ON Semiconductor 2025 Conference Summary Company Overview - **Company**: ON Semiconductor (NasdaqGS:ON) - **Date**: December 02, 2025 - **Speakers**: Hassane El-Khoury (President and CEO), Thad Trent (EVP and CFO) Key Industry Insights - **Demand Environment**: - Overall demand is stabilizing, which is viewed positively given previous fluctuations [5][6] - Improvement in ordering patterns noted over the past 90 days compared to the previous year [5] - Inventory levels are low, indicating a potential for a replenishment cycle as demand increases [6][7] - **Customer Behavior**: - Customers are hesitant to build inventory due to macroeconomic uncertainties, including geopolitical and tariff issues [9][10] - There is a need for certainty in demand before customers commit to building inventory [9][10] - **Pricing Environment**: - Pricing remains stable with low single-digit changes expected throughout the year [17][18] Company Performance and Strategy - **Operational Management**: - The company is well-positioned operationally with optimal inventory levels on the balance sheet [7] - Utilization can be increased immediately to match demand without waiting for inventory to be burned off [7] - **Silicon Carbide Market**: - ON Semiconductor has gained significant market share in North America and China, reaching 50% market share in China [22][26] - The company views silicon carbide as a core part of its business strategy, focusing on technology rather than pricing competition [26] - **Treo Platform**: - The Treo platform is ramping up quickly, with expectations to reach $1 billion in revenue by 2030 [60][61] - The platform is gaining traction across various markets, including industrial, automotive, and medical [61] Financial Outlook - **Gross Margin Projections**: - Gross margin is expected to improve with increased utilization, with every point of utilization contributing 25 to 30 basis points of margin improvement [33][34] - Current gross margin is at 74%, with potential to reach over 50% as market conditions improve [35] - **CapEx and OpEx Management**: - CapEx is focused on maintenance with a mid-single-digit intensity, avoiding large investments [41] - OpEx is expected to remain stable despite strategic investments, with a potential decline in 2026 as revenue grows [63][64] Non-Core Business and Strategic Focus - **Non-Core Exits**: - Approximately $300 million in revenue from non-core businesses will not repeat in 2026, primarily due to strategic repositioning [52][53] - The company is focusing on core competencies and exiting non-core segments to improve overall profitability [52] Conclusion - ON Semiconductor is navigating a stabilizing demand environment with a focus on operational excellence and strategic growth in key markets. The company is well-positioned to capitalize on future demand increases while managing inventory and operational costs effectively.

Summary of Conference Call Company and Industry - The conference call involved OnSemi, a company operating in the semiconductor industry, particularly focusing on automotive and industrial sectors. Key Points and Arguments 1. **Cautious Recovery Outlook**: OnSemi has been cautious about the recovery slope, noting that many companies have had to backtrack on optimistic guidance over the past 18 months. Current signs indicate slight improvement, but the company remains cautious about declaring a full recovery [1][4][5]. 2. **Stabilization Signs**: The company has observed signs of stabilization in business, with less reliance on "turns" to meet guidance compared to previous quarters. The second half of the year is expected to perform better than the first half [2][3]. 3. **Geopolitical Impact**: Geopolitical factors, including tariffs, have created a "paralysis" in customer ordering behavior, leading to shorter lead times and less visibility in demand. Customers are hesitant to place orders due to uncertainty [11][14][15]. 4. **Inventory Dynamics**: Inventory levels among customers are normalizing, with some automotive Tier 1 suppliers still holding excess inventory while others are at dangerously low levels. The inventory burn is closely tied to demand [19][20][23]. 5. **Capacity Concerns**: The semiconductor industry may face structural excess capacity, leading to pricing pressures. OnSemi has strategically exited lower-margin dual-sourcing products to focus on higher-margin offerings [27][29][30]. 6. **Product Exits**: OnSemi plans to exit about 5% of its revenue by 2026, focusing on high-quality revenue and differentiating products. This includes exiting dual-source businesses and repositioning its image sensing business towards machine vision [31][32][34]. 7. **Silicon Carbide Positioning**: OnSemi maintains a strong competitive position in silicon carbide technology, which is crucial for EVs and plug-in hybrids. The company has introduced advanced silicon carbide devices that are gaining traction in the market [46][49]. 8. **Treo Platform**: The Treo platform is expected to generate significant revenue with gross margins of 60% to 70%. The platform's unique design process allows for rapid product development, aligning with fast-moving market demands [55][60]. 9. **Gross Margin Targets**: OnSemi aims for gross margins in the low 50% range, currently facing challenges due to underutilization. The company believes that as market conditions stabilize, utilization will improve, positively impacting margins [66][70][72]. Other Important Content - **Customer Flexibility**: OnSemi's broad manufacturing footprint allows it to offer flexibility to customers navigating supply chain changes due to tariffs, which is seen as a competitive advantage [15][16]. - **Behavioral Changes in Ordering**: Customers are exhibiting short-term ordering behaviors due to lack of visibility, which is impacting the overall demand environment [14][21]. - **Future Growth Expectations**: The company expects to resume growth in 2027 after exiting non-repeating revenue streams, with ongoing investments in high-growth areas [43][45]. This summary captures the essential insights from the conference call, highlighting OnSemi's current market position, strategic focus, and outlook for the future.

Q2 2025 Financial Highlights - Revenue reached $1.47 billion, a 2% increase Q/Q[14] - Gross margin was 37.6%, a decrease of 240 bps Q/Q[14] - Operating margin was 17.3%, a decrease of 90 bps Q/Q[14] - Diluted EPS was $0.53, a decrease of $0.02 Q/Q[14] Revenue Breakdown by Segment - Automotive revenue was $733 million, a 4% increase Q/Q[14] - Industrial revenue was $406 million, a 2% increase Q/Q[14] - Other revenue was $329 million, a 16% increase Q/Q[14] Q3 2025 Guidance - Revenue is expected to be between $1.465 billion and $1.565 billion[18] - Non-GAAP gross margin is expected to be between 36.5% and 38.5%[18] - Non-GAAP operating expenses are projected to be between $280 million and $295 million[18] - Non-GAAP diluted EPS is expected to be between $0.54 and $0.64[18] Long-Term Financial Targets (2027) - Revenue is targeted to grow at a CAGR of 10-12%[79, 86] - Gross margin is targeted to reach 53%[36, 79, 86] - Operating margin is targeted to reach 40%[79, 86] - Free cash flow is targeted to be 25-30% of revenue[37, 79, 86]