ON Semiconductor Corporation

Ladies and gentlemen, thank you for standing by. My name is Brent and I will be your conference operator today. At this time, I would like to welcome everyone to the on semiconductor third quarter 2021 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, again, press star 1. Thank you. I would now like to turn today's call over to Mr. Parag Garwal. Sir, please go ahead.

Thank you, Brent. Good morning, and thank you for joining OnSummit's third quarter 2021 quarterly results conference call. I'm joined today by Hassan El Khoury, our president and CEO, and Fred Trent, our CFO. This call is being webcast on the investor relations section of our website at www.onsami.com. A replay of this webcast, along with our 2021 third 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 accounts, and 2021 and 2022 fiscal calendar is also posted on the investor relations section of our website. Our earnings release and this presentation includes 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, will make projections or other forward-looking statements regarding future events or future financial performance 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 that can affect our business, including factors that could cause actual results to differ from our forward-looking statements, are described in our most recent Form 10Qs and other filings with the Securities and Exchange Commission. Additional factors are described in our earnings release for the third quarter of 2021. 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. Now, let me turn it over to Hassan. Hassan?

Thank you, Parag, and thank you everyone for joining us today. We delivered yet another quarter of record results driven by exceptional execution by a worldwide team and strong demand for intelligent power and sensing products. We posted record quarterly revenue and non-GAAP operating margin and EPS. With our results and outlook, we have made a solid start towards achieving our financial target model. Even though our Q3 results and Q4 outlook significantly exceed expectations, we believe that we are just in the early innings of transforming the business. As we make further progress in our transformation initiatives, And as our intelligent power and sensing design win-win with automotive and industrial customers, we expect to see sustained revenue growth and margin expansion. Today, we announce the close of our acquisition of GT Advanced Technologies, or GTAC. As we outlined at our analyst day, our goal is to provide our customers in the industrial and automotive end markets with highly differentiated intelligent power and sensing solutions and we are investing to achieve that goal. With GTAT's market-leading silicon carbide substrate technology, OnSemi is now the only silicon carbide player in the industry with end-to-end capabilities encompassing modules, devices, and substrates. Our acquisition of GTAT has been a catalyst for our key automotive customers to engage in long-term strategic partnerships with us, and we can expect GTAT to be a critical enabler of our impending ramp in our silicon carbide business. In fact, in Q4 2021, we will be shipping silicon carbide product-based revenue utilizing the GTAT substrate. I am also excited to announce that GTAT has delivered 200 millimeter bulls, which we have processed at our Onsemi manufacturing facility and will be sampling our first devices in January 2022. We welcome the GTAT team to the OnSemi family and look forward to expanding its capacity to support our silicon carbide growth plan. On a year-to-date basis, our power design wind funnel grew by 75% year-over-year. At the end of the third quarter, we have signed LTSAs for committed revenue of $2.5 billion over three years for our power solutions. Over $2 billion of this committed revenue is for our silicon carbide solutions for automotive and industrial applications, and two-thirds of this committed revenue is for traction inverters for electric vehicles. We expect to exit 2023 with silicon carbide revenue run rate of above $1 billion. The demand of our intelligent power and sensing solutions in our strategic end markets continues to outpace our current supply capabilities. The strength in demand is driven by secular megatrends such as vehicle electrification, ADAS, industrial automation, and transition to alternative energy from fossil fuel-based power generation. For the third quarter, automotive and industrial end markets together grew 42% year-over-year. On a year-to-date basis, our design wind funnel for these end markets grew 55% year over year, giving us excellent visibility into future revenue. In addition to secular factors, demand for our products is being driven by industry-leading performance of our products in both intelligent power and sensing. Consistent with our strategy outlined at our analyst day, we are driving a mixed shift towards automotive and industrial end markets to drive margin expansion. For the third quarter, automotive and industrial together contributed 60% of our revenue as compared to 56% in the quarter a year ago, and we will continue phasing out low-margin non-core revenue into next year. Looking forward, we expect demand to remain robust and outpace supply through most of 2022. We are selectively investing in our operations to relieve capacity bottlenecks for our strategic product lines while working with our foundry partners to obtain a higher allocation of capacity. At the same time, we are shifting our production to strategic high value mix of products. Longer term, we are qualifying products in the 300 millimeter East Fishkill facility to increase the efficiency of our FAB network while executing our FAB lighter strategy. Along with expanding supply, we are working collaboratively with our customers to ensure uninterrupted supply of our products, and we have entered into long-term supply agreements with many of them. These LTSAs commit a multi-year revenue stream with stable and sustainable margin. Coupled with our expanding design wind pipeline in the automotive and industrial end markets, we have outstanding visibility into our revenue and margin in support of our target model. Along with entering into LTSAs, many of our largest automotive and industrial customers are co-investing with us. These investments solidify the strategic nature of our LTSA and enable us to support our customers by ensuring supply and providing development support. Let me now discuss a few highlights of our key strategic end markets, starting with automotive. We set a record for our automotive revenue in Q3 of $575.6 million, Automotive represented 33% of our revenue in Q3 and grew 37% year over year and 4% quarter over quarter. The strength in automotive was driven by both our power and sensing product categories. We are seeing strong momentum in our electric vehicle business for both silicon carbide and IGBT-based solutions. We have signed LTSAs for committed revenue for EVs of little less than $2 billion and over the next few years, starting the ramp in Q4 2021, and approximately doubling year over year for the next few years. Over 80% of this committed revenue is for silicon carbide solutions for EV traction inverters. As we have indicated earlier, in addition to the industry-leading performance of our FETs, a key source of our differentiation is our expertise in packaging, which is critical for improving heat dissipation, increasing power output and a smaller footprint than our closest competitor, and reducing weight and cost of a power module. The efficiency of our modules allows our customers to make no trade-offs between the cost of battery and the range of the vehicle. They get both. Our automotive imaging revenue grew more than 10% quarter over quarter and 45% year over year. We continue to see momentum in automotive safety with new design wins and increasing content for our CMOS image sensors and power management. Year-to-date, our automotive imaging design win funnel grew by 75% year-over-year. As ADAS systems shift to higher pixel density and the need for automotive safety requirements around power management increases, our content will increase as these solutions have higher ASPs. This increase is further compounded by a higher number of sensors and power ICs per car and increasing number of cars with active safety features. The industrial and market, which includes military, aerospace, and medical, contributed revenue of $478.5 million in Q3, representing approximately 27% of our revenues. Our third quarter industrial revenue increased by 48% year-over-year and 11% quarter-over-quarter, driven by strong demand for intelligent power and sensing solutions. We are seeing a more than 2x growth in our design wind funnel from alternative energy customers for our power solution and expect the alternative energy market to be a long-term driver for our business as utility-scale power plant installations are expected to grow worldwide to reduce the climate impact of fossil fuel-based power plants. Industrial power tools are another area of growth as power tools are transitioning from brushed motors to brushless motors and from AC to battery-powered, both trends driving significantly higher content for us. The demand for our imaging products and industrial automation applications remain strong with 20% quarter-over-quarter growth. Industrial customers are investing in automation at an increased pace to improve efficiency and to reduce volatility in operations due to social distancing mandates and labor shortages. We have leveraged our experience in automotive to offer our industrial customers rugged high resolution and high image quality sensors for the most demanding industrial applications. Now I will turn the call over to Thad to provide additional details on our financials and guidance. Thanks, Ahsan.