ON Semiconductor(ON)2022-09-01 04:17ON Semiconductor Corporation Conference Call Summary Company Overview - Company: ON Semiconductor Corporation (NASDAQ:ON) - Date: August 31, 2022 - Participants: - Hassane El-Khoury - President and CEO - Thad Trent - CFO - Ross Seymore - Deutsche Bank Key Industry Insights - Market Demand: - Weakness observed in consumer markets and client compute sectors, but backlog remains strong, indicating ongoing demand in other markets [3][4] - Automotive and industrial sectors show strong demand, with OEMs still behind on production plans due to supply chain issues [4][5] - Lead times for automotive products are currently around two years, indicating pent-up demand [4] - Product Strategy: - The company has proactively reduced wafer starts to manage inventory and avoid excess supply in non-strategic markets [3] - Automotive and industrial segments now account for 66% of revenue, reflecting a strategic shift away from non-core markets [8] Financial Performance - Revenue Transformation: - The company has successfully redirected capacity away from non-strategic markets, resulting in increased revenue from core markets [8][9] - Gross margins have improved significantly, with a target raised from 45% to higher levels due to a favorable product mix [9][10] - Long-Term Supply Agreements (LTSAs): - LTSAs are structured as take-or-pay agreements, providing volume and price predictability, which enhances revenue stability [13][14] - The company has seen increased customer commitment under LTSAs, with customers requesting additional parts and longer contract durations [23][24] Silicon Carbide Market - Growth Projections: - The company anticipates exceeding a 4 billion over three years [29][30] - The market for silicon carbide is expanding rapidly, driven by the demand for EVs and fast charging solutions [35][36] - Competitive Advantage: - ON Semiconductor differentiates itself through advanced device and packaging technology, ensuring high performance in silicon carbide applications [40] - The company emphasizes supply assurance, which is critical for customers in the EV market to avoid production delays [41] Operational Excellence - Cost Management: - The company is focused on maintaining margins despite headwinds from new capacity and foundry services, with a target margin range of 48% to 50% [46][47] - Operational improvements have been implemented across the organization, contributing to enhanced profitability [58] Future Outlook - CapEx and CHIPS Act: - The company plans to leverage the CHIPS Act for future investments, aligning with its growth strategy in North American manufacturing [52][54] - Ongoing investments are expected to support capacity expansion and technological advancements [53] - ADAS and Image Sensors: - The image sensor business is positioned for growth, with expectations of doubling the number of cameras per vehicle over the next five years, driving revenue growth in the automotive sector [58][59] Conclusion - ON Semiconductor is navigating market challenges effectively, focusing on strategic growth areas such as automotive and industrial sectors, while leveraging long-term agreements to stabilize revenue. The company is well-positioned to capitalize on the expanding silicon carbide market and the increasing demand for advanced automotive technologies.