ON Semiconductor Corporation

Ladies and gentlemen, thank you for standing by and welcome to the On Semiconductor First Quarter 2021 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 the session, you'll need to press star 1 on your telephone. If you require any further assistance, please press star 0. I would now like to turn the call over to Parag Agarwal, Vice President of Investor Relations and Corporate Development. Thank you. Please go ahead. Parag Agarwal, Vice President of Investor Relations and Corporate Development Thank you, Denise.

Good morning, and thank you for joining On Semiconductor Corporations First Quarter 2021 Quarterly Results Conference Call. I am joined today by Hassan El Khoury, our President and CEO, and Pat Tran, our CFO. This call is being webcast from the Investor Relations section of our website at www.onsunday.com. A replay of this webcast, along with our 2021 first quarter earnings release, will be available on our website approximately one hour following this conference call, and the 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. Reconciliation of these non-GAAP financial measures with the most directly comparable measures under GAAP are 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'll make projections on other forward-looking statements regarding future events or future financial performance of the company. The words believe, estimate, project, anticipate, intend, may, expect, will, learn, 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 would cause actual results to differ from our forward-looking statements, are described in our Form 10 case, Form 10Qs, and other filings with Securities and Exchange Commission. Additional factors are described in our earnings release for the first quarter of 2021. Our estimates for 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 emails that may occur except as required by law. Our analytics day is scheduled for August 5th. We plan to host the event in New York City, and we look forward to seeing you all in person in the summer. We will send out further details regarding the event in a few weeks. Now, let me turn it over to Hasan. Hasan?

Thank you, Parag, and thank you, everyone, for joining us today. For the first quarter of 2021, we posted strong results driven by solid execution and broad-based strength across our strategic end markets. We reported revenue of $1.48 billion, up 16% year-over-year. More importantly, our focus on gross margin expansion is beginning to show results, with first quarter gross margin increasing by 370 basis points year-over-year and by 80 basis points quarter-over-quarter. We have taken steps to optimize our product portfolio and channel strategy to ensure that we capture the right value for our products, and these steps will continue to drive favorable and sustainable results. At the same time, we continue to drive cost improvements throughout our supply chain, improving efficiency of our operations and shifting our product mix towards higher margins. We are seeing increased demand across most end markets, And while the strength in the automotive market is well publicized, we also see strength in the industrial market as global industrial activity is gaining momentum. The steep acceleration in demand has impacted our ability to supply certain products, especially those manufactured by our foundry partners, and in certain pockets, products manufactured internally. We are working diligently with our manufacturing partners to ensure timely supply of our products to our customers and have taken steps to ensure continued supply to our strategic customers by building inventory on our balance sheet and reducing inventory in the distribution channel. By having better control over inventory, we are able to quickly respond to the needs of our strategic customers. The steep acceleration in demand that we have seen in the last few quarters will likely begin to subside in the second half of the year, but will remain at a very healthy level. We expect supply and demand to get back in balance as the demand stabilizes later this year. On our transformation initiatives, I had indicated in the previous call our goal to realign our investment and resources to accelerate our growth in high-margin businesses. At the same time, we are looking at our pricing practices to identify and address price-to-value discrepancies and are realigning our cost structure across the whole supply chain given the recent increases in material costs. We are productively engaging with our customers to ensure we recover these costs, but more importantly, working with our strategic customers to secure long-term agreements to provide better supply and price visibility over the next few years. Over the last few months, we have made several changes to streamline the organization and improve efficiency. We have brought in leaders with strong execution track records, promoted new leaders from within, all with the focus on accelerating our strategic transformation and capitalizing on the current market strength to set our path for growth and margin expansion over the next five years. My goal is to have an organization that is able to react quickly to changing business conditions and is able to make decisions efficiently and objectively in the best interests of shareholders. I remain bullish on the potential of our company and believe we are uniquely positioned to benefit from the key megatrends in the automotive and industrial markets. These are the fastest-growing semiconductor end markets with solid margin potential. We have outstanding assets and a highly talented and motivated workforce. With a disciplined investment strategy and consistent and strong execution, we can maximize the value for our shareholders, customers, and employees. We will provide you with greater insights into our strategy and targets at our analyst day on August 5th. Let me now discuss a few highlights of our key strategic end markets, starting with automotive. We set a new record for automotive revenue in Q1 with revenue of $515 million. This revenue represents 35% of our Q1 revenue and an increase of 17% from Q1 2020. This increase was broad-based, and we continue to maintain strong momentum in our vehicle electrification, automotive MOSFETs, CMOS image sensors, lighting, and ultrasonic products. We continue to see strong momentum in our silicon carbide and IGBT products for electric vehicles, and during the first quarter, we secured significant design wins with leading Tier 1 and global electric vehicle OEMs, few of whom have recently launched marquee platforms. These wins are expected to ramp starting in late 2021 and will contribute to the growth we will see over the next few years. It takes more than technology to win these platforms. Among the most important source of differentiation is our expertise in packaging, which is critical for improving heat dissipation and reducing the footprint of the module. In addition, we have been serving automotive and industrial customers for a few decades, and during this time, we have built a vast distribution network, strong customer relationships, solid domain knowledge, and a reputation for quality. Customer feedback on our silicon carbide traction modules has been very strong. The efficiency of our modules is meaningfully higher than that of our competitors, which enables our customers to make favorable trade-offs between the cost of battery and the range of the vehicle. From the sensing solutions in automotive during the first quarter, we secured a platform win for up to 11 image sensors on a single vehicle, which is expected to ramp in 2022. The industrial end market which includes military, aerospace, and medical, contributed revenue of $371 million in the first quarter of 2021 at 25% of our revenue. Excluding the impact from geopolitical factors related to a specific customer, our first quarter industrial revenue increased by 22% driven by a broad-based demand. In the industrial end market, we continue to see strong momentum for our power modules and various applications, with alternative energy being a key area of growth. We are expanding our customer engagement into the EV infrastructure, and we secured our first design win for our silicon carbide power modules for a charging application with an emerging electric vehicle OEM. Now I will turn the call over to Thad to provide additional details on our financials and guidance. Thad? Thanks, Hassan.