2, 2026 CALL PARTICIPANTS Vice President of Corporate Development and Investor Relations - Parag AgarwalPresident and Chief Executive Officer - Hassane El-KhouryChief Financial Officer - Thad Trent Revenue -- $1.72 billion, representing 11% growth year over year and 7% growth sequentially.Non-GAAP Gross Margin -- 41.2%, expanding 190 basis points sequentially due to utilization improvements and favorable product mix.Non-GAAP Diluted EPS -- $0.90, growing fourfold faster than revenue growth year over year.AI Data Center Revenue -- $180 million, increasing 39% sequentially and 175% year over year.AI Data Center FY2026 Outlook -- Approximately $620 million, reflecting 140% growth year over year.AI Data Center FY2027 Outlook -- Expected to double from the 2026 base as new product ramps continue.AI Data Center 2030 Revenue Target -- Raised by $500 million to greater than $3 billion following the Ferric acquisition announcement.Automotive Revenue -- $777 million, declining 1% sequentially and year over year due to supply reallocation to other segments.Industrial Revenue -- $467 million, growing 10% sequentially and 9% year over year, led by energy infrastructure and factory automation.Other End Market Revenue -- $299 million, increasing 11% sequentially driven by normal seasonality in the wireless segment.Power Solutions Group Revenue -- $890 million, up 21% year over year and 7% sequentially.Analog and Mixed Signal Group Revenue -- $597 million, increasing 2% year over year and 9% sequentially.Intelligent Sensing Group Revenue -- $235 million, up 2% year over year and 3% sequentially.Utilization Rate -- 83%, remaining flat quarter over quarter with expectations for similar levels in the fourth quarter.Free Cash Flow -- $489 million, representing 28% of revenue and growing 31% year over year.Ferric Acquisition -- $600 million in cash plus up to $175 million in earn-outs, intended to establish leadership in integrated voltage regulators for AI processors.Synaptics Acquisition Update -- Revised to approximately $5.7 billion in cash from an original $7 billion stock-based agreement.Inventory -- 186 days, a decrease of six days sequentially, while base inventory increased by one day to support demand.Q4 Revenue Guidance -- $1.715 billion to $1.815 billion, representing above-seasonal growth of 2.5% sequentially at the midpoint.Q4 Non-GAAP Diluted EPS Guidance -- $0.95 to $1.07.Q4 Non-GAAP Gross Margin Guidance -- 41.5% to 43.5%, a 130-basis-point expansion at the midpoint sequentially.Capital Expenditures -- $28 million in the third quarter, with full-year expectations of approximately 2% of revenue.

Need a quote from a Motley Fool analyst? Email [email protected] Trent stated, "We expect automotive revenue to decrease high single-digit percentage points in the fourth quarter, reflecting continued supply reallocation as well as timing and phasing of customer deliveries," noting a short-term negative impact on the segment.El-Khoury stated, "We remain supply limited in certain technology segments of our business," forcing the company to prioritize allocation to the AI data center and industrial markets over automotive inventory replenishment.

Management reported that ON Semiconductor Corporation (ON -2.18%) delivered third quarter results above guidance midpoints, characterized by a significant acceleration in the AI data center segment and improving demand in industrial markets.

The company announced the strategic acquisition of Ferric to integrate advanced voltage regulation technology into its power tree, while simultaneously restructuring the Synaptics acquisition into an all-cash transaction to ensure immediate earnings accretion.

Although supply constraints led to a tactical decision to reallocate capacity away from automotive inventory replenishment, management confirmed that automotive end demand remains supported and expects the segment to return to long-term growth targets in 2027.

Financial performance was bolstered by a fifth consecutive quarter of non-GAAP gross margin expansion and robust free cash flow generation, which reached 28% of revenue.

The company raised its 2030 AI data center revenue target to over $3 billion, with CEO El-Khoury stating, "Ferric offers the most compelling IVR solution in the industry with its industry-leading efficiency and transient response performance in an exceptionally compact footprint."Management indicated that automotive content per vehicle is expanding up to $2,000 as architectures transition to 800-volt systems and software-defined vehicles.The "AI halo effect" is driving demand in the industrial segment for grid infrastructure and energy storage, contributing to a 10% sequential increase in industrial revenue.The company is sampling its new Embedded Power Platform (EPP) to alpha customers, utilizing 12-inch silicon wafers as the package to improve power density across multiple end markets.Management noted increasing momentum in robotics and physical AI, with sensing technology now engaged with more than 10 leading drone manufacturers.Vertical GaN technology was introduced to address 800-volt to 6-volt conversions in AI racks, which management identified as one of the most challenging conversions in the data center.

INDUSTRY GLOSSARY AMG: Analog and Mixed Signal Group, a business unit focusing on analog and mixed-signal integrated circuits.EPP: Embedded Power Platform, an architecture that uses the silicon wafer itself as the device package to improve thermal and mechanical performance.GaN: Gallium Nitride, a wide-bandgap semiconductor material used for high-efficiency power conversion.ISG: Intelligent Sensing Group, a business unit specializing in image sensors and sensing technologies.iToF: Indirect Time-of-Flight, a method used in image sensors to measure distance by timing light signals.IVR: Integrated Voltage Regulator, a technology that incorporates a complete power regulator into a single compact package near the processor.JFET: Junction Field-Effect Transistor, a type of transistor used in power disconnects and circuit breakers.MOSFET: Metal-Oxide-Semiconductor Field-Effect Transistor, a standard component for switching and amplifying electronic signals.PSG: Power Solutions Group, a business unit focused on discrete and integrated power semiconductor products.PSU: Power Supply Unit, the component that converts electrical power for use in computing hardware.SiC: Silicon Carbide, a semiconductor material used in high-voltage power applications like electric vehicle traction inverters.Vcore: The primary voltage rail that provides power to the core of a CPU or GPU.

Full Conference Call Transcript Operator: Good day, and thank you for standing by.

Welcome to the onsemi Third Quarter 2026 Earnings Conference Call.

[Operator Instructions] Please be advised that 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.

Parag Agarwal: Thank you, Daniel.

Good afternoon, and thank you for joining onsemi's third quarter results conference call.

I'm joined today by Hassane El-Khoury, our President and CEO; and Thad Trent, 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 third quarter earnings release, will be available on our website approximately 1 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 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-Qs and other filings with the Securities and Exchange Commission and in our earnings release for the third quarter.

Our estimates or other forward-looking statements might change, and the company assumes no obligation to update forward-looking statements to reflect actual results, changed assumptions or other events that may occur except as required by law.

Now let me turn it over to Hassane.

Hassane? Hassane El-Khoury: Thank you, Parag, and thank you all for joining us this afternoon.

Our third quarter results reflect continued strength in our business and the momentum we are building across our strategic growth markets with growth above seasonal trends, continued acceleration in AI data center and improving demand in industrial.

We see particularly strong demand where power density is becoming the key differentiator from AI data centers and the grid infrastructure supporting them to energy storage and next-generation vehicle architectures.

These are strategic markets where we focused our investments and are now seeing that strategy translate into revenue growth, margin expansion, share gains and new customer wins.

AI data center continues to be our fastest-growing market, scaling more rapidly than we anticipated entering the year with new wins that started to ramp.

In automotive, we continue to gain content and secure new platform wins in every region, while industrial demand continues to improve, led by power infrastructure and energy applications.

In Q3, we delivered $1.72 billion of revenue, non-GAAP gross margin of approximately 41.2% and non-GAAP diluted earnings per share of $0.90, all above the midpoint of our guidance.

The combination of stronger demand, improved mix and disciplined execution is driving meaningful operating leverage in our model with earnings growth significantly outpacing revenue growth.

We remain supply limited in certain technology segments of our business, and we made the short-term decision in the third quarter and into the fourth quarter to allocate to markets where we see strong end demand like AI data center, industrial, which came in much stronger than we originally planned.

In automotive, we are supporting all deliveries for end demand, but we are not supporting inventory replenishment backlog.

As we balance supply and demand, we expect 2027 automotive growth to be in line with our long-term target.

In AI data center, our revenue covers the complete power tree from power supply units or PSUs to low-voltage smart power stages near the processor, where increasing compute is driving greater power density requirements and higher semiconductor content.

In the third quarter, our AI data center revenue grew 39% sequentially to $180 million, and we now expect to deliver approximately $620 million of revenue in 2026, an increase of 140% year-over-year.

For 2027, we still expect our AI data center revenue to double over 2026 as we continue to ship with new product ramps.

In the third quarter, we began volume shipments into multiple marquee platforms, including Google with both silicon carbide and silicon MOSFETs for PSUs and 54-volt to 12-volt applications.

The transition to 800-volt architectures creates the next content opportunity for onsemi, moving AI data center power directly into our strength.

Our comprehensive low-to high-voltage power portfolio spanning silicon, silicon carbide and vertical GaN remains a competitive advantage, allowing us to address direct conversion from 800 volts to the 54-volt, 12-volt and 6-volt rails required across the AI rack.

As power systems become more complex, customers increasingly need solutions that go beyond individual components.

At last month's OCP Summit, we showcased our 800-volt to 6-volt solution using our differentiated vertical GaN technology alongside our gate driver and MOSFETs to deliver industry-leading efficiency and world-leading power density for one of the most challenging conversions in the AI rack.

The move to 800-volt high-voltage DC also accelerates the transition from mechanical to solid-state power disconnects for fast turn-off from solid-state transformers and circuit breakers to hot-swap applications.

Our silicon carbide JFET portfolio delivers superior thermal performance and is already designed in and contributing to our data center revenue.

At Investor Day, we talked about the investments we are making to build differentiated capabilities ahead of the inflection points in our markets, and we continue to do that as power density becomes increasingly critical across AI data center, automotive and industrial.

One example is EPP, our embedded power platform introduced at Investor Day.

EPP uses the silicon wafer itself as the package to solve electrical, thermal and mechanical constraints simultaneously.

We are pleased with the customer interest in the platform since the announcement, reinforcing our conviction that power density is becoming an increasingly important differentiator across automotive, AI data center and industrial applications.

EPP is already sampling to alpha customers across these markets and is manufactured using our 12-inch silicon process at East Fishkill.

Today, we are also excited to announce the acquisition of Ferric, which further extends our capabilities into integrated voltage regulators or IVR and puts us in the leadership position for power delivery to the next-generation AI processors.

As power requirements of AI processors continue to increase, IVR incorporates the complete power regulator, including controller, power switches, capacitors and magnetics in one thin package and places it closer to the GPU, reducing power losses and solving the power density problem at the core.

Ferric offers the most compelling IVR solution in the industry with its industry-leading efficiency and transient response performance in an exceptionally compact footprint with best-in-class z-height.

We expect Ferric to increase our market share in the Vcore stage of the AI data center power tree.

While this is a multiyear opportunity for onsemi well beyond 2030, we are raising our 2030 AI data center revenue target by $500 million to greater than $3 billion.

Moving on to our industrial business.

The AI halo effect is driving momentum beyond the data center itself.

We expanded hybrid EliteSiC and IGBT module wins with multiple lead customers, including Sungrow and Sineng, driven by the 99.3% efficiency platform we introduced last quarter.

Also in our industrial business, we see increasing momentum in robotics and physical AI, an area where our capabilities in power and sensing are highly complementary to Synaptics.

Demand from first-person view or FPV drones is driving increased shipments of our 2-megapixel and 8-megapixel Hyperlux image sensors, and we are engaged with more than 10 leading drone manufacturers.

We continue to diversify across the robotics market and have secured multiple new design wins with leading U.S.

humanoid makers across power, connectivity and sensing.

For sensing, we are advancing our indirect time-of-flight or iToF technology to deliver world-class depth resolution of 1 millimeter up to 10x better than competing solutions, enabling the precise depth perception critical for robots to interact with the physical world.

As physical AI scales, these applications bring together many of our core capabilities across power and sensing, creating a significant new content opportunity for onsemi.

Turning to automotive.

We continue to win new customer designs across all regions.

As the industry moves toward electrification, higher level of autonomy and software-defined vehicles, the investments we have made in new products continue to expand our content per vehicle up to $2,000 as architectures evolve.

These transitions create multiple vectors of content growth for onsemi even in a relatively flat SAAR.

We continue to gain share in the North American EV market across traction inverter designs and new onboard charger platform wins in addition to the Treo-based 10BASE-T1S ramp we already started.

Across European OEMs, we expanded our design wins across our power portfolio as they also started the transition to 48-volt zonal.

In China, we continue to expand our leading position in high-end OEMs for their 900-volt electric vehicles with new 1,200-volt silicon carbide traction inverter wins at NIO for their flagship sedan and Geely Zeekr's rapidly expanding export model.

As we look ahead, we are increasingly confident in the trajectory of the business.

AI data center continues to scale rapidly, while improving demand in automotive and industrial, content gains and new platform wins create multiple vectors of growth.

All these trends are converging around the areas where onsemi is differentiated in intelligent power and sensing and our disciplined execution positions us to translate that growth into stronger earnings and cash generation.

I want to thank our employees around the world for their continued focus and execution.

Their work is what enables us to deliver for our customers and create shareholder value.

Now let me turn it over to Thad to provide more details on our results and guidance for the fourth quarter.

Thad Trent: Thanks, Hassane.

We believe the recovery is gaining momentum, and we are in a fundamentally stronger position than in prior quarters.

We have more content, a broader market opportunity and substantially greater earnings power.

With much of the heavy lifting and investments behind us, we are positioned to convert revenue growth into earnings and free cash flow growth.

In the third quarter, we continue to see this benefit in our financial results.

Q3 revenue was $1.72 billion, above the midpoint of our guidance and up 7% sequentially.

Non-GAAP gross margin expanded by 190 basis points quarter-over-quarter to 41.2% and non-GAAP earnings per share was $0.90, growing 4x faster than revenue growth year-over-year.

During our Investor Day, we discussed having consistently invested ahead of major market inflection points, building capabilities organically and supplementing them through strategic M&A to accelerate time to market.

AI data center is a clear example.

As architectures evolve, we are continuing to strengthen our capabilities across the power tree to position onsemi to capture more of that opportunity.

Today, we announced the acquisition of Ferric for $600 million, plus up to $175 million in earn-outs tied to the achievement of revenue milestones.

As Hassane mentioned, Ferric puts us in a leadership position in power delivery for next-generation AI processors.

We expect Ferric to be accretive to our growth and gross margin targets with EPS accretion at scale and no meaningful near-term financial impact.

This is a multi-year opportunity, raising our AI data center revenue target by 20% to more than $3 billion in 2030 and continues to accelerate thereafter.

We expect the transaction to close in the fourth quarter, subject to customary closing conditions.

Additional details on the acquisition are available on our Investor Relations website.

Turning to revenue for the third quarter.

Q3 revenue was $1.72 billion, up 7% sequentially and 11% year-over-year.

Revenue was $22 million above the midpoint of our guidance with growth in industrial and AI data center.

Automotive revenue was $777 million, down 1% sequentially and year-over-year.

The sequential decrease is primarily due to the reallocation of supply to the AI data center and industrial end markets.

We expect automotive revenue to decrease high single-digit percentage points in the fourth quarter, reflecting continued supply reallocation as well as timing and phasing of customer deliveries.

Q1 is expected to return to normalized levels as supply comes online.

Industrial revenue was $467 million, up 10% sequentially and 9% year-over-year.

We saw strength in energy infrastructure, factory automation and the broader industrial market.

We expect industrial revenue to increase low double-digit percentage points in the fourth quarter.

AI data center revenue was $180 million, up 39% sequentially and 175% year-over-year.

Demand continues to accelerate, and we now expect our AI data center revenue to reach approximately $620 million in 2026, increasing mid-teens percentage points in the fourth quarter.

In 2027, we expect this to double off a higher base.

Please note, beginning this quarter, we are enhancing our disclosures by separately reporting AI data center revenue as a fourth market segment to provide greater transparency into this important growth driver for onsemi.

You will see this in our supplemental materials on our Investor Relations website and in our 10-Q.

Revenue for the other end market segment, now excluding AI Data Center, was $299 million, up 11% sequentially and 10% year-over-year due to normal seasonality in the Wireless segment.

We expect our other revenue segment to increase high teens percentage points in the fourth quarter.

Looking at the split between business units, revenue for the Power Solutions Group, or PSG, was $890 million, an increase of 7% quarter-over-quarter and 21% year-over-year.

Revenue for the Analog and Mixed Signal Group, or AMG, was $597 million, an increase of 9% quarter-over-quarter and 2% year-over-year.

Revenue for the Intelligent Sensing Group, or ISG, was $235 million, an increase of 3% quarter-over-quarter and 2% year-over-year.

Moving to gross margin.

GAAP gross margin was 41.4%, and non-GAAP gross margin expanded for the fifth consecutive quarter to 41.2% due to utilization improvements earlier in the year and favorable mix to new products.

Utilization remained flat at 83%.

We expect similar levels in Q4 with utilization increasing as we move into 2027 in response to improving demand signals.

Our Fab Right strategy remains an important contributor to the long-term margin opportunity.

In Q3, we closed the previously announced divestiture of a back-end facility in the Philippines, and we remain on track to close our divestiture of the Mountain Top fab exiting 2027.

We are operating with a more focused and efficient footprint, creating additional opportunity for gross margin expansion over time.

GAAP operating expenses were $335 million.

Non-GAAP operating expenses were approximately $310 million.

GAAP operating income was $378 million or 22% of revenue.

Non-GAAP operating income was $400 million or 23% of revenue.

GAAP net income was $314 million and non-GAAP income was approximately $354 million.

Our GAAP tax rate was 21%, and our non-GAAP tax rate was 15%.

GAAP share count was approximately 397 million shares, resulting in GAAP earnings per share of $0.79.

Non-GAAP share count was approximately 392 million shares, resulting in non-GAAP earnings per share of $0.90.

Turning to the balance sheet.

Cash and short-term investments were approximately $4.4 billion at quarter end.

Total liquidity was $5.9 billion, including $1.5 billion undrawn on our revolver.

Cash from operations was $516 million and free cash flow was $489 million or 28% of revenue.

Capital expenditures were $28 million or 1.6% of revenue, and we expect full-year capital expenditure to be approximately 2% of revenue.

Inventory increased $22 million sequentially but declined on a days basis by 6 days to 186 days.

Strategic inventory continues to drain, declining 7 days in Q3 and base inventory increased by 1 day as we continue to support higher demand.

Distribution weeks of inventory declined to 9.9 weeks from 10.1 weeks in Q2 with sell-through continuing to support a healthy channel and mass market growth.

We repurchased $20 million of shares in Q3 with activity limited by trading restrictions related to the Synaptics acquisition and renegotiations.

Looking forward, let me provide the key elements of our non-GAAP guidance for the fourth quarter.

As a reminder, today's press release contains a table detailing our GAAP and non-GAAP guidance.

We anticipate Q4 revenue will be in the range of $1.715 billion to $1.815 billion, representing above seasonal growth of 2.5% sequentially at the midpoint.

We expect non-GAAP gross margin to be between 41.5% and 43.5% and include approximately $8 million in stock-based compensation.

At the midpoint, this represents 130 basis points of sequential expansion.

Non-GAAP operating expenses are expected to be between $303 million and $318 million.

This includes approximately $34 million in stock-based compensation.

We anticipate non-GAAP other income to be approximately $27 million, favorable.

We expect our non-GAAP tax rate to remain at 15% and our non-GAAP diluted share count to be approximately 392 million shares.

This results in non-GAAP earnings per share in the range of $0.95 to $1.07, and we expect capital expenditures in the range of $40 million to $50 million.

The fourth quarter outlook reflects continued demand momentum and another step forward in our model.

Based on our current visibility, we expect this momentum to continue into 2027 with continued revenue growth and gross margin expansion as we scale our differentiated products and realize the benefits of our more efficient operating model.

As we look ahead, the opportunity is about more than a recovery in demand.

We have built a stronger business....