ON Semiconductor Corporation

We anticipate Q4 revenue will be in the range of $1.48 billion to $1.58 billion. Our non-GAAP gross margin is expected to be between 37 and 39 percent, which includes share-based compensation of $8 million. Non-GAAP operating expenses are expected to be between $282 and $297 million, which includes share-based compensation of $32 million. We anticipate our non-GAAP other income to be a net benefit of $7 million, with our interest income exceeding interest expense. We expect our non-GAAP tax rate to be approximately 16%, and our non-GAAP diluted share count is expected to be approximately 405 million shares. This results in non-GAAP earnings per share in the range of 57 to 67 cents. We expect capital expenditures in the range of 20 to $40 million. To close, we remain focused on disciplined execution and financial leverage. The structural changes we have made across our portfolio, operations, and manufacturing footprint are driving margin expansion and positioning on CME for long-term earnings power. With over 100% of our year-to-date free cash flow returned to shareholders, we continue to prioritize capital efficiency and shareholder value while investing in innovation and differentiation. As the market stabilizes, we are well aligned to scale with demand and deliver sustainable growth. With that, I'd like to turn the call back over to Michelle to open it up for Q&A.

Thank you. As a reminder, to ask a question, please press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. And our first question comes from Ross Seymour with Deutsche Bank. Your line is open.

Thanks for the question, guys. First one I want to ask about the automotive side of things. Upsided in the quarter nicely versus the low single-digit guide that you had. So, Hasan, I just wanted to get an update on what you're seeing in that end market, what caused the upside, and perhaps what's the sustainability of that sort of growth as you look into the fourth quarter and then 2026 as well?

Yeah. So look, nothing really out of the ordinary. You can think about the Q3 and Q4 as I do, which what I've been talking about, I look at the second half versus first half of the year. You know, the quarter-on-quarter lumpiness as customers try as new designs ramp, I wouldn't read any much into it. What we're seeing in automotive is really stabilization, which is a positive from where we were. So the quarter-on-quarter, I don't think I read anything into it. It's purely... between seasonality and ramps. As far as 2026, look, we'll let you know as we get closer. A lot of things going on out in the world. So we're not guiding specifically by market into 2026. But what I can tell you is demand is stabilizing. We're starting to see seasonal trends. But one thing I would highlight is we haven't seen a restocking cycle yet. So that's still out there.

Thanks for that color. I guess this is my second question, perhaps a little bit of a longer term one. You, for the first time, I believe, sized the AI business at about $250 million, I think, for this year as a whole, so roughly 4% of sales. Can you just talk about how ON differentiates in that? You mentioned the collaboration list on the 800-volt with NVIDIA, and that's great to be on that list, but there's 13 other folks on the list as well. So as you look at that market today, How do you believe that $250 million will grow, and what's the differentiation on delivers to drive that growth?

Yeah, so that's a very good question. So overall, we expect the AI data center for us to continue to grow. We look at ourselves as really the share gainer from some of the companies that have been in that market longer than we have. So being able to post... $250 million or about $250 million revenue is pretty stellar. You can see our investments accelerating in that across the whole power tree. So from a customer perspective, to answer your question more directly, if you take that quote-unquote crowded space of 13 or however many companies and you look at who can go from wall to core, there's only two. And we are the share gainer. We're one of the two. So the way we differentiate is we're one of the only companies that are able to support the power delivery from the high voltage all the way to the core, all with the product portfolio that we have that we've grown organically or even inorganically with the V-Core acquisition. So that's how we differentiate. We have proven that differentiation through our JFET silicon carbide through our AMG with the products that they have been delivering and the revenue growth that has doubled year on year, you know, every quarter in the first three quarters to deliver that number I gave in 2025 is really the proof of that.

Thank you.

And our next question will come from Vivek Arya with Bank of America. Your line is open.

Thanks for taking my question. So Hassan, I know it's a little early and I'm not asking for quantitative guidance, but I'm curious how you are thinking about seasonality in Q1 and just growth in 26 overall versus how you thought about it three months ago.

No change from where we were three months ago. So still with the same outlook, same expectations.

For my follow-up, maybe on utilization and gross margins, Pat, I think you said something about utilization, perhaps flat to slightly down, anything more to read into it. And if you could just remind us, what is your seasonal pattern in Q1? And if there is some utilization headwind from Q4, how does that kind of reflect in gross margins in Q1, just based on historical seasonal trends? Thank you.

Yeah. Yeah. So our... Our utilization increased to 74% in Q3. As I said in the prepared remarks, we've been building die bank inventory for the mass market. This is a market that we've talked about for probably well over a year about we need to seed that market. We've been doing it through the distribution channel. Now we've got a whole inventory in die bank for a kind of quick turn on that mass market that we need to invest in. I expect it to be down, the utilization to be down in Q4 because we expect those builds to be completed. So going back to kind of a normalized utilization rate from that point forward. You can think about utilization, the impact on utilization as having a couple quarter impact on the P&L. There's always a delay on that rate. So if you think about going into next year, and obviously we're not providing any guidance at this point, But we think between Q4 and kind of the next couple quarters, we're looking at seasonal patterns. If you take the midpoint of our guidance for Q4, it's directly in line with normal seasonality, which is typically flat to down 2%. I think the midpoint of our guidance is down about 1.3%. And to answer your question about kind of what's the normal seasonality in Q1, it's typically down 2% to 3%.

So does that mean slightly lower gross margin in Q1 time, or just how should we be prepared based on if that kind of seasonality is what actually emerges?

Look, we're not guiding that far out, Vivek, but there's tailwinds as the utilization improves over time.

Thank you. And our next question is going to come from Chris Stanley with Citi. Your line is open.

Hey, thanks, Gang. I'm sure you've seen this ongoing soap opera at Xperia. Have you seen any impact to your business either directly or indirectly, or do you anticipate any impact longer term from all this stuff going on over there?

Look, as you said, there's a big impact. It's too soon to call anything. We're focusing really on the business that I've really outlined. But what I can say about that, obviously, is we have a lot of the same customers and we are supporting our customers to the extent we can. And we'll continue to do that with the complete portfolio, not just the parts that may be impacted. So what I can say is I'm not redirecting any changes from where we are, but we are supporting customers as they request it.

Okay, thanks, Hassan. And for my follow-up, so it seems like the auto market is starting to do a little better than the industrial end market. We've seen this trend at several of your peers. Going forward, would you expect auto to keep outgrowing industrial for the next few slash several quarters?

I wouldn't put the two kind of – I guess I wouldn't compare the two and read anything into the difference in growth quarter on quarter. Both of them have growth factors that we are participating in, but the lumpiness that you see between the two is purely a market timing or a build-out timing. Some of the industrial was from some of the slowdown in the solar growth. deployment in China, that's temporary. As you go from a tariff to a market pricing, there's a shift in there. We see that kind of a temporary and will continue to grow. We talked about some of the industrial growing because of the AI data center power requirements that I highlighted, like energy storage system driven by AI, but we call those out in our industrial market. So that's some of the the growth vectors in industrial and automotive. Obviously, it's our major market. You know about the growth vectors that we have there. So both are growing, but the delta is purely market-driven and macro-driven. So I wouldn't read anything into kind of the deltas in the few quarters here short-term.

All right. Thanks, John.

The next question will come from Blaine Curtis with Jefferies. Your line is open.

Hey, morning, guys. Thanks for my question. I just want to ask about normal seasonal for December. Obviously, your company's gone through a lot of changes, but I think in the past, particularly auto's been up in December. So I'm just kind of curious how you're thinking about this guide, which is down 1%. Do you feel like that is a more normal range for you, or do you think you're undershipping the markets?

Yeah, so as I mentioned, our normal seasonal pattern for Q4 is flat to down 2%. I think it's very positive that we've gone from the stabilization to now seeing seasonal patterns. I think that's the first step to recovery. As we think about the guidance there in Q4, both auto and industrial we think will be down low single digits. The other bucket will be up kind of mid to high single digits. Hassan mentioned it, right? I don't think you should kind of read into it. the lumpiness of the autos just because of the ramping of programs and timing. But, you know, that's how we kind of think about Q4 that's laying out right now.

Perfect. And then I wanted to ask you about that AI, I'm assuming Straddle's industrial and this other bucket you have. So I'm just kind of curious, is there a way to think about as we try to layer on that growth, how it impacts those two buckets?

Yeah, so the AI data center is reported in the other bucket. Everything prior to the data center wall is an industrial. So think about all the energy storage, energy infrastructure, that's sitting in industrial. But AI data center specifically inside the four walls of the data center is in the other bucket. Gotcha. Thanks, Lance.

And our next question comes from Gary Mobley with Loop Capital. Your line is open.

Good morning, guys. Thanks for taking my question. I think last quarter it was communicated the specifics to the revenue headwind as you exit non-core businesses. If I recall correctly, it was assumed to be a $200 million revenue headwind for this fiscal year, $300 million for next year. Is there any change from that outlook?

No change. For Q3, we exited about $45 million of non-core exits. That leaves about $55 million here for Q4. That's right in line with our expectations. And then you nailed it going into 26. There's about 5% of the 2025 revenue that doesn't repeat. So no change from what we were talking about last quarter.

Great. Thank you. And I guess there's been some news, maybe it's a few months old now, about you know, the big analog player raising prices. How do you think that impacts sort of a pricing reset as we transition to the next calendar year?

I think we're expecting normal pricing behavior. I don't know if the other company you're talking about is something specific to them or not, but obviously things can change. We're monitoring the situation always. It's As you can imagine, it's very dynamic out there. But right now, we're not expecting any of that in 2026. So you can think about it. If anything does happen, it will be upside.

Got it. Thank you, guys.

And the next question will come from Quinn Bolton with Needham & Company. Your line is open.

I'm wondering if you could give us a little bit more detail on the V-Core power, exactly what comes into the business with that acquisition. I think in the script you mentioned V-Core for x86 and ARM processors. Obviously, there's a huge number of voltage regulators on the XPU side. Does V-Core help you on that, or does that come from the existing on-product portfolio? And then I've got a follow-up.

You can think about it as a combination of both. So the way we look at the acquisition is it complements the product offering that we're already offering with Trejo. It provides products also in the short term. I talked about revenue generation coming here in 2026, so that gives you time to market while we integrate those architectural and product function into our base Trejo platform. So it's a very synergistic approach that gives us the acquisition itself, time to market, And in long term, it gives us an architectural advantage from a performance perspective once we leverage the performance of Trejo from a technology base.

So reading between the lines, are you taking those order products as they are today into the market for 26, but longer term, you'll redesign them using the Trejo platform to get better performance? Yes.

Yeah.

Gotcha. And then just you guys mentioned the entry into the vertical GAN market. GAN to date hasn't been used that much in the high power segments of the market, I think, because of reliability issues. Can you just address how do you feel the vertical GAN technology compares with lateral GAN on reliability? And can you give us any sense on when you think that might start to go into production?

Yeah, so I'll tell you, vertical GAN is better on the reliability side. It has all the inherent features from the lateral GAN, but better on reliability from a die-sized perspective. One thing you need to understand, the barrier for lateral GAN to be used in high-voltage application has really been the fact that lateral GAN, to get it to high voltage, you have to go laterally, which makes the die-sized not competitive versus other similar functions. When you look at the vertical GAN, the current goes vertically, which means that we can go higher and higher voltage without increasing the die size. So not just from a performance perspective, but also from a commercial competitiveness perspective, not just the reliability. We believe we've solved those. We're sampling. We have lead customers in our, you know, both in AI and automotive. So we're excited about that, that we cracked that code. It is a breakthrough technology. I don't believe anybody's able to sample such technology outside. So it gives our customers the optionality to have really a broad portfolio of high voltage, high efficiency products. So anytime you need high voltage and high switching frequency,

Vertical GAN is the solution and the answer. Thank you.

And our next question will come from Joe Quartrochi with Wells Fargo. Your line is open.

Yeah, thanks for taking the questions. I was wondering with, you know, a quarter to go, any sort of color you could provide on, you know, your expectations for silver and carbon revenue growth this year?

We didn't provide any guidance on silicon carbide, but I'll tell you, silicon carbide is coming in exactly where we expected. We continue to gain share in our end customers, and our position in China remains unchanged as new products are ramping. You know, I mentioned a couple of examples here. One is the NEO launching a new brand where we were designed into that new brand with silicon carbide. and a broader deployment now in China EVs through a leading tier one in China that gives us really exposure to beyond just the top 10 OEMs that we've been engaged to. So that gives you a little bit of an outlook or a feel into our penetration of silicon carbide will continue to increase and we will continue to gain share.

Thanks. And as a follow-up, I was wondering if you could talk about you know, the rate of short lead time orders that you're seeing and how that compares in the third quarter relative to prior quarter? And, you know, are you seeing any increased visibility?

So our lead time's actually pushed out slightly. We're kind of in the mid-teen weeks. We're up around 20 weeks or so now. I don't think there's been a significant change to the short lead time orders at this point. You know, customers are are layering in backlog as they have visibility. We probably have seen order patterns that continue to improve, which gives us that confidence in the stabilization right now. Thank you.

And our next question will come from Josh Bucklter with TD Cohen. Your line is open.

Hey, guys. Thank you for taking my question. I was hoping you could provide a little bit more color on the revenue by geography. You know, it seemed like there was a lot of volatility this quarter with America's up so strongly, and in particular, China down. Could you maybe elaborate on some of the drivers there? Was the America's strength led by your lead customer? And yeah, what's going on in China? Thank you.

Yeah, so there's, you know, I think in our prepared remarks, we laid out the quarter over quarter changes on each of the markets. Now, there is some kind of movement of orders between some geographies as well. A large customer is now placing orders out of Japan versus Europe. So I think if you normalize for that, the Japan comes down slightly, Europe goes up a little bit. The rest of it, I think, is just kind of what we're seeing as a normal pattern at this point. So not a lot to read into those bigger swings.

Okay, thank you.

And then I was also hoping you could elaborate on why – what you're seeing now and why it's the right time to start building up die bank inventory and taking utilization rates up, especially ahead of, you know, a couple down seasonal quarters. You know, maybe how we should be thinking big picture about your capacity planning with those utilization rates. Thank you.

Yeah, look, we've been, I think we've been very disciplined on utilization versus inventory versus outlook and demand. I think we've proven that the formula works. We're not sitting here on a ton of inventory. Our base inventory is actually closer to the low end of our target, which is 110 to 120 days. I think we're sitting at like 112. 112, yep. 112. As I think Thad mentioned, the Dibank inventory we're building is really for the mass market. You know, for the last kind of two to three quarters, we have been consistently talking about how we are going to be growing. Our customer count increased almost 20% year on year just in the mass market. Therefore, the demand is there for that, and we will make sure that we have it in Dibank internally so we can respond to changes in demand that usually come from the mass market. So I think we do see the business justification for it, but that doesn't mean that we're going to be building blindly. We will maintain our targets. We will maintain inventory and all of our metrics within the range that we've previously outlined. So I see this as business as usual, really.

Yeah, and just to point out also that even with that die bank increase, our inventory actually declined quarter and quarter $39 million. So it's a mix shift within our base inventory. So to get a better profile of inventory for that mass market.

Thank you both.

And the next question will come from Torres-Spanberg with Stiefel. Your line is open.

Yes, thank you. Hassan, with the recent acquisitions, I know you have a slide that talks about power delivery from grid to processors and the content per act going from maybe a few thousand dollars today to maybe as much as $50,000 by 27 or so. I mean, do you have all the IP and all the building blocks right now to get there? Or is this sort of more of an opportunity and you still need to build out a few more things before you get to those types of numbers?

I think with whatever we need, call it in the next couple of years, we either have it or are working on it both organically and inorganically. Obviously, that ecosystem is evolving. Things that are needed three, four years from now are slightly different. We believe we have a very full portfolio of the IP that we need, and we will be creating products very quickly based on that IP. So you can think about it as we have built a toolbox with all the IP and technology and And we are quickly deploying products. I mean, you've seen us double the number of products in Trejo overall year on year, which we remain on track to do. You're going to see kind of that same mindset on AI data center along with automotive and so on. So we do have the toolbox. We do have the IP. We developed it internally and or acquired it. and we will be deploying it to win in these markets to capture a lot of that share from the dollars you mentioned on the REC.

Great, great. Thank you for that. And as my follow-up, I want to just take a step back on BGAN. So could you just give us a little bit of history here? I mean, I know it's obviously in your own Syracuse FAB, but how many years has this been in development? You know, maybe back to Quinn's question, you know, when do you start to expect some revenues here? Because obviously this is a very unique approach again. So, you know, any sort of historical context and, you know, future revenue contribution milestones would be great to know.

Sure. So we started working on it through acquisition of IP and assets back in 2024. Since then, we've turned on, quote, unquote, turned on the FAB. launched the first products. First products from a, call it electrically speaking, are yielding, are functioning. Therefore, we were very aggressive in our deployment with samples to customers. We have lead customers in our major markets of automotive and AI data centers that are currently evaluating the first generation samples and we're already working on the second generation. We expect revenue You can think about it in the 27 timeframe. Great, thank you so much.

And the next question will come from Christopher Rowland with Susquehanna. Your line is open.

Thanks so much for the question. So yeah, my questions are really around AI as well and what seems like a bigger push over the last few quarters. Just some of these applications that you mentioned, I wanted to know if you could address. Could you do things like solid state transformers? It sounds like you're in the PSU. 48 volt bus convergers. I guess the last one would be hot swaps as well. Do you address these or do you plan on addressing these over the next few years?

We address every single one of them already. So when I refer to, and we have it online too, when we refer to our ability to address the power tree, you know, that was my answer before as far as how do we differentiate. Our ability to address already today the whole power tree, including all of the IP and functionality required that you have mentioned some of them, is the differentiation we bring. So the answer is yes to all. We do that today and we will continue to expand that portfolio as we gain share.

Excellent. And Hassan, secondly on silicon carbide, as we kind of digest that growth outlook, perhaps you can talk about some of the moving parts like geographically or or even across industries? And lastly, do you have the ability to convert to 300-millimeter wafers? We're hearing about the potential for new applications on 300.

Yeah, so, well, first off, there's a lot of changes in the silicon carbide as new opportunities open up. For example, a few years ago, silicon carbide in AI data centers was not even a conversation point. Today it is, and we are gaining share and really design into the PSUs with our JFET and even our silicon carbide MOSFETs. So those are new applications that our legacy with silicon carbide and automotive allowed us to really tackle very quickly and gain share with products we already have. In automotive specifically, the silicon carbide approach was for battery electric vehicles or BEVs. As now you see a resurgence of a mix into plug-in hybrids or range extender EVs, silicon carbide is now getting designed in even in plug-in hybrids, which historically has been assumed to remain on IGBT That's not the case, and we are gaining share in the plug-in hybrid market with our silicon carbide. So within the market itself, there's new opportunities and really breadth of opportunities that just a few years ago when we started on this journey was not part of even our addressable market because it wasn't there. As far as geographical, I would say I don't expect a change in the geographical outlook for silicon carbide specifically. Because to a first order, it's going to match where the electrification, whether it's full electric vehicles or plug-in hybrids, is going to come from and where the AI data center deployment is going to come from. And that puts it strong in China and the U.S. And following behind that is Europe and Japan.

Excellent. And 300 millimeter?

300 millimeter, you know, we're... We've seen it, but my point is it's too far from now. I don't think 300 millimeter opens up new applications. It's a different color throughput, just like six to eight. I've always said six to eight inch provides us additional capacity from the number of dye per wafer. We see the 300 millimeter the same, but it's very, very early in development today. I wouldn't put that in any short-term models or anything. But today, I'll use the opportunity to give you an update on our 8-inch. Our 8-inch is in production. We're running 8-inch in our fab at 350 micron thickness, so best in class. And we will be shipping production on track in 26. So the 8-inch is full-on. And then we're always looking at what's next to come, both from a device like the JFET or MOSFET, but also from a technology.

Thanks, Hasan.

And the next question will come from Harlan, sir, with JP Morgan. Your line is open.

Good morning. Thanks for taking my question. Back to the mass market strategy, your long tail of small to medium-sized customers, this has been a A bright spot for the team, right? Solid customer count improvements. It serves through distribution, rich gross margins. How big is this segment as a percent of your total distribution revenues, and how did this subsegment do in the September quarter relative to your overall DISC-E business?

So let me give you a breakdown of the distribution revenue that may help you get there. So roughly about 58% of our business goes through distribution. About half of that is fulfillment. Half is demand creation, right? So if you think about that half, not all of that's mass market. When we think about mass market, we're thinking small customers, right? We at OnSemi maybe don't know their names, right? They're emerging customers. The distributors do a good job of identifying the opportunity. So you can think about it as being a subset of that half. Maybe it's 25% of the total distribution revenue, somewhere in that kind of camp if you think about it. If they're a medium or large customer at that distributor, we still track that. I wouldn't put that in the mass market. Got it.

Okay.

And it was good to see the technology in full expansion on the wide band gap with your vertical VGAN technology. As you mentioned, I think, Hasan, looks like this was the technology that you acquired through the acquisition of NextGen late last year. Did the acquisition also include the DeWitt Syracuse Fab Facility, or was that already a part of ON? And then it looks like they were able to develop this very differentiated technology but not able to commercialize it. So what has the ON Semi team done to take the technology beyond proof of concept to commercialization?

Great question. So, yes, the FAB was not part of our base FAB. You can think about it as a FAB that came with the technology, given the differentiation of the technology. You're absolutely right. It's such a breakthrough and differentiated technology, very difficult to make What the OnSemi team has brought is our ability to manufacture wide band gap and the team's capability to be able to scale new technologies very quickly and reach maturity very quickly than call it a startup. By the way, I will mirror this to what we've done with GTET and Silicon Carbide. If you recall, same questioning, same conversations. Can you guys pull it off? Why would you pull it off if the others didn't? And look where we are today. You can think about it. Our capability has already been proven with the GTAS acquisition and building a franchise in a couple of years that gives us leadership. You can imagine that same muscle, that same knowledge, and that same team is going to do exactly that with VGAN.

Yeah, totally agree. Thank you, Hassan.

And the next question will come from Jim Schneider with Goldman Sachs. Your line is open.

Good morning. Thanks for taking my question. Asan, you talked about the fact that customers are not willing to restock at this point or you're not seeing that effect. Can you maybe talk a little bit about when you speak to OEMs, what they would need to see to get more confidence to restock? And is that broadly applicable to the distributor side as well?

Yes, look, well, first I'll answer the distributor. I think distributors are, from a mass market, you know, if that said it, we are increasing our die bank internally because we want to be able to make sure we see the, call it the shelves, as customers pull on the mass market. The OEM is slightly different. The OEMs, what they need to see, one, is a credible demand signal. Think about it, consumer-level confidence, consumer-level demand signal that people are going to buy cars or people are going to buy power tools or whatever the market is. That has to be seen. And the biggest thing that they want to see, which we do also, is stabilization in the geopolitical aspect of it. As they're working on shuffling and changing logistical models and manufacturing sites and so on, they're not going to be replenishing given the changes that they're going through. So what I would say is consumer confidence and a geopolitical stabilization will start adding more and more confidence for OEMs to restock.

Thank you. And then maybe as a follow-up, give us a little more visibility in what's happening with your other segment for a minute. It sounds like data center is doing very, very well for you. Maybe talk about what some of the offsets are that might be headwinds you saw in this quarter and then maybe what you're seeing going forward. Thank you.

So for Q4, I mentioned that we think that other segment is going to be a mid to high single digits. Now, there's some normal seasonality in our non-core markets there that help, but you have AI data center that's growing as well in that market. I think those are the big drivers if you sum it up.

And then, of course, we have the exits that a lot of it lands into the others bucket that's offsetting the growth. So net-net growing actually means the strategic market, like AI, data center, and so on, within that is growing very, very nicely.

Thank you.

And the next question will come from Joe Moore with Morgan Stanley. Your line is open.

Great. Thank you. I wonder if you could give us some sense of the automotive market by region, any sort of different behaviors that you're seeing, and I guess particularly On China EV, there's been sort of a lot of noise in both directions. Can you just talk to the health of that market?

Yeah, look, I think from a market, of course, we've always expected adjustments in that market. I've always said there's over 100 brands. So between consolidation, between success and not success, the only strategy we have, which we've been executing to, and it's worked very well for us, is customer diversification. So you've heard us always adding new customers, leading customers in the top 10, which drive a lot of volume. And then secondary is trying to reach into that tail of OEMs. So we're not sitting here picking winners or not winners in China. We want to have the majority market share across the market. And as shares shift between them, our customer diversification strategy will work to our advantage. We've proven that very well over the last few years. We're gaining share consistently across a broad range of OEMs and brands have worked for us to really de-risk the lumpiness that you're referring. But I don't see that as any change from the headlines. So our strategy is working. We'll continue to execute to that while we kind of fine-tune it as things change because things do change rapidly. Great. That's helpful.

And then you addressed an experience situation, but I guess I'm just trying to figure out why that isn't a bigger deal. You know, we've listened to some of the tier one auto suppliers and they seem quite anxious about the situation. Like, shouldn't that be the catalyst for them to start building up inventory to sort of deal with the geopolitics of the situation or just, you know, why isn't that something that's a bigger deal for you guys in the next quarter or two?

Well, we're here to support, but I'll make a comment on the Tier 1s panicking. I've been saying that inventory is low for the last two years, and we're draining inventory below critical levels. Whether in Xperia or not, any trip in the supply chain is going to cause a chain reaction, and this is the proof. The only way out of this is place the backlog with visibility, and we will start planning and shipping. So we are seeing it. We are responding to it, and we will keep supporting it. But regardless of how the next few quarters go, we need the replenishment cycle. We need to make sure that the Tier 1s and OEM have safety stock in order to buffer any disruption. That's the only solution. We've learned a hard lesson in COVID, and here we are again. Very helpful. Thank you so much.

And the next question will come from Harsh Kumar with Piper Sandler. Your line is open.

Okay, guys. Thanks for squeezing me in. Hassan, if I can dare say that you seem somewhat, somewhat cautiously excited about your end market for the first time in a long time. So if I can ask you a question in auto, it's a two-potter. Could you give us a hint of maybe what backlog or bookings were? I'm trying to gauge, you know, that relative to your stabilization comment. And if you are talking about stabilization in auto, then I'm looking at your 6% odd growth that you put up in the September quarter. Is that seasonal growth or is that better than seasonal growth? And if it's better, then, of course, what drove that?

Yeah, look, I think I'll go back to the prior answer that I gave earlier. I don't look at the quarter-on-quarter. I would recommend you shouldn't either. I got to look at first half, second half, and we've always said the second half of the year is going to outgrow the first half of the year in our end markets. Remember, auto, we said the bottom was going to be in Q2, so that has been the case, and we're going to grow from there. Grow meaning closer to demand, but no restocking yet. So that's coming in exactly as we expected. So that quarter-on-quarter, I wouldn't talk about seasonality within markets and so on. I would talk about the lumpiness in project ramps, some projects ramped in Q3 versus ramping in Q4. Those, I don't think, are a read on how the market is doing. Visibility, however, with stabilization, we get better visibility. Not where we would like to see it, but it improved, and we're getting better visibility. But again, there's more work to do to get the visibility. So that's what I can tell you about where we are in automotive. I'm cautious, but I am also looking at the data in order to sound like I do. Our work is not done. It's not all behind us. but I think what you've seen from us is we will manage to what we see, and we will deliver the results that we promise. That's the consistency. Of course, we all wish it were different. We all wish it was way better than sometimes it is. Some of my peers did, but we've been very consistent, and we're going to continue to manage the company with discipline, whether in inventory, cash flow, or really R&D investments in differentiated technologies.

Fair enough. Maybe one for you, Tad. As sort of you look at stabilization, you know, I understand you'll need to ramp up your factories and fabs to be able to get to that 40% level. But is there a revenue number that I can think of where you start to get close to that 40% number? Or is it just purely a function of utilization and it ebbs and flows depending on how much die bank inventory you're building?

Yeah, it's utilization driven, right? So we talked about every point of utilization is 25 to 30 basis points of gross margin improvement. That math still holds. So, you know, as we look into the 26, utilization is going to drive the margin.

Fair enough. Thanks, guys.

Thank you. This will conclude today's question and answer session. I would now like to turn the call back over to Hasan for closing remarks.

Thank you all again for joining us today.

Before we conclude the call, I want to recognize the outstanding efforts of our global teams. Their focus and execution continue to drive our results and help us deliver for our customers and shareholders. We're encouraged by the signs of stabilization across our core markets. and remain focused on delivering differentiated solutions and operational excellence for our customers. We are committed to being a reliable and trusted partner and continue to raise the bar on how we support their success through technology, leadership, responsiveness, and a deep understanding of their evolving needs. We appreciate your continued support and look forward to updating you next quarter. Thank you.

This concludes today's conference call. Thank you for participating. You may now disconnect.