ON Semiconductor Corporation (ON) Presents at Morgan Stanley Technology, Media and Telecom Conference (Transcript)

ON Semiconductor Corporation Conference Call Summary Company Overview - Company: ON Semiconductor Corporation (NASDAQ: ON) - Date: March 7, 2023 - Participants: Hassane El-Khoury (President and CEO), Thad Trent (CFO), Joe Moore (Morgan Stanley) Industry Dynamics - Automotive Market: - Strong performance in the automotive sector driven by megatrends such as electrification and increased content growth in vehicles, particularly in Level 2+ autonomy and electric vehicles (EVs) [4][12] - Sustained strength in automotive is not tied to the Seasonally Adjusted Annual Rate (SAAR) but rather to the penetration of these trends into the general vehicle population [4] - Consumer and Compute Markets: - Notable softness observed since Q2 2022, leading to proactive management of utilization rates [4][5] - Industrial Market: - Softness noted in consumer-related industrial sectors, while core industrial segments like energy infrastructure and storage showed significant growth, ending the year with a 75% growth from 2021 [5] Strategic Business Decisions - Exit Strategy: - The company has exited $294 million in businesses with less sustainable profit pools, with a commitment to continue this strategy despite market conditions [6][8] - The exit strategy is market-dependent, with an acceleration in exiting certain businesses due to softness in consumer and compute markets [8][9] - **Long-term Supply Agreements (LTSA)**: - Over$16.5 billion in long-term supply agreements secured, providing visibility and stability in revenue [17][22] - These agreements allow for better capital investment decisions based on customer commitments over multiple years [19][20] Market Opportunities - ADAS and Image Sensors: - Growth in Advanced Driver Assistance Systems (ADAS) driven by increased vehicle content and camera usage, with expectations of doubling the number of cameras in vehicles over the next five years [31][32] - Silicon Carbide (SiC): - The company is well-positioned in the SiC market, leveraging decades of expertise and investment in technology and packaging [34][36] - Anticipated revenue of $1 billion from SiC, with strong customer demand and successful qualifications with major automotive manufacturers [34][48] Financial Outlook - Gross Margins: - 2023 is viewed as a transition year with expected headwinds from SiC start-up expenses and the East Fishkill fab acquisition, but margins are projected to stabilize at or above corporate averages by year-end [57][58] - The company anticipates a gross margin range of 48% to 50% in the long term, with additional tailwinds from exiting subscale fabs and ramping new products [58] Key Takeaways - The automotive sector remains a stronghold for ON Semiconductor, with significant growth opportunities in ADAS and SiC technologies - The proactive management of business exits and inventory levels positions the company favorably for future growth - Long-term supply agreements provide a solid foundation for revenue stability and capital investment planning - The company is navigating current market softness while maintaining a focus on sustainable profit pools and margin improvement strategies