ONNN

ON Semiconductor Corporation (ONNN)

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ON Semiconductor (ONNN)

Q3 2012 Earnings Call

November 01, 2012 4:30 pm ET

Executives

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

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

Analysts

Christopher B. Danely - JP Morgan Chase & Co, Research Division

John W. Pitzer - Crédit Suisse AG, Research Division

Terence R. Whalen - Citigroup Inc, Research Division

James Schneider - Goldman Sachs Group Inc., Research Division

Christopher Caso - Susquehanna Financial Group, LLLP, Research Division

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

Elizabeth Howell

Nicholas A. Clare - Robert W. Baird & Co. Incorporated, Research Division

Presentation

Operator

Good afternoon. My name is Holly, and I'll be your conference operator today. At this time, I would like to welcome everyone to ON Semiconductor Corporation's Third Quarter 2012 Financial Earnings Conference Call. [Operator Instructions] I would now like to turn today's conference over to Ken Rizvi. Please go ahead, Sir.

Ken Rizvi

Thank you, Holly. Good afternoon and thank you for joining ON Semiconductor Corporation's Third Quarter 2012 Conference Call. I'm 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 onsemi.com and a replay will be available for approximately 30 days following this conference call, along with our earnings release for the third quarter of 2012. The script for today's call is posted on our website.

On our -- 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 Credit Suisse Technology Conference on November 27. 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 SEC.

Additional factors are described in our earnings release for the third quarter of 2012. Our estimates may change and the company assumes no obligation to update forward-looking statements to reflect actual results, change assumptions or other factors.

We've realized that many people on the East Coast are still working through the recovery from Hurricane Sandy. Our thoughts and concerns are with the families, investors and analysts that had been impacted. We are hopeful that everyone is safe and wish for a quick recovery. Now let me turn it over to Bernard Gutmann.

Bernard Gutmann

Thanks, Ken. And thanks to everyone joining us today. Before I go to our financial results for the quarter, let me provide a quick overview of my background and my thoughts of the financial strategy for the company. I'm excited about the opportunities for ON Semiconductor and the ability to lead a strong finance team as our new CFO. I understand the requirements to be successful in a cyclical industry, having over 30 years of semiconductor experience. Most recently, I served as the group CFO for SANYO Semiconductor, as well as the head of our corporate financial planning and analysis team. In these and other roles during my career, I have been directly involved in all aspects of the company's business planning, operations and strategy. In addition, I have been heavily involved in the financial integration of our 9 acquisitions, including leading our efforts to drive operational synergies and, as needed, driving restructuring on a corporate level to ensure strong cash flow generation from the business.

From a financial strategy standpoint, moving forward, we plan to focus our efforts on 3 major areas: one, reduce the revenue breakeven level for SANYO Semiconductor; two, optimize the legacy ON Semiconductor business; and three, return capital to our shareholders.

Now, let me expand into each of these 3 areas. First, we intend to focus on reducing the revenue breakeven levels for SANYO Semiconductor from approximately $230 million in quarterly revenues today to approximately $200 million. In 2011, the SANYO Semiconductor business was impacted by 3 major externalities: the March 2011 earthquake and tsunami in Japan; the strong yen which negatively impacted our customer's competitiveness; and the October 2011 Thailand flood. ON Semiconductor was profitable on a non-GAAP basis through the first 3 quarters of 2011, but was severely impacted by the Thai flood, which destroyed SANYO Semiconductor's largest back-end assembly and test site. While we have recovered the majority of the manufacturing capacity lost as a result of the flood, revenues continued to be negatively impacted.

The company is focused on improving our sales levels through new design wins and cross-selling efforts, but is also looking to substantially reduce the breakeven level for the SANYO Semiconductor Products Group. As part of our original restructuring plan, we have already consolidated 2 major fabrication facilities and have reduced headcount at SANYO Semiconductor by approximately 4,000 people, which includes headcounts seconded from SANYO Electric. We feel, however, given the current business environment, there are additional actions we need to take to reduce our overall ongoing costs. Over the next 3 to 4 quarters, the 3 largest drivers of cost reductions are expected to come from: one, the harmonization of SANYO's IT infrastructure and systems to drive more efficiency in the supply chain and manufacturing; two, the reduction of infringes and payroll-related expenses; and three, further headcount reductions.

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