) reported fourth quarter 2012 earnings of 8 cents, beating the
Zacks Consensus Estimate by a penny.
ON Semi reported revenues of $725.5 million, down 6.2%
sequentially and 11.4% year over year.
Asia (including Japan) was the only region to witness
growth. ON Semi's revenues from Asia (including Japan)
accounted for 71% of the total revenues, while America generated
16.0% of the total revenues and Europe contributed 13.0%.
Revenues by End Market
brought in 26.0% of revenues. Segment revenues were down 2.5% on
a sequential basis. Management stated that the weakness in
earnings was due to lingering economic concerns in Europe and
inventory corrections across the world. . Further, a trade
dispute between China and Japan hurt sales of Sanyo's automotive
ON Semi has been winning designs in powertrain, body,
infotainment, power supplies and in-vehicle networking. Thus,
management is confident that these will contribute significantly
to revenues in the long term as the electronic content in new
vehicles continues to increase. ACISs, LED lighting, park assist
and start-stop, and new braking applications are witnessing
generated 22.0% of revenues, down 14.1% sequentially.
Results in the last quarter were impacted by the white goods
inventory glut in China, which management stated was showing an
improving trend. Design wins on the handset side are also a
positive for the future.
generated 19.0% of revenues, down 10.9% sequentially. The SANYO
side pulled down results in the last quarter, which management
attributed to continued softness in the HDD market.
ON Semi continued its design wins in several areas such as
hard disk drives, gaming, desktop and server markets with its
mixed signal ASICs and MOSFETs. Management also witnessed
continuing market share gain due to CPU power management
) Ivy Bridge platform.
In addition, the company is witnessing a rising interest in
its innovative Ultrabook with
) Windows 8, which is expected to ramp up through fiscal 2013. ON
Semi was also successful with its thermal products and switching
battery charger for
) Android-based tablets.
generated another 18.0% of revenues, down 6.2% from the prior
quarter. Despite the current sluggishness in the market, demand
is showing improving trends. Therefore, ON Semi expects a
stronger second half of 2013.
accounted for 15.0% of revenues and increased 8.2% from the prior
quarter. ON Semi continues to drive penetration in the smartphone
market, with design wins for its optical imaging, analog power
management, protection and MOSFET solutions.
The gross margin for the quarter was 30.9%, down 187 basis
points (bps) sequentially and 22 bps from the year-ago quarter.
The gross margin weakness was due to a lower factory utilization
rate and lower-than-expected revenues in the last quarter.
Total operating expenses were $341.8 million, up 76.7%
sequentially and 63.8% from the year-ago quarter. The expansion
from the year-ago quarter was due to higher research and
development (R&D), selling and marketing (S&M) and
general and administrative (G&A) expenses as a percentage of
sales. Increases in R&D expenses were the most significant,
followed by G&A.
On a pro forma basis, ON Semi reported a net income of $37.0
million or a 5.4% net income margin, compared with $53.5 million
or 7.4% in the previous quarter and $58.4 million or 7.6% in the
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 differ 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 loss
of $138.2 million (31 cents per share) compared to income of
$12.5 million (3 cents per share) in the previous quarter and
loss of $8.8 million (2 cents per share) in the year-ago
Inventories were down 9.7% to $581.7 million and inventory
increased from 3.0X to 3.2X in the fourth quarter. Days sales
outstanding (DSOs) were around 48, down from around 52 in the
The cash and short-term investments balance was $631.7 million
at quarter-end , with ON Semi generating $136.6 million from
operations and spending around $58.0 million on capex.
At quarter-end, ON Semi had $658.3 million of long-term debt
on its balance sheet. Including both short and long-term debt,
the net debt position at quarter-end was $380.2 million, down
from a net debt position of $420.4 million in the third
ON Semi expects first quarter revenues in a range of
$645.0-685.0 million. Both GAAP and non-GAAP gross margins are
expected to be in the 30.5-32.5% range.
Operating expenses on a GAAP basis are expected to be
$212.0-$222.0 million, while on a non-GAAP basis they are
expected to be $157.0-$167.0 million. Backlog levels are
estimated to be approximately 80.0%-85.0%. ON Semi also expects
other income/expense of around $10.0 million on both GAAP and
Taxes are expected to be $2.0-$4.0 million on both GAAP basis
and non-GAAP basis, with fully diluted share count at 450.0
million. Convertible notes, non-cash interest expense is expected
to be $3.0 million on a GAAP basis. In addition, stock-based
compensation expense is projected to be $6.0-$8.0 million in the
first quarter of 2013.
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. Improvement in SANYO is dependent on recovery in demand
out of Asia markets, specially China and elimination of
ON Semi has a Zacks Rank #2 (Buy).
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