) reported first quarter 2012 earnings of 11 cents, missing the
Zacks Consensus estimate by 3 cents. Results were again impacted by
the flooding in Thailand, with management stating that other
manufacturing locations, as well as the restoration of damaged
production capacity would bring total production back up to
With inventories at their lowest levels since the third quarter
of 2010, a further delay could result in lost customers.
ON Semi reported revenue of $744.4 million, down 3.1%
sequentially, 14.5% year over year and in the middle of
management's guidance range of $720-760 million, or down 1-6%
Europe was the only geography to have grown in the last quarter.
ON Semi's revenue from Europe was 14% of the total (up 4.4%
sequentially). The Americas bought in another 16% (down 8.8%),
while Asia (including Japan) accounted for the remaining 70% (down
Revenue by End Market
Following the acquisition of SANYO's business in the year-ago
market emerged as the largest contributor of quarterly revenue.
However, given the manufacturing issues in Thailand, the revenue
share dropped to 23% in the December quarter and 22% in the last
quarter. First quarter revenue from the market declined 7.3%
sequentially and 30.3% from the year-ago quarter.
Roughly half of SANYO's acquired business caters to the consumer
market, so there should be a nice pickup as manufacturing issues
are resolved and consumer demand (especially in China)
brought in 26% of revenue, up 9.6% sequentially and 1.1% year over
year. The sequential increase in the last quarter was the result of
new vehicle launches using solutions from ON Semi for LED lighting,
start/stop applications and park assist. ON Semi also mentioned
that it had key design wins in all the above categories and also
gained share at several Chinese and Korean OEMs.
Management remains focused on growing the dollar content per
vehicle, which is now at around $90. The increasing number of cars,
the increasing use of electronics in the automotive sector, as well
as increased adoption of ON Semi products remain longer-term
China is developing into an important market and On Semi last
year opened an engineering center in China, which is wise
considering the fact that a significant percentage of automotive
manufacturing has shifted to the region. Management stated that the
company's products were being well received in China.
generated another 20% of revenue. The market was impacted by weak
demand in the last quarter, with revenue declining 7.7%
sequentially, although flat year over year. While the market
remains sluggish as of now, demand is showing improving trends.
Therefore, ON Semi expects a stronger second half.
The convergence of connected building automation systems with
energy efficient initiatives will continue to work in ON Semi's
favor, as will the increasing demand for wired communications over
IP, embedded control, motor control, sensors, and lighting and
generated 18% of revenue, down 3.1% sequentially and 26.7% from a
year ago. The sequential decline seems to indicate that the impact
on supply chain issues related to the Thailand flooding is
receding. Here, too, the company is seeing design-win momentum in
the 3D projection, HDD, gaming, commercial desktop and server
What is most encouraging is the fact that ON Semi will gain
) new Ivy Bridge chip, which is expected to ramp very fast this
year. Overall, the company's power systems now command a 30-35%
share in the notebook maket.
accounted for 14% of revenue, down 9.5% sequentially and 7.9% year
over year. On Semi continues to drive penetration in the smartphone
market, with design wins for its autofocus and image stabilization
products. On Semi can support a dollar content of $3.00 to $3.50
per smartphone, including its camera solution.
The company continues to introduce new products, which will
augment the strength from increased penetration of its custom
ASICs, precision clock and timing products, as well as
infrastructure buildouts in China and India.
Gross margin for the quarter was 32.9%, up 6 basis points (bps)
and down 305 bps from last year. Factory cost reductions and a more
favorable mix were positive for ON Semi's core business.
SANYO remained the weak link. Not only are margins lower, but
they have also been affected in the recent past by the hit to
revenue. Management intends to take cost reduction actions in this
area as well, which should improve margins going forward.
The total operating expenses of $179 million were more or less
flat on both sequential and year-over-year bases. The operating
margin shrunk 89 bps sequentially and 638 bps from last year. While
higher cost of sales was the main reason for the sequential
contraction, the decline from the year-ago quarter was impacted by
higher R&D, S&M and G&A expenses as a percentage of
sales. R&D increases were the most significant, followed by
S&M and then G&A.
On a pro forma basis, ON Semi reported a net income of $51.1
million, or a 6.9% net income margin compared to $52.4 million, or
6.8% in the previous quarter and $113.2 million or 13.0% in the
first quarter of last year.
Our pro forma estimate for the last quarter excludes
restructuring and intangibles amortization charges on a
tax-adjusted basis but includes stock based compensation. Our
calculations may difer from management's presentation due to the
inclusion/exclusion of some items that were not considered by
On a fully diluted GAAP basis, the company recorded net income
of $28.2 million ($0.06 per share) compared to loss of $8.8 million
(-$0.02 per share) in the previous quarter and income of $74.8
million ($0.16 per share) in the year-ago quarter.
Inventories were down 0.6% and inventory were flat at around
3.2X. Days sales outstanding (DSOs) were around 52, down from
around 54 in the previous quarter.
The cash and short-term investments balance was $892.3 million
at quarter-end (down $9.2 million during the quarter), with ON Semi
generating $68.4 million from operations and spending around $50
million on capex.
At quarter-end, ON Semi had $811.9 million of long-term debt on
its balance sheet. Including both short and long-term debt, the net
debt position at quarter-end was $296.7 million, down from a net
debt position of $305.5 million at the beginning of the
ON Semi expects second quarter revenue of $745-785 million, or
up 0-5% sequentially, with ASPs declining 1-2%. Both GAAP and non
GAAP gross margins are expected to be in the 34.0-35.0% range.
Operating expenses on a GAAP basis are expected to be $240-250
million, while on a non-GAAP basis they are expected to be $180-190
million. ON Semi also expects other income/expense of around -$10
million on both GAAP and non-GAAP bases.
Taxes are expected to be $4-5 million on a GAAP basis and $5-6
million on a non-GAAP basis, with the fully diluted share count at
465 million. This should result in earnings per share of around 1
cent on a GAAP basis and 14 cents on a non-GAAP basis, more or less
in line with the Zacks Consensus Estimate of 14 cents when On Semi
ON Semi previously provided a 2012 capex estimate of $250-275
million, including the $50 million related to Thailand. However,
management now expects this to be slightly lower, since demand in
2012 is not expected to be as strong as that in 2011.
On Semi remains a good company with a well diversified business
and an end-market focus that would typically generate relatively
steady revenues through the year. The company also acquired
additional capacity through the SANYO acquisition that should come
in handy once demand picks up.
The end-market demand trends indicate strengthening computing
and automotive markets, and steadier industrial and consumer
markets. The second half of the year should be stronger than the
first. Improvement in SANYO is dependent on recovery in demand out
of Asia and elimination of manufacturing issues.
Cost reduction actions is expected to improve ON Semi's total
business and will be felt particularly on the SANYO side (the
company is planning a significant headcount reduction).
Given the current trends, we expect it to be awhile before the
company gets its act together. We therefore have a Neutral
recommendation on On Semi shares for the long term (3-6 months).
The Zacks Rank for the shares is #3, implying a Hold rating in the
near term (1-3 months).
INTEL CORP (INTC): Free Stock Analysis Report
ON SEMICON CORP (ONNN): Free Stock Analysis
To read this article on Zacks.com click here.