ON Semiconductor Corporation (ON) J.P. Morgan CES Tech/Auto Forum Conference (Transcript)

ON Semiconductor Corporation Conference Call Summary Company Overview - Company: ON Semiconductor Corporation (NASDAQ:ON) - Date: January 5, 2023 - Participants: - Hassane El-Khoury - President and CEO - Thad Trent - CFO - Harlan Sur - JPMorgan Analyst Key Industry Insights Automotive and Industrial Markets - The company has a strong focus on automotive and industrial markets, which are expected to outgrow the general market due to trends like electrification and Advanced Driver Assistance Systems (ADAS) [4][6] - The design win funnel in automotive has been a significant driver of future growth, with expectations of continued growth in these segments [4][6] - The automotive segment is projected to grow at a compound annual growth rate (CAGR) of 17%, with electrification driving a 30% CAGR in xEV production over the next three years [21][22] Demand Trends and Market Dynamics - Demand trends began to decelerate in Q2 2022, particularly in consumer-focused markets, but automotive and industrial segments remain strong, accounting for about two-thirds of revenue [5][6] - The company has proactively managed inventory and production levels to navigate market fluctuations, with a focus on long-term supply agreements (LTAs) that provide stability [8][9][20] Long-Term Supply Agreements (LTAs) - LTAs are legally binding agreements that ensure pricing and volume commitments from customers, providing a stable revenue outlook even in fluctuating demand environments [9][10][20] - The company has increased its LTAs to a total of $14 billion, which enhances strategic partnerships and visibility into customer demand [13][14] Financial Performance and Projections Revenue and Margin Outlook - The company anticipates exiting non-core revenue streams, which have lower gross margins, to focus on higher-margin products, with expectations of improved overall margins as a result [45][46] - The exit from non-core products is expected to be more pronounced in the second half of 2023, allowing for a reallocation of resources to higher-value segments [46] Silicon Carbide Technology - ON Semiconductor has seen significant growth in its silicon carbide (SiC) revenues, with a target of reaching$1 billion in SiC revenues in 2023 [23][24] - The company is leveraging its extensive experience in power semiconductors to enhance its SiC offerings, which are critical for automotive and industrial applications [28][29] Additional Insights Industrial Market Trends - The industrial segment is driven by long-term trends in energy infrastructure, factory automation, and medical applications, which are expected to remain resilient even in weaker macroeconomic conditions [40][42][44] - The company has established LTAs with eight of the top ten energy renewable companies, indicating strong market positioning [43] Competitive Advantages - ON Semiconductor's leadership in IGBT and MOSFET technologies provides a competitive edge in the power semiconductor market, facilitating cross-selling opportunities and system-level solutions for customers [28][33][36] Manufacturing and Capacity Management - The company is focused on internalizing substrate supply for SiC to ensure reliability and support customer ramps, with a goal of achieving majority internal supply by the end of 2023 [39] Conclusion - ON Semiconductor is well-positioned for growth in the automotive and industrial sectors, supported by strategic LTAs, a strong design win pipeline, and a focus on high-margin products. The company is navigating market challenges effectively while leveraging its technological expertise to drive future revenue growth.