so us. bridge we And more couple bit little we remarks, used into prepared years caught this supply allocated in not capacity but obviously. image last we're easing opportunity board, image foundry mentioned business catching making seeing think I'll to We're that up. making of constrained gap up yet, the progress, we've really demand and we're progress had remains so to that that sensors,

silicon. of achieving just energy silicon our I and always but think about we're we storage automotive silicon, market, A contribute industrial. lot mentioned, silicon numbers. remains power out and carbide but We've a so constrained, because IGBT, it or as not really. carbide, on lot have systems of the silicon carbide, On our today strength said in IGBT are that to high our as also remains still of it improvements on silicon sold

not that So can megatrend it's driven on some in. growth see board across specifically that really the that it's so are but constraint, you adds of we markets, participating by

M&A, our execution. is as far right, As on look, focus you're

work that a lot ton great shareholders. a on, of it is value have for our lot We of going a creates

missing away as and organic achieve I that M&A, But is because execution opportunities in our in. always to those there point. are order plans key focal you value we So But today, from can't looking, never we participate look of we are is we sit we're our execution here will creation. is something tell

So drive in we landscape, we we'll disciplined would the to be, is of M&A. have, which we'll our very nothing have place I can be and participate opportunistic, to M&A in be there's the always but best because approach say

Christopher Rolland

Hassane. Thanks, Great update.

Operator

next from Our Instructions] comes Gary question [Operator Mobley Wells Fargo. with

is open. line Your

Gary Mobley

did about and wanted indigenous do Thanks see you for know but there? question guys. a that demand. market, the Where of here. broadly been just percentage Harsh to currently asked ask and China terms China set it's versus in in past in taking I sense profile give the a as optionality your China my sneaking demand upside the where Hey, today more maybe about of about I EV me us of demand sale and thinking

Hassane El-Khoury

our in for of market our and a -- market exiting us. that's in not also but a for by for strategic markets. specifically the down, down, non-strategic look, exit the Yes, market the lot is that's China just Obviously, both us, been so is we've China in been driven

that's starting So anticipated that contributes, it plan, margin far been our and exits, which our out, play these a we've is that's to along. surprise see we're protecting on been us. And it's It's part and we why plan not as as what of strategic our actually that's focusing for all surprise for us. so not a

redirection the the On market market us, in although pause some bit there's EV of that EV, is on incremental. EV net actually for in little China a or

in that year favorable therefore revenue with the as through remain EV party growth. China ramping in rest of outlook will the our the net to a are We and even current the

this we as I would year. say, surprises, to changes -- outlook move and no no we're no execution changes So to our our forward

Gary Mobley

Got it.

$XXX merchant carbide revenue. the broadening you that follow-up, you some the $X can presume of purchase As year. Maybe year, if support appreciate traditional there? I of be fact give of your billion list but supply this be you'll terms somewhere to my your of I substrates be your internally the you'll how supply us constraints suppliers that the sourced I to ask close majority seeing probably exiting there you from in update to million in for and more that materials an supplier might silicon about want may

Hassane El-Khoury

to qualified. as internal going able very merchant having we've a to supply. we're good going what be far is Look, about sources pull job year. sources, We're we up done the majority that be throughout Yes. internal, worried are need. not All to multiple not Obviously, going on are percent we incrementally of the our I'm internal. on. And getting as derisking, But

So substrate. the therefore, to already it while good execute about think mitigation internal our risk a playbook in very continue greatly on as we and strategy

Thad Trent

Yes. for ramp. although inventory think this we've And -- a that silicon I've out been market that's just in We well I said, would it's building I tight add known. there, obviously, carbide as

us. flex supplied it. So preparing obviously, we've internally then more been into as helps we for that And substrates, get

Gary Mobley

Thanks, again.

Operator

Securities. next from [Operator Our question William Stein Instructions] with Truist comes

line is Your open.

William Stein

Hassane, about year Thank hosted, event think ago. the Great. carbide I it perhaps at you you. a silicon was

to only likely many the as term, Then You know it's that your that in they're surprise think five trend data supply remaining but one plus? we usage influences shortage about Tesla the still not small supply view global years. It's but of important year, customer. silicon just to Robotaxi, carbide about meaningfully. announcement demand carbide production, the it's surprised and situation an people going their of next the vehicle, from in longer this many carbide have -- for years I talked in next-gen certainly reducing be on an know and customer. I how they're silicon I point. we so-called demand share important auto wonder for silicon

Hassane El-Khoury

new I as platform outlook. platform far and a this my is you far because it actually carbide. change it's confirms in say, demand on about And doesn't think therefore, announcement that's just silicon as would broader is much market, the as actually, it, as incrementally the volume. Look, It beneficial Yes. -- if a

about thinking, more, business so is as IGBT couple for more and is silicon I thing really This customers start when don't and plus and thinking SiC. been specifically. start But years. talking you carbide, a about of other want about The silicon can to a talk I've that you

constrained talked that few talk is we years. to are Therefore, the going supports with of seeing it's beneficial when on penetration market how a me about start always our in still choice concept silicon be a incrementally over us. that heard for next customer supply silicon silicon is incremental net you and lower I've a platform the to actually both carbide you've And even that mass about ability carbide, vehicles. And carbide

William Stein

for That's helpful. Thad, revenue is left if I of did you. What and duration exits One you can? super you you this of the exits talked much last? the during gross the that? going should margin we of sort how exits of the level forward? us about other, margin Perhaps, to continue on Can expect quarter. sort And you the expect product remind to Thank mid-XXs

Thad Trent

Yes.

thought the it for below was the this first this we actually exit expectations. about year, a higher think to we throughout $XX So going exits. $XXX there's than think But total be our of year. will quarter. we that million of quarter, are original This million we still at We

next I to and this about $XX we're probably in remainder think in be QX, the the exits of quarter of that million at then looking second-half.

in So second-half. you'll exits the see ramp these additionally

low stuff that that's price is the of gross we're it going reason sensitive of the mid-XX% yes, currently. And is to margin because the we're that what we lose right? in. down gross to is to not -- go lose margins to go over the -- kind it's range -- we're this So these not And this in time, back that range is going these pricing curve, we're participate the willing in that going exits into think

mid-XX% you for about $XXX So the range. yes, the of think million, kind can gross margin year, it as so and about

William Stein

Thank you.

Operator

I'd gentlemen, President remarks. and this El-Khoury, Hassane closing portion back Q&A to of turn does for over conclude like CEO, and to today's call Ladies the the any conference.

Hassane El-Khoury

for again you Thank joining call. our

forward Day. look we many seeing of mentioned, you to Thad As at our Analyst

look we bright, sharing to next On is with all for Thank and future Our you Semi. what's forward you. of

Operator

presentation. and gentlemen, does today's Ladies this conclude

now may And a wonderful day. have You disconnect.

ON Semiconductor (ON) 1 May 232023 Q1 Earnings call transcript