ON Semiconductor Corp. Q4 FY2024 earnings call

• 2024 was the fourth year of the transformation journey, focusing on intelligent power and sensing technologies, investing in differentiated products for automotive, industrial, and AI data centers.
• Streamlined manufacturing through Fabrite strategy and improved operational efficiencies.
• Fourth-quarter automotive revenue increased 8% sequentially, driven by China; industrial revenue decreased 5% sequentially with weakness in traditional parts.
• Closed acquisition of Corbus Silicon Carbide junction field-effect transistor business to complement SiC power solutions.
• Introduced Treo platform, built on leading-edge BCD 65-nanometer technology, supporting wide voltage range and accelerating portfolio proliferation.
• In 2025, will focus on optimizing product portfolio, rationalizing manufacturing footprint, controlling spending, and investing in R&D.

In 2024, ON Semiconductor Corporation had a full-year revenue of $7.1 billion with a non-GAAP gross margin of 45.5%. For the fourth quarter, revenue was $1.72 billion, non-GAAP gross margin was 45.3%, and non-GAAP earnings per share was $0.95. Automotive revenue in the fourth quarter was $1.03 billion, an 8% sequential increase, driven by China and North America. Industrial revenue was $417 million, a 5% sequential decrease. AI data center and aerospace and defense segments saw revenue growth of more than 40% and 50% respectively. The Power Solutions Group (PSG) had revenue of $809 million, a 2% QoQ decrease and 16% YoY decrease. The Analog and Mixed Signal Group (AMG) had revenue of $611 million, a 7% QoQ decrease and 18% YoY decrease. The Intelligent Sensing Group (ISG) had revenue of $303 million, a 9% QoQ increase but a 2% YoY decrease.

• First quarter revenue expected to be in the range of $1.35 billion to $1.45 billion.
• Non-GAAP gross margin expected to be between 39% and 41% with utilization declining to mid-50% in Q1.
• Non-GAAP operating expenses expected to be in the range of $313 million to $328 million.
• Non-GAAP earnings per share expected to be in the range of $0.45 to $0.55.
• Capital expenditures expected in the range of $110 million to $150 million.

• Market demand declined late in the fourth quarter and continued into January, impacting revenue.
• Geopolitical uncertainty across geographies affecting customers' manufacturing footprints and tariff impacts.
• Inventory digestion persists across key end markets.
• Pricing pressures in non-core end markets.

Q: Ross Seymore asked about the magnitude of company-specific vs end-market factors in the precipitous drop and concern about structural end-market portfolio resilience.

A: Hassane El-Khoury said the big change in the drop was the non-core business with largest decline, and they remain consistent not to play in volatile market, investing in areas like Treo, silicon carbide, etc. Thad Trent added sizing of the non-core business at roughly $350 to $400 million.

Q: Vivek Arya asked about sequential segment trends in automotive and industrial for Q1 and early look at Q2 seasonality.

A: Thad Trent said automotive expected to be down 25%+ sequentially, industrial and others mid to high single-digit down sequentially; Hassane El-Khoury said visibility is about a quarter, too early to talk about Q2 seasonality.

Q: Toshiya Hari asked about automotive outlook for Q1 delta and what's driving it.

A: Hassane El-Khoury said there's non-core business component, silicon carbide is lumpy, early Chinese New Year and extended shutdown in China impacting it, but structural changes and outlook remain unchanged.

Q: Christopher Danely asked about auto vs industrial growth trend for rest of year and reassessment of silicon carbide long-term target.

A: Hassane El-Khoury said too early to talk about rest of year, it's end-market demand; no reassessment of margin for silicon carbide, long-term growth aim is to be market leaders with high profitability.

Q: Blayne Curtis asked about non-strategic business delta in March and auto demand by geography in March.

A: Thad Trent said non-strategic business delta comes out over multi-quarter period; Hassane El-Khoury said expect auto demand to be down in general, some regions better than others but early Chinese New Year and extended shutdown in China impact.

Q: Joshua Buchalter asked about first-quarter gross margin details and unfavorable mix and inventory levels at tier one customers.

A: Thad Trent explained gross margin components including under absorption, unfavorable mix, and underutilization; Hassane El-Khoury said inventory levels at tier one customers are moving target, depending on financial and balance sheet of customers.

Q: Vijay Rakesh asked about fab utilization trend over next couple of quarters and silicon carbide outlook.

A: Thad Trent said utilization demand-driven, in Q1 to mid-50% range, will run in that range plus or minus until demand recovery; Hassane El-Khoury said silicon carbide revenue growth and AI design wins started to ramp in Q4, expect growth in 2025.

Q: Christopher Rolland asked about pricing trends for core products and image sensors.

A: Hassane El-Khoury said not seeing typical pricing negotiation, offsetting with internal efficiencies; said image sensors more stable, refocused to machine vision, ramping eight-megapixel.

Q: Gary Mobley asked about pricing trends for core products and silicon carbide wafer sourcing.

A: Hassane El-Khoury said not seeing typical pricing negotiation, offsetting with internal efficiencies; said silicon carbide wafer sourcing is both internal and external, balancing mix considering geopolitical uncertainty.

Q: Joe Moore asked about price-sensitive revenue end markets/geographies and AI data center revenue growth in 2025.

A: Hassane El-Khoury said more product than region for non-core revenue; said AI data center revenue growth to continue in 2025 with JFETs and Treo platform support.

Q: Tore Svanberg asked about gross margin improvement per utilization and Treo financial tracking.

A: Thad Trent said 20-25 basis points improvement per utilization increase, then back to 15-20 basis points; Hassane El-Khoury said track Treo through product introductions, margin profile confirmation, and customer design ins, first revenue in 2025 but no granular quarterly/annual beat update.

Q: Harsh Kumar asked about true demand estimate and if guide is padded based on judgment.

A: Hassane El-Khoury said demand is moving target, purely based on what they can see, inventory disciplined, margin not inflated by inventory build, distribution inventory reduced in Q4.