Workflow
ON Semiconductor Corporation (ON) CEO Hassane El-Khoury presents at NASDAQ 47th Investor Conference (Transcript)
ONON Semiconductor(ON)2022-12-06 14:52

ON Semiconductor Corporation Conference Call Summary Company Overview - Company: ON Semiconductor Corporation (NASDAQ:ON) - Date: December 6, 2022 - Participants: - Hassane El-Khoury - CEO - Thad Trent - CFO - Joe Moore - Morgan Stanley Industry Insights Automotive Sector - Strength in Automotive: The automotive sector is experiencing strength due to the electrification of vehicles, which is expected to continue for the next decade as more OEMs introduce electrification platforms [4][5] - Autonomous Driving: Increased penetration of cameras in vehicles is driving growth in the automotive business, particularly in autonomous driving technologies [4] - Long-Term Supply Agreements (LTSA): The company has established LTSAs with OEMs, which are expected to provide stability and predictability in demand [16][22] Industrial Sector - Mixed Performance: The industrial side shows mixed results, with softness in consumer-tied segments like power tools, while factory automation and renewable energy remain strong [5] - Growth Areas: Continued growth is anticipated in industrial automation and renewable energy, linked to automotive trends [5] Consumer and Compute Markets - Softness Observed: The consumer and compute markets are experiencing softness, consistent with trends observed by peers in the industry [5] Business Strategy Portfolio Optimization - Exiting Non-Value Businesses: The company has reduced 277millioninbusinessdeemednon−sustainable,withanadditional277 million in business deemed non-sustainable, with an additional 400 million to 450millionexpectedtobeexited[6][9]−∗∗CriteriaforSustainability∗∗:Thefocusisonmaintainingbusinessesthatprovidedifferentiatedvalueandmarginexpansion[8]MarginExpectations−∗∗GrossMarginTarget∗∗:Thecompanyaimstomaintainagrossmarginof48450 million expected to be exited [6][9] - **Criteria for Sustainability**: The focus is on maintaining businesses that provide differentiated value and margin expansion [8] Margin Expectations - **Gross Margin Target**: The company aims to maintain a gross margin of 48% to 50%, despite headwinds from new investments in silicon carbide [11][39] - **Silicon Carbide Growth**: Significant investments are being made in silicon carbide, with expectations of achieving scale by the end of 2023 [11][33] Market Dynamics Long-Term Supply Agreements - **Structure of LTSA**: LTSAs are structured as take-or-pay agreements, providing a framework for volume and pricing commitments [16][17] - **Duration and Enforceability**: These agreements typically extend four to five years, with some lasting up to eight years, and are legally binding [17][18] Customer Behavior - **Proactive Engagement**: Proactive customers are engaging in LTSAs to ensure supply chain stability, moving away from traditional inventory practices [22][24] Technological Advancements ADAS and EVs - **ADAS Market Share**: The company holds an 80% market share in ADAS, with expectations for increased camera content in vehicles [30][46] - **Silicon Carbide Leadership**: The company aims for 1 billion in silicon carbide revenue, supported by LTSAs and significant capacity expansion [31][32] Competitive Differentiation - Imaging Technology: The company’s imaging technology is tailored for automotive applications, providing advantages in high dynamic range and LED flicker mitigation [46][49] - Efficiency in Silicon Carbide: The combination of device and packaging efficiency in silicon carbide products is a key competitive advantage [50] Conclusion - Strategic Execution: The company remains committed to its strategic plan, focusing on exiting non-value businesses, maintaining margins, and leveraging long-term agreements to navigate market challenges [13][39] - Future Outlook: Continued growth is anticipated in the automotive and industrial sectors, driven by technological advancements and strategic partnerships [4][5][11]