ON Semiconductor Corp at Morgan Stanley Technology, Media & Telecom Conference Summary

The following is excerpted from the question-and-answer section of the transcript.

Question: Joseph Moore - Morgan Stanley Co. & LLC - Analyst : <_ALACRA_META_ABSTRACT>Maybe we'll just jump right into some of the tactical issues. You described the recent headwinds on the most recent earnings call. Can you just give a quick summary of where you guys sit in the market today? Maybe we'll just jump right into some of the tactical issues. You described the recent headwinds on the most recent earnings call. Can you just give a quick summary of where you guys sit in the market today?

Question: Joseph Moore - Morgan Stanley Co. & LLC - Analyst : Thank you. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MARCH 04, 2025 / 11:20PM, ON.OQ - ON Semiconductor Corp at Morgan Stanley Technology, Media & Telecom Conference

Question: Joseph Moore - Morgan Stanley Co. & LLC - Analyst : Okay. Great. You mentioned inventory and utilization. Can you give us a sense of what that utilization driver looks like? I know it's weaker in the first half of the year. How much inventory do you need to draw down? And then you have this buffer inventory transition that you're dealing with later in the year. Can you talk about that as well? Is that going to be anything impactful? Thad Trent - ON Semiconductor Corp - Chief Financial Officer, Executive Vice President, Principal Accounting Officer, Treasurer Let me take a reverse order. So if you think about the inventory, our inventory is actually lean if you look at our working inventory. We have the, what we call, our strategic inventory, which was for our fab transition. If you exclude that, our working inventory is at 116 days. That's in our sweet spot of 100 to 120. So we don't have to go through an inventory digestion to actually get utilization turned back on. And if you look at what we have in the distribution channel, it's at 10 weeks, that's our sweet spot. We actually took $55 million out of the channel last quarter. We're going to be running in this 10-week timeframe or horizon for quite a while here. But if you think about whenever there is an upturn, we don't have to wait for inventory in the channel to bleed through or inventory on our balance sheet to bleed through. Now, on the strategic inventory, we will be peaking that inventory here in the first half, and then we'll start to bleed through it in the second half. Most of that is for the take or pays that we had when we divested the four fabs in 2022. So that will start turning into cash flow. So you think year-on-year, we're going to have a strong free cash flow year for the company. We talked about on our last call that our free cash flow margin will hit our target of 25% to 30% this year. So even though we've got headwinds on the top line, it's a strong free cash flow. So utilization, we're going to be running in that mid-50s, and then we'll be starting to click that up as soon as we start to see the recovery. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MARCH 04, 2025 / 11:20PM, ON.OQ - ON Semiconductor Corp at Morgan Stanley Technology, Media & Telecom Conference

Question: Joseph Moore - Morgan Stanley Co. & LLC - Analyst : Yeah. Good. I wanted to ask about the role of long-term supply agreements. You've used that effectively to help you navigate through this challenging period. And it seems like the automotive business is still willing to sign those longer-term agreements, still looking for that supply chain certainty even in a period of some oversupply. Can you talk about that, the role of those?

Question: Joseph Moore - Morgan Stanley Co. & LLC - Analyst : Great. That's helpful. And then last cycle question. Subsequent to the quarter, you guys did announce some cost-cutting actions, reduction in force. My assumption was that that was kind of consistent with the cost-cutting you talked about, but just anything new to update around that?

Question: Joseph Moore - Morgan Stanley Co. & LLC - Analyst : Okay. That's a helpful clarification. So I wonder if we could talk about a couple of the recent growth initiatives, starting with Treo. You mentioned 60%, 70% gross margins, programmable analog products. Can you talk about the product and what it is that you're achieving with that?

Question: Joseph Moore - Morgan Stanley Co. & LLC - Analyst : Great. And you're four months in now since that product launch. Can you talk about the customer reception?

Question: Joseph Moore - Morgan Stanley Co. & LLC - Analyst : Okay. Great. And then another growth initiative I wanted to ask about, you acquired the universal silicon carbide business from Qorvo. They had struggled to get the value that they saw on that business. But we had a good talk about this in December at Nasdaq, you obviously have pretty high growth expectations for this.

Question: Joseph Moore - Morgan Stanley Co. & LLC - Analyst : Thank you for that. Talk about the end-markets a little bit. The automotive market, down 25% quarter-on-quarter in March. It was a little bit surprising. Can you talk about the regional breakdown of that and if there's anything idiosyncratic we should understand about that?

Question: Joseph Moore - Morgan Stanley Co. & LLC - Analyst : Okay. That makes a lot of sense. I guess maybe talking about the silicon carbide business, last year you were down. There were a lot of headwinds in that business. As you said, the center of gravity really shifted towards China. Can you talk about how that changes your mindset towards silicon carbide? And your position in China does seem quite robust still. Should we think about Chinese competition, things like that?

Question: Joseph Moore - Morgan Stanley Co. & LLC - Analyst : And you guys invested in developing an internal substrate business for silicon carbide, which has worked very well. You've also maintained a sourcing relationship with the Chinese vendors. Just how do you see that dynamic? Will you continue to source from China? Is there a deflationary aspect to Chinese wafer pricing coming down with the substrate?

Question: Joseph Moore - Morgan Stanley Co. & LLC - Analyst : Great. And can you talk about the role of 200 millimeter in silicon carbide?

Question: Joseph Moore - Morgan Stanley Co. & LLC - Analyst : And is there -- a lot of cost savings from 200 millimeters because I feel like in the silicon domain, obviously, there is because the wafer processing is the cost. In this domain, the cost of the substrate is such a high portion of the cost. Does that --

Question: Joseph Moore - Morgan Stanley Co. & LLC - Analyst : Great. So I do have more questions, but let me first open it to the audience and see if we have any questions from here. One in the front? Unidentified Participant I have one question -- actually two questions. First question is like two of your biggest competitors in Europe, they either like postponed their fab expansion in Malaysia or they canceled their foundry project in Europe. And considering like onsemi just announced last year, you have a $2 billion project in Roznov, Czech Republic, do you have any plan to readjust your CapEx plan? That's the first question. The second question is also one of your biggest competitors actually just announced last week, they have opened a joint venture foundry for silicon carbide in China. So basically they still maintain a very strong China-for-China strategy. So I want to hear your opinion about this one.

Question: Joseph Moore - Morgan Stanley Co. & LLC - Analyst : So that takes us up to the end of our time. Hassane, Thad, thanks very much for your time.