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ON Semiconductor (ONNN)

Q4 2012 Earnings Call

February 07, 2013 8:00 am ET


Bernard Gutmann - Chief Financial Officer and Executive Vice President

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

Sloan Boss


Craig Berger - FBR Capital Markets & Co., Research Division

Shaon Baqui - JP Morgan Chase & Co, Research Division

James Schneider - Goldman Sachs Group Inc., Research Division

Ross Seymore - Deutsche Bank AG, Research Division

Christopher Caso - Susquehanna Financial Group, LLLP, Research Division

Kevin E. Cassidy - Stifel, Nicolaus & Co., Inc., Research Division

Jonathan Steven Smigie - Raymond James & Associates, Inc., Research Division

John W. Pitzer - Crédit Suisse AG, Research Division

Ian Ing - Lazard Capital Markets LLC, Research Division



Good morning. My name is Tiffany, and I will be your conference operator today. At this time, I would like to welcome everyone to the fourth quarter and 2012 earnings conference call. [Operator Instructions]

Sloan Boss, Investor Relations, you may begin your conference.

Unknown Executive

Thank you, Tiffany. Good morning, and thank you for joining ON Semiconductor Corporation's Fourth Quarter and 2012 Annual Results Conference Call.

I am joined today by Keith Jackson, our President and CEO; and Bernard Gutmann, 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 fourth quarter and year ended 2012. The script for today’s call is posted on our website.

Our earnings release and this presentation include 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 attending the Morgan Stanley Technology, Media & Telecom Conference on February 26, the Susquehanna Semiconductor Summit on March 5 and the Wedbush 2013 Technology, Media & Telecommunications Conference on March 6. In addition, we will be hosting our Analyst Day in Scottsdale, Arizona on Friday, February 15.

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, should 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 Securities and Exchange Commission. Additional factors are described in our earnings release for the fourth quarter and year ended 2012.

Our estimates may change, and the company assumes no obligation to update forward-looking statements to reflect actual results, changed assumptions or other factors.

Now let me turn it over to Bernard Gutmann, who will provide an overview of the fourth quarter and 2012 annual results. Bernard?

Bernard Gutmann

Thanks, Sloan, and thanks to everyone joining us today. In our last earnings call, I laid out 3 major areas that I would be focusing on as the new CFO in order to drive stronger performance and earnings accretion. I would like to take a few moments to provide an update on the progress we have made to this point.

The first focus was reducing the revenue breakeven level for SANYO Semiconductor from $230 million per quarter to $200 million per quarter. We have made great strides in the integration and harmonization of our semiconductors -- of our SANYO Semiconductor's IT infrastructure and systems. In the fourth quarter, we completed the integration of ON Semiconductor inventory tracking for SANYO Semiconductor back-end facilities. We expect to continue this process with the rest of the organization over the next 2 quarters.

Once completed, it should allow us to more accurately assess the inventory at SANYO Semiconductor. This progress will continue in the coming quarters and should create a more efficient supply chain and manufacturing process with better inventory management and more accurate forecasting.

In addition to the inventory tracking system, we also completed the consolidation of SANYO Semiconductor's non-Japan sales offices into existing ON Semiconductor sales offices. Furthermore, we took actions to reduce payroll-related expenses with the elimination of certain bonuses and fringe benefits, and we implemented headcounts reductions that will continue over the next 3 quarters. We are expecting restructuring charges of approximately $40 million to $50 million due to these actions.

Finally, with the actions already completed and those in process over the next 2 to 3 quarters, we now believe we can achieve a breakeven level of $190 million per quarter for SANYO Semiconductor. This breakeven level does not account for the impact of the recent yen devaluation.

The second area of focus was to optimize the legacy ON Semiconductor business. In the fourth quarter, we completed the change from 3 business units to 2. The legacy ON Semiconductor business is now made up of the Standard Product Group and an Application Product Group.

Progress is already being made as we focus our R&D efforts on new product and technology offerings with stronger margins. Benefits from these efforts are evident, as we exited 2012 with significant design win activity and expect to continue that trend into 2013.

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