ONNN

ON Semiconductor Corporation (ONNN)

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ON Semiconductor (ONNN)

Q1 2011 Earnings Call

May 05, 2011 8:30 am ET

Executives

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, Chief Financial Officer of SCI LLC and Executive Vice President of SCI LLC

Ken Rizvi - Vice President of M&A, Real Estate & Investor Relations and Treasurer

Analysts

Michael McConnell - Pacific Crest Securities, Inc.

Brian Piccioni - BMO Capital Markets Canada

Bin Jiang

Sujeeva De Silva - ThinkEquity LLC

Parag Agarwal - UBS Investment Bank

Christopher Danely - JP Morgan Chase & Co

Ramesh Misra - C.E. Unterberg, Towbin

Ross Seymore - Deutsche Bank AG

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

John Vinh - Collins Stewart LLC

Craig Ellis - Caris & Company

John Barton - Cowen and Company, LLC

John Pitzer - Crédit Suisse AG

Jonathan Smigie - Raymond James & Associates, Inc.

Presentation

Operator

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

Ken Rizvi

Thank you, Chastity. Good morning, and thank you for joining ON Semiconductor Corp.'s First Quarter 2011 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 onsemi.com and a replay will be available for approximately 30 days following this conference call, along with our earnings release for the first quarter. The script for today's call is posted on our website and will be furnished via a Form 8-K filing.

Our earnings release in 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 attending the Deutsche Bank Semiconductor Conference on May 12 and the Cowen Technology Conference on June 2.

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 risk and uncertainties that could cause actual events or results to differ materially. The important factors relating to our business, including factors that could cause actual results to differ from our forward-looking statements, are described in our earnings release Form 10-K, Form 10-Q 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 first quarter results. Donald?

Donald Colvin

Thank you, Ken, and thank you to everyone joining us today. ON Semiconductor Corp. today announced that total revenues in the first quarter of 2011 were approximately $870.6 million, including SANYO Semiconductor. Excluding SANYO Semiconductor, ON Semiconductor's revenues were up approximately 2% sequentially. If ON were a sell-in company, we would have experienced higher growth in the first quarter.

During the first quarter of 2011, the company reported GAAP net income of $74.8 million or $0.16 per fully diluted share. The first quarter 2011 GAAP net income included net charges of $46.4 million or $0.10 per fully diluted share from special items, which are detailed in schedules included in our earnings release.

GAAP gross margin in the first quarter was 27.8%. Included in our GAAP gross margin is approximately $70.9 million of special items, of which approximately $50 million relates to the expensing of non-cash manufacturing expenses associated with the SANYO Semiconductor acquisition and approximately $20 million relates to the expensing of appraised inventory fair market value step-up.

Non-GAAP gross margin in the first quarter of 2011 was 36%. This includes historical ON Semiconductor non-GAAP gross margin of 40.4% and SANYO Semiconductor non-GAAP gross margin of 26.5%.

First quarter 2011 non-GAAP net income was $121.2 million or $0.27 per share on a fully diluted basis.

Total gross margins and net income were negatively impacted by production disruptions and increased expenses associated with the Japan earthquake and resulting tsunami. We currently estimate the negative impact to net income to be approximately $10 million in the first quarter.

We exited the first quarter of 2011 with cash and cash equivalents of approximately $766 million, after paying cash to SANYO Electric for the acquisition of SANYO Semiconductor and Cypress Semiconductor Corp. for the acquisition of its CMOS Image Sensor Business unit of approximately $160 million.

At the end of the first quarter, total days sales outstanding were approximately 60 days, up compared with the fourth quarter of 2010 due to the acquisition of SANYO Semiconductor.

ON Semiconductor's internal inventory also increased from fourth quarter levels on a days basis to approximately 111 days due to the acquisition of SANYO Semiconductor. Included in our total internal inventory is approximately $402 million of bridge inventory and inventory acquired as part of SANYO Semiconductor transaction. Distribution inventories remained relatively flat at approximately 10 weeks exiting the first quarter, but grew on an absolute dollar basis.

Cash capital expenditures during the first quarter of 2011 were approximately $89 million, which included approximately $18 million related to SANYO Semiconductor. We currently anticipate total capital expenditures for 2011 of approximately $310 million to $340 million, which also includes SANYO Semiconductor.

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