ON Semiconductor Corporation

Good evening. Welcome to the On 73rd Quarter 2023 Earnings Conference Call. At this time, all participants are on 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 today's conference is being recorded. I would now like to hand the conference over to your speaker today, Parag Agarwal, Vice President of Investor Relations and Corporate Development. Please go ahead.

Thank you, Kevin. Good morning, and thank you for joining OnSummy's third quarter 2023 quarterly results conference call. I'm joined today by Hassan El Khoury, our president and CEO, and Thad Tren, our CFO. This call is being webcast on the investor relations section of our website at www.onsummy.com. A replay of this webcast, along with our 2023 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 is posted on the Investor Relations section of our website. Our earnings release and this presentation include certain non-GAAP financial measures. Reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures and a discussion of certain limitations when using non-GAAP financial measures 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 will make projections or other forward-looking statements regarding future events or future financial performance of the company. We wish to caution that such statements are subject to risk and uncertainties that could cause actual results or events to differ materially from projections. Important factors that can affect our business, including factors that could cause actual results to differ materially from our forward-looking statements, are described in our most recent Form 10-K, Form 10-Q, our other filings with Securities and Exchange Commission, and in our earnings list for the third 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 Hasan. Hasan?

Thank you, Parag. Good morning, and thanks to everyone on the call for joining us. This morning, we are pleased to announce another quarter where we delivered revenue of $2.18 billion, non-GAAP gross margin of 47.3%, and non-GAAP earnings per share of $1.39, all exceeding the midpoint of our guidance. Our automotive and industrial segments achieved record revenue driven by demand in both silicon and silicon carbide. Despite these results, in the third quarter, we are taking a very cautious approach as we are starting to see pockets of softness with Tier 1 customers in Europe working through their inventory and increasing risk to automotive demand due to high interest rates. It has been nearly three years since the start of our transformation, and our worldwide employees have been relentless in their pursuit of operational excellence. The structural changes we have made across the company have allowed us to maintain our performance and deliver predictable financials. We have built the resilience required in our business to navigate a dynamic macro environment, and we remain focused on controlling what we can, our execution and our commitment to our customers. And silicon carbide has been a prime example of our execution. Our factories in Hudson, Rosnab, and Bouchon all had record output for silicon carbide in Q3. Acquiring GTAT two years ago was a strategic investment that allowed us to produce our own substrates internally and accelerate our path to becoming the world leader in silicon carbide power devices. By the end of 2023, we expect to have more than 25% market share of the silicon carbide market. We are now producing more than 50% of our own substrates internally, one quarter ahead of schedule, and we plan to continue to do so through 2024 even as we transition furnaces for 200-millimeter production. In fact, last week we announced that we completed our expansion of the world's largest silicon carbide fab in Bhutan. At full capacity, the state-of-the-art facility will be able to manufacture more than 1,200-millimeter silicon carbide wafers per year. Our manufacturing output continues to exceed expectations, and the acceleration of our ramp resulted in achieving a billion-dollar run rate quarter in Q3, increasing nearly 50% over Q2. However, for the full year, a single automotive OEM's recent reduction in demand will impact our billion-dollar target, and we now expect to ship more than $800 million of silicon carbide in 2023, 4X last year's revenue. In 2024, we expect the growth of our silicon carbide business to double the market growth. Over the past few quarters, we have accelerated the broad deployment of silicon carbide solutions, and the design activity has been robust across all regions. So far in 2023, we have shipped to more than 500 unique customers that will continue to ramp through 2024, further expanding our geographical customer distribution. Additionally, we have designed WINS and or LTSAs with the leading automotive players who have over 50% share of the global EV unit sales, which includes LTSAs with four of the top five China EV customers. NIO is among them, and in Q3, they made Ansami their prevailing silicon carbide supplier by signing an extension to their multi-year long-term supply agreement, doubling down on 1,200-volt Elite 6 technology as they transition into 800-volt battery solutions through 2030. As we navigate the current market conditions, LTSAs continue to provide demand visibility and stability in pricing. EV traction remains the fastest growing part of our SICK business, with 70% growth sequentially. Most recently, an OEM awarded OnSemi a platform for their 750-volt and 1,200-volt EV traction inverters, previously awarded to an incumbent. Opting for superior technology and a vertically integrated supply chain, This leading OEM has now signed an LTSA with Antec Semi through 2031, putting us in a position to support higher volume production. Energy infrastructure remained healthy in Q3, driven by the continued adoption of solar and energy storage solutions. We remain on track to our full-year projections with nearly 70% revenue growth over 2022, and we expect the growth to continue in 2024. as demand for our hybrid modules with silicon and silicon carbide solutions for this high-growth industrial megatrend remains strong. Our medical revenue, which is reported within our industrial end market, also remains healthy, driven by the improved accessibility of continuous glucose monitoring and hearing aids. We have deep, long-standing customer engagement in high-margin, high-growth areas of continuous glucose monitors and hearing health, where we have leading market share with our technologies. Our CGM business increased nearly 38% quarter over quarter, driven by a ramp from the top two leaders in the market. On Semi is number one in automotive image sensors and number one in industrial scanning. In the industrial end market, our design activity has already surpassed all of 2022. This is a good indicator for the business, given that more than 40% of our image sensing revenue comes from new products. Last month, we introduced another 8-megapixel image sensor with the world's smallest, lowest power family of HyperLux products that can extend battery life by up to 40% for industrial and commercial cameras. In fact, our 8-megapixel revenue more than doubled year over year in the third quarter as the business is shifting to higher resolution, higher ASP image sensors. And now, let me turn the call over to Thad to give you more details on our results. Thanks, Hassan.