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ON Semiconductor Corporation (ONNN)

F4Q08 Earnings Call

February 4, 5:00 pm ET


Keith Jackson - CEO

Donald Colvin - CFO

Ken Rizvi - Director, Investor Relations


Scott Jones (for Chris Danely - JP Morgan)

John Pitzer - Credit Suisse

John Barton - Cowen

Craig Berger - FBR Capital Markets

Tristan Gerra - Robert Baird

Harold Arowall - UBS

Steve Smigie - Raymond James

Kevin Cassidy - Thomas Weisel

Patrick Wang - Wedbush Morgan



Good afternoon. My name is Jennifer and I will be your conference operator today. At this time, I’d like to welcome everyone to the ON Semiconductor fourth quarter earnings conference call. (Operator instructions) Thank you. Mr. Rizvi, you may begin your conference.

Ken Rizvi

Thank you. Good afternoon and thank you for joining ON Semiconductor’s fourth quarter 2008 conference call. I am joined today by Keith Jackson, our CEO, and Donald Colvin, our CFO. This call is being webcast on the investor relations section of our website at and will be available for approximately 30 days following this conference call, along with our earnings release for the fourth quarter of 2008. The script for today’s call is posted on our website and will be furnished via form 8-K filing.

Our earnings release and this presentation includes certain non-GAAP financial measures. Reconciliations of these non-GAAP financial measures to the most directly comparables under GAAP are in our earnings release and posted separately on our website in the investor relation section. In the upcoming quarter, we’ll present at the Morgan Stanley Technology Conference on March 4.

During the course of this conference call, we will make projections or other forward-looking statements regarding future events or the future financial performance of the company. The words believe, estimate, anticipate, intend, expect, plan, or similar expressions are intended to identify forward-looking statements.

We wish to caution that such statements are subject to risks and uncertainties that could cause actual events or results to differ materially. Important factors relating to our business, including factors that could cause actual results to differ from our forward-looking statements, are described in our form 10-K, form 10-Qs and other filings with the SEC. The company assumes no obligation to update forward-looking statements to reflect actual results, change in assumptions, or other factors.

Now let’s hear from Donald Colvin, our CFO, who will provide an overview of the fourth quarter 2008 results. Donald.

Donald Colvin

Thank you Ken, and thanks to everyone who is joining us today.

ON Semiconductor Corporation today announced that total revenues in the fourth quarter of 2008 were a $488.7 million, an decrease of approximately 16% from the third quarter of 2008. During the fourth quarter of 2008, the company reported GAAP net loss of $519.6 million or $1.27 per share.

The fourth quarter 2008 GAAP net loss included net charges of $581.6 million, or $1.42 per share from special items, which are detailed in schedules to our earnings release. The largest special item of $557.4 million arises from our annual goodwill impairment testing and is an estimate finalized with the filing of our 10-K.

Fourth quarter 2008 non-GAAP net income was $62 million or $0.15 per share on a fully diluted basis.

On a mix adjusted basis, average selling prices in the fourth quarter of 2008 were approximately flat with the third quarter of 2008.

The company’s GAAP gross margin in the fourth quarter was 38%. Non-GAAP gross margin in the fourth quarter was 39.9%.

Adjusted EBITDA for the fourth quarter of 2008 was a record $102.9 million.

We exited the fourth quarter of 2008 with record cash and equivalents of approximately $458.7 million or approximately $41 million more than the third quarter and approximately $184 million greater than FY07. We also exited the fourth quarter with the lowest debt position and the net deposition in the company’s history as a public company.

During the fourth quarter, the company used $49.4 million of cash to retire $60.9 million of its zero convertible senior notes.

At the end of the fourth quarter, total days sales outstanding were approximately 35 days.

ON Semiconductor total inventory was approximately $335.5 million or approximately 101 days. This is up from the third quarter 2008 of $309.4. Included in our total inventory is approximately $28 million of inventory, which includes inventory write-off to share value related to the acquisition of Catalyst Semiconductor, which closed in the fourth quarter of 2008. Also included in our fourth quarter inventory is approximately $6 to $8 million of bridge inventory related to the acceleration of the three closures previously announced. Also included in our overall inventory is approximately $40 million of inventory associated with the write-up to share value from the AMIS and Catalyst Semiconductor acquisitions. This is up approximately $2 million from the third quarter of 2008 due to the Catalyst acquisition.

Distribution inventories were approximately 12 weeks at the end of the fourth quarter. On a dollar basis by approximately $30 million, but the weak, as a result of overall sales. Cash capital expenditures during the fourth quarter of 2008 were approximately $20 million and total cash capital expenditures for the year were approximately $95 million.

Now, I would like to turn it over to Keith Jackson for additional comments on the business environment.

Keith Jackson

Thanks, Don. Now for an overview of our end-markets. During the fourth quarter of 2008, our end market splits were as follows. The computing end-market represented approximately 23% of fourth quarter 2008 sales.

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