ON Semiconductor(ON)2024-06-06 01:17Company and Industry Overview * Company: ON Semiconductor Corporation (NASDAQ: ON) * Industry: Semiconductor * Event: BofA Securities 2024 Global Technology Conference * Date: June 5, 2024 Key Points Transformation and Growth Strategy * Transition from Cyclical to Cyclical Growth: ON Semiconductor has transitioned from a deep cyclical company to a more cyclical growth model with multiple product cycles. * Fab-Like Strategy: ON has implemented a fab-like strategy, divesting four fabs to reduce fixed costs and focus on high-growth areas. * Product Portfolio Changes: ON has walked away from $475 million of high-volatility business and redirected the company into high-growth areas like silicon carbide in EV. Financial Performance and Margin Expansion * Improved Utilization and Margin: ON's manufacturing footprint utilization is currently at 65%, with a margin floor of 45%. This is significantly better than previous cycles, where gross margins were in the low 30s. * Long-Term Margin Target: ON's long-term margin target is 53%, with significant potential for expansion as utilization increases and new products are introduced. * East Fishkill Fab: The East Fishkill fab acquisition has improved cost structures and cycle times, with a goal of achieving parity with other fabs. Industrial Segment * Traditional vs. Secular Growth: ON's industrial segment is divided into traditional (power tools, white goods) and secular growth (renewable energy, energy storage, factory automation). * Stabilization: The traditional industrial segment has stabilized, with some green shoots in medical and alternative energy. * Conservative Outlook: ON is conservative in calling for a bottom in the industrial market, emphasizing the need for demand pickup and end-demand recovery. Automotive Segment * Flattish Growth: ON expects the automotive business to be flattish in 2024, with growth in silicon carbide offsetting declines in other areas. * Silicon Carbide Growth: ON expects the silicon carbide market to grow 2x in 2024, driven by design wins and market share gains. * Competition and Overcapacity: ON is not concerned about overcapacity in the silicon carbide market, emphasizing the value-driven nature of the product and its technology advantage. AI and Data Center * Power Tree for Cloud: ON is developing a power tree for the cloud, leveraging its expertise from automotive and industrial segments. * Cross-Selling Opportunities: ON plans to cross-sell power switches, controllers, and drivers to customers in the cloud market. Second Half Recovery * Balanced Approach: ON is taking a balanced approach to the second half, preparing for both a recovery and a continuation of the current environment. * Inventory and Utilization: ON has a low inventory level and utilization of 65%, positioning the company to quickly react to any recovery. Conclusion ON Semiconductor is focused on transforming itself into a more sustainable and predictable company with a strong focus on high-growth areas like silicon carbide in EV and the cloud. The company is taking a conservative approach to the near-term outlook, emphasizing the need for demand pickup and end-demand recovery in the industrial and automotive markets.