ON Semiconductor Corporation

Good day and thank you for standing by. Welcome to the OnSemi second quarter 2023 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 1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1 1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your host today, Parag Agarwal, Vice President of Investor Relations and Corporate Development. Please go ahead.

Thank you, Liz. Good morning, and thank you for joining ONSAMI's second quarter 2023 Qualitative Results Conference Call. I am joined today by Hassanal Khoury, our President and CEO, and Ted Trent, our CFO. This call is being webcast on the investor relations section of our website at www.onslamin.com. A replay of this webcast along with our 2023 second 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 is 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 to the most directly comparable GAAP measures and the GAAP financial measures are included in our earnings release, which is posted separately on our website in the investors relations section. During the course of this conference call, will make projections or other forward-looking statements regarding future events or the future financial performance of the company. 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 and in our earnings release for the second quarter of 2023. 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. Good morning, and thanks to everyone on the call for joining us. The executive staff and I are thrilled with the results following another successful quarter for OnSemi, with Q2 revenue of $2.09 billion and non-GAAP gross margins of 47.4%, both above the midpoint of our guidance. Our worldwide teams are firing on all cylinders. Maybe I should start saying they're spinning all motors now. Our approach of discipline consistent and reliable execution continues to be the winning formula for OnSemi quarter after quarter. We have again exceeded our targets despite the current market environment all while delivering best in class performance for our customers. The most recent example is our silicon carbide performance. We ramp in new and highly complex technology while continuing to surpass internal manufacturing and financial metrics, and we are all very proud of everyone that contributes to this success daily. Given our progress and Q2 silicon carbide revenue growing nearly 4x over Q2 2022, we remain on track to achieve our first billion-dollar revenue year and remain on track to have more than 50% of our substrates coming from our internal production by the end of Q4. EV is the fastest growing part of this business, followed by energy infrastructure. Customers are excited to work with us. Our successful capacity expansion is creating an opportunity for OnSemi to gain share in silicon carbide by supporting new demand amid ongoing supply uncertainty in this space. In Q2 alone, we signed more than $3 billion of new silicon carbide LTSAs bringing our total lifetime silicon carbide revenue committed through long-term supply agreements to over $11 billion. One of our largest wins last quarter was with Vitesco, a leader in modern drive technologies and electrification solutions, who signed a $1.9 billion agreement to support their growing need for silicon carbide in electric vehicles. They are co-investing $250 million as part of this 10-year LTSA, to ensure capacity for their ramp. We also extended our silicon carbide engagement with BorgWarner to integrate our EliteSig 1200 and 750 volt power devices into its power modules to deliver increased power density and higher efficiency, which increased the range and overall performance of EVs. We have had a longstanding relationship with BorgWarner, and this extended LTSA now amounts to $1 billion of committed silicon carbide revenue. Finally, with Magna, one of the world's largest automotive suppliers, we have signed a silicon carbide LTSA to expand our strategic collaboration, which has long included technologies across our intelligent power and sensing portfolio. Together, we will integrate our 1200 volt intelligent power devices into Magna's traction inverter solutions to improve the performance of electric vehicles over the next 10 years. By integrating OnSemi's industry-leading Elite 6 technology, Magna eDrive systems will deliver greater cooling performance and faster acceleration and charging rate that will help improve efficiency and increase the range of EVs. In addition, they will co-invest $40 million in new silicon carbide equipment in our Hudson and Czech Republic locations to ensure access to future supply. LTSAs have become an integral part of the way we do business with our strategic customers. LTSAs continue to provide us with extended visibility, stability in pricing, and volume commitments, while allowing us to plan for long-term capacity. In terms of market dynamics, both automotive and industrial remained healthy in Q2, with quarter-over-quarter growth of 8% and 10%, respectively, and now account for 80% of our total revenue. It was the first time that our automotive revenue surpassed the billion-dollar mark in a single quarter, driven by strength and intelligent power for electric vehicles and intelligent sensing for advanced safety applications. New regional regulations will require that vehicles be equipped with both a wider field of view to detect vulnerable road users such as pedestrians and cyclists, as well as high-speed electronic braking for highways. These new standards can only be met with higher resolution image sensors like the 8 megapixel device, which we first introduced two years ago and is now widely adopted by top car makers for production in their 2024 models. With this accelerated adoption, we expect our 2023 revenue for our 8 megapixel image sensors to more than double year over year. We have further expanded our intelligent sensing portfolio with the newly introduced Hyperlux family of image sensors for automotive and industrial markets, designed to eliminate flicker, all while delivering the highest dynamic range available in the market. For industrial applications, such as surveillance and machine vision, our new products also offer very low power with intelligent wake-on motion to even further extend energy savings. Another significant milestone this quarter is the sampling of our automotive grade image sensor out of our East Fishkill fab to leading global ADAS customers and partners, making OnSemi the only image sensing supplier with a US-based 300 millimeter fab and both internal and external sources across every step of the imaging supply chain. Customers value the investments OnSemi has made to improve supply resiliency. With evolving vehicle requirements and consumer behavior, automotive design cycles are getting shorter and continue to get compressed. Therefore, we must remain at the forefront of the latest trends and regulations and ahead of our customers' needs. We are innovating with the best in the world and being recognized for the value we provide. Most recently, we received a prestigious Volkswagen Group Award for Innovation for our strategic partnership on future electric vehicles with our broad portfolio of intelligent power and intelligent sensing technologies, along with our focus on establishing vertically integrated silicon carbide production capabilities. We are grateful for partners like VW as well as our other strategic customers who trust OnSemi's packaging expertise, scalable manufacturing capabilities, and problem-solving approach to deliver joint innovation in the rapidly evolving automotive market. In industrial, our revenue grew 5% year-over-year and 10% sequentially, with continued strength in medical applications as well as energy infrastructure, which increased nearly 70% year-over-year in Q2. Our growth in the industrial segment is driven by the accelerated adoption of high-growth energy infrastructure applications like solar inverters, energy storage inverters, and EV fast chargers. solar is forecasted to surpass coal and gas in installed capacity by 2027 and onsemi has the number one market share position with a full suite of silicon silicon carbide and packaging technologies to deliver the most highly efficient and system optimized solutions to customers we have now secured 1.95 billion in long-term supply agreements for power modules with leading global manufacturers of solar inverters, among which are eight of the top 10 solar inverter suppliers. These customers are securing supply assurance to support their growth. Highlights in medical include market expansion for continuous glucose monitors, or CGMs, driven by the reimbursement of monitoring therapies. We are number one in CGMs, which we support with our sensor interface portfolio, and we expect this market to continue to grow at a 20% CAGR over the next five years. In hearing aids, we have partners with innovative customers who will push accelerated adoption in the market with over-the-counter solutions, improving accessibility and lowering cost of ownership. Lexi Hearing is one of the world's game changers in hearing aids and uses OnSemi's intelligent sensing technology at the heart of their solution, earning them recognition as one of Time 100's most influential companies in 2023. Once again, I want to thank all our employees who work on our incredible silicon carbide effort around the world, as well as those who remain focused on all of our other strategic growth areas of intelligent power and sensing. We have a unique opportunity as a company to accelerate our investments in areas where we believe we can outpace the market with the capital generated by our mature and growing businesses. The size and scale of our operation have allowed us to leverage our infrastructure and expertise inside the company to tackle complex problems and drive increased output to support the growing needs of our customers. And now, let me turn the call over to Thad to give you more details on our results. Thanks, Hassan.