ON Semiconductor Corporation

Good day and thank you for standing by. Welcome to the On Semiconductor fourth 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 will 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 Corporate Development and Investor Relations. Please go ahead.

Thank you, Liz. Good morning, and thank you for joining our semi-sport quarter 2023 quarterly results conference call. I'm joined today by Hassan El Khoury, our President and CEO, and Ted Pert, our CFO. This call is being webcast on the investor relations section of our website at www.onsemi.com. A replay of this webcast along with our 2023 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 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 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 the future events or the future financial performance of the company. We wish to caution that such statements are subject to risks 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 materially from our forward-looking statements are described in our most recent Form 10-K, Form 10-Q and other filings with Securities and Exchange Commission and in our earnings release for the fourth 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. Let me turn it over to Hassan. Hassan?

Thank you, Parag. Good morning, and thank you all for joining us on the call. We're pleased to share our results with you following another year of significant accomplishments as we continue transforming the company to achieve our long-term financial model. Our intelligent power and sensing technologies accounted for 71% of our revenue in 2023 compared to 62% in 2021 as we have driven our portfolio to strategic areas with higher gross margins. Our revenue from approved products in 2023 increased more than 40% over 2022. Year-over-year design wind growth continues to outpace the long-term revenue growth target we outlined during our analyst day. We had a record year of automotive revenue increasing 29% over 2022, driven by both intelligent power and sensing. We achieved our first billion-dollar revenue year for automotive image sensors with design wins increasing more than 50% year over year, fueling our future growth with new products. It was a great year for Silicon Carbide. We shipped more than $800 million in 2023, or four times 2022 revenue. Our Silicon Carbide revenue had the highest growth in the industry, both in terms of dollars and percentage in 2023, delivering an estimated 25% market share. We increased our customer base, to more than 600 customers in 2023. Our top 10 customers are geographically distributed with over 50% in APAC, including Korea, followed by the US, and we expect to further diversify our customer base in 2024 as European customers ramp production. We continue to make progress on our transition to 200 millimeter with material already running through our manufacturing steps and we announced the world's largest silicon carbide fab with our expansion in Bucheon, South Korea. While market reports still project 30% to 40% growth for silicon carbide in 2024, OEM's latest EV plans indicate a more tapered growth signaling a sick market growth in the range of 20% to 30%. We still expect to grow at 2x the market growth in 2024 with customers ramping production in both industrial and automotive industries. Electrification remains a content expansion opportunity for us. Our broad portfolio of silicon carbide and IGBTs combined with our high-power packaging solutions give us a competitive advantage across all levels of EVs, ranging from HEV to PHEV and BEV. In fact, our 2023 hybrid vehicle-related revenue nearly doubled year over year, while the number of vehicles grew 30%. We have significant content gains across all XEVs and specifically up to $350 of content in hybrid electric drivetrains and onboard chargers. We grow no matter which one gains traction, pun intended. On Semi is number two in silicon power with best in class IGBT and MOSFET technologies. Our overall IGBT revenue nearly doubled over the last two years driven by market share gains and further penetration in XEV and energy infrastructure. In automotive, OnSemi is number one in image sensors, with 2023 revenue increasing more than 12% year over year, driven by the shift to higher value 8 megapixel sensors as customers move to better performance options at higher ASPs. 8 megapixel image sensor revenue nearly doubled year over year, demonstrating the market trend toward higher resolution for ADAS systems. We are also number one in automotive LED lighting, inductive and ultrasonic sensing, and we plan to advance our leadership position with our upcoming analog and mixed signal platform. In industrial, we are number one in solar and energy storage solutions with our IGBTs, silicon carbide, and module portfolio, from commercial to utility scale string inverters. Energy infrastructure is still our highest growth megatrend in industrial, where we continue to see demand for our hybrid modules with silicon and silicon carbide. In 2023, the International Energy Agency, or IEA, reported that the world's renewable energy surpassed 50% growth over 2022, its fastest rate in the past 25 years. Our revenue for energy infrastructure during this same period grew 60%. The IEA predicts that renewable energy is on course to increase by 2 and 1 half times by 2030. For EV chargers, we just released a full suite of ELITE SICK power integrated modules, enabling bi-directional charging capabilities for DC ultra-fast electric vehicle chargers. Our newly released modules can be used up to 350 kilowatt in EV chargers, the highest in the industry, to reduce charging time to 15 minutes for a near full charge. Our broad portfolio of products has enabled us to become a one-stop shop for our customers and the source for the most optimized solutions. It is critical for customers to extract the best performance for their system, and using our portfolio to provide a system-level optimized solution across our power and sensing technologies remain a competitive advantage. We are also excited about our power opportunity to support the transition to 48V. We are already in production with a leading automotive customer on their new 48V architecture, as we had already planned our portfolio for such a transition. Last year, we responded to the market uncertainty by focusing on our execution. As demonstrated, with more predictable and sustainable financial results, our worldwide teams delivered operational excellence in the face of challenging market conditions without losing sight of innovation to further our leadership position in intelligent power and sensing solutions. We are happy with the progress we've made in 2023, having built a resilient business model capable of performing in all market environments. We are now turning to the opportunities for operational improvements in 2024 to achieve our target financial model. In the near term, based on our current outlook and early LTSA signals, we expect continued softness across all end markets through a period of inventory digestion and slowing end demand. The bottom line is that we will weather 2024 with substantially better financial performance than in prior downturns. Meanwhile, we will continue to invest in extending our leading portfolio, and we will benefit disproportionately as the market recovers. With that, I'll turn it over to Thad to provide further details on our results. Thad?