ON Semiconductor(ON)2024-07-29 16:34Financial Data and Key Metrics Changes - In Q2 2024, the company reported revenue of $1.74 billion, a decline of 7% sequentially and 17% year-over-year, primarily due to ongoing inventory correction in automotive and industrial markets [20][21] - Non-GAAP gross margin was 45.3%, down from 45.9% in Q1 and 47.4% in Q2 2023, while GAAP gross margin was 45.2% [22] - Non-GAAP operating margin was 27.5%, with GAAP operating margin at 22.4% [23] - Diluted GAAP earnings per share were $0.78, compared to $1.29 in the same quarter last year, while non-GAAP earnings per share were $0.96, down from $1.33 [24] Business Line Data and Key Metrics Changes - Automotive revenue was $907 million, down 11% sequentially and 15% year-over-year [21] - Industrial revenue was $468 million, a decrease of 2% sequentially and 23% year-over-year [21] - Revenue for the Power Solutions Group (PSG) was $835 million, down 15% year-over-year; Analog and Mixed-Signal Group (AMG) revenue was $648 million, down 18% year-over-year; Intelligent Sensing Group (ISG) revenue was $252 million, down 22% year-over-year [22] Market Data and Key Metrics Changes - The Asia-Pacific region, particularly China, is showing signs of recovery, driven by automotive and industrial demand [10] - The company is a market-share leader in silicon carbide in China, designed into nearly 60% of BEV models from OEMs [15] - The company expects to outgrow the silicon carbide market growth by 2x in 2024 through share gain and geographical diversification [17] Company Strategy and Development Direction - The company is focused on building its strategic portfolio in Analog, Mixed-Signal, and Power Solutions, with significant design wins in power [10] - A multi-year investment in a vertically integrated silicon carbide manufacturing facility in the Czech Republic aims to meet rising demand and enhance supply chain resilience [14] - The acquisition of SWIR Vision Systems is intended to strengthen the company's industrial and defense product offerings [11] Management's Comments on Operating Environment and Future Outlook - Management noted stabilization in demand in core markets, with expectations for recovery in parts of industrial, particularly Energy Infrastructure, in the second half of the year [9] - The company remains committed to its long-term financial model and continues to invest in R&D despite market downturns [28] - Management anticipates Q3 revenue in the range of $1.7 billion to $1.8 billion, with non-GAAP gross margin between 44.4% and 46.4% [26] Other Important Information - The company has deployed 78% of its free cash flow for share repurchases over the last 12 months, significantly higher than its long-term target of returning 50% [28] - Inventory increased by $78 million sequentially, with total inventory days rising to 214 days [25] Q&A Session Summary Question: Any pluses or minuses by your three segments for the third quarter guide? - Management expects both automotive and industrial to be down, with some stabilization in industrial [32] Question: How do you see your different end markets, especially automotive, do you expect that to be up, down, flat sequentially? - Management expects automotive and industrial to be flat-to-up slightly in Q3 [39] Question: How did the silicon carbide business trend in Q2? - Management will cover silicon carbide revenue on an annual basis, but expects to grow at 2x the market [46] Question: What is the outlook for distribution inventory? - Management expects distribution inventory to remain around 9 weeks for the short term [48] Question: What does the silicon carbide backlog look like? - The silicon carbide backlog is healthy despite short-term softness in the EV market [51] Question: Any thoughts on the ramp of 200-millimeter silicon carbide? - The company is on track to qualify 8-inch substrates this year, with revenue expected next year [55] Question: Why would distributors want to take up their inventory? - The company is strategically replenishing the mass market, which had been underserved [79]