ON Semiconductor Corporation

Good morning. My name is Rob and I will be your conference operator today. At this time, I would like to welcome everyone to the OnSemi fourth 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 one. Thank you. Parag Agarwal, Vice President of Investor Relations and Corporate Development, you may begin your conference.

Thank you, Rob. Good morning, and thank you for joining OnSami's fourth quarter 21 quarterly results conference call. I'm joined today by Hassan El Khoury, our President and CEO, and Thad 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 fourth 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 counts, and 2022 fiscal calendar is posted on the investor relations section of our website. Our earnings release and this presentation includes certain non-GAAP financial measures. Reconsideration of these non-GAAP financial measures to the most directly comparable measures in the 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 or other forward-looking statements regarding future events or the future financial performance of the company. The words believe, estimate, project, anticipate, intent, may, expect, with, large, 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 10-K, Form 10-Qs, and other filings with the Securities and Exchange Commission. Additional factors are described in our earnings reviews for the fourth quarter of 2021. Our estimates for other forward-looking statements may change, and the company assumes no obligation to update overlooking statements to reflect actual results, change assumptions, or other events that may occur except as required by law. Now, let me turn over to Hassan. Hassan?

Thank you, Parag, and thank you, everyone, for joining us today. As we wrap up 2021, I'm extremely pleased with the progress of our transformation journey. We have positioned OnSemi as a leader in intelligent power and sensing by focusing on enabling sustainable ecosystems. We have implemented structural changes to focus our investments and resources on the megatrends of vehicle electrification, ADAS, energy infrastructure, and factory automation, and this is evident by our record financial performance. As we have shifted to focus on the high-value markets of automotive and industrial, closed the price-to-value discrepancies, and improved manufacturing efficiencies, we have expanded our margins to achieve the target model ahead of our stated timeline. Our customers view OnSemi as a strategic partner, as evident by the execution of multiple long-term supply agreements, which provide better demand visibility for capacity planning and investments to support it. To that end, the acquisition of GTAS expands our leadership in silicon carbides, and provides our customers the assurance of supply required to support this rapidly grown market. Additionally, we are exiting volatile and highly competitive non-core businesses and focusing on profitable growth and sustainable financial performance. In 2021, our revenue increased 28% while our operating income and free cash flow increased approximately six times faster demonstrating the operating leverage in our model as we continue on our transformation journey. We had a successful year amid the ongoing pandemic and supply chain challenges that continue to affect the market. Our performance has only been possible thanks to the dedication of our worldwide teams, and I'd like to take the opportunity to thank them for their hard work. Moving on to the fourth quarter, Our fourth quarter was yet another example of exceptional execution by our worldwide teams in a strong demand environment for our market-leading intelligent power and sensing products. Although we met our margin targets ahead of schedule, we expect that with ongoing mix optimization, the manufacturing consolidation we have begun, and the continued ramp of new products, we have headroom to further expand our margins over the coming years. We continue to see strong demand for our products, and in 2021, our design wind funnel grew over 60% year over year, and our new product revenue grew 28% from 2020. This design wind performance, along with long-term supply agreements, have positioned the company for sustained long-term growth. The fourth quarter revenue growth was driven by additional capacity coming online from our investments earlier in the year and an accelerated focus to free up existing capacity to service our strategic markets consistent with our stated goal of exiting low-margin non-core products. We are making selective investments in our internal operations to expand capacity for strategic products, and at the same time, we are relieving bottlenecks in our internal manufacturing operations. We have also been successful in securing additional capacity from our external manufacturing partners. Long 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. This will allow us to further expand both the capacity for products in our strategic markets and our gross margin over time given the cost benefits. The current supply-demand imbalance in the semiconductor industry will likely persist through 2022 and continue into 2023. Based on interactions with our customers and channel partners, we believe that the semiconductor inventory throughout the supply chain remains low and lead times are stretched for the industry. This supply constraint is further compounded by accelerating demand for electric vehicles, ADAS, energy infrastructure, and factory automation and the increase of content in these applications. During the fourth quarter, we saw an increase of approximately $600 million in committed revenue for our silicon carbide products, bringing our current committed revenue to over $2.6 billion through 2024. Over 70 percent of this committed revenue is for electric vehicle traction applications with the integrated end-to-end supply chain and market-leading efficiency of our silicon carbide products as our competitive advantage. To support the steep growth in our silicon carbide revenue over the next few years, we plan to more than quadruple the capacity of our substrate operations exiting 2022 and intend on making substantial investments in expanding our device and module capacity. In 2022, we expect our silicon carbide revenue to more than double year over year as we continue to ramp with our existing customers and begin shipments to new customers under our LTSAs. We remain on track to exit 2023 with a silicon carbide run rate of $1 billion per year. In addition, we continue to make progress on the 200 millimeter silicon carbide development program that we acquired from GTAT. thick wafers with device yields meeting our production targets. These wafers were manufactured using our full capabilities from bulls to substrate all the way through our own fabs. Our silicon carbide modules are powering the recently announced Mercedes EQXX research prototype electric vehicle platform, which has a range of 620 miles on a single charge. We secured this design based on all-around superior performance of our modules across efficiency, thermal conduction, and switching. This win clearly demonstrates our technical leadership and end-to-end supply chain capabilities for silicon carbide. Our focus on power modules for alternative energy applications delivered a 42% year-over-year growth in our design funnel in 2021. We have signed LTSAs with key players in the solar inverter market, including the top two market share leaders. We expect our renewable energy related revenue to grow by over 50% year over year in 2022 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. On the intelligent sensing front, our automotive imaging revenue grew by more than 20% quarter over quarter and approximately 40% year over year as we continue to see momentum in advanced safety with new design wins. With consumers' desire for additional safety features and an improved driving experience, we are seeing increased penetration of sensing in cars, including image sensors and ultrasonic sensing at the same time Content per car is growing with each camera attached to one of our PMICs. We're also seeing accelerating demand for our imaging products for industrial and factory automation, in which revenue grew by approximately 10% quarter over quarter and 43% year over year. Industrial customers are investing in automation at an increased pace to improve efficiency and to reduce volatility in operations due to wage inflation and labor shortages, onshoring, and social distancing mandates. We have leveraged our experience in the automotive market to offer our industrial customers rugged, high resolution, and high image quality sensors for the most demanding industrial applications. All of these execution vectors delivered a robust margin performance, exceeding our target gross margin of 45% significantly ahead of schedule. This accelerated gross margin expansion was driven by a strong and accelerated execution in closing price-to-value discrepancy, cost reduction initiatives, a focused drive on ramping new products, a deliberate intent to shift more capacity to products for our strategic markets, and operational efficiencies across our manufacturing footprint, all consistent with the strategy outlined at our analyst day. Along with making operational changes to drive the margin expansion, we are refining our execution in the channel to ensure that our partners are focused on driving growth in automotive and industrial end markets consistent with our strategy. Throughout the year, our team worked extremely hard to pull in the schedule for engineering and operations efforts dedicated to margin improvements to offset some increased material costs we have incurred. We have worked to improve yields and ship more units into the automotive and industrial end markets, which deliver an improved margin profile for our business and help support more of our customers' demand. In the fourth quarter, automotive and industrial 10% quarter over quarter is 63% of our revenue as compared to 61% in the third quarter, both delivering record quarters of $641 million $522 million, respectively. In a supply-constrained environment, this growth came from the increased units we could ship and, more importantly, from the strategic mix shift away from non-core, low-margin business that we intended to exit. In 2021, we walked away from $170 million of non-core business with an average gross margin of 20%. Now I will turn the call over to Seth to provide additional details on our financials and guidance. Seth? Thanks, Hassan.