ON Semiconductor(ON)2023-08-07 21:12ON Semiconductor Corporation Conference Call Summary Company Overview - Company: ON Semiconductor Corporation (NASDAQ:ON) - Date: August 7, 2023 - Participants: Thad Trent (CFO), Simon Keeton (EVP, GM of Power Solutions Group) Industry Insights - Industry: Semiconductor, specifically focusing on automotive and industrial sectors Key Points and Arguments Auto and Industrial Business Performance - The auto industry is forecasted to grow about 5% in 2023 and 1.5% in 2024, while EV growth is projected at a 35% CAGR over the next several years [6][2] - ON Semiconductor is over-indexed in EVs and advanced driver-assistance systems (ADAS), with 750 in EVs, indicating a significant growth opportunity [3][4] - Alternative energy sectors within industrial applications grew by 70% year-over-year [3] Inventory and Demand Management - Aggregate inventories are at all-time highs, but ON Semiconductor does not perceive large pockets of excess inventory [2][3] - The company has been managing internal and channel inventory tightly, maintaining utilization rates around 70% [7][8] Long-Term Supply Agreements (LTSA) - The company added 11 billion in LTSAs, with an average duration of about five years [4][10] - These agreements provide visibility into order patterns and help in the development of next-generation products [10] Silicon Carbide Market Position - ON Semiconductor is gaining market share in silicon carbide due to superior performance, integrated supply chain, and a comprehensive product offering [12][13] - The company expects silicon carbide gross margins to reach corporate averages by the end of 2023, with significant growth anticipated in the coming years [28] Image Sensor Business Growth - The image sensor business is experiencing growth due to increased sensor adoption in vehicles, with ON Semiconductor holding over 70% market share in ADAS globally [19][20] - The company has restructured its sensor business to focus on automotive (90%) and industrial (10%) applications, moving away from consumer devices [20] Medical Sector Opportunities - The medical segment is emerging, with a projected growth rate of 20% per year, driven by applications like continuous glucose monitoring and hearing aids [26] Non-Core Business Exits - The company is exiting a highly volatile, price-sensitive business, with a gross margin in the low to mid-40% range. It has exited 350 million to $400 million by year-end [21][23] Fab Strategy and Production Capacity - ON Semiconductor has divested four fabs and acquired the East Fishkill fab, maintaining a strategy to manufacture about 65% of its products internally [34] - The transition to 8-inch wafers is ongoing, with production expected to ramp up in 2025, providing cost benefits due to increased wafer output [30][31] Geopolitical and Supply Chain Considerations - The company is cautious about sourcing substrates from China due to quality concerns and geopolitical risks, with over 50% of substrates expected to come from internal sources by year-end [16][17] AI Market Potential - There are opportunities for ON Semiconductor to benefit from AI developments, particularly in power efficiency for AI servers [46][47] Additional Important Insights - The company is focused on optimizing its fab operations and addressing cost structure challenges at the East Fishkill fab, with expectations to resolve these issues by the end of 2024 [38][39] - The management emphasizes a cautious approach to scaling production and ensuring quality while navigating market uncertainties [8][36]