ON Semiconductor(ON)2024-12-10 21:40ON Semiconductor Corporation Conference Call Summary Company Overview - Company: ON Semiconductor Corporation (NASDAQ: ON) - Date: December 10, 2024 - Participants: Hassane El-Khoury (CEO), Thad Trent (CFO) Key Points Acquisition of Universal Silicon Carbide Business - ON Semiconductor acquired the Universal Silicon Carbide business from Qorvo to enhance its power semiconductor offerings, particularly in silicon carbide and wide bandgap technologies [2] - The acquisition aligns with the increasing power requirements driven by AI, where power servers are transitioning from 40-kilowatt to hundreds of kilowatts, necessitating more efficient and compact solutions [2] - Silicon carbide JFET technology is highlighted as superior for applications in AI, industrial solid-state breakers, and electric vehicles [2][3] Development of Treo Programmable Analog Platform - The Treo platform is a mixed-signal analog product based on 65-nanometer BCD technology, capable of handling voltages from 1-volt to 90-volts [6] - Expected revenue from Treo is projected to reach $1 billion by 2030, with margins between 60% to 70% [6] - The platform allows for rapid product development, reducing time from concept to sample to customer to six to nine months, which is crucial in fast-paced markets like AI [6] Gross Margin and Utilization Insights - Current gross margins are in the mid-40s with utilization at 65%, which is historically low for the company [9] - The company has managed to maintain higher margins compared to previous downturns, indicating structural improvements [9] - For every point of utilization increase, gross margins can improve by 15 to 20 basis points, suggesting potential for margin recovery as demand increases [9] Inventory Management - ON Semiconductor has a working inventory of 113 days, which is within the optimal range of 100 to 120 days [11] - The company also holds an additional 100 days of strategic inventory for fab transitions and silicon carbide ramp-up [11] Market Demand and Inventory Digestion - The company is currently in an inventory digestion phase, particularly in the automotive sector, with demand not picking up as expected [15] - European automotive markets are facing challenges, impacting demand and leading to a cautious outlook for the next few quarters [15][17] Silicon Carbide Market Outlook - Silicon carbide is identified as a growth vector, particularly in electric vehicles (EVs), with expected increases in both EV production and silicon carbide penetration [20] - The penetration of silicon carbide in EVs is currently low, at about 6%, indicating significant growth potential as OEMs shift to 800-volt systems [20] Competitive Landscape and Pricing Strategy - ON Semiconductor does not view pricing as a lever in a weak demand environment, emphasizing the importance of product value over price reductions [26] - The company aims to maintain competitive margins through advanced technology rather than engaging in price wars [26][27] Conclusion - ON Semiconductor is strategically positioned for growth through acquisitions, innovative product development, and effective inventory management, despite current market challenges. The focus on silicon carbide and programmable analog solutions aligns with industry trends towards efficiency and performance in power semiconductor applications.