ON - Earnings call transcript Q4 2024 | ON Semiconductor Corporation

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Operator

Good day, and thank you for standing by. Welcome to the onsemi Fourth Quarter 2024 Earnings Conference Call. [Operator Instructions] Please be advised, today's conference being recorded.

I would now like to hand the conference to your speaker today, Parag Agarwal, Vice President of Corporate Development and Investor Relations. ahead. go Please

Parag Agarwal

CEO; Good Relations approximately Fourth year along X Kevin. Call. XXXX call, recorded thank of for approximately replay be webcast President conference fourth you joined This our our Thank this is of call A on and morning our Full onsemi's being and our conference El-Khoury, with Quarter by our following call. available following this available the hour webcast, Conference Thad website release, this Year joining and Trent, earnings website and today CFO. webcast www.onsemi.com. Investor will (sic) for you, on be full ] Hassane and days and section quarter the XX [ XXXX I'm at Results website will

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

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

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

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

it turn me let to over Hassane? Hassane. Now

Hassane El-Khoury

Parag. differentiated efficiencies win We've Good our the to our technologies. invested our disruptive We value, fourth streamlined for high-growth thank where you that by AI and we've intelligent in centers. focusing us and and we call. you, of in of Thank and power transformation add products on industrial morning, innovation journey, so. automotive Fab XXXX the with doing and our Right began the efforts data operational through everyone, transformation improved marked manufacturing strategy, year joining sensing megatrends and

to those, demonstrated want Market to conditions I a business in, very and $X.X for worldwide and have difficult committed aside, their for and to formula, the tenacity remain amid what model, we continue our XX.X% winning the everyone hard our gross the resilience continues non-GAAP We I'll year. of be to get in thank our put revenue I margin of proud billion full teams of delivering am work to environment. against

quarter fourth declined the sequentially, environment, declines into our North primarily non-GAAP in gross except by decline. America, market of remained and market billion, margin late demand share XX.X% and in per quarter January, of which $X.XX. revenue the with continued were for Quarter-on-quarter noncore the resulting Japan declined revenue of $X.XX seeing flat, Regional As non-GAAP earnings sharpest segments.

digestion markets. our end of geopolitical uncertainty, inventory key backdrop across softness market persists a Amid end and

stance Our has changed. not

prioritizing in will and are price-sensitive volatile, play we highly value, We not markets.

and for proposition, integrity of our the ourselves growth the maintaining positioning in profitable are future. value We

Demand ramps. gains were China QX an new automakers. January and Our EV period fourth end And into top Year from all towards of shutdown was customer the weakened New impacted revenue continued quarter, X% driven quarter-over-quarter. already by and has fourth QX. quarter from regions XX% North up, by by which extended other Results automotive share grew Chinese driven while early China-based followed deliveries increased China, the sequentially America. the

In auto tariffs. than EV fourth expect impact with QX, footprints the ramp in Xs geopolitical to global customers by anticipated. the as across we than all demand and U.S., their been uncertainty volatility along quarter, lower impacted expected Tier the Entering our slower have due geographies manufacturing the persisting assess of

the tax signals around infrastructure credits uncertainty We adoption EV are demand EV deployment. and given the slowing monitoring of

XX% with QX dropping in In Europe, vehicle new EV December. month-over-month demand weakened in registrations

Our decreased traditional slowdown by digestion, regions persist parts the is weak in the major XXXX. we into weakness PMI compounded and in of all and manufacturing business. revenue activity inventory expect X% weakness the industrial remained across further sequentially the to with The ongoing

in growing second half Smaller half the XX%, for data a break grew we silicon over sequentially, over out center more where and AI and increased resulting that XXXX. of aerospace the and are increase fourth quarter don't XX% but respectively, revenue XXXX. our XXXX In the XX% of parts defense, revenue business first in carbide, than

levels. the full from ramp year, slightly declined the at not For as expected did programs revenue XXXX

executing strategy. We on focused our remain

technology We customers. we and delivered are have -- on development our XXX-millimeter sampled

performance of our our substrate solutions. balancing enables us supply, and customers by of deliver our optimize our while lowering and to we are movers the ownership without market versus performance, are the cost of pushing total with boundaries value the internal to eroding silicon the innovation. external We winning system The carbide of

portfolio nearly power as power our from and share on to the the EliteSiC we power and XXX-volt play to JFET SiC data are center, automotive, Silicon systems efficiency Qorvo centers. expect AI as In units of in closed Furthering in Junction to win is levels strategy carbide. AC-to-DC data based Transistor in silicon our continue. business. for performance, And silicon data the The of solutions complements get China, batteries and for and conversion solutions and doubling, the a to most competitive for supply technology It acquisition continue UPS is Carbide energy carbide we and we AI PSUs is power density power TAM transitioning Field-Effect silicon to the these industrial centers. transition gain the complete tree AI high-voltage delivering

SiC We continue superjunction need to and the PSUs to smaller continues as technologies we better in lower incumbent for -- cost need JFET increase. performance to the footprint, replace expect as

In emerging such The expect also silicon MOSFET breakers. highly continue carbide, in battery as design circuit to growth and terms hyperscalers the capable the SiC started revenue SiC of disconnects in team of EV quarter, in AI, we and ramp JFET grow markets, accelerates readiness for solid-state this revenue to to XXXX. acquisition and our wins and technology for fourth our

a CAGR revenue opportunity with a TAM XXXX. XX% portfolio this unlock $X.X to expect billion through We

current drive we platform the our emerge long-term environment, growth in strategic power invest intelligent and innovation this Despite advanced to and goals, we from stronger analog and downturn. to to most November, mixed-signal and sensing disruptive profitable solutions. In we for remain the to committed introduced continue

built is our up TAM The of new Treo prioritizing unmatched Platform supports to The leading-edge a features, architecture Our X voltage XX portfolio the margins. faster. enabling to platform embodies to XX% us the and high-value widest at XX-nanometer products to volts will unlock proliferation BCD technology Platform, for modular sample on products of gross range strategy opportunity $XX for industry's performance high advanced of billion integration. our Treo and accelerate

we've ultrasonic at are will This has to technology of the reap and devices sensing integration of up capacity assist of very Ethernet the level the East positive. market. ramp market management in next-generation applications and they already AI we double accelerated Fishkill of high-efficiency data been investments reaction ADAS advantage Treo-based for the centers, and benefits They platforms. our for their park available as such on taking fab revenue zonal time designing the made into start the year, automotive and number and actively architecture, power to we are as for products Customer for

customers ahead wait-and-see to XXXX, taking a limited is geopolitical of very look As visibility and backdrop a in uncertainty. approach we are

We will to continue control. we what on focus can

review the bring. taking further on value and based our rationalize opportunity to are We we portfolio this

through structure, focusing manufacturing while on efficiency improve in growth. spending we We long-term will our cost optimize will by our to our continue we invest support footprint and R&D to to automation control

supporting to recovery strategy. will position a long-term actions Our from while us better market benefit our

Let me you approach more give going Thad over it results detail and into our XXXX. to on to now turn

Thad Trent

Hassane. Thanks,

despite cost efficiencies billion the drive XXXX excellence results a gross year-over-year. market As cash margin in revenue free and Xx of downturn, increase Hassane generate our our mentioned, demonstrate $X.X Their to to operational of efforts team's against flow at environment. of pursuit to billion weak maintain relentless $X.X at XX.X% us allow

better market ever cost has to Our capacity and achieved proactive than strategy the approach management similar be results proven right to prudent conditions. deliver company has the to in planning

company in the future. and XXXX should and and organization to rightsizing position operating term. We in structural long gross believe the benefit beyond. changes These us strong generate to the will cash flow expand the margins Looking

We are cost excess following moving reduce and strategy. manufacturing underutilization our absorption urgency rationalize capacity footprint Fab with reduce through actions we structure. on our as actions. our We our These plan aggressively will to and the Right lower fixed further

these positively recovers. by model expansion continue long-term in see driving and late market towards to expect We margin XXXX our business the actions the as proving results our leverage target in to greater of impact statement income the

structural to operating expenses. will reduce company our changes We across the make

of potential count our site exploring a head including are We closures. and options, rationalization number of product reductions portfolio,

these actions as to as expect a We of the early meaningful impact quarter. see second

R&D revised will on We range reduce growth. our manage we target flow high-margin products our support tightly as will intensity working in And of differentiated we capital free focus in spending XXXX. mid-single-digit to and cash percentage investments continue capital in XXXX to long-term generation

we in remaining QX of fourth And million flow -- of flow We're is share cash long-term in XX% through committed of This returning sequential there million sequentially. $XXX it target approximately free our returning billion shareholders our share $XXX repurchase of $X.X approximately our million. repurchase program. to generated repurchases XX% XX% and exceeded authorization. in cash quarter, We to includes increase free on XXXX, $XXX or by the a

industrial, quarter. in across and revenue for was billion, for XX% sequentially, offset industrial $XXX A slowdown sequentially. revenue $X.XX increased X% of traditional Automotive end revenue accounted and parts programs for $X.XX resulted of Automotive digestion silicon by industrial the growth the pockets in the to revenue in demand driven in fourth million, in in billion. of degradation all Turning quarter. down Revenue fourth X% markets which ramped medical. was further saw of we by Inventory carbide. persists, that

and our and quarter-over-quarter Outside of more declined other seasonally expected. auto than was XX% business industrial,

historical which early over volatility pressures seen returns time the markets, will in pursue we if have these of to We not end noncore signs pockets of levels. and pricing exit

the for the $XXX was over quarter-over-quarter. a of Revenue Group, Group, Revenue Solutions million, a X% fourth revenue Power was split and Analog of decrease for the Sensing and or Mixed-Signal PSG, decrease quarter-over-quarter XX% a at X% Revenue Group, business or and decrease or of units. AMG, ISG, the million, ISG $XXX decreased quarter X% X% increase a XX% year-over-year. Intelligent the Looking for quarter-over-quarter by the $XXX quarter same last year. year-over-year. million, was

in match margin action quarter margin a non-GAAP utilization the our gross margin late ago. year to and Manufacturing was to aggressively points and basis XX.X%, points XX sequentially XX.X%, quarter. Turning was in GAAP we visibility. took decreased the the XXX QX gross demand as basis to down quarter XX% in fourth gross from

in some expenses. million your XXXX. the million sequentially quarter ago. quarter in the were expenses $XXX GAAP of to were you $XXX year million to of the Non-GAAP operating give me expenses to timing project million operating as compared due let compared the expenses operating a fourth Non-GAAP numbers increased quarter fourth R&D for $XXX for $XXX models. Now additional

quarter XX.X%, non-GAAP for GAAP XX.X%. was the margin was margin operating operating and

was compared count GAAP and as XXXX. year rate was QX quarter to Our million first -- was to non-GAAP in ago. share was was share GAAP shares. XXX compared million quarter share in GAAP per for earnings tax diluted share rate our $X.XX our was shares, XXX tax diluted $X.XX the XX%. Non-GAAP for the $X.XX non-GAAP as of earnings per a XX.X%, fourth and the Diluted $X.XX count

revenue. $XXX short-term Turning to $X.X representing free investments sheet. million, to XX% was billion $X million, of and undrawn $XXX billion Cash increased liquidity the our and $X.X sequentially XX% was billion, revolver. flow on total of operations cash Cash balance including with from

For almost the flow. $X.X of cash year, billion free generated we

on QX a during which to Inventory and includes equates Capital increased to expenditures carbide. inventory XXX of quarter-over-quarter was X%. in a capital days. XXX of intensity basis This $XXX days days X to flat were support million, transitions silicon dollar fab bridge by

the in builds strategic these of to half we first ship inventory inventory completion to this convert the and cash. nearing are expect and of We peak as XXXX the

days, XXX XXX strategic which days. our inventory is range base of XXX builds, at target to continues Excluding within our be the to

at weeks Distribution with versus inventory inventory X.X $XX weeks declined million flat X.X relatively of remaining in QX.

the change an mix the has channel XX% to to customer in plan mass increase the support market resulted Our year-over-year. in count in

inventory forward. going be distribution to or XX plus weeks of expect We weeks minus

forward, provide you elements guidance Looking for our the quarter. let of first the me key non-GAAP

today's non-GAAP GAAP guidance. release press detailing our and a reminder, As a contains table

we visibility, the in our billion billion. QX of Given anticipate will be $X.XX revenue $X.XX to range

We utilization QX. compensation This gross declining XX% $X margin includes between expect and non-GAAP of with to share-based be in to mid-XX% million. XX%

by due points number. change the gross is utilization utilization XX at due additional XX gross change half for levels. utilization, unfavorable of revenue as points a driven quarter-on-quarter fixed and change drop as This At XXX approximately drives is the now margin to margin on the portion basis basis under-absorption total lower An attributable which higher calculated to revenue the cost. in cost these factory is midpoint in every lower the a remainder of of lower basis to is mix, in XXX is the our points to of product guidance, a

significant As of we Fab and cost leverage utilization the recovers the see dissipate improves, recognize market and benefit these as our margin our will gross we costs reductions. in Right

Moving non-GAAP on expenses. to operating

benefit our in to of $XX including be We We $XXX million to expect exceeding interest million, OpEx $XXX interest non-GAAP the compensation $XX a with income other net of be of our ] to million. expense. income range anticipate [ share-based million

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

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

are We plan changes the to technology major data confident remain those position AI changing see, not we energy structural these will and our over and allow center the and still to capitalize we standing you renewable react we believe making are trends. on market As drivers us on to can still. growth will industry us The for conditions. favorably decade, next and innovations quickly in electrification, markets our

I'll for call that, With turn up to over Kevin to open the questions. back it

Operator

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

Ross Seymore

the cyclical First side. structural wanted to question, into I get versus

things time But one conservative I first this You you market? perspective. guys have end magnitude a talked versus of the drop of about yet apart this kind demand on late the probably the been fell a in of for very, much ones. do the to some quite significant. cyclical is specific of basis, But how very believe quarter, you Hassane, ON from be know

be end revenue basis, product hoped? a and concerned from just you market needs larger or portfolio the are at structural going you adjustment isn't to And all resilient that as as

Hassane El-Khoury

business in play change big the that And the to ON noncore largest in we've precipitous, has been not is that think I that I is Look, say specific the the can consistent volatility. decline. very one the No. thing seen

we in going on. and our and pricing. this we're of going business where it, when strategy which to we're that million carbide, of exited downturn, $XXX in maintain seeing seeing, products, with started and we're a big that we exit. of the to we value more that. would extended our with silicon investing. highly we're we're think said think $XXX medical that million volatility call where recall, play about And remain But Think not in the only is we to you we We the had If noncore half so more transformation, Treo, consistent volatile portion, core

from. going short are the we come as to capacity these our in And not volatility, we of growth is and the see term, portfolio participate, yet where accordingly. further our to rationalize we're going will to All match the choose

Thad Trent

And that to extends just $XXX $XXX Ross, over a is will the million exit about, to business sizing add, roughly it. is that million volatile, would as to downturn of that that I the that it's to just size more put this we Hassane noncore, time, talking is size

Ross Seymore

of guess, as half. are side Any the side potentially the things, sort sizing COGS along lines the on going back I magnitudes you the the about front structural on as of XQ then coming and of you And to putting those? talked soon actions around benefits of some the as take some cost of color the as into then, far

Thad Trent

the those No, not quarter as plans. at this the point. on We're solidify updates give still throughout plans. We'll we working

as updates we So expect some go.

Operator

question with next from comes Vivek Our Bank Securities. America Arya of

Vivek Arya

Just first, clarifications. kind of few

something trends from think other of mix. at any obviously for And I is look what QX, what And the the unfavorable you path in So guess ON industrial recovery early Because to and automotive, QX in mentioned seasonality? is what here. you Hassane, is for trying sequential segment the then segment? expecting are everyone

Thad Trent

Yes.

market, going by We be that's at think Vivek, down end to high probably going XX% to other, be you it's think look down So and industrial down we sequentially. sequentially. to be automotive to mid- When more going digit or is the single most.

Hassane El-Khoury

the on with a of quarter. visibility sticking visibility And we're side, about

course, backdrop we and QX early weekend. tariffs about looks early the QX, between in it's in talk some the given seasonality over have as Of but as into geopolitical to of really volatility too

not talking to QX about yet. be So going we're

visibility, more we As get we'll update and more them.

you be rather I'd half company to I did will first run And look, that to XXXX. as aspect that right upside I it string talking think the to a is rather a the to subscribe us But and manage there's recovers. recovery, going not. I'd we be the as everybody so us, and whether subscribe would like the see half data market data the have for tailwind I hope in all oh, of getting do It's the It's better at have this pulling for the be that work same because a that that. Thad be see, not or said, don't I we that lot and and on. doesn't everybody what just in to recovery if recovery now, for far is they we're -- the versus the still I headwind. second said. -- standing as seen a come, know others than have about, point recovery, of now company that have the

Vivek Arya

at we follow-up, $XX-ish back mentioned my so look so. think it mid-'XX sort for saw long which I pre And in range. baseline levels let's periods has still $XXX the the were that automotive if business $XXX or right, think It of What when we million above million XX%, Hassane, automotive, for say, right COVID, time? well so down we should QX But have the about you levels. to is to of start I reset quarterly is million,

lower have above but we industrial seen back levels, the get is much Because It's XXXX to reset to 'XX closer automotive levels. businesses level. still

you start how to can right of EV, silicon business several level over that you that'll automotive So LTSAs, do the carbide, baseline effects at baseline? next is to content, When us normalize? What project think for as project pricing, help us the your was the years been have right about it? what automotive what et cetera, be

Hassane El-Khoury

it's even the And ship of mix in but module much prior. silicon think you carbide, used example, higher from our portfolio. a baseline just some, growth I the talk looking content carbide, for is to silicon dollar on Look, for more in the we given them, side. the all Yes. A mentioned of not the some to discretes changes ASP shift done which hard to than a silicon a carbide is growth we've that -- about --

unit, but up. a you decline, unit expect from went revenue can So

That, today, baseline plus are baseline get low how to consistent, well range high even a But low portfolio we teens. would Treo, as, building to That's we remains from into our towards call start our shifted -- it, say, to to over view is hard which last we're X which baseline the especially teens mix a I the single the digit has shift a is high target. is consistent, which to, the seeing. our it's for drastic that long-term environment to outside and or are X expansion as long-term which remains margin view, market example, which is sorry, moving we of SAAR forward, years. So comes given so -- higher-value long-term the introducing with what both over SAAR, products, investing our

hard baseline moving that's think the a done So and last backwards to over the few we've shift years. how can forward, talk you about because it's but of it, just about that go

Operator

question from Hari Toshiya Goldman comes Our next Sachs. with

Toshiya Hari

XX% be to there? helpful. it, your what's or is wanted QX Is outlook for many than of go Any I driving This color Is automotive? I'm there back component to the automotive Hassane, really just additional a sequentially. call pricing? there the much worse noncore within outlook delta it context would down, peers. curious,

Hassane El-Khoury

Yes.

So there's as it, of course, a I noncore component business mentioned. to

had So But is into We've half. a is of some silicon carbide quarter. second always the the said lumpy. silicon that's great carbide. it built We've quarter-on-quarter fourth

-- in all QX. today at is China. driven by However, looking is softer China China a it

inventory but I temporary talking the it as vehicle our about built. I'm inventory, think that inventory. It's not they've that's digests

monitoring We're that.

have Chinese Year. You early New an

order Chinese inventory. Some extended absorb customers of an shutdown done the to in that have

about don't worry look as over quarter-on-quarter it lumpiness at I I So multi-quarter net-net, that period. a

in gaining the that said second We're names. the both ramping, half drove it before, ramping which the XXXX. and European still rate expected, of share, is we what China I've they're not at still of some they're but

So and structural what shows, changes remain the but in quarter-on-quarter, the business outlook is unchanged. the number visibility the the

Toshiya Hari

maybe Thad. That's helpful. And one for

your portfolio. about talked You rationalizing

footprint. talked your reviewing manufacturing about You

very, XXXX that realize guys the point. XX%? margins XX%, couple is the of backdrop gross kind As operating I you this hold years mean, a on of plans, model you I and up ago, with i.e., us to draw shared margins forward your strategy Or your of different the is aspiration of very to at

long-term or sort model point? of about think assume guys are should different -- we updated at looking should a at we So this you

Thad Trent

that we remain target. committed XX% to Look, still No.

at utilization, have look all headwind gross largest pieces, the it's If talked I margin, by utilization in the short the but right? now. impacted about the right term, moving is you that we

recovers continue the here. need do company in market but we on that Fab And target, rightsize our will target. remain we that XX% committed gross the manufacturing to Assuming was and top the to fit line execute size Right, to original of we that don't our margin we that revenue

margin And If at this into hit gross that you that. in a then, noncash taking it's it actions, it. lot target, we generate obviously, think and go think strong look we you And we'll and now, we're 'XX. will about about the actions if 'XX we primarily of free cash as hit flow believe as that year

forward. flow look even we'll generate cash But strong year. model you in with XXXX cash we're of believe margin, free in free continue standpoint, to to believe free from XX% going of flow to QX that we cash the XX% XX% at target 'XX for cash We we hit achieved flow and flow free it going if a 'XX of a

Operator

from Our next Citi. question Danely with comes Christopher

Christopher Danely

I guess you for auto you recover or the the all? no growth auto rest visibility versus Do trend? of at expect to the to how industrial the after would QX expect year,

Hassane El-Khoury

market the At the honest with be The It's an to have It's qualified. shares too right we're designs know are now. rest ramping. -- point, gained. end demand this what year, have We we been designs purely have. of the We what know talk to designs early you. about been

Thad Trent

demand. do we still under-shipping that believe And Yes. we're natural

just matter that come It's got of a point, at So back you to level. some when. to

Christopher Danely

silicon fair. this are carbide far reassessing a carbide. That's targets growth long-term margins your And you on decline, go? then as silicon guys as on question With or

Hassane El-Khoury

on margin think not because can demand. it's a you it, the about No,

short-term really aim the the business. run EV, to as silicon and volatility in lumpiness the long-term far market a perspective, of growth the is from the So to concerned, in aim share highest the as our be we outside profitability we growth, and leaders market carbide

that innovations believe we the the we customer. given have bring We to

that So that overall, will remain margin. a on will be that for remains us, growth and reviews But we're on unchanged. the focused some tailwind There and both capacity. of market, strategic

Operator

Our next question Blayne from Jefferies. with comes Curtis

Blayne Curtis

curious, I nonstrategic X. back I wanted to the business. of had I go was to kind

You million. said $XXX $XXX million or

you that -- seeing you be in is for that of on out on how top in and are some if coming those delta would out much Just in March, would Or of decisions? March that further make planning the guidance of the March? something in of that what terms year come you're

Thad Trent

if think that -- Look, we lose multi-quarter No. pricing, because over if we of period. it will business do that happen business that a

So it's that market It's it time. point. the that good into out it I continues like wither if not be baked if that margin, business into keep been to But pricing further QX. dependent over We'll it's away drop, really just all year. at will the said, And like has we'll historically. let

Blayne Curtis

Got geography. And the want I you. then ask to auto demand by

strength. You had -- you China actually saw were up in December. people A lot of

can by you out. about think just demand just geography in talk of kind auto. if March you I I'm that curious called

Hassane El-Khoury

Yes.

growth better prepared remarks. about expect Chinese I into to my Year I -- that the others. that can general, it getting was in out China, we don't think, the down. relatively QX, I regions I extended than speaking, think in be there are are we as early the spoke some had and highlighted we've shutdown. And call New But

So that's, again, a demand environment.

the sockets. ramped and them. orders We with as we'll not are cars, of the as recover. in these their sell-through, We inventory inventory through customers inventory that the will replenish quarter the But they our in see meaning inventory, fourth cars, sell

it's the a game. consumer that's because uncertainty So confidence end purely

be we Chinese able get visibility clarity year after more will on better rest to of get New we Year, As the will how the the be.

Operator

Our next question comes from Joshua TD Buchalter Cowen. with

Joshua Buchalter

quarter first to about I gross ask also want margin. the

points give basis part probably specifically XXX remaining the Can basis of you the of thumb, mix given rule sequential the business guess, through and you're can what adding is like sort sounds And walked unfavorable new points you on any you it the unfavorable decline? of, away on walking well. more details driving to headwind more the is? also, from details of as mix So provide as I then XXX XXX

Thad Trent

Yes.

midpoint the of the do our calculation margin, QX So QX, statement of starting prepared the -- our in is of you with in it this gross roughly here, change and half under-absorption. the decline said the half I a if to walk from in guidance that

you under-absorption if on delta And there's There's do you -- as unfavorable think from drop mix. we it's the revenue then there. margin points right basis the math, driving from points further. underutilization a roughly about lower the the basis about utilization product So half XXX down number, of XXX that's that

The mix. purely mix just is a product

we what of the businesses, -- that's talked think is long that about these some that of customers tail remaining some about If you soft. in of

of soft. industrial this is Some

it's over unfavorability short back just of come purely the term, the So will that term We product that well. mix long believe a here. as in kind

So will you think make you Does that the that whenever because about with revenue and it's back, calculation. there's revenue -- delta pure just a half recovery increase get of if that sense, comes a Josh?

Joshua Buchalter

you and for quarter? exiting levels, to customers. where expect sort out give down the Tier follow-up, you be inventory strip guess, levels expect I metrics Tier coming to Xs you and be you downstream auto Yes. Any them inventory to then able my at where are much at of X your your first mentioned And on can how us now

Hassane El-Khoury

balance orders. as depending industry with X, approach their Tier I to on hard mean an and taking XXX% see it's of we get It's customers response because we financial Look, really to -- Yes. are work different strength their there. the not inventory. visibility their every sheet, a

depleting. is priority Our

So we recover. pushing Thad well demand. inventory mentioned, out. will that are point, under-shipping some At we're not we believe why That's

directly and really taking the demand levels inventory action. keep demand is. However, our they looks as to deteriorated, elevated at inventory And what will correlated customers the

So it is not target. it's a specific. moving industry kind of But

with work Tier some Xs achieved that We have it. we already have

we're still industry. lot the in But already inventory a of to across shipping digestion general, demand. So there's

Operator

comes with question next Our Rakesh from Vijay Mizuho.

Vijay Rakesh

Just some fab how at seeing you after when up? second picking the XQ? you that wondering, trend? out half and look the there's that utilization, couple quarters, I next should guess, maybe Like do of play flat Or over see

Thad Trent

the be demand range to right? XX% our Well, in look, utilization We is all here going QX, will utilization that drop driven, in QX. to mid-XX% said from

action. So we've already taken that

that happen there's in market kind now, you gross we range, the up, demand recover. demand minus, plus improvement. recovering, -- see see natural demand or That the we'll then go can we see running margin utilization until will what see recovery. we Once For and we when will latency the be see right until the of

Vijay Rakesh

silicon And if trending think might as carbide that be year-on-year. there in I backlog, wondering up outlook, of terms said that's was around it. how you I the color on the Got well? and any

Hassane El-Khoury

is call purely The the saw demand. from, We that gaining across made up at of We all sales. comment they this in. getting vehicle it, point share. share We're -- will But designed this into half end we're moment, in achieving major customers. gained what second a only time, EV the At it 'XX. is XXXX strength the vehicle I is in

a very ramp But We an customers. in good the we're accordingly. position commentary. will with end demand It's purely

Operator

next Our question from comes Susquehanna. Christopher with Rolland

Christopher Rolland

LTSAs? starting your say, And to this imagine Some I'm wouldn't like to the emphasis there. I is complying given LTSAs XX% auto so with drop. just Could on wondering related let's see they're have stabilization, been that and everyone to quarter-over-quarter, others look down, about delta

responses this delayed think moving you here? them we of part do of LTSAs? And then renegotiated should around forward be kind secondly, expect So to

Hassane El-Khoury

-- that stance even as believe been been has I've very consistent demand time. negotiating the been don't because visibility LTSAs. the been last so closely We've been We match couple of -- the as LTSAs to our Yes. at we've across we've years negotiating

a consistent Some the what as have response. in that That's on not LTSAs I and have something call on really effort landing that negotiated been QX we to we're It's new been customer 'XX the a win-win. multiple doing times. of with continuous

So those related. believe got -- I that's are X don't

LTSAs. trying We've very as call accelerated. what the are the and with we're the or consistent throughout we I've land did environment with that, demand we has adhere the going it, LTSA, just what to think been XXXX, again, consistent negotiation amendment customers, -- demand don't to Because to -- not I is. real we been to to overship

back few the remains customers just the That's last they to That land approach a call inventory but and LTSAs quarters, abiding natural what for in us they our get to LTSAs, to is. been believe to happens XXXX. our are believe where for into the few years. change demand digestion even approach the comment, there order healthy able by are, over we be in it, your the So last a

Christopher Rolland

lot of sensor? internalization was overall? that how there or you in auto to would not a of image there image note weakness of classify image wondering just discussion Is around sensor China? terms I'm And or Excellent. related How in much is sensor. anything competition to pricing

Hassane El-Khoury

-- has stable. up call more been, I anything down. wouldn't I sensor don't it, image or call think I

has What used it, been, because in same our last sensor with few we've years. the We LCD. we've last in walked the the the few value that processed business call few call and Well, #X vision, the portfolio. of be machine We're image years refocus directly remember, because to years market aiming shortages is the sensing -- quality for what where fact, is atrocious In our we done our all sensor been to business trimming by approach the image outsourced. an not versus the machine is share profits. where last image for we've efforts really over comes refocus our a it's

That's been ongoing. of the happy consistency that business. We're with

see ship the the competition, we focusing do is, ramping just stable. as just it, more as shifts. see call it mentioned We not where are we we're can would value, overall like I on market we But are attacking business X-megapixel and we where that I fit. again, But units. We add portfolio,

Operator

question Our with Gary next Loop from Capital. Mobley comes

Gary Mobley

through pricing and on could clear pressures that about pricing talk trends just give products. You majority you business. you if on with update the I price an for can trends presume products messaging some particular group. for you're noncore of were there But pricing went negotiations. you of maybe annual the us the respect -- your product vast core your to in Perhaps

Hassane El-Khoury

think not our that Are to our Fab refer the negotiation, in products. a have taking We've which we benefits efficiencies Yes. of QX, negotiation product? I out and price costs done with in talked Look, is about an annual what that. seeing there the we're QX about Right. the -- impact people We've talked

Of call as it, of margin. see we a, our some that as do expands course, customers from standard that, margin benefit

really margin, I discussions we out I I underutilization in the at we taking offsetting through, I manufacturing talk that focus very products, because take look are on -- when the I the value whatever about out term. you standard have customer. underutilization walked If our of If consistent Thad the with the short focus been that, that's

the negotiation it We demand Those negotiation. to, you're efficiencies. Those, of pricing with that internally. own wouldn't it look, no referring pricing there. call Because are efficiencies I are out our typical offsetting there's

So and demand. margin price headwind it. heck the of end you give you reduction just additional no Then a for with up gross

course, no efficiency There's been. net-net, products, of products on and has based we demand margin which new the proprietary our But to But are for their to for as an support good working customers with focus those our is perspective, efficiencies. where good customer. it's gain from elasticity we transition

Gary Mobley

Okay.

wafers supply to raw my to carbide more adequate in I be underperformed wanted for expectations clearly there devices market follow-up, silicon seems coming China. wafer As of XXXX, ask The about sourcing. overall from and

your internal internal or that sourcing of external? So epi any whether update wafers, raw and on be

Hassane El-Khoury

internal and do No, both been No. well, external. we've -- we

and a we have lot externally, qualified the internal/external. sources manage transition will of We

to the a of far about backdrop first, as think the mix, -- geopolitical As of in what is have you uncertainty. supply there's certainty

out, If internal basically we are balancing and take you that our external.

external. We have qualified both internal and

XXX-micron state-of-the-art and silicon remarks, a and carbide I running And sampled substrates, the qualified those we've are in wafer we've thick also from we've in customers. prepared As today the XXX-millimeter, my thickness. which mentioned fab, is qualified

from and worlds in an we flexibility. proceed where perspective, XXXX we best some full we environment. do call perspective, can on a track. it, execution the between the, we're in of clarity and have internal So the We we're get will the both to geopolitical believe From mix refine as external. mix we and continue And and stability we through external as internal

Operator

Our next Wells Quatrochi with Fargo. comes question from Joe

Joseph Quatrochi

the On think or million you're revenue sensitive about in more $XXX this end any or there? geographies we that price-sensitive more $XXX there million aggressive are price that being to markets particular as thinking should year,

Hassane El-Khoury

No.

rather that region. I is I a think What than of it's market a product more by more mean products.

to skewed are we it based a but don't local markets look these Now region. at be We some of practices more region, it look and it a product have as markets. could end a region. We at that don't on pricing as

So noncore at that's kind revenue. I how the of look

Joseph Quatrochi

AI in data helpful. That's think about then growing talked I Got And than center in revenue it. you your more deck, XX% XXXX.

the growth in 'XX about Just the business. acceleration from potential with wondering JFET opportunity how thinking you're the

Hassane El-Khoury

'XX. we to had as continue to some grow the business second penetration of that in half -- expect We we've

adding do the that we have course, that those are We an XXXX. Of some basis. to on start and platforms continue up grow will in, will annual to designed

cycle with So the we're on with beat our that new design market products. in

time And we're can looking spot forward, That us the and more that. our will with will fast getting today. But for 'XX. do so a market Treo Platform, continue in portfolio good the really introductions and we aggressive in growth beat a to faster start integration, more

Operator

question from with next Tore Svanberg Our Stifel. comes

Tore Svanberg

when are in considering. I and the some a utilization comment in prior margin of gross improvement that, comes. Thad, the well, about points increase about question site per you And -- to of XX XX a that that's had assume changes these I basis recovery per still Should we utilization? think to sort

Thad Trent

Yes. That's right.

the XX If up is right? to XX to the you basis as that, right, to back here from scale think points, about XX, the low XX get you XX After there. go to just

percent there fixed So the our factory the overall becoming are was that change larger fact of a cost. the costs

hitting against that. can into range, only You cost, down. much down XX% And the kind When kind of so you're of cut up variable we're getting stepping you're so right?

scale But capacity. you is that back points, to and XX So you'll get you get a the -- current to some where all to to to then yes, the numbers given XX based the past. go start in similar basis get we you on point we've

Tore Svanberg

of associated as should to track we And we of understand success the any financial Treo. Treo, business follow-up how on impact how us to margin trying helpful. my that sharing given revenue with business? the should financially success to going that track you in to or quarter? Just gross the very be the That's perhaps Are Great. sort of

Hassane El-Khoury

report as give it, to kind the is leading of are me you the for intent The call on, because No. those the updates milestones early we indicators.

introductions, some with announcements and design customer the it is is depending the as profile. expect they you'd what joint maybe And confirmation So at margin customers product of point, willingness, in. their on

in We to start ramp are as I have customers, XXXX. starting, will mentioned, that

going actually expect don't is or revenue a first at of happen, beat to quarterly on level update granularity. So to but an beat annual that on

Operator

Our comes next question Harsh Sandler. with Piper Kumar from

Harsh Kumar

X had qualitative ones I for Thad, and Hassane you.

earlier, think under-shipping you I true you're demand. still your relative to mentioned that

what give you if you is. business to an your market an able curious was could of I other March are quarter, were In under-ship? for much to kind is the your with you to give of not under-shipping? true Or if demand us what the you us for how So just gave estimate the words, idea that idea if off guide you starting take were

Hassane El-Khoury

target. customer, stabilized. but That's one also inventory not you Demand first, a is unless the because unless you what demand have a the -- of by -- moving hard has XXX% have visibility at is

is about, demand As I and really consistent peers the has across what's of But landed and some think think about, I markets. we've stabilized. have not different end talked different peers talk about my talked board

as remains So or remains that they would a a achieve -- levels like customers target, to target. that's inventory moving inventory moving

we'll managing to That's keep view to why to the get the soon. sure so while or making the make about to don't we we at reason point, the inventory want accelerate, LTSAs, demand sure normalized back see in to when we're while can the today, -- order talk burn some we we're we LTSA to below get snap a question, which is can, we and back, extent we just negotiating it when sure But are what there. we do -- But at we see to making that overship. has we

Harsh Kumar

I got it.

of you're curious what supposedly what judgment? worst total trying you are for to but perhaps inventory guide what on you on decline I'm you understand, comment They peg guide you're I asking automotive building business, And wanted level to puts giving Or and some in guess based as I their about to some of the and on strictly problems, the us neighboring then I your I the nor as trying also. And to yours, you guide. I'm not I'm ask neither to wasn't based based Arizona trying a your -- are is bad companies the of was had Okay. that their seeing? mean, say in one

Hassane El-Khoury

I'm It's what not don't done. guide, purely based company on and what I I based on give the running see. can have peers

their Of course, different earnings is of peers purely in a portfolio, done you everything have has from different and I look across at. across the -- me peers at they the context everybody quarter onsemi. Because and what what But everybody get look strategy. a has

So I anything to it. can't really peg

however, From a an say inventory, I disti inventory. what an from -- I inventory is the would internal mean, I and inventory from control, can't

but clicked up in days, Our internal inventory dollars, consistent. in

disciplined been inventory our of not So and letting line. about we very get out maintaining have

you all. that margin the a an is at by So build not pure inventory see margin, inflated

our that's where point number comes So in. discipline one,

you've distribution seen us inventory very our the disti, a also QX From dropped in on disti. consistent $XX be Actually, million.

$XX in by the -- million we saw QX, this decisive QX, action the we reduced the inventory quarter. towards softness as and So in end we drained we took of

go on and up continue focus we to that why can and visibility on the what achieve, So the ones inventory manufacturing, we utilization we will are so happen, goes to running see turn That's and stuff up we have company again, the will we control, control. when goes we we we're a disciplined, recovery that the revenue very that's margin up, accordingly.

Operator

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

Hassane El-Khoury

date. operational progress for Remaining I again, shareholders information stronger to continue you. Thank our at into drive to Thank for our this perseverance us joining innovation enable excellence us and a And value to morning. intend provide the downturn. on additional and through future thank than were call want you on we worldwide We going their emerge customers will this all employees, on for this. to focused and our

Operator

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

and You a day. disconnect, now may have wonderful

ON Semiconductor (ON) 10 Feb 252024 Q4 Earnings call transcript