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ON Semiconductor (ONNN)

Q3 2010 Earnings Call

November 03, 2010 5:00 pm ET


Ken Rizvi - Director of Treasury, Investor Relations & Corporate Development

Keith Jackson - Chief Executive Officer, President, Director, Member of Executive Committee, Chief Executive Officer of Semiconductor Components Industries LLC and President of Semiconductor Components Industries LLC

Donald Colvin - Chief Financial Officer, Principal Accounting Officer, Executive Vice President, Treasurer, Chief Financial Officer of SCI LLC, Executive Vice President of SCI LLC and Treasurer of SCI LLC


Terence Whalen - Citigroup Inc

Andrew Banish

Tristan Gerra - Robert W. Baird & Co. Incorporated

James Schneider - Goldman Sachs Group Inc.

Christopher Danely - JP Morgan Chase & Co

Parag Agarwal - UBS Investment Bank

Ramesh Misra - C.E. Unterberg, Towbin

Kevin Cassidy - Stifel, Nicolaus & Co., Inc.

John Vinh - Collins Stewart LLC

Craig Ellis - Caris & Company

John Pitzer - Crédit Suisse AG



Ladies and gentlemen, thank you for standing by, and welcome to the ON Semiconductor Third Quarter Earnings Call. [Operator Instructions] I would now like to turn the conference over to Mr. Ken Rizvi to begin.

Ken Rizvi

Thank you, Tamika. Good afternoon, and thank you for joining ON Semiconductor Corporation's Third Quarter 2010 Conference Call. I'm joined today by Keith Jackson, our President and CEO; and Donald Colvin, our CFO.

This call is being webcast on the Investor Relations section of our website at, and a replay will be available for approximately 30 days following this conference call, along with our earnings release for the third quarter of 2010. The script for today's call is posted on our website and will be furnished via a 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 comparable measures under GAAP are in our earnings release and posted separately on our website in the Investor Relations section. In the upcoming quarter, we will be presenting at the Credit Suisse Technology Conference on November 30 and the Barclays Technology Conference on December 9.

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 assumptions or other factors.

Now let's hear from Donald Colvin, who will provide an overview of the third quarter results. Donald?

Donald Colvin

Thanks, Ken, and thanks to everyone joining us today. ON Semiconductor Corporation today announced that total revenue in the third quarter of 2010 were approximately $600.7 million, an increase of 3% from the second quarter of 2010.

During the third quarter of 2010, the company reported GAAP net income of $87.8 million or $0.20 per fully diluted share. The third quarter 2010 GAAP net income included net charges of $20 million or $0.05 per fully diluted share from special items, which are detailed in schedules included in our earnings press release.

GAAP gross margin in the third quarter was 41%. Non-GAAP gross margin in the third quarter was 41.3%. During the third quarter, external factors such as currencies and commodity prices negatively impacted GAAP and non-GAAP gross margin by approximately $7 million to $8 million or 130 basis points.

Third quarter 2010 non-GAAP net income was $107.8 million or $0.25 per share on a fully diluted basis, including stock-based compensation expense. During the third quarter of 2010, our GAAP and non-GAAP operating expenses included approximately $5 million of acquisition expenses related to our M&A activities.

We exited the third quarter of 2010 with cash and cash equivalents of approximately $562.9 million, an increase of approximately $96 million from the previous quarter. We also exited the quarter with the lowest net debt position in the company's history at approximately $223 million. At the end of the third quarter, total sales outstanding were approximately 48 days, down by two days compared with the second quarter of 2010.

ON Semiconductor's internal inventory increased slightly from second quarter levels on a days basis to approximately 90 days. Included in our internal inventory is approximately $13 million of inventory related to our acquisitions and bridge inventory related to our announced closures of front-end manufacturing lines. Net of the bridge inventory and inventory from acquisitions, our inventory days would have been approximately 87 days at the end of the third quarter. Distribution inventories remained low at approximately eight weeks exiting the quarter.

Cash capital expenditures during the third quarter were approximately $52 million, bringing year-to-date capital expenditures to approximately $146 million. We currently anticipate total capital expenditures for 2010 of approximately $200 million, of which approximately $35 million will be for buildings.

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

Keith Jackson

Thanks, Don. And now for an overview of our end markets. During the third quarter of 2010, our end-market splits were as follows: The computing end market represented approximately 25% of our third quarter 2010 sales; the automotive end market represented approximately 19% of third quarter sales; the industrial, military and aerospace end market represented approximately 18% of sales; the consumer electronics end market represented approximately 18% of sales; the communications end market, which includes wireless and networking, represented approximately 17% of sales; and the medical end market represented approximately 3% of sales.

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