Core Insights - ON Semiconductor reported strong financial results for 2025, achieving $6.0 billion in revenue and a non-GAAP gross margin of 38.4%, despite a challenging demand environment [3][4][6] - The company is focusing on growth areas such as AI data centers and automotive applications, with significant revenue expectations in these sectors [2][12] Financial Performance - For Q4 2025, ON Semiconductor reported revenue of $1.53 billion and a non-GAAP gross margin of 38.2%, exceeding guidance midpoints [7][6] - The company generated record free cash flow of $1.4 billion, representing a 24% margin, and announced a $6 billion share repurchase program [5][14] Product Development and Market Strategy - The company plans to sample over 30 new GaN devices in 2026 and has established a new foundry partnership to enhance supply options [1] - The automotive sector is expected to generate approximately $400 million in revenue, with a focus on zonal architecture products [2] AI Data Center Growth - AI data center revenue exceeded $250 million in 2025, with expectations for high teens percent growth year-over-year in Q1 2026 [12][13] - The company is actively developing products for AI applications, including a 1,200-volt ultra-low RDS SiC JFET [13] Capacity and Utilization Management - Under the FabRight program, ON Semiconductor reduced fab capacity by approximately 12%, which is expected to lower depreciation costs by $45 million to $50 million in 2026 [5][9] - Utilization rates were reported at 68% in Q4, with expectations to improve to the low 70s in Q1 2026 and mid-70s in Q2 [10][11] Market Outlook - For Q1 2026, the company anticipates automotive revenue to be roughly flat sequentially, while industrial revenue is expected to decline in the low teens due to seasonality [15] - The "other" category is projected to see low single-digit growth, driven by AI data center advancements [15]

Financial Data and Key Metrics Changes - In 2025, the company delivered $6 billion in revenue with a non-GAAP gross margin of 38.4%, reflecting disciplined execution and alignment with long-term strategy [7] - Free cash flow increased 17% year-over-year to $1.4 billion, achieving a record free cash flow margin of 24% [17][24] - For Q4, revenue was $1.53 billion, with a non-GAAP gross margin of 38.2% and earnings per share of $0.64, exceeding the midpoint of guidance [10][23] Business Line Data and Key Metrics Changes - Automotive revenue was $798 million, up approximately 1% quarter-over-quarter, indicating stabilization in the automotive market [21] - Industrial revenue was $442 million, up approximately 4% quarter-over-quarter, marking the first quarter of year-over-year growth in industrial revenue after eight quarters of declines [21] - AI data center revenue contributed more than $250 million for the full year, with growth in Q4 [12][21] Market Data and Key Metrics Changes - The aerospace, defense, and security segment saw a 70% year-over-year revenue increase, driven by North America and Europe [12] - The company is experiencing improving order trends across core markets, contributing to a positive outlook for 2026 [10][27] Company Strategy and Development Direction - The company has evolved from a manufacturing-centric to a product-centric model, focusing on high-margin product revenue and strategic investments in technology [8] - The introduction of the Treo Platform and expansion into high-growth markets like AI data centers and automotive zonal architecture are key strategic initiatives [7][11] - The company aims to achieve margin expansion through operational efficiency and a refined product mix, with a focus on differentiated products [18][19] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about improving demand conditions across automotive, industrial, and AI infrastructure markets [15][27] - The company anticipates that the groundwork laid over the past years will enable it to benefit from improving demand conditions [15] - Management highlighted the importance of aligning manufacturing capabilities with market demands to enhance gross margins [19][88] Other Important Information - The company announced a new $6 billion share repurchase program after returning approximately 100% of free cash flow to shareholders in 2025 [18][24] - The company is reducing fab capacity by 12% to improve operational efficiency, which is expected to lower depreciation costs in 2026 [19] Q&A Session Summary Question: What was going on in the other category? - Management noted that excluding exits, the company is above seasonal trends, and the decline in the other category was due to normal seasonality and $40 million in exits [30] Question: Can you discuss the AI data center market and its potential? - Management expressed confidence in the growth of the AI data center segment, highlighting the company's unique capabilities in high-voltage power supply and its broad product portfolio [32][33] Question: What is the expected run rate for non-core exits? - Management clarified that the $50 million exit in Q1 is part of a larger $300 million total for the year, with varying quarterly impacts [37] Question: How do you expect gross margins to progress? - Management indicated that gross margins are expected to improve due to increased utilization and ongoing FabRight initiatives, with a target of reaching low 40s% in the long term [88][90] Question: What is the outlook for the automotive market? - Management expects automotive revenue to be roughly flat in Q1 due to seasonal factors, but overall stabilization is anticipated [50]

Financial Data and Key Metrics Changes - In 2025, the company achieved $6 billion in revenue with a non-GAAP gross margin of 38.4%, reflecting disciplined execution and alignment with long-term strategy [7] - Free cash flow reached a record $1.4 billion, representing a 17% year-over-year increase and a free cash flow margin of 24% [17][24] - For Q4, revenue was $1.53 billion, with a non-GAAP gross margin of 38.2% and earnings per share of $0.64, exceeding the midpoint of guidance [10][20][23] Business Line Data and Key Metrics Changes - Automotive revenue was $798 million, up approximately 1% quarter-over-quarter, indicating stabilization in the automotive market [21] - Industrial revenue was $442 million, marking a 4% increase quarter-over-quarter and a 6% increase year-over-year, the first growth after eight quarters of declines [21] - AI data center revenue contributed over $250 million for the full year, with growth in Q4 [12][21] Market Data and Key Metrics Changes - The aerospace, defense, and security segment saw a 70% year-over-year revenue increase, driven by North America and Europe [12] - The company is experiencing improving order trends across core markets, with seasonal patterns indicating a positive outlook [10][11] Company Strategy and Development Direction - The company is transitioning from a manufacturing-centric model to a product-centric approach, focusing on high-margin product revenue and strategic investments in technology [8] - The introduction of the Treo Platform is aimed at expanding into automotive applications and industrial markets, with a strong emphasis on AI data centers [9][12] - The company plans to continue rationalizing its portfolio by exiting non-core businesses and reallocating investments to high-growth areas [18] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about improving market conditions, particularly in automotive and industrial sectors, and expects to see clearer signs of growth in 2026 [15][27] - The company anticipates that its AI data center business will continue to grow, with expectations of high teens percentage growth in Q1 [43] - Management highlighted the importance of maintaining operational efficiency and aligning manufacturing capabilities with market demand [19][90] Other Important Information - The company announced a new $6 billion share repurchase program after returning approximately 100% of free cash flow to shareholders in 2025 [18][24] - The FabRight strategy led to a 12% reduction in fab capacity in 2025, which is expected to lower depreciation costs and improve gross margins in 2026 [19] Q&A Session Summary Question: What was going on in the other category? - Management noted that the other category saw weakness due to normal seasonality and approximately $40 million in exits, but excluding these, the core business is above seasonal [29][30] Question: What is the total addressable market (TAM) for AI data centers? - Management refrained from providing specific guidance but expressed confidence in continued growth due to the company's unique capabilities in high-voltage power supply [31][33] Question: Will the exits impact gross margins? - Management indicated that exiting non-core businesses would not negatively impact gross margins, as the margins were near the corporate average [44] Question: What is the outlook for gross margins in Q1? - Management expects gross margins to increase by 30 basis points in Q1, driven by FabRight initiatives and improved utilization rates [48][49] Question: How is the company positioned for silicon carbide and AI data centers? - Management confirmed ongoing growth in silicon carbide applications and highlighted significant design wins in AI data centers, contributing to revenue growth [78][79]

Quarterly Investor Presentation Content to the Left of this line Content Below this line Content Fourth Quarter 2025 1 © onsemi 2026 | Confidential | © onsemi 2026 | Public Information Content to the Right of this line Content to the Left of this line Content to the Right of this line Above this line Content Below this line Content Above this line Color Swatches Safe Harbor Statement and Non-GAAP and Forecast Information This presentation includes "forward-looking statements," as that term is defined in Sec ...