ON Semiconductor Corporation

Ladies and gentlemen, thank you for standing by and welcome to the On Semiconductor fourth quarter 2020 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during this session, you will need to press star 1 on your telephone. Please be advised that today's conference may be recorded. If you require any further assistance, please press star, then zero. I would like to hand the conference over to one of your speakers today, Parag Agarwal, Vice President of Corporate Development and Investor Relations. Sir, please go ahead.

Thank you, Michelle. Good morning, and thank you for joining our Semiconductor Corporation's fourth quarter 2020 quarterly results conference call. I'm joined today by Hassan El Khoury, our President and CEO, and Bernard Goodman, our CFO. This call is being webcast on the Investor Relations section of our website at www.onsamic.com. A replay of this webcast, along with our 2024 quarter earnings release, will be available on our website approximately one hour following this conference call, and a recorded webcast will be available for approximately 30 days following this conference call. Additional information related to our end markets, business segments, geographies, channels, share count, and 2021 fiscal calendar are also posted on our website. Our earnings release and this presentation include certain non-GAAP financial measures. Reconciliations of these non-GAAP financial measures with the most directly comparable measures under GAAP are also included in our earnings release, which is posted separately on our website in the investor relations section. During the course of this conference call, We will make projections or other forward-looking statements regarding our future events or future financial projections of the company. The words believe, estimate, project, anticipate, intend, may, expect, will, plan, should, 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 from projections. Important factors which can affect our business, including factors that could cause actual results to differ from our forward-looking statements, are described in our Form 10Qs and other filings with the Securities and Exchange Commission. Additional factors are described in our earnings series for the fourth quarter of 2020. Our estimates or other forward-looking statements may change, and the company assumes no obligation to update forward-looking statements to reflect actual results. change assumptions, or other events that may occur except as required by law. We have changed the date for our analyst day. Now, we plan to host our analyst day on August 5th, fifth of this year instead of March 5th. With the recent change in leadership of the company, we believe that we will be able to provide a firm and complete view of our updated strategy and financial targets on August 5th. Now, let me turn it over to Hassan. Hassan.

Thank you, Parag, and thank you everyone for joining us today. I want to start by expressing how excited I am to be part of this storied company and its incredibly talented and motivated workforce. I will start by sharing with you a few initial observations and updating you on the process we will use to evolve the future strategy and direction of the company. I will then address our fourth quarter 2020 results and turned the call over to Bernard to discuss financials and forward-looking guidance. I took the role as CEO because I could clearly see the tremendous potential we have, even as I looked at it from the outside. Having been in the role for a few months now, I can see a company with outstanding assets, including a highly talented and motivated workforce, intellectual property, sales channels, products, customer relationships, brand, and industry-leading operational prowess, to name a few. We are focused on the right markets, which are the fastest-growing semiconductor end markets with solid margin potential. I am excited about the opportunities we have in front of us to maximize the value for our shareholders, customers, and employees. As I dove deeper into the company during the last eight weeks, I have been positively surprised and have grown increasingly bullish about our prospects. The opportunities in front of us far exceed my initial expectations, and I am working with my team to turn these opportunities into a strategy with a credible execution plan. I'm very confident that we will be able to deliver the full potential of the company to our stakeholders. At this time, I don't have all the answers to what the future strategy and direction of the company will be. However, I will walk you through the process we will be following to get there and be able to share the details with you at our analyst day in August. It should come as no surprise that our primary value driver will come from our gross margin expansion initiative. At this time, we aim to maintain the over market revenue growth in our strategic markets while being opportunistic in others. We will focus on maximizing free cash flow to deliver our balance sheet and set us up to remain a consolidator. To achieve our objective of maximizing shareholder value, we are ready to make substantial changes in our strategy, business, and organization. We have begun the process of reevaluating our current product portfolio and our investments across the board. We will reallocate investments and resources to accelerate our growth in high-margin businesses away from non-differentiated products and markets which have had a historically low margin profile. We will reduce complexity, streamline the organization, and improve efficiencies. After realigning our investments with our products and market strategy, we will double down on R&D to accelerate growth and margin expansion. We will rationalize our manufacturing footprint to align with our investment priorities and new corporate strategy. Our primary goal is to reduce volatility in our margins and maximize return on our manufacturing investments. Our product strategy will drive our manufacturing footprint and capital investments. We intend to transition to a lighter fab model in which our margins are not as heavily influenced by our fab loadings. As you can already tell, we have hit the ground running and we are making progress in a short period of time. We will provide you with greater insight into our strategy and targets at our analyst day on August 5th. In the meantime, we plan to continue to provide updates as we make progress. Now moving on to the fourth quarter 2020 results. Revenue for the fourth quarter of 2020 was $1.45 billion, an increase of 3% year over year. We saw a steep improvement in demand in the fourth quarter, and the momentum has continued thus far in the current quarter. The surge in demand is driven by a broad-based improvement in global macroeconomic conditions and lean channel and end market inventories. The automotive end market had the steepest recovery in the fourth quarter. Based on current demand trends and the global macro outlook, we expect to continue to see above-seasonal demand trends in the near term. On the supply side, we have been able to manage our customers' requirements for products thus far. As semiconductor vendors increase supply and customers fulfill pent-up demand, the temporary supply-demand imbalance should subside in a few quarters. Let me discuss a few highlights of our key strategic end markets, starting with automotive. Revenue for the automotive market in Q4 2020 was a record $491 million and represented 34% of our revenue and an increase of 6% from Q4 of 2019. Our 2020 automotive revenue declined by 7.5%. year-over-year, but significantly outperformed the 2020 global automotive production unit, which declined by 16% over the same period. This significant outperformance was driven by increasing content for our products and fastest-growing applications in the automotive market. Our design wind funnel continues to expand. We want ADAS and viewing sockets on many of the recently announced platforms. We also secured a wind for our LiDAR products with the European Automotive OEM. We expect this wind to ramp later this year. Another significant design during the fourth quarter was with a major Tier 1 for our sensor module, which features a lens integrated in a sensor package for in-vehicle experience application. We continue to see strong momentum for our silicon carbide and IGBT product for electric vehicles and expect to see strong ramp in our EV-related revenue with various models going production in 2020 and 2022. The industrial and market, which includes military, aerospace, and medical, contributed revenue of $384 million in the fourth quarter of 2020 at 24% of our revenue. Year over year, our fourth quarter industrial revenue increased by 2%. This increase was driven by broad-based pickup and global industrial activity, partially offset by geopolitical issues related to specific customers. In the industrial and market, we continue to see strong momentum for our power modules and alternative energy applications. Our customer base for power semiconductor and alternative energy has expanded by approximately 50% in 2020. We expect to see strong growth in this business as the new U.S. administration is focused on the reduction in global carbon emissions. We are seeing strong traction for machine vision, factory automation applications with our ExitXGS family of image sensors. In the communications end market, we expect strong growth in 2021 for 5G-related revenue driven by increased 5G capital expenditure by carriers. Now I will turn the call over to Bernard to provide additional details on our financials and guidance. Bernard?