ON Semiconductor at Citi’s 2025 Global TMT Conference: Strategic Focus Amid Stability

On Wednesday, 03 September 2025, ON Semiconductor (NASDAQ:ON) presented at Citi’s 2025 Global TMT Conference, highlighting its strategic focus amidst a stable macroeconomic environment. CEO Hassan emphasized the company’s commitment to managing controllable factors and delivering consistent results, particularly in free cash flow, while navigating external uncertainties. The discussion included both positive prospects in the automotive sector and challenges such as tariff impacts and inventory management.

Key Takeaways

• ON Semiconductor is concentrating on the automotive market, especially the EV sector in China, with strong gains in silicon carbide.
• The company plans to exit approximately $300 million of non-core business revenue to improve profitability.
• Free cash flow remains a priority, supporting share buybacks amid market uncertainties.
• Gross margin targets are set in the low fifties, with utilization rates currently at 68%.
• The company is strategically managing inventory levels to position for future growth.

Financial Results

• Free Cash Flow: Highlighted as crucial during uncertain times, with funds allocated for share buybacks.
• Gross Margin: Aiming for a target range in the low fifties percentage.
• Utilization Rate: Currently at 68%, presenting a 900 basis point headwind due to underutilization.
• Non-Core Business Exit: Plans to exit $300 million in revenue from non-core businesses, with $100 million already exited through Q2, another $100 million expected by year-end, and the remaining $100 million in 2026.

Operational Updates

• Inventory Management: Working inventory stands at 121 days. Strategic inventory for fab transitions and silicon carbide ramp is managed separately and expected to decrease over time.
• Manufacturing Footprint: A diverse footprint across the US, Japan, and Europe provides flexibility. 12% of front-end capacity was taken offline in Q1 as part of restructuring.
• Restructuring: Two-thirds of announced restructuring is complete, with further benefits to gross margin expected with a two-quarter lag.
• Customer Hesitation: Customers are cautious due to tariffs, ordering only for immediate needs.

Future Outlook

• Market Outlook: The second half of the year is expected to outperform the first half.
• Automotive Market: Performance is expected to align with company expectations, with strength in China driven by EV adoption.
• EV Market: Continued global growth is anticipated, with significant contributions from China. Silicon carbide penetration in EVs outside North America is between 12-14%.
• Gross Margin Drivers: Utilization is the primary driver for short-term gross margin improvement.

Q&A Highlights

• Tariff Impact: Minimal direct impact from current tariffs, though secondary effects include customer hesitation.
• Channel Inventory: Well-managed distribution inventory, with concerns focused on low end-customer inventory levels.
• Automotive Share Gains: Gains are noted across EVs, China, North America, and Europe.
• China: Identified as the healthiest market for business trends.

In conclusion, ON Semiconductor’s presentation at Citi’s 2025 Global TMT Conference showcased its strategic efforts to capitalize on market opportunities while addressing challenges. For more detailed insights, readers are encouraged to refer to the full conference call transcript.

Full transcript - Citi’s 2025 Global TMT Conference:

Unidentified speaker, Analyst: Fantastic. Alrighty. Testing. One, two, three. Great.

Good afternoon, everyone. Thanks for, sticking with us on this absolutely gorgeous day in New York. Next up is ON Semi. By the way, I wanna point out that I get a lot of, questions and people completely freaked out that ON’s margins have dipped to the high thirties. I just wanna point out that this was the previous peak gross margins before Hassan and THAAD got there.

So it’s been an amazing turnaround. You’ve seen a concomitant increase in the multiple and basically a tripling, of earnings since the Dream Team showed up. So without further ado, we’ve got Asanal Corey, CEO of Thad Trent, CFO extraordinaire. I’m Hey. We’re done.

Okay. I’ll go home now. Okay. So you guys are basically the latest in a long line of analog companies today, and we’ve got opinions everywhere. We’ve got things are good.

We’ve got things are bad. We’ve got things are getting better. We’ve got things are getting worse. We’ve got China’s good. China’s bad.

All of this. All of that. We got dogs and cats living together. So for the for the Oracle of Austin, what the heck is going on out there, Hassan? What’s what’s your take on on what’s happening in the analog space?

Because we’re getting pulled all over like saltwater taffy, man.

Hassan, CEO, ON Semi: So here’s the difference between that and what we’ve been saying or what we’ve been seeing and what I’ve been talking about. The one thing I’ve always said and we’ve been consistent with is I will say what I can see, and I will call what I see, not what I hope to see. That has been consistent since the first quarter. It’s actually been consistent for the last three years where first off, we started the year when everybody’s hyperventilating about second half recovery. We said, I have no reason to believe there’s a second half recovery.

Therefore, we’re going to be managing to what we can see, which is stabilization at at at best. Yeah. Then walk into the year, first quarter, we said things are stabilizing. Q one is gonna hit bottom, q two is gonna be the bottom in automotive, and the second half is gonna be higher than the first half. Yep.

We are here today. My the last earnings call we had exactly the same, terminal I say terminology just so people don’t confuse stabilization with the recovery. I have not talked about recovery. I talk about stabilization in the environment today as a positive development from where we were. The second half of the year is still, higher than the first half.

Automotive is up in q three from hitting bottom in in q two. So what I would say versus a lot of the chatter that’s out there, we’ve been more right than wrong, and we’ve been the most consistent of all of our peers because our focus is on delivering what we can control and manage to, and that we’ve done very well, whether it’s on the margin and more importantly, in a downturn like this on the free cash flow. Yeah. Cash is king when there’s a lot of that uncertainty, and we’re using cash to buy back shares, returning, value shareholders through buyback while we execute to what we can control.

Unidentified speaker, Analyst: Got it. So not getting ahead of your skis. We like that. Just in terms of the, I guess, stability, recovery, whatever you wanna call it. I mean, this essentially, like you said, started a few months ago into the second half.

What do you think has been the catalyst for that? Is it inventory replenishment? Is it demand is getting better? Something else going on out there? What do you what do you see in this part of hybrid?

Hassan, CEO, ON Semi: So I think I think from a any any if you think about phases of of the the path to a recovery, whenever that recovery happens. There are multiple paths. First, coming off of the inventory, like you said, there’s the inventory drain. When you get the inventory drain, then you start shipping to natural demand. From undershipping to shipping to natural demand.

Then you’re going to have a replenishment cycle, which you have to be careful there not to be a false positive of, oh my god, the recovery is happening now, that there’s gonna be a replenishment cycle, and then you have the demand recovery. I think where we are today with the uncertainty related to the geopolitical environment and the whole, you know, tariff, no tariff kind of development, the replenishment cycle is not yet we’re not in a replenishment cycle. Nobody’s replenishing inventory until they see certainty in the end demand. What we are seeing now is a stabilization post inventory depletion. So we’re now shipping closer to natural demand.

It differs by market. Industrial, I think we’re we’re shipping to natural demand now because, remember, industrial inventory depletion started much earlier than auto. Auto, I think by the end of the year, we’ll be done with it, with the inventory adjustment. Today, there are some accounts that already have achieved it. You know, they’re actually too low.

You can think about two weeks of inventory is too low for an automotive tier one. Some are still working on it. By the end of the year, automotive, we should be back to it. So when I talk about the second half is better than the first half, one is shipping closer to natural demand. And two, we do have company specific positives that we’ve had.

Our medical business in the industrial side has been positive. Aerospace and defense has been positive. We expect a small kind of uptick in the renewable energy. That’s on the industrial side. The automotive side, we talked about our ramps and our market share gains in China from an EV in the automotive.

That’s driving the growth in China. So outside of just shipping to natural demand, we do have company specific ramps and share gains that we’ve been posting that are delivering results in the second half.

Unidentified speaker, Analyst: Okay. Just to parse through the stability versus recovery because I think that’s causing some of the confusion today. So you would define things as stable now, and is that essentially, like, normal or close to seasonality? And then would you define recovery as a little above seasonality with some, like, inventory replenishment driving that? I’m just trying to

Hassan, CEO, ON Semi: I I think as a as a as a high level, I would I would categorize it that way. Stabilization, I I I chuckle on when you say normal seasonality. I don’t think anything about anything we’re doing is normal these these days. So, and the reason I say this also is normal seasonality for us from four years ago when things were kinda more stable, like the anchor point from four years ago, we’re a different company with a different mix. Mhmm.

So we’re not we’re not even at our normal seasonality pre COVID. So we have to go through the whole cycle to kinda get back to that seasonality. There is, however, an element of seasonality on the ramps. Mhmm. You know?

China automotive ramps after the, auto show. Q one is typically down in general. So right now, we’re looking at standard, I would say, seasonality. But to characterize it the way you did, that’s the stabilization. Recovery would be more replenishment and really end demand going up.

Yeah. Yeah.

Unidentified speaker, Analyst: Okay. Great. And just for the the nervous Nellies out there, we’re definitely past the bottom in terms of revenue. Correct? Yes.

Great. From your lips to god’s ears, the semi god’s ears, how about maybe talk about the linearity of bookings over the last couple of quarters. Do you see your, like, backlog increasing or staying flat or, you know, the bookings getting better or stable? There’s still some fluctuation. How how has that trended over the last

Thad Trent, CFO, ON Semi: Do want me to take that? Yeah. Look. I think entering this quarter, we entered, you know, more booked than we have been the previous two quarters, which is a good sign. So, you know, the turns that we need within the quarter are less this quarter than what we’ve needed in the previous quarters.

That’s what gives us that that kind of comfort that stabilization is better and that the second half is gonna outperform the first half. That’s really when you know, back to your question about, you know, have we hit the bottom? I think quarter or or half on half, yeah, the second half is gonna perform better than

Unidentified speaker, Analyst: the first half. Great. And so it sounds like maybe visibility, at least in the near term, if there’s less turns, is a little better than it was, like, three to six.

Hassan, CEO, ON Semi: That’s right.

Unidentified speaker, Analyst: That’s right. How about, like, the backlog going out, you know, six, nine months? Has that has that changed, or is the lead time short enough to where it’s

Thad Trent, CFO, ON Semi: still Lead times are short, and customers are cautious. Right? Customers are gonna order just in time right now given the short lead times, and given the uncertainty in the market and the tariffs. Right? So, you know, we get a forecast from our customers, but backlog is what we really build to.

That when we talk about visibility, that’s what we talk about is is that backlog. That visibility is still not great.

Unidentified speaker, Analyst: Yeah. And so we’ve been asking the rounds of companies this sort of tariff question, and you brought it up. How how big of a factor is, like, the tariff boogeyman out there on demand or inventory management or maybe both from what you guys can see?

Hassan, CEO, ON Semi: So let me let me take it different. So what we know today, and I have to put that disclaimer because things do change. Based on what we know about tariffs today, there’s minimal to no impact for us as company. I think the impact, what we call the secondary impact, is what that referred to as the hesitation from the customer. Customer are kind of frozen.

Yeah. They they’re not ordering unless they absolutely need it for a build that is happening immediately. That goes back to the replenishment cycle. Mhmm. Typically, when you get through the inventory, you have the replenishment cycle for customers to put, you know, parts and so on on the shelf.

They make units for their end customers, and they put it on the shelf. We’re not seeing any of that, and that’s the uncertainty that’s driving the short lead time. You know, some of my peers talked about, oh, we are getting short lead time. That’s, like, a positive sign of recovery. I looked at it, and I said, yeah.

We’re getting short lead time. It’s actually a sign of uncertainty. Mhmm. Typically, it’s a sign of recovery, short lead time. But in this case, it’s customers are placing last minute.

So that’s back to my comment of, I believe we’re shipping to end demand now because of that behavioral change. Yep. I don’t think that’s gonna be persistent, but that’s based on the uncertainty.

Unidentified speaker, Analyst: What, what would be your sort of best guess or estimate, of your inventory in the channel out there? Do you think that because of all this uncertainty, it’s just kept at a bare minimum? And when folks start to feel better about things, they start to take it up a little bit? Or, I mean, is it possible it could go any lower? It sounds like it’s pretty low if lead time Yeah.

Hassan, CEO, ON Semi: At bottom. So I so first off, I just wanna correct one thing. You mentioned the channel. Channel for us is distribution. That, we know exactly what’s there.

It’s that nine to eleven we have. So that, I’m not worried about. We have full visibility, and we manage it. I think what you’re referring to is can it go lower and go through another depletion kind of cycle at at the end customer. I I think it’s pretty low.

That’s why we’re at the I think it’s actually lower than what customers should feel comfortable about. When you have two weeks of inventory on the shelf, and and you’re a tier one automotive, you are one order away from those two weeks turning into two days. If you have a uptick, I’m not saying a huge recovery, a V shape or whatever shape you want. But if you have a sudden increase in demand, two weeks turn into two days, now you’re the lines down situation. It’s that’s dangerously low.

But look. I don’t run their companies. I can just advise them that that’s way too low. But when you have the uncertainty, they’re gonna tell you, well, what are you gonna base it on to add more? So that’s the replenishment that we’re not getting there yet.

Unidentified speaker, Analyst: Okay. Since we’ve seen the stability, how have you guys seen pricing trend? Has that gotten any better? Has it gotten any worse? Is it not really changing?

What what’s your take on sort of pricing?

Hassan, CEO, ON Semi: I I I don’t think pricing is stable. I don’t think pricing is changing. I think it’s what I would call normalized, meaning we offset any price differences in the normal course of running the business that we do, which is taking cost out of our products.

Unidentified speaker, Analyst: Yep.

Hassan, CEO, ON Semi: So that’s what semiconductor company has been doing for decades. Mhmm. That’s the same, and you see that with even our margin profile.

Unidentified speaker, Analyst: Yep. I remember when we met up, you know, earlier this year, you said that pricing was getting more aggressive in certain competitors. We’re gonna sort of follow the pricing down, and you guys were choosing to you know, we’re not gonna participate in that same same stance. Has

Hassan, CEO, ON Semi: the same. Yeah. Same same stance. And by the way, that’s no different than when we outlined our strategy four years ago, we talked about a portion of our noncore business that is exactly that that price sensitivity.

Thad Trent, CFO, ON Semi: Yep.

Hassan, CEO, ON Semi: And we said we’re gonna exit it. We really exited only half of it so far or a little bit more than half if you include twenty twenty five exits. And that behavior is what I was referring to earlier in the year. That that behavior is what we’re seeing our competitors do. Now their margin profile is way lower than ours.

Unidentified speaker, Analyst: And going lower. I say that.

Hassan, CEO, ON Semi: They’re willing to take it, and our strategy is very clear. We will keep supporting those customers as long as the margin is favorable. It doesn’t have to be accretive to where we are, but it can be dilutive. And based on where the pricing trend for that portion non core is, we called it last quarter, we said we’re gonna exit that business. So we’re not expecting it to repeat in 2026.

So that’s the decision. We’re just executing to our strategy that we outlined four years ago. But so outside of that pricing,

Unidentified speaker, Analyst: the rest is is where we expect it. Great. And what’s your take on, pull ins out there? You know, there’s been a lot of companies say we had some pull ins. Some are saying there’s still some left.

Some are saying that it’s all gone. What’s the sort of the on view on that?

Hassan, CEO, ON Semi: We we don’t have any we haven’t seen any signs of pull ins. And, you know, of course, the next valid question people always ask me, well, how do you know? Because if I look at where, for example, the upsize, the the benefit is coming, China. Yeah. You know, we talked about China automotive seeing growth.

Well, two quarters ago in April, I said I was in the China Shanghai Auto Show, and I said exactly what models we are designed in. Those models got deployed. I sit and watch how much the NEV registration in China happen on the models we’re in, and I compare it to what we ship. As long as they’re correlating, there’s no pull in. Yep.

So that’s how you mod you model modulate your pull in and your profile is, are you shipping to what the customer is manufacturing? Yeah. And the answer is yes. We don’t have pull in. So that I can comfortably say.

Unidentified speaker, Analyst: Okay. And and given all that, how is ON managing its own inventory? I think you guys are trying to take it a little bit lower. And what does that mean for your own utilization rates?

Thad Trent, CFO, ON Semi: Yeah. So our look. If you look at the inventory on our balance sheet, we have two buckets. Right? We have what I call our working inventory or base inventory.

That’s right in our sweet spot. It’s a hundred and twenty one days. We’ve been managing that kind of in that range for for a while now. We have a strategic bucket with our fab transitions and silicon carbide ramp, and and that’s going to bleed out over time. So if I think about, you know, our utilization and how that utilization will get impacted or improve over time is it will closely match whatever the market recovery starts to look like.

So we don’t need to burn through inventory through the channel, the distribution channel first, and then inventory on our balance sheet. Both are right in our sweet spots. And, so whatever that shape of that recovery looks like, our utilization will match that. So, and then you’ll see that hit the p and l, you know, roughly two quarters later in terms of the the improvement in gross margin. But, you know, the number one driver for us in gross margin in the short term is utilization, and we’ll match that to our recovery.

So we’re in a really good spot inventory wise and from a manufacturing footprint wise to take advantage of that recovery, whatever that shape looks like.

Unidentified speaker, Analyst: Okay. And will your utilization rates essentially match your, like, revenue forecast for how much growth Yeah.

Thad Trent, CFO, ON Semi: To a first order, it’ll it’ll match very closely. Yep.

Hassan, CEO, ON Semi: And but the other thing is most, most, not all of our inventory is in die bank. So, you know, people ask, okay. But isn’t that too dangerous that if there’s a recovery, you’re gonna miss it? And my point is we’re a few weeks away from turning into finished goods. So we have the inventory stage in the best spot you could in the most fungible spot to be able to address any demand.

So I I believe the work we’ve done in throughout this downturn on not just operational efficiencies, but the posture of the company Yeah. Puts us in a much better spot to for a up upside and recovery better than we were positioned even two years ago.

Thad Trent, CFO, ON Semi: Yeah. You guys have changed some things around, because holidays stuff on manufacturing, restructuring. Maybe reset the table on that, give us an update. Anything left to do? Yeah.

Yeah. There’s definitely more to do. You know, we announced a restructuring and an impairment of our capacity in q one. We took 12% of our capacity, our front end capacity offline in q one. With what we announced, we’ve done about two thirds of what we announced.

It just takes time. So there’s more coming here. So and and when we think about where we’re going with these exits, you know, it gives us a spot where today, the number of units that we’re shipping is much lower than what it has been historically. So if you think about it at a similar revenue level, we need fewer wafers. Right?

The the dollar per wafer is much higher than what it has been historically because we’ve been moving to this higher value, you know, product over time. And so that’ll allow us to continue over time to take capacity offline. Yep. That will help with

Unidentified speaker, Analyst: the margin as well. Now will will this restructuring benefit your gross margins at a later date even if the revenue stays, like, flat to slightly up? And then what would be the the timing for something like that?

Thad Trent, CFO, ON Semi: Yeah. So again, you know, you gotta think through you you gotta burn through inventory that you manufactured at a higher price. Right? But you can think about as we do that, it it’s, again, about a two quarter lag for it really to hit the p and l. So even in a a flat year, over time, you’ll see improvement because utilization will improve.

Unidentified speaker, Analyst: Sure. So I guess let’s just run down the gross margin drivers as we talked about most of them. You’ve got utilization rates. You’ve got restructuring. Obviously, there’s some, mixed component.

Am I missing anything? And then could you rank the gross margin drivers as well?

Thad Trent, CFO, ON Semi: So so the utilization where we’re running today, it’s 68% utilized. There’s 900 basis points of under under utilization. Right? A headwind to utilization. All noncash, right, that’s hitting us today.

So if you think about with revenue growth, that comes off. You’ve got a couple 100 basis points of of more fab. Right? You know, us taking cost out in in the manufacturing footprint. You got the mix as you talk about.

And then the other component is we divested four fabs in ’22 as we bring that inside. That’s roughly another 200 basis points. So you start adding all that up and you’re getting up, you know, into the 50% range. Yeah. That was gonna

Unidentified speaker, Analyst: be my next question. Is, have the gross margin targets, changed at all from low fifties? No. Still the plan. Okay.

And then how about this this push to manufacture more in The US coming from way up above? Does that help you guys? Does that factor in at all? What what’s your take on that? Yeah.

We’ve got You know, throw in a little two three two commentary in Chips Act as well. Because everybody’s asking about it, I might as well get it out there. Throw it all out there. Look.

Thad Trent, CFO, ON Semi: From a a manufacturing footprint, you know, we’ve got a diverse footprint. Right? We manufacture in The US, Japan, and and Europe. And so we’re able to move production around to help our customers. Right?

So as our customers are trying to navigate this, not that a 100% of our project products are fungible, but we are help we are able to kind of scenario plan with them, you know, for these tariffs and how do we help them navigate through this. So that’s one advantage that we have as we talk to these customers. As as Sun said, they’re paralyzed right now. Right? They’re not doing much until they get more certainty yet.

But the fact is we’re having those discussions, which I think puts us in a good position regardless of where that customer is, whether in The US, China, Europe, whatever the case may be. Hopefully, we can help optimize their supply chain for them.

Unidentified speaker, Analyst: Okay. Does 232 ever come up in, in on discussions? Any any, you know, thoughts there?

Hassan, CEO, ON Semi: No. I mean, it’s it’s all it’s all the same the same kinda answer that that that has given. Because at the end of the day, until we have what it is and what the impact is and what the tariffs are, it’s hard to say all scenarios because Yeah. So now if you take a step back on all of this uncertainty, you said whether it’s two thirty two or or tariff or reciprocal and so on, the one thing we do control is kind of the manufacturing footprint. So having this diverse manufacturing footprint across many multiple geographies with some overlap in capability at least gives us optionality.

Now what strength to pull on which option, we need that certainty of. It’s not tariff or no tariff. It’s what is it, the tariff, so we can navigate the supply chain around it. And that’s really what’s missing. But the optionality is there, which puts us in a much better spot.

Unidentified speaker, Analyst: Sorry. Just taking notes here. Okay. Great. Before I open it up to the audience q and a, I just wanted to touch on a few other things that you talked about earlier, specifically on the end markets and your take on the automotive end market.

I think most other analog companies are talking about a little bit of weakness in the automotive end market, and you’re talking about strength and share gains. Can you just elaborate on that?

Hassan, CEO, ON Semi: Yeah. I think look. The only thing I I don’t know what they are seeing because I can’t correlate the commentary. But I can only explain it with it’s relative to what you were expecting. And what I said at the beginning, we’ve been more right than wrong about our outlook.

And we’re managing to our outlook, not to what we believe others are saying and so on. And I think automotive is coming in exactly where we expected, both in q two and in the outlook for the for the second half of the year. So for us, from an expectation, not just that we set to run the company, but it’s the same expectation I set externally, which is how I run the company, Automotive is coming in as expected. So I can’t justify the commentary from the others.

Unidentified speaker, Analyst: Yeah. We’re just asking you to justify yours. Can you just maybe elaborate on the share gains, where they’re coming from? Is this pure EVs? Is it is it China?

Is it everywhere?

Hassan, CEO, ON Semi: I think it’s it’s it’s everywhere we’re playing. So silicon carbide, very specifically, share gains are obviously the bigger drivers in China, but we have share gains in North America and share gains in Europe. The difference is those are not driving the penetration that we’re looking at because it’s an end volume gain. We’re getting a lot of the share gains in design ins. Those are slower to ramp than they are in China.

So that’s on the EV. I even talked about plug in hybrid. We plug in hybrids has been kind of this stop between here and full EVs. Even that is going to silicon carbide. And we have captured a large North America OEM plug in hybrid with silicon carbide.

So it’s no longer an IGBT play for plug in hybrid because even plug in hybrid, you’re pushing more of the range. We do that with silicon carbide. We have the similar plug in hybrid with silicon carbide in China. So those are share gains from a legacy IGBT play. So we are gaining share in EVs, but a lot of it is also new designs, new automotive products that are being launched.

You know, we talked about our our engagement with Xiaomi. That’s a new vehicle that they’ve launched. That’s doing very well in the market. Yep. So that’s not a really a share gain.

That’s a a net new design that was there. And then you could take that with along the lines. Treo is allowing us to also gain share in in more of the mixed signal analog ASSP range. So I think it’s all of the above. And that’s why we’re excited about the new products because that’s what’s gonna drive this margin expansion from a mix perspective in the long run.

Unidentified speaker, Analyst: So would you say your your auto strength on the share gain side is mostly silicon carbide? Or is it split between silicon carbide and the rest of the business?

Hassan, CEO, ON Semi: It’s it’s both. We have some on both. But, obviously, the oversize is silicon carbide because maybe not silicon carbide, but, like, electric vehicle exposure, includes silicon carbide.

Unidentified speaker, Analyst: Great. And I know you’re the big auto guru, and I always like to ask you this question. So what’s your sense on, you know, the EV market? The growth seems to be slowing, but there also seems to be a tremendous amount of share shifts going on out there. You know, this continual, like, sucking sound from Europe over to China.

So, you know, what do you see out there? And then more importantly, how does it impact on?

Hassan, CEO, ON Semi: Yeah. So let me let me first put so I I’ve been doing automotive for for a very long time, and I never get trapped into the the comps of automotive from a year ago or two years ago. So if I look at when we when I said the strategy for the company four years ago, we talked about electrification is going to be a wave of growth in the automotive or e mobility. If you look at the number of EVs or EV penetration from kind of four years ago, that 2020, 2021, we’re on par to that. So when we say the growth in EV slowed, yes, it slowed from this peak that we had the last couple of years, but it’s really consistent.

So I look at automotive over just my brain works in a kind of three to five year

Thad Trent, CFO, ON Semi: Yeah.

Hassan, CEO, ON Semi: Views. So that’s still a growth, and that will remain a growth. Meaning, every year, there’s more EVs that are made as part of total SAAR than there are ICE. So the percent of EVs of total SAAR is increasing every year. So that’s a positive.

Within EVs, there is a penetration of silicon carbide. So if you take out the North America lead from EV, the penetration of silicon carbide in the rest of the world is 12% to 14% of EVs. So just the conversion into silicon carbide is another uptick even without the gross of units. So all of these are favorable for us for an automotive. Now your comment about China.

China is ahead from perspective, but I also don’t look at the China EV market as contained in domestic China. China EV market is a global phenomenon. Yeah. Maybe not in The US, but you look at anywhere in the world, including Europe. Oh, yeah.

There’s a lot of EVs EVs making their way into Europe, South America, Australia, the Arab world. So there’s a lot of China EV. So I look at the volume and the penetration of EV, not just from a new energy registration within China. I look at it globally because that’s the market we address. Now that’s not to say that there’s no room for the European OEMs in in Europe.

There’s because that’s a different brand. That’s a different different market segmentation and so on. But I think I think there’s coexistence for both, and we benefit from both. Yeah. Because we’re leveraging we have great relationships with the European OEMs, and we’re helping them move fast and with aggressiveness into the electrification while we also support our Chinese customers.

Our view and our priority is to ensure every customer we engage with has always the best product and technology we’re able to offer across any geography. And that has been a great recipe for success for us.

Unidentified speaker, Analyst: Great. I have plenty more questions, but we’re in the client service business here. So anybody in the audience has any questions right here upfront?

Thad Trent, CFO, ON Semi: Yeah.

Unidentified speaker, Analyst: Talk about where do you see you have better relationships with and maybe name of your brands. The question was Where do you see? It was on Chinese

Hassan, CEO, ON Semi: Yeah. So Chinese OEMs, where do we see the the best engagement, you know, with some names? I mean, I’ll give you the names that we’ve disclosed publicly. And I’ll focus on kind of the top 10 where we do we have engagements in we ship into general. And I’m not talking silicon carbide around, but general shipments into the OEMs from Xiaomi, Li Auto, NIO, BYD, across basically the top 10 brands.

In China, There are customers. Of course, China has more than 150 different brands. So we do have a network of Tier 1s that supports kind of the more of the tail of the customer because we can’t support hands on design in for some companies that make 10,000 vehicles a year and so on. So we leverage our not distribution, but a Tier one as proliferation. But we’re with the right players.

Our focus on the hands on approach is really also the global footprint that those OEMs are able to target.

Unidentified speaker, Analyst: Anybody else in the audience? Going once, going twice? Keep going. I’m not afraid. Great.

Just on the the geo side, how would you characterize, like, the overall trend of business or their economy in, say, China versus North America versus Europe right now? China. From an economy? Just like how the business is trending. If we take take your share gains out of the equation.

Hassan, CEO, ON Semi: I think, obviously, China is is the healthiest. Mhmm. I think I’m I’m what I’m struggling with, I I can’t remember the data for Europe and North America, but I think it’s kind of similar between the two.

Thad Trent, CFO, ON Semi: Yeah. I I would say Europe’s probably a little stronger than North America right now.

Unidentified speaker, Analyst: Europe a little better than North America? Yeah. Okay. And then one more I wanted to touch on is the business you guys are getting out of, I guess, the the lower margin business. Maybe just give us the the numbers.

I think it was 300,000,000. You’ve gotten out of a 100 so far and a 100 more this year and a 100 next year.

Thad Trent, CFO, ON Semi: Yeah. So it’s, it’s about 5% of our 2025 revenue that won’t repeat in 2026. So roughly about $300,000,000. It’s three buckets, and none of this is new. It’s things we’ve been talking about for multiple years.

The first one is the exits of the noncore business, and Hassan talked about this earlier. Right? We laid out four years ago, we’d exit 800 to $900,000,000. There’s, this year, we’ve, through Q2, we’ve exited $100,000,000 We think there’ll be another 100,000,000 through the remainder of this year. That pushes about 100,000,000 into next year.

That’s 100,000,000 of the $300,000,000 There’s another 100, 50,000,000 to 100,000,000 that is just from our image sensing business, Right? So that’s that repositioning of that business into machine vision and away from human vision. And then the third component is just this EOL business that over the long term, as we march to that greater than 50% gross margin, would be dilutive. Right? So today, it’s about the corporate average.

But we’ve EOLed that product, and we’ll exit that. So that’s the remainder of that, of that 300,000,000 that doesn’t repeat for next year. So, again, all of it was in our plan. We drew a box around this to make sure The Street really kind of understood what that headwind was for next year. And I think that’s provided a lot of clarity for people that were trying to get their arms around what what those figures were.

Unidentified speaker, Analyst: Yeah. And that has not changed. Right? That has not changed. And what’s the, gross margin benefit, I would assume, when that business does go away?

Because it does tend to be Right?

Thad Trent, CFO, ON Semi: So today, it’s at the corporate average. So the part we’re exiting, right, that’s the part that is highly volatile and pricing sensitive that if we were trying to maintain that, it would be dilutive. The other piece of the EOL, it’s at the corporate average today, but in the future, it would be dilutive. Yeah. So if you think about when if you just pull that out of 2026, should have really no impact on gross margin for 2026.

Great.

Unidentified speaker, Analyst: Alright. And then so silicon carbide, last question, last topic. I think it’s slightly dilutive to the corporate average. What gets it back to the corporate average? And then can silicon carbide get back to that 50% gross margin level at the corporate target is?

And what would drive that?

Hassan, CEO, ON Semi: I think the primary driver for silicon carbide gross margin in the short term is all utilization. Because remember, we put the capacity in place ahead of any of the ramps. So right now, it’s purely on utilization. Because if I compare what you referred to gross margin and I compare I take out the utilization, I look at product margin, product margin is where we want it to be. So the rest is kind of that leakage because of the utilization impact.

So that’s purely a a capacity that we built that we knew we were building for a ramp.

Unidentified speaker, Analyst: Any estimate as to what the, like, long term growth of this business should be? What should we be thinking about conceptually?

Hassan, CEO, ON Semi: That you know, with the lumpiness, I’m not giving a guidance of the of of that because it’s it’s gonna be growing. There’s a lot of puts and takes in there with the mix shift. But until we get to a post where we are today and we get back to that linearity, at least semilinear vector, then it’s easier to start anchoring on growth above market because the market is just too noisy today.

Unidentified speaker, Analyst: Yes. Great. I think we’re out of time. Thanks again, guys. Thanks, Thank you.

Thad Trent, CFO, ON Semi: Thanks, Chris.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.