ON Semiconductor Corporation

Good day and thank you for standing by. Welcome to the OnSemi fourth quarter 2024 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 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 Corporate Development and Investor Relations. Please go ahead.

Thank you, Kevin. Good morning, and thank you for joining Arm Semi's fourth quarter and full year 2024 reserves conference call. I'm joined today by Hassan El Khoury, our president and CEO, and Thad Tran, our CFO. This call is being webcast on the investor relations section of our website at www.armsemi.com. A replay of this webcast along with our fourth quarter and full year 2024 earnings release, will be available on our website approximately one hour following this conference call, and the recorded website 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 discretion 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'll 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 materially from our forward-looking statements, are described in our most recent Form 10Qs and other filings with the Securities and Exchange Commissions and in our earnings release for the fourth quarter and full year 2024. Our estimates or other forward-looking statements might 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.

Thank you, Parag. Good morning, everyone, and thank you for joining us on the call. 2024 marked the fourth year of our transformation journey, transformation that began by focusing our efforts where we add value, intelligent power, and sensing technologies. We've invested in differentiated products to win with disruptive innovation and the high-growth megatrends of automotive, industrial, and AI data centers. We've streamlined manufacturing through our fab right strategy, and we've improved our operational efficiencies in doing so. Market conditions aside, and I'll get to those, I am proud of the hard work our worldwide teams continue to put in, and I want to thank everyone for their tenacity amid what continues to be a very difficult environment. We remain committed to our winning formula, and we have demonstrated the resilience in our business model, delivering non-gap gross margin of 45.5%, against revenue of $7.1 billion for the full year. As for the market environment, demand declined late in the quarter and continued into January, resulting in fourth quarter revenue of $1.72 billion, non-GAAP gross margin of 45.3%, and non-GAAP earnings per share of 95 cents. Regional revenue declined sequentially, except North America, which remained flat, with Japan seeing the sharpest decline. Quarter-on-quarter declines were driven primarily by our non-core market segments. Amid a backdrop of end market softness and geopolitical uncertainty, inventory digestion persists across our key end markets. Our stance has not changed. We are prioritizing value, and we will not play in highly volatile, price-sensitive markets. We are maintaining the integrity of our value proposition and positioning ourselves for profitable growth in the future. Our fourth quarter automotive revenue increased 8% sequentially, driven by China, followed by North America. Results were driven by share gains and new customer ramps. China grew 18% quarter over quarter, and while Q4 was up, an early Chinese New Year and extended shutdown period has already impacted January EV deliveries from the top China-based automakers. Demand from all other regions weakened towards the end of the fourth quarter. which continued into Q1. In the US, Tier 1s have been impacted by lower global auto demand than expected in the fourth quarter, along with slower EV ramp than anticipated. Entering Q1, we expect persisting volatility due to the geopolitical uncertainty across all geographies as our customers assess their manufacturing footprints and the impact of tariffs. We are monitoring the demand signals of EV adoption given the uncertainty around EV tax credits and slowing infrastructure deployment. In Europe, EV demand weakened in Q4 with new vehicle registrations dropping 10% month over month in December. Our industrial revenue decreased 5% sequentially with weakness in the traditional parts of the business. The PMI across all major regions remained weak and the slowdown in manufacturing activity further compounded by ongoing inventory digestion, and we expect the weakness to persist into 2025. Smaller but growing parts of the business that we don't break out are AI data center and aerospace and defense, where revenue grew more than 40% and 50% respectively in 2024 over 2023. In silicon carbide, our fourth quarter revenue increased sequentially, resulting in a 22% increase for the second half over the first half of 2024. For the full year, revenue declined slightly from 2023 as programs did not ramp at the expected levels. We remain focused on executing our strategy. We have delivered on our 200-millimeter technology development and sampled customers. We are balancing our internal versus external substrate supply, and we are winning with the market movers by pushing the boundaries of innovation. The performance of our silicon carbide enables us to deliver an optimized system performance while lowering the total cost of ownership to our customers without eroding the value of our solutions. In China, we continue to win based on performance, and we expect to gain share in the silicon carbide TAM as the transition to 800-volt batteries continues. Furthering our strategy of delivering the complete power tree for automotive, industrial, and AI data center, we closed the acquisition of Cuervos silicon carbide junction field effect transistor business. The SICK JFET portfolio complements our elite SICK power solutions and is the most competitive technology to get the energy efficiency and power density in power supply units for AI data centers. It is a high voltage play in AI data centers, and as power levels in these systems are nearly doubling, AC to DC conversion for UPS and PSUs is transitioning from silicon solutions to silicon carbide. We expect SIGJFET to continue to replace the incumbent super junction technologies and PSUs, as the need for smaller footprint, better performance, and lower costs continues to increase. In terms of silicon carbide, revenue growth, and AI, design wins for the hyperscalers started to ramp in the fourth quarter, and we expect our SIGJFET and SIGMOSFET revenue to continue to grow in 2025. The acquisition of this highly capable team and technology also accelerates our readiness for emerging markets such as EV battery disconnects and solid state circuit breakers. We expect this portfolio to unlock a $1.3 billion TAM opportunity with a 30% revenue CAGR through 2030. Despite the current environment, We remain committed to our long-term strategic goals, and we continue to invest in disruptive innovation to drive profitable growth and to emerge stronger from this downturn. In November, we introduced the most advanced analog and mixed signal platform for intelligent power and sensing solutions. Our new TREO platform, built on leading-edge BCD 65-nanometer technology for high performance and advanced features, supports the industry's widest voltage range of 1 to 90 volts, for unmatched integration. The Trello platform embodies our strategy of prioritizing high-value products and will accelerate our portfolio proliferation to unlock a $36 billion TAM opportunity at up to 70% gross margins. The modular architecture of the platform is enabling us to sample products faster. This year, we will start to reap the benefits of the investments we've already made in the technology and capacity at our East Fishkill fab. as we ramp up revenue and double the number of products available on the market. Customer reaction has been very positive. They are taking advantage of the level of integration and accelerated time to market for applications such as Ethernet for automotive zonal architecture, ultrasonic sensing for ADAS Park Assist, and high efficiency power management for AI data centers. And they are actively designing Trello-based devices into their next generation platforms. As we look ahead to 2025, visibility is very limited and customers are taking a wait and see approach in a backdrop of geopolitical uncertainty. We will continue to focus on what we can control. We are taking this opportunity to review our portfolio and further rationalize based on the value we bring. We will optimize our manufacturing footprint to improve our cost structure and we will control spending by focusing on efficiency through automation while we continue to invest in R&D to support our long-term growth. Our actions will position us to better benefit from a market recovery while supporting our long-term strategy. Let me now turn it over to Thad to give you more detail on our results and approach going into 2025. Thanks, Ahsan.