ON Semiconductor(ON)2025-06-03 18:40Summary of Conference Call Company and Industry Overview - The company is focused on strategic repositioning and financial posture amidst market volatility, including demand fluctuations and geopolitical issues [1][2] - Emphasis on maintaining investments in new products to drive growth [1] Manufacturing and Operational Strategy - The company is rationalizing its manufacturing footprint to align with high-value product portfolios, which includes taking capacity offline [2] - A strategic realignment is expected to lead to better gross margin expansion due to a more predictable manufacturing environment [2][3] - The dual manufacturing strategy (primary in the US and secondary outside) provides a competitive advantage in managing geopolitical uncertainties [3] Demand and Market Recovery - Signs of recovery are noted in the industrial market, with expectations for growth in the automotive sector, particularly driven by electric vehicles (EVs) in China [4][6] - The second half of the year is anticipated to show improvement, with Q2 expected to be the bottom for automotive demand [4][7] - The company has seen a 19% year-on-year increase in customer count in the broad market due to strategic inventory management [16] Inventory Management - The company has maintained tight control over channel inventory, allowing for measured shipping based on demand certainty [14][15] - Base inventory is reported at 119 days, with a target fluctuation between 100 and 120 days [18] - Customer-specific inventory levels vary, with some customers still holding excess inventory while others have achieved inventory burn [20] Silicon Carbide Market - Silicon carbide technology is deemed strategic for the company, applicable in automotive and renewable energy sectors [23] - The company emphasizes the value of efficiency in silicon carbide products, which allows customers to reduce battery size and costs [25] - The company aims to increase its market share in silicon carbide from 20% to a target of 30-40% [37] Automotive and EV Market Insights - The company is experiencing share gains in both North America and China, with a focus on new product ramps in the EV market [11][37] - The overall EV market in Europe is still growing, with a shift towards 800-volt battery systems where silicon carbide is increasingly utilized [34] Image Sensors and ADAS - The image sensors market is growing, particularly in automotive and industrial applications, with a high market share in ADAS [46] - The company is ramping up production for a major Chinese OEM focusing on autonomy [47] Pricing Strategy - The pricing environment is characterized as stable, with strategic pricing adjustments made to gain market share [51][57] - The company has walked away from volatile business segments to maintain favorable margins [58] Gross Margin and Utilization - Short-term gross margins are expected to be driven by utilization rates, with a correlation between utilization and margin improvement [68] - Long-term margin expansion is anticipated from new product introductions and increased utilization [70] Future Outlook - The company is optimistic about growth opportunities in the data center market, particularly with differentiated technologies like silicon carbide JFET [75] - The focus remains on providing value through strategic product offerings rather than competing in crowded markets [76]