Q2 2024 ON Semiconductor Corp Earnings Call

Good day and thank you for standing by. Welcome to the Onsemi Second Quarter 2024 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.

Operator: 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 this session, you will need to press star-one-one on your telephone. You will then hear an automated message advising that your hand is raised.

Unknown Executive: I'm all participants are in a listen-only mode. After the speaker's presentation, there'll be a question-and-answer session. To ask the question during the session, need to press Star 111 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 111 again.

To ask a question during this 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. Please go ahead.

Operator: To withdraw your question, please press star-one-one again. 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. Please go ahead.

Unknown Executive: Please be advised at least confidence being recorded.

Kevin: I would not like to end the conversation with you, speaker today, Parag Agarwal. Please go ahead.

Parag Agarwal: Thank you, Kevin. Good morning and thank you for joining On-Stemmy's second quarter, 2024, quarterly resource conference call. I'm joined today by Hassane El-Korey, our President and CEO, and Patrick, our CFO.

Parag Agarwal: Thank you, Kevin. Good morning, and thank you for joining Onsemi's second quarter 2024 quarterly results conference. I'm joined today by Hassane Arcuri, our President and CEO, and Thad Trent, our CFO. This call is being webcast on the Investor Relations section of our website at www.armswami.com. A replay of this webcast, along with our 2021 second 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.

Parag Agarwal: Thank you Kevin. Good morning and thank you for joining Onsemi's second quarter 2024 quarterly results conference call.

Speaker Change: I am joined today by Hassane Arcuri, our President and CEO , and Thad Trent, our CFO .

Unknown Executive: This call is being webcast on the Investor Relations section of our website at www.armsemi.com. It is pay of this webcast, along with our 2024's second 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 one hour following this conference call. Additionally, information is posted on the Investor Relations section of our website.

Speaker Change: This call is being webcast on the Investor Relations section of our website at www.armswami.com.

Speaker Change: A replay of this webcast along with our 2024 second 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.

Parag Agarwal: Additional information is posted on the investor relations section of our website. Our earnings list and this presentation include certain non-GAAP financial measures. The reconciliation of these non-GAAP financial measures to most directly comparable GAAP financial measures and a discussion of certain limitations when using non-GAAP financial measures are included in our earnings list, which is posted separately on our website in the investor relations section.

Speaker Change: Additional information is posted on the investor relations section of our website.

Unknown Executive: Our earnings release and this presentation includes certain non-cafe financial measures. The consolidation of these non-cafe financial measures to most directly comparable gap financial measures and a discussion of certain limitations when using non-cafe financial measures are included in our earnings release, which is posted to the public. Unfortunately, on our website in the Investor Relation section.

Speaker Change: Our earnings list and this presentation includes certain non-cap financial measures.

Speaker Change: The consolation of these non-GAAP financial measures to most directly comparable GAAP financial measures and a discussion of certain limitations when using non-GAAP financial measures are included in our earnings release.

Speaker Change: which is posted separately on our website in the investor relations section.

Unknown Executive: During the course of this conference call, we will make projections or other public-looking statements regarding 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 findings with the Security and Exchange Commission and in our earnings release for the second quarter of 2024.

Parag Agarwal: During the course of this conference call, we will 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 those projected. 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 the Securities and Exchange Commission, and in our earnings release for the second quarter of 2020. Our estimates or the forward-looking statements might change Now, let me turn it over to Hassan. Hassan?

Speaker Change: During the course of this conference call, we will make projections or other forward-looking statements.

Speaker Change: regarding future events or the future financial performance of the company.

Speaker Change: 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.

Speaker Change: important factors that can affect our business including factors that could cause actual results to differ materially from our forward-looking statements

Speaker Change: Described in our most recent Form 10-K , Form 10-Q , and other filings with the Securities and Exchange Commission, and in our earnings release for the second quarter of 2024.

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

Speaker Change: Our estimates or the forward-looking statements might change, and the company...

Speaker Change: Assumes no obligation to update forward-looking statements to reflect the actual results.

Hassane El-Korey: Now, let me turn it over to Hassan Hassan.

Speaker Change: for joining us on the call.

Hassane El-Korey: Thank you, Parag. Good morning, and thanks to everyone for joining us on the call. In the second quarter, we exceeded the midpoint of our guidance for revenue, non-GAAP gross margin, and non-GAAP earnings per share as our global teams continue to execute on all fronts. As we indicated in our Q1 call, we are seeing some stabilization and demand in our core markets. Inventory digestion persists with some pockets improving as customers maintain a cautious stand in 2024. We don't change to the L-shaped curve, I talked about in Q1, but we expect parts of industrial such as energy infrastructure to recover in the second half.

Hassane Arcuri: Thank you, Parag. Good morning, and thanks to everyone for joining us on the call. In the second quarter, we exceeded the midpoint of our guidance for revenue, non-gap gross margin, and non-gap earnings per share as our global teams continue to execute on all fronts. As we indicated in our Q1 call, we are seeing some stabilization in demand in our core markets. Inventory digestion persists, with some pockets improving as customers maintain a cautious stance in 2024.

Speaker Change: In the second quarter, we exceeded the midpoint of our guidance for revenue, non-gap gross margin and non-gap earnings per share as our global teams continue to execute on all fronts.

Speaker Change: As we indicated in our Q1 call, we are seeing some stabilization in demand in our core markets. Inventory digestion persists with some pockets improving as customers maintain a cautious stance in 2024.

Hassane Arcuri: We don't see a change to the L-shaped curve I talked about in Q1, but we expect parts of the industrial sector, such as energy infrastructure, to recover in the second half. Among the regions, Asia-Pacific, namely China, is recovering, driven by both the automotive and industrial sectors.

Speaker Change: We don't see a change to the L-shaped curve I talked about in Q1, but we expect parts of industrial, such as energy infrastructure, to recover in the second half.

Hassane El-Korey: Among the regions, Asia-Pacific, namely China, is recovering, driven by both automotive and industrial. During this time of market uncertainty, we have not taken our foot off the pedal and remained focused on what we can't control: our execution. We have doubled down on our investments to build out our strategic portfolio of analog mixed-signal and power solutions. We have been gaining share by securing significant design winds in power, and we have continued to improve our cost structure through ongoing structural changes. All these efforts have positioned us very well in a recovery with top offline growth and growth margin expansion.

Speaker Change: Among the regions, Asia-Pacific, namely China, is recovering, driven by both automotive and industrial.

Hassane Arcuri: During this time of market uncertainty, we have not taken our foot off the pedal and remain focused on what we can't control, our execution. We have doubled down on our investments to build out our strategic portfolio of analog mixed signal and power solutions. We have been gaining share by securing significant design wins in power, and we have continued to improve our cost structure through ongoing structural changes. All these efforts position us very well for a recovery with top line growth and growth margin expansion.

Speaker Change: During this time of market uncertainty, we have not taken our foot off the pedal and remain focused on what we can't control, our execution.

Speaker Change: We have doubled down on our investments to build out our strategic portfolio of analog mixed signal and power solutions. We have been gaining share by securing significant design wins in power, and we have continued to improve our cost structure through ongoing structural changes.

Speaker Change: All these efforts position us very well in a recovery with top line growth and growth margin expansion.

Hassane El-Korey: Our advantage remains in our comprehensive and innovative product portfolio to capture market opportunities. Onsemi's intelligent power and sensing solutions have become synonymous with high efficiency and performance, which are critical to solving customer problems and the high growth mega trends in automotive, industrial, and AI data centers. In intelligent sensing, we continue to invest to sustain our technology and market leadership. We announced the acquisition of SWEAR vision systems to add disruptive, colloidal, quantum-based, dot-based short wavelength infrared technology to our portfolio to further strengthen our industrial and defense product offering. We will leverage our manufacturing and R&D expertise to accelerate the commercialization of this technology with cost-effective and differentiated products.

Hassane Arcuri: Our advantage remains in our comprehensive and innovative product portfolio to capture market opportunities. Onsemi's intelligent power and sensing solutions have become synonymous with high efficiency and performance, which are critical to solving customer problems and the high growth megatrends in automotive, industrial, and AI data centers. In Intelligent Sensing, we continue to invest to sustain our technology and market leadership. We announced the acquisition of SWIR vision systems to add disruptive colloidal quantum based dot-based short wavelength infrared technology to our portfolio to further strengthen our industrial and defense product offerings.

Speaker Change: Our advantage remains in our comprehensive and innovative product portfolio to capture market opportunities.

Ansemi: Onsemi's intelligent power and sensing solutions have become synonymous with high efficiency and performance, which are critical to solving customer problems and the high growth megatrends in automotive, industrial, and AI data centers.

Ansemi: In Intelligent Sensing, we continue to invest to sustain our technology and market leadership.

Ansemi: We announced the acquisition of SWIR vision systems to add disruptive, colloidal, quantum-based, dot-based, short-wavelength, infrared technology to our portfolio to further strengthen our industrial and defense product offering.

Hassane Arcuri: We will leverage our manufacturing and R&D expertise to accelerate the commercialization of this technology with cost-effective and differentiated products for industrial and defense applications. For analog mixed signal product development, in addition to sampling our first products, we are now proliferating a broader range of product families, from high-performance analog with integrated power and automotive to a low-power sensing interface in medical.

Ansemi: We will leverage our manufacturing and R&D expertise to accelerate the commercialization of this technology with cost-effective and differentiated products for industrial and defense applications.

Hassane El-Korey: On the analog mixed signal product development, in addition to sampling our first products, we are now proliferating a broader range of product families, from high performance analog with integrated power and automotive to a low power sensing interface in medical. This broad range of applications and products we can already offer to our lead customers highlights the competitiveness of this new technology platform.

Ansemi: On the analog mixed signal product development, in addition to sampling our first products, we are now proliferating a broader range of product families, from high performance analog with integrated power and automotive, to a low power sensing interface in medical.

Hassane Arcuri: This broad range of applications and products we can already offer to our lead customers highlights the competitiveness of this new technology platform. We are excited to share more details about our analog mixed signal product and technology roadmap later this year. We continue building on our Design Win Momentum, and last week, we announced that Volkswagen Group has selected Onsemi to be the primary supplier of a complete power box solution as part of its next generation traction inverter for its scalable system platform, SSP. The first-of-a-kind solution features silicon carbide-based technologies in an integrated module that can scale across all power levels, from high power to low power traction inverters, to be compatible with all vehicle categories.

Ansemi: This broad range of applications and products we can already offer to our lead customers highlight the competitiveness of this new technology platform.

Hassane El-Korey: We are excited to share more detail about our analog mixed-signal product and technology roadmap later this year. We continue building on our design win momentum, and last week we announced that Volkswagen Group has selected on semi to be the primary supplier of a complete power box solution as part of its next generation traction inverter for its scalable system platform, SSP. The first of a kind solution features silicon carbide based technologies in an integrated module that can scale across all power levels from high power to low power traction and vendors to be compatible for all vehicle categories.

Ansemi: We are excited to share more detail about our analog mixed signal product and technology roadmap later this year.

Ansemi: We continue building on our Design Win Momentum, and last week we announced that Volkswagen Group has selected Onsemi to be the primary supplier of a complete power box solution as part of its next generation traction inverter for its scalable system platform, SSP.

Ansemi: The first-of-a-kind solution features silicon carbide-based technologies in an integrated module that can scale across all power levels, from high-power to low-power traction inverters, to be compatible for all vehicle categories.

Hassane El-Korey: VW Group is the second largest automotive OEM in the world, and we expect that all VW brands, including Volkswagen, Audi, Porsche, and Škoda, will be powered by on semi silicon carbides in their next generation platforms. To best support VW Group and our global customer base, we have also announced a multi-year investment in the Czech Republic for a vertically integrated silicon carbide manufacturing facility. This strategic expansion provided the European Commission approved the incentive measure would enable us to meet the rising demand for silicon carbide modules and other power semiconductors by bringing front and manufacturing and advanced packaging capabilities to Europe.

Hassane Arcuri: The Volkswagen Group is the second largest automotive OEM in the world, and we expect that all Volkswagen brands, including Volkswagen, Audi, Porsche, and Skoda, will be powered by Onsemi's silicon carbide in their next generation platform. To best support Volkswagen and our global customer base, we have also announced a multi-year investment in the Czech Republic for a vertically integrated silicon carbide manufacturing facility. This strategic expansion, provided the European Commission approves the incentive measure, would enable us to meet the rising demand for silicon carbide modules and other power semiconductors by bringing front-end manufacturing and advanced packaging capabilities to Europe.

Ansemi: VW Group is the second largest automotive OEM in the world, and we expect that all VW brands, including Volkswagen, Audi, Porsche, Skoda, will be powered by Onsemi's silicon carbides in their next generation platforms.

Speaker Change: To best support VW Group and our global customer base, we have also announced a multi-year investment in the Czech Republic for a vertically integrated silicon carbide manufacturing facility.

Speaker Change: This strategic expansion, provided the European Commission approves the incentive measure, would enable us to meet the rising demand for our silicon carbide modules and other power semiconductors by bringing front-end manufacturing and advanced packaging capabilities to Europe .

Hassane El-Korey: As customers place an increasing importance on geopolitical risks to their supply chain, they value the resilience we have built into our manufacturing footprint through our fab right strategy.

Hassane Arcuri: As customers place increasing importance on geopolitical risks to their supply chain, they value the resilience we have built into our manufacturing footprint through our FabRite strategy. Our collaboration with the Czech government on this state-of-the-art facility aims not only to support our European customers but also positions Onsemi as a central piece of the European power ecosystem, further enhancing our supply resilience strategy. Additionally, Onsemi is a silicon carbide market share leader in China, and we are designed into nearly 60% of the BEV models from OEMs who are primarily introducing their 800 volt platforms at the Beijing International Auto Exhibition last quarter.

Speaker Change: As customers place an increasing importance on geopolitical risks to their supply chain, they value the resilience we have built into our manufacturing footprint through our FAB right strategy.

Hassane El-Korey: Energy. Our collaboration with the Czech government on the state-of-the-art facility aims not only to support our European customers, but also positions onsemi as a central piece of the European power ecosystem, further enhancing our supply-resilient strategy. Additionally, onsemi is a Silicon Carbide market share leader in China, and we are designed into nearly 60% of the BEV models from OEMs who are primarily introducing their 800-volt platforms at the Beijing International Auto Exhibition last quarter. China is the largest and fastest-growing bev market in the world, and Chinese OEMs are adopting onsemi silicon carbide solutions based on the market leading efficiency of our modules and devices like the M3E we've just announced.

Speaker Change: Our collaboration with the Czech government on this state-of-the-art facility aims not only to support our European customers, but also positions onsemi as a central piece of the European power ecosystem, further enhancing our supply resilience strategy.

Hans Semi: Additionally, onsemi is a silicon carbide market share leader in China, and we are designed into nearly 60% of the BEV models from OEMs who are primarily introducing their 800-volt platforms at the Beijing International Auto Exhibition last quarter.

Hassane Arcuri: China is the largest and fastest growing BEV market in the world, and Chinese OEMs are adopting semi-silicon carbide solutions based on the market-leading efficiency of our modules and devices like the M3E we've just announced. In the automotive industry, silicon carbide will continue to outgrow the industry for many years as EVs are adopted but also as the penetration rate in EVs increases. The latest research reports show that 22% of EVs in production are enabled with SICK.

Hans Semi: China is the largest and fastest-growing BEV market in the world, and Chinese OEMs are adopting on semi-silicon carbide solutions based on the market-leading efficiency of our modules and devices like the M3e we've just announced.

Hassane El-Korey: An automotive Silicon Carbide will continue to grow the industry for many years as EVs are adopted, but also as the penetration rate in EVs increases. The latest research reports show that 22% of EVs in production are enabled with SICK, excluding the market leader. Only 6% of the EVs worldwide include SICK, but all OEMs are driving adoption to improve range and cost of the vehicles. Our success with SICK and automotive extends to the industrial market, with demand expanding beyond energy infrastructure, with emerging mass market applications such as commercial heating, ventilation, air conditioning. The use of 1200 volt Silicon Carbide and HVAC applications leads to more efficient, reliable, and compact systems, ultimately reducing energy consumption, improving electromagnetic interference, and operational costs.

Hans Semi: In automotive, silicon carbide will continue to outgrow the industry for many years as EVs are adopted, but also as the penetration rate in EVs increases.

Hassane Arcuri: Excluding the market leader, only 6% of the EVs worldwide include SICK, but all OEMs are driving adoption to improve the range and cost of the vehicle. Our success with SICK and the automotive market extends to the industrial market, with demand expanding beyond energy infrastructure with emerging mass market applications, such as commercial heating, ventilation, and air conditioning. The use of 1200 volt silicon carbide and HVAC applications leads to more efficient, reliable, and compact systems, ultimately reducing energy consumption, improving electromagnetic interference, and operational costs.

Speaker Change: The latest research reports show that 22% of EVs in production are enabled with SICK. Excluding the market leader, only 6% of the EVs worldwide include SICK, but all OEMs are driving adoption to improve range and cost of the vehicles.

Speaker Change: Our success with SICK and automotive extends to the industrial market with demand expanding beyond energy infrastructure, with emerging mass market applications such as commercial heating, ventilation, air conditioning.

Speaker Change: The use of 1200-volt silicon carbide in HVAC applications leads to more efficient, reliable, and compact systems, ultimately reducing energy consumption, improving electromagnetic interference, and operational costs.

Hassane El-Korey: We are already working with customers looking to integrate Silicon Carbide into their next generation designs with revenue over the next three to five years. We remain on track to all grow the Silicon Carbide market growth by 2X in 2024 through sharegain and our geographical and market diversification strategy. Specifically on the share gains and supporting our revenue growth, our bottoms-up assessment has our growth in units outgrowing the BEV unit growth by 2X, further supporting our outlook. We also have a significant opportunity in the data center and AI market where our focus is on leveraging our silicon and silicon carbide portfolio to address the entire power tree.

Hassane Arcuri: We're already working with customers looking to integrate silicon carbide into their next generation designs with revenue over the next three to five years. We remain on track to outgrow the silicon carbide market growth by 2x in 2024 through share gains and our geographical and market diversification strategy, specifically on share gains and supporting our revenue growth. Our bottoms-up assessment has our growth in units outgrowing the BEV unit growth by 2x, further supporting our outlook.

Speaker Change: We're already working with customers looking to integrate silicon carbide into their next generation designs with revenue over the next three to five years.

Speaker Change: We remain on track to outgrow the silicon carbide market growth by 2x in 2024 through share gain and our geographical and market diversification strategy.

Speaker Change: Specifically on the share gains and supporting our revenue growth, our bottoms-up assessment has our growth in units, outgrowing the BEV unit growth by 2x, further supporting our outlook.

Hassane Arcuri: We also have a significant opportunity in the data center and AI market, where our focus is on leveraging our silicon and silicon carbide portfolio to address the entire power tree. In Q2, we released our latest generation of the T10 power trench family and EliteSIC 650 volt MOSFET, which are being designed into various subsystems of the AI data center, including power supply units, battery backup units, and intermediate bus converters. These solutions offer superior efficiency, high thermal performance, and reduced power losses, making them ideal for data centers and energy storage systems. They can reduce energy consumption by 10 terawatt hours annually as compared to our previous generation, equivalent to powering nearly 1 million homes per year.

Speaker Change: We also have a significant opportunity in the data center and AI market where our focus is on leveraging our silicon and silicon carbide portfolio to address the entire power tree.

Hassane El-Korey: In Q2, we released our latest generation of T10 Power Trench family and Elite Six 650 Volt MOSFET. There are BN design into various subsystems of the AI data center including power supply units, battery backup units, and intermediate bus converters. These solutions offer superior efficiency, high thermal performance, and reduced power losses, making them ideal for data centers and energy storage systems. They can reduce energy consumption by 10 TWh annually as compared to our previous generation. Equivalent to powering nearly 1 million homes per year. We continue to invest in multi-phase controllers to pair with our industry leading smart power stages, which enable highly efficient power delivery to the CPUs and GPUs.

Speaker Change: In Q2, we released our latest generation of T10 PowerTrench family and EliteSIC 650V MOSFET that are being designed into various subsystems of the AI data center including power supply units, battery backup units, and intermediate bus converters.

Speaker Change: These solutions offer superior efficiency, high thermal performance, and reduced power losses, making them ideal for data centers and energy storage systems.

Speaker Change: They can reduce energy consumption by 10 terawatt-hour annually as compared to our previous generation, equivalent to powering nearly 1 million homes per year.

Speaker Change: We continue to invest in multi-phase controllers to pair with our industry-leading smart power stages, which enable highly efficient power delivery to the CPUs and GPUs.

Hassane El-Korey: As power consumed by AI data center racks increases from 40 kilowatts today to 120 kilowatts in 2025, our addressable content is expected to increase from $2,500 to $9,500.

Hassane Arcuri: We continue to invest in multi-phase controllers to pair with our industry-leading smart power stages, which enable highly efficient power delivery to the CPUs and GPUs. As power consumed by AI data center racks increases from 40 kilowatts today to 120 kilowatts in 2025, our addressable content is expected to increase from $2,500 to $9,500. Our strategy to focus on the high-growth megatrends of automotive and industrial by partnering and innovating with market leaders and disruptors has proven successful.

Speaker Change: As power consumed by AI data center racks increases from 40 kilowatts today to 120 kilowatts in 2025, our addressable content is expected to increase from $2,500 to $9,500.

Hassane El-Korey: partners. Our strategy to focus on the high growth mega trends of automotive and industrial by partnering and by partnering and innovating with the market leaders and disruptors has proven successful. We have been investing in power and sensing technologies to further our leadership position, and we will continue to leverage our portfolio to address adjacent market opportunities such as AI and data centers.

Speaker Change: Our strategy to focus on the high-growth megatrends of automotive and industrial by partnering and innovating with the market leaders and disruptors has proven successful.

Speaker Change: We have been investing in power and sensing technologies to further our leadership position, and we will continue to leverage our portfolio to address adjacent market opportunities such as AI and data centers.

Thad Trent: Let me now turn it over to Thad to give you more details on our results.

Hassane Arcuri: We have been investing in power and sensing technologies to further our leadership position, and we will continue to leverage our portfolio to address adjacent market opportunities such as AI and data centers. I will now turn it over to Thad to give you more details on our results. Thanks, Hassane.

Thad Trent: Thanks, Hassan. In the second quarter, our teams once again demonstrate remarkable resilience and adaptability in navigating a challenging market environment. Our Q2 results exceeded the midpoint of our guidance with revenue of $1.74 billion, non-GAAP gross margin of 45.3%, non-GAAP operating margin of 27.5%, and 12% free cash flow margin. We continue to deliver consistent gross margin performance against the challenging market and underutilization, once again demonstrating the structural improvements in our business model. Q2 revenue declined 7% sequentially and 17% from Q2 of 2023. This decline was driven by an ongoing inventory correction in the automotive and industrial market, which together contributed 79% of our revenue.

Thad Trent: In the second quarter, our teams once again demonstrated remarkable resilience and adaptability in navigating a challenging market environment. Our Q2 results exceeded the midpoint of our guidance with revenue of $1.74 billion, non gap gross margin of 45.3%, non gap operating margin of 27.5%, and 12% free cash flow margin. We continue to deliver consistent gross margin performance against a challenging market and underutilization, once again, demonstrating the structural improvements in our business model. Q2 revenue declined 7% sequentially and 17% from Q2 of 2023.

Speaker Change: Let me now turn it over to Thad to give you more details on our results.

Thad Trent: Thanks Hassane. In the second quarter our teams once again demonstrated remarkable resilience and adaptability in navigating a challenging market environment.

Thad Trent: Our Q2 results exceeded the midpoint of our guidance with revenue of $1.74 billion, non-GAAP gross margin of 45.3%, non-GAAP operating margin of 27.5%, and 12% free cash flow margin.

Thad Trent: We continue to deliver consistent gross margin performance against the challenging market and underutilization, once again demonstrating the structural improvements in our business model.

Thad Trent: Q2 revenue declined 7% sequentially and 17% from Q2 of 2023. This decline was driven by an ongoing inventory correction in the automotive and industrial end markets, which together contributed 79% of our revenue.

Thad Trent: This decline was driven by an ongoing inventory correction in the automotive and industrial end markets, which together contributed 79% of our revenue. While we are facing short-term demand uncertainty, our long-term outlook remains unchanged. We're at the forefront of the fastest growing segments of the automotive, industrial, and AI data center market, and we expect to resume our growth trajectory as in-customer inventory levels normalize. In line with our expectations, automotive revenue declined 11% quarter over quarter to $907 million, a decline of 15% over the same quarter last year. From the time we embarked on our transformation in Q4 2020, which included a strategic shift to focus on the automotive industry, Our industrial revenue was $468 million, down 2% sequentially and 23% versus the second quarter of 2023.

Thad Trent: While we are facing short-term demand uncertainty, our long-term outlook remains unchanged. We are at the forefront of the fastest growing segments of the automotive industrial and AI data center markets, and we expect to resume our growth trajectory as in customer inventory levels normalized. In line with our expectations, automotive revenue declined 11% quarter of recorder to $907 million, a decline of 15% over the same quarter last year. From the time we embarked on our transformation in Q4 2020, which included a strategic shift to focus on automotive, our automotive revenue has nearly doubled, largely driven by increasing content for vehicle electrification and ADAS.

Thad Trent: While we are facing short-term demand uncertainty, our long-term outlook remains unchanged.

Thad Trent: We're at the forefront of the fastest-growing segments of the automotive, industrial, and AI data center markets, and we expect to resume our growth trajectory as in-customer inventory levels normalize.

Thad Trent: In line with our expectations, automotive revenue declined 11% quarter-over-quarter to $907 million, a decline of 15% over the same quarter last year.

Thad Trent: From the time we embarked on our transformation in Q4 2020, which included a strategic shift to focus on automotive, our automotive revenue has nearly doubled, largely driven by increasing content for vehicle electrification and ADAS.

Thad Trent: Our industrial revenue was $468 million, down 2% sequentially and 23% versus the second quarter of 2023. As we noted in our Q1 call, we are seeing pockets of stabilization in this market. Looking at the split between the business units, revenue for the Power Solutions Group, or PSG, was $835 million, a decrease of 15% year-over-year. Revenue for the analog and mixed signal group, or AMG, was $648 million, a decrease of 18% year-over-year. And revenue for the Intelligent Sensing Group, or ISG, was $252 million, a 22% decrease year-over-year. The revenue drop for all business groups was driven by ongoing inventory burn in the automotive and industrial market.

Thad Trent: Our industrial revenue was $468 million, down 2% sequentially, and 23% versus the second quarter of 2023.

Thad Trent: As we noted in our Q1 call, we're seeing pockets of stabilization in this market, and looking at the split between the business units. Revenue for the Power Solutions Group, or PSG, was $835 million, a decrease of 15% year over year. Revenue for the Analog and Mixed Signal Group, or AMG, was $648 million, a decrease of 18% year-over-year. And revenue for the Intelligence Sensing Group, or ISG, was $252 million, a 22% decrease year-over-year. The revenue drop for all business groups was driven by ongoing inventory burn in the automotive and industrial market.

Thad Trent: As we noted in our Q1 call, we are seeing pockets of stabilization in this market.

Thad Trent: Looking at the split between the business units, revenue for the Power Solutions Group, or PSG, was 835 million dollars, a decrease of 15% year-over-year.

Thad Trent: Revenue for the Analog and Mixed Signal Group, or AMG, was $648 million, a decrease of 18% year-over-year.

Thad Trent: And revenue for the Intelligent Sensing Group, or ISG, was $252 million, a 22% decrease year-over-year.

Thad Trent: The revenue drop for all business groups was driven by ongoing inventory burn in the automotive and industrial market.

Thad Trent: Gap gross margin was 45.2%, and non-Gap gross margin was 45.3% compared to 45.9% in Q1 and 47.4% in the quarter a year ago. We continue to maintain gross margins above 45% through this downturn, even as our utilization has reached historical trough of 65%, which positions us well for a market recovery. For reference, in previous downturns, our gross margin was approximately 30% at these utilization levels. We continue to deliver on our fab rights strategy of driving efficiency across our global operation. In Q2, we executed additional restructuring actions to improve the cost structure of our manufacturing network to support our gross margin expansion plans.

Thad Trent: Gap gross margin was 45.2%, and non-gap gross margin was 45.3% compared to 45.9% in Q1 and 47.4% in the quarter a year ago. We continue to maintain gross margins above 45% through this downturn, even as our utilization has reached a historical trough of 65%, which positions us well for a market recovery. For reference, in previous downturns, our gross margin was approximately 30% at these utilization levels. We continue to deliver on our Fabrite strategy of driving efficiency across our global operations.

Speaker Change: Gap gross margin was 45.2% and non-gap gross margin was 45.3% compared to 45.9% in Q1 and 47.4% in the quarter a year ago.

Speaker Change: We continue to maintain gross margins above 45% through this downturn, even as our utilization has reached a historical trough of 65%, which positions us well for a market recovery.

Speaker Change: For reference, in previous downturns, our gross margin was approximately 30% at these utilization levels.

Speaker Change: We continue to deliver on our Fabrite strategy of driving efficiency across our global operation.

Thad Trent: In Q2, we executed additional restructuring actions to improve the cost structure of our manufacturing network to support our gross margin expansion plan. We expect our gross margins to benefit once demand begins to recover, and we increase utilization back to normalized levels. This, coupled with the ramping up of new products at accretive margins, will allow us to achieve our long-term target of 53%. Now, let me give you some additional numbers for your models. GAAP operating expenses for the second quarter were $396 million as compared to $319 million in the second quarter of 2023.

Speaker Change: In Q2, we executed additional restructuring actions to improve the cost structure of our manufacturing network to support our gross margin expansion plans.

Thad Trent: We expect our gross margins to benefit once the man begins to recover, and we increased utilization back to normalized levels. This, coupled with ramping of new products, that a creative margin will allow us to achieve our long-term target of 53%.

Speaker Change: We expect our gross margins to benefit once demand begins to recover and we increase utilization back to normalized levels.

Speaker Change: This, coupled with ramping of new products at accretive margins, will allow us to achieve our long-term target of 53%.

Thad Trent: Now let me give you some additional numbers for your models. Gap operating expenses for the second quarter were $396 million as compared to $319 million in the second quarter of 2023. Non-Gap operating expenses were $308 million as compared to $306 million in the quarter a year ago. Non-Gap operating expenses were lower than our guidance due to active cost control and lower variable compensation. Gap operating margin for the quarter was 22.4%, and non-Gap operating margin was 27.5%. Our gap tax rate was 15.8%, and non-GAAP tax rate was 16%. Deluted gap earnings per share for the second quarter was 78 cents as compared to $1.29 in the quarter a year ago.

Thad Trent: Non-GAAP operating expenses were $308 million as compared to $306 million in the quarter a year ago; non-gap operating expenses were lower than our guidance due to active cost control and lower variable compensation. Gap operating margin for the quarter was 22.4%, and non-gap operating margin was 27.5%. The gap tax rate was 15.8%, and the non-gap tax rate was 16%, diluted gap earnings per share for the second quarter was 78 cents as compared to $1.29 in the quarter a year ago.

Speaker Change: Now let me give you some additional numbers for your models.

Speaker Change: Gap operating expenses for the second quarter were $396 million as compared to $319 million in the second quarter of 2023.

Speaker Change: non-GAAP operating expenses were $308 million as compared to $306 million in the quarter a year ago.

Speaker Change: non-GAAP operating expenses were lower than our guidance due to active cost control and lower variable compensation.

Speaker Change: Gap operating margin for the quarter was 22.4% and non-gap operating margin was 27.5%.

Speaker Change: Our GAAP tax rate was 15.8% and non-GAAP tax rate was 16%.

Speaker Change: Diluted GAAP earnings per share for the second quarter was 78 cents as compared to $1.29 in the quarter a year ago.

Thad Trent: Non-GAAP earnings per share was 96 cents as compared to $1.33 in Q2 of 2023. Gap diluted share count was 433 million shares, and our non-Gap diluted share count was 429.5 million shares. In Q2, we deployed $150 million, or 72% of our free cash flow, for share repurchases. Turning to the balance sheet, cash and short-term investments was $2.7 billion, and we had $1.1 billion under on our revolver. Cash from operations was $362 million and free cash low was $208 million, representing 12% of revenue. Capital expenditures during Q2 was $154 million, which equates to a capital intensity of 9%.

Speaker Change: non-GAAP earnings per share was $0.96, as compared to $1.33 in Q2 of 2023.

Thad Trent: The GAP diluted share count was 433 million shares, and our non-GAAP diluted share count was 429.5 million shares. In Q2, we deployed $150 million, or 72% of our free cash flow, for share repurchase. Turning to the balance sheet, cash and short-term investments were $2.7 billion, and we had $1.1 billion undrawn on a revolver. Cash from operations was $362 million, and free cash flow was $208 million, representing 12% of revenue. Capital expenditures during Q2 were $154 million, which equates to a capital intensity of 9%.

Speaker Change: Gap diluted share count was 433 million shares and our non-gap diluted share count was 429.5 million shares.

Speaker Change: In Q2, we deployed $150 million, or 72% of our free cash flow, for share repurchases.

Speaker Change: Turning to the balance sheet, cash and short-term investments was $2.7 billion, and we had $1.1 billion undrawn on a revolver.

Speaker Change: Cash from operations was 362 million dollars and free cash flow was 208 million dollars representing 12% of revenue.

Speaker Change: Capital expenditures during Q2 was $154 million, which equates to a capital intensity of 9%.

Thad Trent: We achieved our long-term target ahead of schedule due to higher efficiency resulting from the structural changes in our manufacturing footprint. We expect to remain at or below our long-term target of 11%, including the investments needed for the Silicon Carbide expansion in the Czech Republic. Inventory increased by $78 million sequentially and increased by 20 days to 214 days. This includes 97 days of bridge inventory to support fast transitions in the Silicon carbide ramp. Excluding these strategic builds, our base inventory increased $6 million sequentially to 117 days, which is within our target range of 100 to 120 days.

Thad Trent: We achieved our long-term target ahead of schedule due to higher efficiency resulting from the structural changes in our manufacturing footprint. We expect to remain at or below our long-term target of 11%, including the investments needed for the silicon carbide expansion in the Czech Republic. Inventory increased by $78 million sequentially and increased by 20 days to 214 days.

Speaker Change: We achieved our long-term target ahead of schedule due to higher efficiency resulting from the structural changes in our manufacturing footprint.

Speaker Change: We expect to remain at or below our long-term target of 11% including the investments needed for the silicon carbide expansion in the Czech Republic.

Speaker Change: Inventory increased by 78 million dollars sequentially and increased by 20 days to 214 days. This includes 97 days of bridge inventory to support fab transitions and the silicon carbide ramp.

Thad Trent: This includes 97 days of bridge inventory to support fab transitions in the silicon carbide ramp. Excluding these strategic bills, our base inventory increased six million dollars sequentially to 117 days, which is within our target range of 100 to 120 days. Distribution inventory increased as expected to 8.9 weeks versus eight weeks in Q1 to support the mass market, which we have underserved for the last two years.

Speaker Change: Excluding these strategic bills, our base inventory increased $6 million sequentially to 117 days, which is within our target range of 100 to 120 days.

Thad Trent: Distribution inventory increased, as expected, to 8.9 weeks versus 8 weeks in Q1 to support the mass market, which we have underserved for the last two years.

Speaker Change: Distribution inventory increased as expected to 8.9 weeks versus 8 weeks in Q1 to support the mass market which we have underserved for the last two years.

Thad Trent: Let me now provide you the key elements of our non-GAAP guidance for the third quarter. Today's press release contains a table detailing our gap and non-GAAP guidance. Given the current macro environment and our demand visibility, we anticipate Q3 revenue will be in the range of $1.7 billion to $1.8 billion. We expect non-GAAP gross margin to be between 44.4 and 46.4% with utilization in the mid 60% range. This includes estimated share-based compensation of $7 million. We expect non-GAAP operating expenses of $305 to $320 million, including estimated share-based compensation of $31 million. We anticipate our non-GAAP other income to be a net benefit of $12 million, with our interest income exceeding interest expense.

Thad Trent: Let me now provide you with the key elements of our non GAP guidance for the third quarter. Today's press release contains a table detailing our GAP and non GAP guidance. Given the current macro environment and our demand visibility, we anticipate Q3 revenue will be in the range of $1.7 billion to $1.8 billion. We expect non-gap gross margin to be between 44.4 and 46.4%, with utilization in the mid 60% range. This includes estimated share-based compensation of $7 million. We expect non-GAAP operating expenses of $305 to $320 million, including estimated share-based compensation of $31 million.

Speaker Change: Let me now provide you the key elements of our non-GAAP guidance for the third quarter. Today's press release contains a table detailing our GAAP and non-GAAP guidance.

Speaker Change: Given the current macro environment and our demand visibility, we anticipate Q3 revenue will be in the range of $1.7 billion to $1.8 billion.

Speaker Change: We expect non-GAAP gross margin to be between 44.4% and 46.4%, with utilization in the mid-60% range. This includes estimated share-based compensation of $7 million.

Speaker Change: We expect non-GAAP operating expenses of $305 to $320 million, including estimated share-based compensation of $31 million.

Thad Trent: We anticipate our non-GAAP other income to be a net benefit of $12 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 to be approximately 429 million shares. This results in non-GAAP earnings per share to be in the range of $0.91 to $1.03.

Speaker Change: We anticipate our non-GAAP other income to be a net benefit of $12 million with our interest income exceeding interest expense.

Thad Trent: We expect our non-GAAP tax rate to be approximately 16%, and our non-GAAP diluted share count expected to be approximately 429 million shares. This results in non-gap earnings per share to be in the range of 91 cents to $1.3. We expect capital expenditures in the range of $130 to $170 million.

Speaker Change: We expect our non-GAAP tax rate to be approximately 16% and our non-GAAP diluted share count expected to be approximately 429 million shares.

Speaker Change: This results in non-GAAP earnings per share to be in the range of $0.91 to $1.03.

Thad Trent: We expect capital expenditures in the range of $130 to $170 million. And, as we've previously highlighted, the acquisition of SWIR vision systems is not expected to have any meaningful impact on our near or mid-term financial outlook. Through this downturn, we have remained committed to our long-term financial model. We're allocating resources for future growth while continuing to execute on our strategies to enhance operational effectiveness throughout the company. During the second quarter, we announced the consolidation of many of our facilities to improve efficiencies and accelerate time to market by centralizing our efforts into fewer centers of excellence. We've continued to invest in R&D to drive long-term growth and capitalize on opportunities in intelligent power and sensing despite the market downturn. We also remain committed to our capital allocation strategy.

Speaker Change: We expect capital expenditures in the range of $130 to $170 million.

Thad Trent: And as we have previously highlighted, the acquisition of Swear Vision Systems is not expected to have any meaningful impact on our near or midterm financial outlook. Through this downturn, we have remained committed to our long-term financial model. We are allocating resources for future growth while continuing to execute on our strategies to enhance operational effectiveness throughout the company. During the second quarter, we announced the consolidation of many of our facilities to improve efficiencies and accelerate time to market by centralizing our efforts into fewer centers of excellence. We have continued to invest in R&D to drive long-term growth and capitalize on opportunities in intelligent power and sensing, despite the market downturn.

Speaker Change: And as we've previously highlighted, the acquisition of SWIR vision systems is not expected to have any meaningful impact on our near or mid-term financial outlook.

Speaker Change: Through this downturn, we have remained committed to our long-term financial model. We're allocating resources for future growth while continuing to execute on our strategies to enhance operational effectiveness throughout the company.

Speaker Change: During the second quarter, we announced the consolidation of many of our facilities to improve efficiencies and accelerate time to market by centralizing our efforts into fewer centers of excellence.

Speaker Change: We've continued to invest in R&D to drive long-term growth and capitalize on opportunities in intelligent power and sensing despite the market downturn.

Thad Trent: We also remain committed to our capital allocation strategy. Over the last 12 months, we have deployed 78% of our free cash flow for share repurchases, significantly higher than our stated long-term target of returning 50%. Since initiating our $3 billion share repurchase program in February 2023, we have returned $814 million to our shareholders.

Thad Trent: Over the last 12 months, we have deployed 78% of our free cash flow for share repurchasing, significantly higher than our stated long-term target of returning 50%. Since initiating our $3 billion share repurchase program in February 2023, we have returned $814 million to our shareholders. Finally, at Onsemi, we are driven to excellence. Guided by this principle, we hold ourselves accountable not only to our financial commitment but also to our environmental initiatives.

Speaker Change: We also remain committed to our capital allocation strategy. Over the last 12 months, we have deployed 78% of our free cash flow for share repurchases.

Speaker Change: Significantly higher than our stated long-term target of returning 50%.

Speaker Change: Since initiating our $3 billion share repurchase program in February 2023, we have returned $814 million to our shareholders.

Thad Trent: Finally, at Ensimmy, we are driven to excellence. Guided by this principle, we hold ourselves accountable not only to our financial commitment, but also to our environmental initiatives. This past quarter, we published our 2023 Sustainability Report, marking another pivotal step in our ongoing commitment to sustainability and highlighting the progress we have made in the past year.

Thad Trent: This past quarter, we published our 2023 Sustainability Report, marking another pivotal step in our ongoing commitment to sustainability and highlighting the progress we have made in the past year. Wrapping up, I'd like to thank our employees for their dedication to excellence. Our strategy is working, and we remain committed to unlocking shareholder value. We are a more resilient company with steady growth drivers and an innovation pipeline and trusted relationships with our customers and suppliers around the world.

OnSimi: Finally, at Onsemi, we are driven to excellence. Guided by this principle, we hold ourselves accountable not only to our financial commitment, but also to our environmental initiatives. This past quarter, we published our 2023 Sustainability Report.

OnSimi: marking another pivotal step in our ongoing commitment to sustainability and highlighting the progress we have made in the past year.

Thad Trent: Rapping up, I'd like to thank our employees for their dedication to excellence. Our strategy is working, and we remain committed to unlocking shareholder value. We are a more resilient company with steady growth drivers and innovation pipeline and trusted relationships with our customers and suppliers around the world.

OnSimi: Wrapping up, I'd like to thank our employees for their dedication to excellence. Our strategy is working and we remain committed to unlocking shareholder value.

OnSimi: We are a more resilient company with steady growth drivers, an innovation pipeline, and trusted relationships with our customers and suppliers around the world.

Kevin: With that, I'll turn the call back over to Kevin to open it up for Q and A.

Thad Trent: With that, I'll turn the call back over to Kevin to open it up for Q&A. Thank you. Ladies and gentlemen, if you have a question or a comment at this time, please press star 11 on your telephone. If your question has been answered or you wish to remove yourself from the queue, please press star 11 again.

Unknown Executive: Thank you, ladies and gentlemen. If you have a question or a comment at this time, please press star one one on your telephone. If your question has been answered, you wish to move yourself from the queue, please press star one one again. We'll pause for a moment while we compile our Q and A roster.

OnSimi: With that, I'll turn the call back over to Kevin to open it up for Q&A.

Kevin: Thank you. Ladies and gentlemen, if you have a question or a comment at this time, please press star 11 on your telephone. If your question has been answered and you wish to remove yourself from the queue, please press star 11 again. We'll pause for a moment while we compile our Q&A roster.

Operator: We'll pause for a moment while we compile our Q&A roster. Our first question comes from Ross Seymour with Deutsche Bank. Your line is open. Hi guys.

Ross Clark Seymore: Thanks for asking the question. I guess for my first question, there are kind of two sneaky parts to it, but any pluses or minuses by your three segments for the third quarter guide, and then the bigger part is, Hassane, you talked about some stabilization on the industrial side and even energy infrastructure, potentially rising in the back half. Any sort of similar color on your automotive business that dropped pretty significantly sequentially, you talked about some design wins in EVs, etc.? How are you looking at that for the back half of the year? Yeah, Ross. It's Thad.

Speaker Change: Our first question comes from Ross Seymour with Deutsche Bank. Your line is open.

Ross Seymore: I guess from my first question kind of two sneaky parts to it, but any pluses or minuses by your three segments for the third quarter guide? And then the bigger part is the fun. You talked about some stabilization on the industrial side and even energy infrastructure potentially rising in the back half.

Ross Seymour: Hi guys, thanks for asking the question. I guess for my first question, kind of two sneaky parts to it, but any pluses or minuses by your three segments for the third quarter guide? And then the bigger part is, Hassane, you talked about some stabilization on the industrial side and even energy infrastructure potentially rising in the back half.

Ross Seymore: Any sort of similar color on your automotive business that dropped pretty significantly sequentially. You talked about some design wins and EVs, etc. How are you looking at that for the back half of the year.

Speaker Change: Any sort of similar color on your automotive business that dropped pretty significantly sequentially you talked about some design wins and EVs, etc. How are you looking at that for the back half of the year?

Hassane El-Korey: Yeah, Ross, is that to answer your first part of the question? You broke up a little bit there. I think I got it. The markets played out pretty consistent with what we expected going into the quarter. You know, we're expecting both automotive and industrial to be down; it played out that way. If we saw any, you know, signs of improvement, it was really in that industrial, as we continue to see some stabilization there, so really played out as we expected during our guide for the quarter.

Thad Trent: To answer your first part of the question, you broke up a little bit there. I think I got it. The internal markets played out pretty consistent with what we expected going into the quarter. You know, we were expecting both automotive and industrial to be down. It played out that way.

Speaker Change: Yeah, Ross, it's Thad. To answer your first part of the question, you broke up a little bit there. I think I got it.

Speaker Change: The in markets played out pretty consistent with what we expected going into the quarter. You know, we were expecting both automotive and industrial to be down. It played out that way.

Speaker Change: If we saw any, you know, signs of improvement, it was really in that industrials, we continue to see some stabilization there. So really played out as we expected during our guide for the quarter.

Hassane El-Korey: I guess for my follow up question then moving on to the gross margin side of things that you talked about some of the idiosyncratic drivers the fish kill side of things as well as the fab divestagers in the past. Can you just walk us through any evolution of those? We get the utilization rate when that goes up that's going to be beneficial you laid that out clearly. But the hundred basis points for me fish kill that's ahead win this year and then the fab divestagers which I think is about a two point tailwind when those kick in can you just walk us through how those unfold over the next kind of six to twelve months.

Thad Trent: If we saw any, you know, signs of improvement, it was really in that industrial sector as we continue to see some stabilization there. So it really played out as we expected during our guide for the quarter. And I guess for my follow-up question, then moving on to the gross margin side of things, Thad, you talked about some of the idiosyncratic drivers, the East Fishkill side of things, as well as the FAB divestitures in the past. Can you just walk us through any evolution of those?

Speaker Change: And I guess...

Speaker Change: For my follow-up question, then, moving on to the gross margin side of things, Thad, you talked about some of the...

Speaker Change: idiosyncratic drivers, the East Fishkill side of things, as well as the FAB divestitures in the past.

Thad Trent: We get the utilization rate, when that goes up, that's going to be beneficial, you laid that out clearly, but the 100 basis points from East Fishkill, that's a headwind this year, and then the FAB divestitures, which I think are about a two point tailwind when those kick in. Can you just walk us through how those unfold over the next kind of six to 12 months? Sure, sure.

Speaker Change: Can you just walk us through any evolution of those? We get the utilization rate when that goes up, that's going to be beneficial. You laid that out clearly.

Speaker Change: The 100 basis points from East Fishkill, that's a headwind this year, and then the FAB divestitures, which I think is about a

Speaker Change: 2-point tailwind when those kick in. Can you just walk us through how those unfold over the next kind of 6 to 12 months?

Thad Trent: Sure sure, so you know, starting with utilization, which is the key driver here in the short term, just to reiterate what we said in the past, you know, every point of utilization is 15 to 20 basis points of gross margin improvement. So as you think about us coming off of a low of 65% going back into normalized levels, you can do the math on the gross margin expansion on that. And you're right, each fish kill with the global foundry business that we're running in there is about a hundred basis points dilutive. We'll continue that through the rest of the year, and then we'll start to see that start to moderate in 2025. And then the other piece is the fab divestagers. We divested four fabs in a couple years ago, and it's a hundred and sixty million dollars of fixed cost that that will start to recognize as demand picks up and we start manufacturing those products within our existing network. So we've got to bleed through that inventory that that we've been building for those fab transitions, and as we move that into our network, we start to see that benefit.

Thad Trent: So, you know, starting with utilization, which is the key driver here in the short term. Just to reiterate what we said in the past, every point of utilization is 15 to 20 basis points of gross margin improvement. So as you think about us coming off of a low of 65%, going back into normalized levels, you can do the math on the gross margin expansion on that. And you're right, East Fishkill with the global foundry business that we're running in there is about 100 basis points dilutive. We'll continue that through the rest of this year.

Speaker Change: Sure, sure. So, you know, starting with utilization, which is the key driver here in the short-term.

Speaker Change: Just to reiterate what we said in the past, you know, every point of utilization is 15 to 20 basis points of gross margin improvement. So as you think about us coming off of a low of 65%, going back into normalized levels, you can do the math on the gross margin expansion on that.

Speaker Change: And you're right, East Fishkill, with the global foundry business that we're running in there is about 100 basis points dilutive. We'll continue that through the rest of this year. And then we'll start to see that start to moderate in 2025.

Thad Trent: And then we'll start to see that start to moderate in 2025. And then the other piece is the fab divestitures. We divested four fabs a couple years ago, and it's $160 million of fixed costs that we'll start to recognize as demand picks up and we start manufacturing those products within our existing network. So we've got to bleed through that inventory that we've been building for those fab transitions. And as we move that into our network, we will start to see that benefit.

Speaker Change: And then the other piece is the FAB divestitures. We divested four FABs in...

Speaker Change: A couple of years ago, and it's $160 million of fixed costs that

Speaker Change: that we'll start to recognize as demand picks up and we start manufacturing those products within our existing network. So we've gotta bleed through that inventory that we've been building for those fab transitions and as we move that into our network, we start to see that benefit.

Thad Trent: And then the last thing is, and I noted it in my prepared remarks, is the, you know, ramping of new products that are creative gross margins. And I think if you start to do that math, you know, you can start to get pretty close into our gross margin target, you know, the long term target mean 53%. So we feel good; we just need a market recovery here, and we have some nice tailwinds. Thank you.

Speaker Change: And then the last thing is, and I noted it in my prepared remarks, is the ramping of new products that are creative gross margins.

Thad Trent: And then the last thing is, and I noted it in my prepared remarks, is the ramping of new products that are creative gross margin. And I think if you start to do that math, you can start to get pretty close to our gross margin target, the long-term target being 53%. So we feel good; we just need a market recovery here, and we have some nice tailwinds.

Speaker Change: And I think if you start to do that math, you know, you can start to get pretty close into our gross margin target, you know, the long term target being 53%. So we, we feel good, we just need a market recovery here. And we have some nice tailwinds.

Operator: One moment for our next question. Our next question comes from Vivek Arya with Bank of America Securities. Your line is open.

Speaker Change: Thank you.

Vivek Arya: Our next question comes from Vivek Arya with Bank of America Securities. Your light is open.

Speaker Change: One moment for our next question.

Speaker Change: Transcribed by https://otter.ai

Speaker Change: Our next question comes from Vivek Arya with Bank of America Securities. Your line is open.

Vivek Arya: Thanks for taking my question. I wanted to revisit the Q3 Outlook question. I think at the midpoint, your guidance is up a bit sequentially, and I was hoping you could, Hassane, maybe give us a sense of how you see your different end markets, especially automotive. Do you expect that to be up, down, or flat?

Vivek Arya: Thanks for taking my question. I wanted to revisit the Q3 outlook question. I think at the midpoint your guiding is up a bit sequentially, and I was hoping you could assign maybe give us a sense of how you see your different end markets, especially automotive. Do you expect that to be up, down, flat sequentially?

Vivek Arya: Thanks for taking my question. I wanted to revisit the Q3 Outlook question. I think at the midpoint you were guiding.

Vivek Arya: is up a bit sequentially. And I was hoping you could, Hassane, maybe give us a sense of how you see your different end markets, especially automotive. Do you expect that to be up, down, flat, sequentially? Thank you.

Hassane El-Korey: Thank you.

Hassane El-Korey: Yeah, I mean, Vivek, if you look at our biggest, biggest market, you know, 79% of revenue, this quartered out on industrial. We expect those in the third quarter to be flat, up slightly.

Hassane Arcuri: Yeah, I mean, if you look at our biggest, biggest market, 79% of revenue this quarter went to auto and industrial, we expect those in the third quarter to be flat up slightly. And then maybe as a follow-up, over the last few months, we have seen a deceleration in battery-powered EV demand, and I'm curious, if you look at your silicon carbide outlook for this year in absolute dollars, so not versus the market, how do you think it has fared?

Hassane El: Yeah, I mean, Vivek, if you look at our biggest market, you know, 79% of revenue this quarter to auto and industrial, we expect those in the third quarter to be flat up slightly.

Vivek Arya: And then maybe as a follow-up, over the last few months, we have seen deceleration in, you know, battery-powered EV demand, and I'm curious, if you look at your silicon carbide outlook for this year, an absolute dollar, so not versus the market. How do you think it is scared? Do you think what you thought in terms of absolute dollars for this year is it's still on track? You know, for that? Or has that view changed? And then kind of part, be of that.

Speaker Change: And then maybe as a follow-up, over the last few months, we have seen deceleration in battery-powered EV demand. And I'm curious, if you look at your silicon carbide outlook for this year at absolute dollars, versus the market,

Hassane Arcuri: Do you think what you thought in terms of absolute dollars for this year, is it still on track for that, or has that view changed? And then, kind of part B of that, I think you mentioned more optimism for the Chinese EV market. Is your share in China EV above or below that 35% to 40% share that you think you will have globally for this year? So, let me break it down for you.

Speaker Change: How do you think it has fared? Do you think what you thought in terms of absolute dollars for this year, is it still on track?

Speaker Change: for that, or has that view changed? And then kind of part B of that, I think you mentioned more optimism for the China EV market. Is your share in China EV above or below that 35% to 40% share that you think you will have globally for this year?

Vivek Arya: I think you mentioned more optimism for the China EV market. Is your share in China EV above or below that 35 to 40% share that you think you will have globally for this year.

Hassane El-Korey: So let me break it, break it down. So for the silicon carbide market, I think, like you said, regionally from a bad market, it's very different regionally. You know, the comment and reports that you're seeing more Western than China. But overall, we do expect the bad market to remain healthy with the little lumpiness in the short term, but long term, we're still the penetration of and the penetration of silicon carbide within, but it's still called a mid single digit without the market leader.

Hassane Arcuri: So for the silicon carbide market, I think, like you said, regionally from a BEV market, it's very different regionally, you know, the comments and reports that you're seeing more Western than Chinese. But overall, we do expect the BEV market to remain healthy with a little lumpiness in the short term. But long term, we're still the penetration of BEV, and the penetration of silicon carbide within BEV is still called mid single digit, without the market leader. So having said that, you know, I will anchor back on 2024 growth of 2X market. I'm not going to, you know, get into the absolute dollars.

Speaker Change: So let me break it down. So for the silicon carbide market, I think, like you said, regionally from a BEV market, it's very different regionally. You know, the comment and the...

Speaker Change: reports that you're seeing more Western than China.

Speaker Change: But overall, we do expect the BEV market to remain healthy with a little lumpiness in the short term, but long term, we're still the penetration of BEV and the penetration of silicon carbide within BEV is still, call it mid-single digit.

Hassane El-Korey: So I've said that, you know, I will anchor back on 2024 growth of two x market. I'm not going to, you know, get into the absolute dollars. We have the absolute dollars that we're driving to internally, but I will anchor on the two X market, given all of the news and all the headlines that you refer to from the China perspective. You know, I talked about our penetration in China being over 60, about 60%. So in China, we're ahead of where we are with the rest of the world, or overall, but that's also a timing, meaning we started in China, given it's the biggest market ahead of everybody else.

Speaker Change: without the market leader.

Speaker Change: So having said that, you know, I will anchor back on 2024 growth of 2X market. I'm not going to, you know, get into the absolute dollars. We have the absolute dollars that we're driving to internally.

Hassane Arcuri: We have the absolute dollars that we're driving to internally, but I will anchor on the 2X market given all of the news and all the headlines that you referred to. From the Chinese perspective, you know, I talked about our penetration in China being over 60, about 60%. So in China, we're ahead of where we are with the rest of the world or overall, but that's also timing, meaning we started in China, given it's the biggest market ahead of everybody else.

Speaker Change: but I will anchor on the 2x market given all of the news and all the headlines that you refer to.

Speaker Change: From the China perspective, you know, I talked about our penetration in China being over 60, about 60%. So in China, we're ahead of where we are with the rest of the world.

Speaker Change: or overall, but that's also a timing, meaning we started in China, given it's the biggest market ahead of everybody else. If you recall, at the end of last year, I mentioned that in 2024, we do expect

Hassane El-Korey: So, if you recall at the end of last year, I mentioned that in 2024, we do expect the ramps to start in Europe. So, as the ramps start in Europe, the blend of geographical distribution of our revenue for silicon carbide will change in the second half. But overall, China is ahead of the rest of the world from our market share as well, just because it's the biggest market and we started there earlier.

Hassane Arcuri: If you recall, at the end of last year, I mentioned that in 2024, we do expect the ramps to start in Europe. As the ramps start in Europe, the blend of geographical distribution of our revenue for silicon carbide will change in the second half. But overall, China is ahead of the rest of the world in our market share as well, just because it's the biggest market and we started there earlier. Thank you.

Speaker Change: The ramps to start in Europe , so as the ramps start in Europe , the blend of geographical distribution of our revenue for silicon carbide will change in the second half, but overall, China is ahead of the rest of the world from our market share as well, just because it's the biggest market and we started there earlier.

Unknown Executive: Thank you. Yes, sir.

Speaker Change: Thank you.

Speaker Change: One moment for our next question.

Toshiya Hari: Our next question comes from Toshiya Hari with the G.S. Your line is open.

Operator: One moment for our next question. Our next question comes from Toshiya Hari with GS. Your line is open. Hi, good morning.

Toshiya Hari: Hi, good morning. Thank you so much for taking the question. I wanted to follow up on the SIC business as well.

Toshiya Hari: Thank you so much for taking the question. I wanted to follow up on the SIC business as well. To the extent you're willing to share, Hassane, I'm curious how that business trended in Q2, whether it be on a sequential basis or a year-over-year basis, and what your expectations are for Q3. And then, for the full year, I guess that the mix of your business, whether it be by application or customer, has evolved over the past 90 days. What's your outlook there by geography and application today versus 90 days ago?

Speaker Change: Our next question comes from Toshiya Hari with GS. Your line is open.

Toshiya Hari: Hi, good morning. Thank you so much for taking the question. I wanted to follow up on the SIC business as well. To the extent you're willing to share, Hassane, I'm curious how that business trended in Q2.

Toshiya Hari: To the extent you're willing to share her story, curious how that business trended in Q2, whether it be on a sequential basis or a year of your basis, and what your expectations are for Q3.

Speaker Change: Transcripts provided by Transcription Outsourcing, LLC.

Hassane El-Korey: And then I guess for the full year, I'm guessing that the mix of your business, whether it be by application or customer, has evolved over the past 90 days. What's your outlook there by G or an application today versus 90 days ago?

Speaker Change: I'm guessing that the mix of your business, whether it be by application or customer, has evolved over the past 90 days. What's your outlook there by geo and application today versus 90 days ago?

Hassane El-Korey: So I'm not going to break out our silicon carbide on a quarterly basis, given what we've been talking about, the lumpiness of the revenue. And really, the timing of customer ramps, when they start, when they peak, and when they stabilize.

Hassane Arcuri: So I'm not going to break out our silicon carbide revenue on a quarterly basis given what we've been talking about, the lumpiness of the revenue, and really the timing of customer ramps when they start, when they peak, and when they stabilize. For that reason, we're only going to be covering silicon carbide revenue on an annual basis, and we'll talk about it at the end of the year to see where it all landed.

Hassane: So I'm not going to break out our silicon carbide on a quarterly basis given what we've been talking about, the lumpiness of the revenue.

Hassane: That and and really the timing of customer ramps when they start when they peak and when they stabilize

Hassane El-Korey: For that, we're only going to be covering silicon carbide revenue on an annual basis, and we'll talk about it in at the end of the year of where it all landed. What I will tell you is we externally what I stated is the 2X market. That's where we look at, that's where we trending. And I added in my preferred remarks when I look at units growth, which is a lot of it is socket of design and share. We're also trending at the 2X, further supporting our growth in silicon carbide. From a regional, you know, we talked about China being strong for us.

Hassane Arcuri: What I will tell you is externally, what I stated is, the 2X market, that's where we look at, that's where we're trending. And I added in my prepared remarks, when I look at units growth, which is a lot of it is socket of designed and share, we're also trending at the 2X for supporting our growth in silicon carbide. From a regional point of view, you know, we talked about China being strong for us. Europe, in the second half, will start seeing some ramps in Europe.

Hassane: for that we're only going to be covering silicon carbide revenue on an annual basis and we'll talk about it in at the end of the year of where it all landed what I will tell you is we externally what I stated is

Hassane: The 2x market that's where we look at that's where we trending

Hassane: And I added in my prepared remarks, when I look at units growth, which is a lot of it is socket of designed and share. We're also trending at the 2x for supporting our growth in silicon carbide.

Hassane El-Korey: Europe and the second half will start seeing some ramps in Europe. That's again in line with what we talked about at the end of last year. So all that is coming in exactly as we expected.

Hassane: from a regional, you know, we talked about China being strong for us.

Hassane Arcuri: That's again in line with what we talked about at the end of last year. So all that is coming in exactly as we expected. And we continue to diversify our design with the announcement with BW Group. That's, of course, out for longer in time, but still adding to the geographical distribution of our revenue over time. Got it.

Hassane: Europe and the second half we'll start seeing some ramps in Europe that's again in line with what we talked about at the end of last year so all that is coming in exactly as we expected and we continue to diversify

Hassane El-Korey: And we continue to diversify our design in with the announcement with BW Group. That's, of course, out, out longer in time, but still adding to the geographical distribution of our revenue over time.

Hassane: our design in with the announcement with BW Group. That's, of course, out longer in time, but still adding to the geographical distribution of our revenue over time.

Toshiya Hari: Got it. Thank you.

Toshiya Hari: And then as a quick follow-up, just on distribution inventory, it went up a little bit sequentially at the end of June. I'm curious what's embedded or what's assumed in your Q3 guidance. And as you think about the next couple of quarters, several quarters, what's your plan in terms of managing that inventory? You sound relatively still muted as it pertains to the cycle.

Toshiya Hari: And that is a quick follow-up. Just on distribution inventory, it went up a little bit sequentially at the end of June. Curious what's embedded or what's assumed in your Q3 guidance. And as you think about the next, you know, couple of quarters, several quarters. What's your plan in terms of, you know, managing that inventory? You sound relatively, you know, still muted as it pertains to the cycle. You know, should we expect weeks to stay generally flatter? Or do you feel like that can go up just given how much you had underserved that business over the past couple of years?

Speaker Change: Got it. Thank you. And then as a quick follow-up, just on distribution inventory, it went up a little bit sequentially at the end of June . I'm curious what's embedded or what's assumed in your Q3 guidance, and as you think about the next, you know, couple of quarters, several quarters, what's your plan in terms of, you know, managing that inventory? You sound relatively, you know, still muted as it pertains to the cycle. You know, should we expect weeks to stay generally flat, or do you feel like that can go up just given how much you had underserviced that business over the past couple of years? Thank you.

Thad Trent: Should we expect weeks to stay generally flat, or do you feel like that can go up just given how much you have underserved that business over the past couple of years? Thank you. Yeah, Toshiya, it's Thad.

Thad Trent: So we exited the quarter at 8.9 weeks, just where we expected. We talked about that mass market you referred to, that we need to put inventory into the channel. So we're achieving that well. But we're managing it tight still, given the market uncertainty. But for Q3, I think it's going to be right in this range, let's call it nine weeks. And I really think through the remainder of this year and probably the next year, you're kind of looking at that type of range, nine weeks plus or minus. We'll see how the market recovers and the adoption of the mass market, but that's our plan for the short term here. Very helpful.

Thad Trent: Thank you.

Thad Trent: Yeah, totally. It's bad. So we exited the quarter at 8.9 weeks, just where we expected. You know, we talked about that mass market. You referred to, we need to put inventory into the channel. So we're achieving that well. We're managing it tight still, you know, given the market uncertainty. But for Q3, I think it's going to be right in this range, you know, it's called nine weeks. And I really think through the remainder of this year and probably in the next year, you're kind of looking at that type of range, you know, nine weeks plus or minus.

Speaker Change: Yeah, Toshiya, it's Thad. So, um, we, we exited the quarter at 8.9 weeks, just where we expected, um, you know, we, we talked about that mass market you referred to that we need to, uh, put, put inventory into the channel. So, we're achieving that well. We're managing it tight still, um, you know, given the market uncertainty.

Speaker Change: But for Q3, I think it's going to be right in this range, you know, let's call it nine weeks. And I really think through the remainder of this year and probably into next year, you're kind of looking at

Thad Trent: You know, we'll see how the market recovers and the adoption of the mass market.

Speaker Change: at that type of range, you know, nine weeks plus or minus, you know, we'll see how the how the market recovers and, and the adoption of the mass market. But that's our plan for the for the short term here.

Thad Trent: But that's our plan for the short term here.

Speaker Change: Very helpful. Thanks guys. One moment for our next question.

Vijay Rakesh: Our next question comes from Vijay Rakesh with Masuho; your line is open. Yeah, hi, just a quick question on the, on the prior quote as you're given your order of backlog. If you could give us some talks, call it on what the same year's it can carbide backlog looks like. Thanks. The, the silicon carbide backlog you know, look, you know, we announced a few things here over the last few quarters, right? I mean, that that backlog is healthy, right? There's some short-term softness, you know; it's well known in the EV market, but I would say the backlog is still very healthy.

Vijay Raghavan Rakesh: Thanks, guys. Our next question comes from Vijay Rakesh with Mizuho. Your line is open. Yeah, hi.

Thad Trent: Just a quick question. In the prior quarters, you've given your order of backlog. If you could give us some thoughts, and color on what the semi-acidic carbide backlog looks like, thanks.

Speaker Change: Our next question comes from Vijay Rakesh with Mizuho. Your line is open.

Vijay Raghavan Rakesh: Yeah. Hi. Just a quick question. In the prior quarters, you've given your order of backlog. If you could give us some thoughts on what the semi-acid and carbide backlog looks like. Thanks.

Hassane Arcuri: The silicon carbide backlog, you know, look, you know, we announced a few things here over the last few quarters, right? I mean, that backlog is healthy, right? There's some short-term softness, you know, that's well known in the EV market, but I would say the backlog is still very healthy. Yeah, if you look at design and activity, whatever we feel in the market in the short term, and I call it short term, given the trend for silicon carbide, not just in BEV, by the way; we talk about silicon carbide in industrial applications, proliferating further because of So when we talk about silicon carbide, we're talking about a long-term, multi-year mega trend. That's why we're participating in it.

Speaker Change: The silicon carbide backlog, you know, look, you know, we announced a few things here over the last few quarters, right? I mean, that that backlog is healthy, right? There's some short term softness, you know, it's well known in the EV market, but I would say the backlog is still very healthy.

Hassane El-Korey: Yeah, if you look at design and activity, whatever we feel in the market in the short term, and I call a short term, given the trend for silicon carbide, not just in bed, by the way, we talk about silicon carbide in industrial, proliferating further because of the benefit that it brings, and even silicon carbide making its way into the power stages of the AI data center. So when we talk about silicon carbide, we're talking about a long-term multi-year mega trend. That's why we're participating in it. So, in the short term, of course, we all see what the market shows, but nevertheless, customers are still investing in silicon carbide for their platforms, whether be a car, industrial, or AI data center, as I mentioned.

Speaker Change: Yeah, if you look at design and activity, whatever we feel in the market in the short term, and I call it short term, given the

Speaker Change: The trend for silicon carbide

Speaker Change: Not just in BEV, by the way, we talk about silicon carbide in industrial proliferating further because of the benefit that it brings.

Speaker Change: and even Silicon Carbide making its way into the power stages of the AI data center. So when we talk about Silicon Carbide, we're talking about a long-term multi-year megatrend. That's why we're participating in it.

Hassane Arcuri: So in the short term, of course, we all see what the market shows, but nevertheless, customers are still investing in silicon carbide for their platforms, whether it be a car, an industrial, or an AI data center, as I mentioned. What we can control is our design and capability on our new products, which means that as the market starts to go uptake the other way, and best starts to proliferate further, we are in a much better position than otherwise we would be if we weren't winning today. The VW group announcement is an example of such a large deployment of silicon carbide in an electrification platform.

Speaker Change: So, in the short term, of course, we all see what the market shows, but nevertheless, customers are still investing in silicon carbide for their platforms, whether it be a car, industrial, or AI data center, as I mentioned.

Hassane El-Korey: This is what we can control is our design and capability on our new products, which means that as the market starts to go uptake the other way and best starts to proliferate further, we are in a much better position than otherwise we would be if we weren't winning today. The VW Group announcement is an example of such a large deployment of silicon carbide in a electrification platform. So if you talk about backlog as that, that's exactly what we can't control, and we're working on. That same story happens in industrial; that same story happens in the AI.

Speaker Change: This is what we can control is our design and capability on our new products.

Speaker Change: which means that as the market starts to go uptake the other way and best starts to proliferate further We are in a much better position that otherwise we we would be if we weren't winning today

Hassane Arcuri: So if you talk about backlog like that, that's exactly what we can control and we're working on. That same story happens in industrial, that same story happens in AI. We're designed in; now the ramps will support our growth. Got it.

Speaker Change: The VW Group announcement is an example of such a large deployment of silicon carbide in an electrification platform. So if you talk about backlog as that.

Speaker Change: That's exactly what we can't control and we're working on. That same story happens in industrial, that same story happens in the AI. We're designed in, now the ramps will support our growth.

Hassane El-Korey: We're designed in, now the ramps will support our growth.

Hassane El-Korey: Got it. And one quick question on the 200 millimeter site, any thoughts on how you're looking at that ramp on silicon carbide? Yeah, still on track. To what we said, we will qualify 8-inch this year. That's what I talk about qualifying. It substrates all the way through fabs. So that will be qualified this year, starting revenue next year, in line with our expectations that are outlined last year. So no change to that.

Vijay Raghavan Rakesh: And one quick question on the 200 millimeter side, any thoughts on how you're looking at that ramp on silicon carbide? Yeah, still on track to what we said we would qualify eight inch this year. That's when I talk about qualifying its substrates all the way through fabs. So that will be qualified this year, starting revenue next year, in line with our expectations that I outlined last year. So no change to that. Obviously, we look at the 8-inch as what we've talked about earlier; the 8-inch, for us, is a capacity expansion.

Speaker Change: Got it. And one quick question, on the 200mm side, any thoughts on how you are looking at that ramp on silicon carbide?

Speaker Change: Yeah, still on track to what we said. We will qualify 8-inch this year. That's when I talk about qualifying. It's substrates all the way through fabs.

Speaker Change: So that will be qualified this year, starting revenue next year, in line with our expectations that I outlined last year. So no change to that.

Hassane El-Korey: Obviously, we look at the 8-inch as a, what we've talked about earlier, 8-inch for us is a capacity expansion. So once it's qualified, we sample and we start seeing revenue, we will start increasing the share of 8-inch internal versus 6-inch as we convert our furnaces and so on in order to support the ramp. But from a capability 8-inch, I'm very happy with where 8-inch is, and therefore we're right on track. We've got it.

Speaker Change: Obviously, we look at the 8-inch as a, what we've talked about earlier, 8-inch for us is a capacity expansion. So once it's qualified, we sample and we start seeing revenue, we will start increasing the share of 8-inch internal versus 6-inch as we convert our furnaces and so on in order to support the ramp.

Hassane Arcuri: So once it's qualified, we sample, and we start seeing revenue, we will start increasing the share of 8-inch internal versus 6-inch as we convert our furnaces and so on, in order to support the ramp. But from a capability standpoint, 8-inch, I'm very happy with where 8-inch is, and therefore, we're right on track. We got it. Thank you.

Speaker Change: But from a capability, 8-inch, I'm very happy with where 8-inch is, and therefore we're right on track.

Operator: One moment for our next question. The next question comes from Blaine Curtis with Jeffries. Your line is open. Hey, morning, guys.

Speaker Change: Regarded. Thank you.

Speaker Change: One moment for our next question.

Blaine Curtis: The next question comes from Blaine Curtis with Jeffrey Chalinezo. Hey, morning, guys.

Blaine Curtis: Thanks for letting me ask a question. I just want to ask whether you really only talked about the energy business inflecting the second half. So just kind of curious, I mean, obviously, the auto market has come in a little bit weaker. Just kind of curious, you know, you said you're sticking with that L-shaped recovery. Is it right to think, though, that as you look through the rest of the calendar year, you're looking kind of flat? Just wanted to understand the comment of just highlighting that one part. Yeah, I mean, L, I would say flat. Sublime, I have no reason to call it a recovery.

Blaine Curtis: Let me ask a question. You talked about only really the energy business reflecting the second house. So just kind of curious. I mean, obviously, the auto market has come in a little bit weaker. Just kind of curious. You said you're sticking with that L-shape recovery. Is it right to think, though, that as you look through the rest of the calendar a year, that you're looking kind of flat? I just wanted to understand the comment of just highlighting that one part. Yeah, I mean, L, I would say flat. So Blaine, I have no reason to call a recovery.

Speaker Change: The next question comes from Blaine Curtis with Jeffries. Your line is open.

Blaine Curtis: Hey, good morning guys. Thanks for letting me ask the question. I just want to ask that...

Blaine Curtis: You talked about only really the energy business inflecting the second half. I'm just kind of curious, I mean, obviously, the auto market has come in a little bit weaker. I'm just kind of curious, you know, you said you're sticking with that L-shaped recovery. Is it right to think, though, that as you look through the rest of the calendar year,

Blaine Curtis: that you're looking kind of flat. Just wanted to understand the comment of just highlighting that one part.

Blaine Curtis: Yeah, I mean, L, I would say flat. Sublime, I have no reason to call a recovery. Now look, is there going to be, you know, some green shoots here and there are some some markets within our automotive and industrial that will fare better than others.

Hassane El-Korey: Now, look, is there going to be some green shoots here and there are some markets within our automotive and industrial that will fare better than others? Probably I don't have a crystal ball. That's why I can manage to what we can see, and I can guide to what we can see. But what I would put it in perspective is we're not planning or seeing a what I would call a recovery, which is a big deviation from kind of flatish. So some recovery in certain areas that will change the course. We don't guide, you know, in the out quarters, but that's kind of my view of the market today.

Hassane Arcuri: Now, look, are there going to be, you know, some green shoots here, and there are some markets within our automotive and industrial sectors that will fare better than others? Probably not. I don't have a crystal ball. That's why I can manage to what we can see, and I can guide to what we can see. But what I would put in perspective is that we're not planning or seeing what I would call a recovery, which is a big deviation from kind of flattish.

Blaine Curtis: Probably, I don't have a crystal ball. That's why I can manage to what we can see and I can guide to what we can see.

Blaine Curtis: but

Hassane Arcuri: So some recovery in certain areas that will change the course. We don't guide, you know, in the out quarters, but that's kind of my view of the market today. Thanks. And I just want to ask a lot of comments or questions on solid carbide. I want to ask an intelligent sensing group.

Blaine Curtis: So, some recovery in certain areas that will change the course. We don't guide, you know, in the out-quarters, but that's kind of my view of the market today.

Hassane El-Korey: Thanks.

Hassane El-Korey: And those want to ask a lot of comments or questions on some carbon.

Hassane El-Korey: I want to ask on intelligent sensing groups. So that doesn't sound quite a bit. I mean, you have a driver with a megapixel terms of, you know, ASP. So I'm sure you're working through some inventory there as well. Just kind of outlook on in terms of that content driver where that is today and where you see that could go. And then kind of just, you know, should that follow the same trajectory of recovery? Yeah. I mean, we have the difference with image sensing. We do have a big market chair in that market in the ADAS automotive market.

Speaker Change: Thanks, and I just want to ask a lot of comments or questions on Slim Car, but I want to ask on the Intelligent Sensing Group, so that business is down quite a bit. I mean, you have a driver with 8 megapixel in terms of, you know, ASP, so I'm sure you're working through some inventory there as well.

Hassane Arcuri: So that business is down quite a bit. I mean, you have a driver with a megapixel in terms of, you know, ASP. So I'm sure you're working through some inventory there as well. Just kind of an outlook on in terms of that content driver, where that is today and where you see that could go and then kind of just, you know, should that follow the same trajectory of recovery? Yeah, yeah, I mean, we have the difference with image sensing; we do have a big market share in that market, in the ADAS automotive market.

Speaker Change: Just kind of outlook on in terms of that content driver, where that is today and where you see that could go and then kind of just, you know, should that follow the same trajectory of recovery?

Speaker Change: Yeah, yeah, I mean we we have the difference with image sensing We do have a big market share in that in that market in the ADAS automotive market

Hassane El-Korey: So that's more on the recovery of the market itself. But, like you mentioned, there's an ASP uplift that will increase our revenue. This proportional from the just the unit growth and also a penetration rate that as ADAS gets to more level 2 plus, you got more units within the base of the SAR that we're targeting. So you can think about it as SAR plus the content uplift, both ASPs and units.

Hassane Arcuri: So that's more on the recovery of the market itself. But like you mentioned, there's an ASP uplift that will increase our revenue disproportionally from just the unit growth, and also a penetration rate that as ADAS gets to level two plus, you get more units within the base of the SAR that we're targeting. So you can think about it as SAR plus the content uplift, both ASPs and units.

Speaker Change: So that's more on the recovery of the market itself, but like you mentioned, there's an ASP uplift that will increase our revenue disproportional from just the unit growth and also a penetration rate that as ADAS gets to more level two plus, you got more units within the base of the SAR that we're targeting.

Speaker Change: So you can think about it as SAR plus the content uplift, both ASPs and units.

Hassane El-Korey: Now, importantly, also, I do want to talk about the industrial side of that business where we don't have the same market share as we do in automotive. So there's more expansion we can do. We've had a slew of new products that we've introduced in the industrial market. This we're acquisition. We've made ads yet another layer of that differentiation and that technology leadership for our image sensing group that goes specifically in the industrial and the defense market. So again, same strategy of regional and application proliferation that we're doing in the power; you're seeing that kind of parallel in the imaging or the sensing business.

Hassane Arcuri: Now, importantly, also, I do want to talk about the industrial side of that business, where we don't have the same market share as we do in the automotive industry. So there's more expansion we can do; we've had a slew of new products that we've introduced in the industrial market. This SWIR acquisition we've made adds yet another layer of that differentiation and that technological leadership for our image sensing group that goes specifically in the industrial and the defense market. So again, the same strategy, regional, and application proliferation that we're doing in the power, you're seeing that kind of parallel in the imaging or sensing. Thanks a lot.

Speaker Change: Now, importantly also, I do want to talk about the industrial side of that business.

Speaker Change: where we don't have the same market share as we do in automotive. So there's more expansion we can do. We've had a slew of new products that we've introduced in the industrial market.

Speaker Change: The SWIR acquisition we've made adds yet another layer of that differentiation and that technology leadership.

Speaker Change: for our image sensing group.

Speaker Change: That goes specifically in the industrial and the defense market. So again, same strategy of regional and application proliferation that we're doing in the power. You're seeing that kind of parallel in the imaging or the fencing business.

Hassane El-Korey: Thanks.

Speaker Change: Thanks a lot.

Speaker Change: One moment for our next question.

Joshua Buchalter: Our next question comes from Joshua Buckhalter with TD Cowan. Your line is open.

Operator: One moment for our next question. Our next question comes from Joshua Buchalter with TD Cal, and your line is open. Hey, guys, thank you for taking my question. Good morning.

Joshua Buchalter: Hey guys, thank you for taking my question. Good morning. I know you mentioned that auto was kind of in line with your expectations, but I think you know 11% of quantity was a little worse than I was expecting, and some of your peers have printed this quarter.

Joshua Louis Buchalter: I know you mentioned that auto was kind of in line with your expectations, but I think, you know, 11% sequentially was a little worse than I was expecting. And some of your peers are printing this quarter. Was that a conscious decision on Onsemi's part to ship more conservatively? Or did anything in your customer's behavior change over the last couple months as some of the weaker auto production came out, or maybe something idiosyncratic with sick? You know, most importantly, does the slight growth in the third quarter that you're guiding to assume you're roughly shipping to end demand? Or is there any more digestion going on there?

Speaker Change: Our next question comes from Joshua Buchalter with TD Cal, and your line is open.

Joshua Louis Buchalter: Hey guys, thank you for taking my question, and good morning. I know you mentioned that auto was kind of in line with your expectations, but I think, you know, 11% sequentially was a little worse than I was expecting, and some of your peers are printed this quarter. You know, was that a conscious decision on onsemi's part to ship more conservatively, or did something, did anything in your customers' behavior change over the last couple months as some of the weaker auto production came out, or maybe something idiosyncratic was sick? You know, most importantly, does the slight growth in the third quarter that you're guiding to assume you're roughly shipping to end demand, or is there any more digestion going on there? Thank you.

Joshua Buchalter: You know, would that have conscious decision on semi-part to ship more conservatively, or did something getting anything in your customer's behavior change of the last couple months at some of the weaker auto production came out, or maybe something eosyncratic with sick.

Hassane El-Korey: You know, most importantly, does the slight roast in the third quarter that you're guiding to assume you're roughly shifting to end demand, or is there any more digestion going on there? Thank you.

Hassane El-Korey: Yeah, let me start with the last part. We believe it's below end demand as I talk about the inventory burn, but as far as, you know, quarter-on-quarter guide, it's hard, and I'll give you a piece of advice.

Hassane Arcuri: Yeah, let me start with the last part. We believe it's below end demand, as I talk about the inventory burn. But as far as you know, the quarter on quarter guide, and it's hard, and I'll give you a piece of advice.

Speaker Change: Yeah, let me start with the last part. We believe it's below end demand as I talk about the inventory burn. But as far as you know, quarter on quarter guide and it's it's hard, and I'll give you a piece of advice. It's hard to compare to peers because it's all a timing.

Hassane El-Korey: It's hard to compare to peers because it's all a timing. You know, in the short term when I call it within a 90 day plus 90 days minus 90 day, it's really a timing discussion of how much inventory was there, how far ahead or below end demand. At the end of the day, you have to look at it from an end demand. End demand is exactly what I, what I mentioned. We don't see signs of recovery, but we do see signs of stabilization. Over a multi-quarter period, it's all going to stabilize and everybody who ships into auto is going to converge to an auto number plus their content specifically to the company.

Hassane Arcuri: It's hard to compare to peers because it's all about timing. In the short term, when I call it within a 90-day, plus 90 days, minus 90 days, it's really a timing discussion of how much inventory was there, how far ahead or below end demand. At the end of the day, you have to look at it from an end demand perspective. End demand is exactly what I mentioned. We don't see signs of recovery, but we do see signs of stabilization. Uh, over a multi-quarter period, it's all going to stabilize, and everybody who ships into auto is going to converge to a car number plus their content specifically to the company. So I don't look at it as you know a delta to peers or a delta to customers. It's literally where we do we believe the automotive market is. Some of our tier ones have more inventory than others, so it will take them longer.

Speaker Change: In the short term, when I call it within a 90-day, plus 90 days, minus 90 days, it's really a timing discussion of how much inventory was there, how far ahead or below end demand. At the end of the day, you have to look at it from an end demand. End demand is exactly what I mentioned. We don't see signs of recovery, but we do see signs of stabilization.

Speaker Change: Over a multi-quarter period it's all going to stabilize and everybody who ships into auto is going to converge to a auto number plus their content specifically to the company. So I don't look at it as you know a delta to peers or a delta to

Hassane El-Korey: So I don't look at it as, you know, a delta to peers or a delta to customers. It's literally a where we do we believe the automotive market is. Some of our tier ones have more inventory than others. So we'll take them longer, but inventory burn is directly related to demand. The man accelerate inventory burns accelerate the man doesn't inventory burn takes longer to achieve. So I would call it just a timing thing. There's nothing, I guess, intentional in managing to a number here. I think I appreciate the color of the sun.

Speaker Change: customers it's literally a where we do we believe the the automotive market is

Hassane Arcuri: But inventory burn is directly related to demand. If demand accelerates, inventory burns accelerate. If demand doesn't, inventory burn takes longer to achieve. So I would call it just a timing thing. There's nothing, I guess, intentional about managing to a number here. Thank you. I appreciate the call, Hassane.

Speaker Change: Some of our tier ones have more inventory than others, so it will take them longer.

Speaker Change: But inventory burn is directly related to demand. Demand accelerates, inventory burns accelerate. Demand doesn't, inventory burn takes longer to achieve. So I would call it just a timing thing. There's nothing, I guess, intentional in managing to a number here.

Joshua Louis Buchalter: And then, yeah, thanks for the data point on the X market leader silicon carbide attach rate being in the 6% range. I mean, you're speaking with customers and have a great insight into obviously ongoing design wins and their product ramps. Any intermediate milestones you could give us and where you expect the stick attach rate to be maybe in 2025 or the next few years? Thank you.

Joshua Buchalter: And then, yeah, thanks for the data point on the X market leaders, so it can provide a cash rate being in the 6% range. I mean, you're speaking with customers and have a great insight into obviously ongoing design wins in their product ramps.

Speaker Change: Thank you, I appreciate that calling us on.

Speaker Change: Yeah, thanks for the data point on the X market leader silicon carbide attach rate being in the 6% range. I mean, you're speaking with customers and have a great insight into obviously ongoing design wins and their product ramps. Any intermediate milestones you could give us on where you expect the stick attach rate to be maybe in 2025 or the next few years? Thank you.

Hassane El-Korey: Any intermediate milestones, you could give us and where you expect the sick attach rate to be maybe in 2025 or the next few years. Thank you. Yeah, look, I mean, we still see a growth in silicon carbide as a market driven, of course, by the auto industrial and AI that I that I talked about. So it's a broad proliferation.

Hassane Arcuri: Yeah, look, I mean, we still see growth in silicon carbide as a market, driven, of course, by the auto industry and AI that I talked about. So it's a broad proliferation. I think it's too early to talk about 2025.

Speaker Change: Yeah, look, I mean, we still see a growth in silicon carbide as a market.

Hassane El-Korey: I think it's too early to talk about 2025. We'll have to see how 2024 exit rate is and really what the market does in 2025. If you look at a lot of the reports that are out there and talk to a lot of the customers that have reported already. It's a very broad range of what 2025 is going to look like.

Speaker Change: driven, of course, by the auto industrial and AI that I that I talked about. So it's a broad proliferation. I think it's too early to talk about 2025. We'll have to see how 2024 exit rate is. And really what the market does in 2025. If you look at a lot of the reports,

Hassane Arcuri: We'll have to see how the 2024 exit rate is and really what the market does in 2025. If you look at a lot of the reports that are out there and talk to a lot of the customers that have reported already, there is a very broad range of what 2025 is going to look like. So it's too early to talk about 2025.

Speaker Change: that are out there, and talk to a lot of the customers that have reported already.

Hassane El-Korey: So it's too early to talk about 2025. What I can talk about is the rate of design wins that we have because that I can measure, that I can't control, and that I can provide where we are. I'm very happy with that progress. You know, we talked about China, we talked about the Beijing Auto Show where literally we went through every car that got announced in the show, and I can tell you exactly that we are designed into it as those cars ramp and as those cars become successful on the market, recovers for bet both in China beyond what it is and outside of China.

Speaker Change: It's a very broad range of what 2025 is going to look like. So it's too early to talk about 2025.

Hassane Arcuri: What I can talk about is the rate of design wins that we have because that I can measure, that I can control, and that I can provide where we are. I'm very happy with that progress. We talked about China, we talked about the Beijing auto show, where literally we went through every car that got announced at the show, and I can tell you exactly that we are designed into it. As those cars ramp, and as those cars become successful, and the market recovers for both in China beyond what it is, and outside of China, those are the design wins that are going to ramp for us and dictate what 2025, 26, and beyond are going to be. So I will tell you, from a design win perspective and a market relations perspective, we are firing on all cylinders here. Or I guess I shouldn't say cylinders.

Speaker Change: What I can talk about is the rate of design wins that we have because that I can measure, that I can't control, and that I can provide where we are.

Speaker Change: I'm very happy with that progress, you know, we talked about China, we talked about the Beijing auto show, where

Speaker Change: Literally, we went through every car that got announced in the show, and I can tell you exactly that we are designed into it. As those cars ramp, and as those cars become successful, and the market recovers for BEP both in China, beyond what it is, and outside of China.

Hassane El-Korey: Those are the design wins that are going to ramp for us and dictate what 2025, 26, and beyond are going to be. So I will tell you from a design win perspective and a market relation perspective. We are firing on all cylinders here.

Speaker Change: Those are the design wins that are going to ramp for us and dictate what 2025, 26 and beyond are going to be.

Speaker Change: So, I will tell you from a design wind perspective and a market relation perspective, we are firing on all cylinders here, or I guess I shouldn't say cylinders. We're firing on all motors today.

Hassane El-Korey: I guess I shouldn't say cylinders. We're firing on all motors today. Well done, Vexes on.

Hassane Arcuri: We're firing on all motors today. Well done. Thanks, Hassan. One moment, for now.

Speaker Change: One moment for our next question.

Quinn Bolton: Our next question comes from Quinn Bolton with the need of a company. Your line is open.

Operator: Our next question comes from Quinn Bolton with Needham & Company. Your line is open. I'm just wondering if you might be able to give us any sense of sort of timing for the VW ramp you mentioned you thought you'd be across pretty much all of the VW models over time. Are they staged or do they sort of all ramp up in the same general time period, and then I've got a follow-up, typically, you know, well that's a question for them really. I can't disclose their plan for a ramp, but it's not an on-off switch. I guess I can say that I've got it.

Speaker Change: Our next question comes from Quinn Bolton with Needham & Company. Your line is open.

Quinn Bolton: So I'm just wondering if you might be able to give us any sense of sort of timing of the VW ramp you mentioned you thought you'd be across pretty much all of the VW models over time. Are they staged, or did they sort of all ramp in the same general time period that I've got a follow-up? Typically, you know, well, that's a question for them, really.

Nathaniel Quinn Bolton: David, so I'm just wondering if you might be able to give us any sense of sort of timing of the VW ramp. You mentioned you thought you'd be across pretty much all of the VW models over time. Are they staged or do they sort of all ramp in the same general time period? And then I've got a follow up.

Hassane El-Korey: I can disclose their plan for a ramp, but it's not an on-off switch. I guess I can say that. Got it.

Speaker Change: Typically, you know, well, that's a question for them really. I can't disclose their plan for a ramp, but it's not an on-off switch. I guess I can say that.

Operator: And then just looking at the second half, it's pretty clear your message is that demand hasn't really started to recover yet. Maybe it's stabilizing. So if you look at your L-shaped recovery comments, I guess I'm just trying to reconcile.

Hassane El-Korey: And then just looking in the second half, you know, it's pretty clear your message is that end demand hasn't really started to recover yet. Maybe it's stabilizing.

Speaker Change: Got it. And then just looking at the second half, it's pretty clear your message is that end demand hasn't really started to recover yet, maybe it's stabilizing. So as you look at your L-shaped recovery comments, I guess I'm just trying to reconcile. You guys are shipping below end consumption right now as inventory is being digested. Is your L-shaped commentary really more a reflection of end demand or of your revenue? Because I would think at some point as the inventory digestion process ends, you would snap back to consumption.

Hassane El-Korey: So if you look at your L-shaped recovery comments, I guess I'm just trying to reconcile you guys are shipping below and consumption right now is inventory is being digested. Is your L-shaped commentary really more a reflection of end demand or your revenue? Because I would think at some point is the inventory digestion process. And you would snap back to consumption, and I would think that would put some growth into your numbers if you're currently shipping below consumption levels. So any thoughts on that reconciliation would be helpful.

Nathaniel Quinn Bolton: You guys are shipping below end consumption right now as inventory is being digested. Is your L-shaped commentary really more a reflection of end demand or of your revenue? Because I would think at some point, as the inventory digestion process ends, you would snap back to consumption.

Thad Trent: And I would think that would put some growth into your numbers if you're currently shipping below consumption levels. So any thoughts on that reconciliation would be helpful. Yeah, this is Thad.

Speaker Change: I would think that would put some growth into your numbers if you're currently shipping below consumption levels. So any thoughts on that reconciliation would be helpful. Thank you.

Hassane El-Korey: Thank you.

Hassane El-Korey: Yeah, this is bad. You nailed it, right? When we talk about the L-shaped recovery, it's really our revenue, right? We believe right now we're still undershipping natural demand as there's an inventory digestion going on. As that inventory is blood off, you know, we think our revenue over time will increase again. But yeah, the L-shaped is not demand. It's more of our revenue, just given the inventory out in the channel. So, so like we've got a couple more quarters of that inventory digestion from your vantage point.

Thad Trent: You nailed it, right? When we talk about the L-shaped recovery, it's really our revenue, right? We believe right now that we're still under shipping natural demand as there's an inventory digestion going on. As that inventory is bled off, you know, we think our revenue, over time, will increase again. But yeah, the L-shaped recovery isn't demand.

Speaker Change: Yeah, this is Thad. You nailed it, right? When we talk about the L-shaped recovery, it's really our revenue, right? We believe right now we're still under shipping natural demand as there's an inventory digestion going on.

Speaker Change: As that inventory is bled off, you know, we think our revenue over time will increase again. But yeah, the L-shape is not demand, it's more of our revenue just given the inventory out in the channel.

Thad Trent: It's more of our revenue just given the inventory out in the channel, so I think we've got a couple more quarters of that inventory digestion from your vanity. Well, I think it depends on demand. It's his onset, right?

Speaker Change: So, like, we've got a couple more quarters of that inventory digestion from your vantage point.

Hassane El-Korey: Well, I think it depends on demand. It's a sunset, right? I mean, if demand picks up, you know, the inventory is blood faster. If demand flows, you know, it takes a little bit longer. But look, you know, for what we can see for the remainder of this year, that's why we're saying L-shaped. You know, if you look at Q3, we're up; we're up almost 1%. You know, we'll see what Q4 does.

Thad Trent: I mean, if demand picks up, you know, the inventory is bled faster. If demand slows, you know, it takes a little bit longer. But look, you know, for what we can see for the remainder of this year, that's why we're saying an L-shaped company. You know, if you look at Q3, we're up, we're up almost 1%, you know, you know, we'll see what Q4 does. Thank you.

Speaker Change: Well, I think it depends on demand, it's his onset, right? I mean, if demand picks up, you know, the inventory is bled faster. If demand slows, you know, it takes a little bit longer. But look, you know, for what we can see for the remainder of this year, that's why we're saying L shaped.

Speaker Change: You know, if you look at Q3, we're up, we're up almost 1%, you know, you know, we'll see what Q4 does.

Chris Danely: Thank you.

Operator: One moment for our next question. Our next question comes from Chris Danely with Citi. Your line is open. Hey, thanks, guys. Just a quick question, like they're still in L-shaped recovery.

Speaker Change: Thank you. One moment for our next question.

Chris Danely: Our next question comes from Chris Danely, but City or Light is open. Hey, thanks, guys.

Chris Danely: Just a quick question on the distee inventory going back up. You know, it sounds like there's still plenty of inventory out there amongst certain OEM customers.

Speaker Change: Our next question comes from Chris Danely with Citi. Your line is open.

Christopher Brett Danely: Hey, thanks guys. Just a quick question on the DISTI inventory going back up. You know, it sounds like there's still plenty of inventory out there amongst certain OEM customers.

Hassane El-Korey: So, you know, given the L-shaped recovery, why would the distees want to take up their inventory and not keep it flat? Yeah, so if you recall in our last, if you recall in our last call, we talked about the mass market. So it's not really the top customers or the named customers that we have. It's more of the tail of customers that we really ourselves have starved, and I've mentioned it multiple times during the, you know, call it the pandemic, where we didn't have a lot of. We were supply constrained. We prioritize all of our lead customers at the expense of the broad market or mass market right now.

Speaker Change: You know, given the L-shaped recovery, why would the disties want to take up their inventory and not keep it flat?

Christopher Brett Danely: Why would, Yeah, so if you recall, in our last call, we talked about the mass market. So it's not really the top customers or the named customers that we have; it's more of the tail of customers that we really, ourselves have starved. And I've mentioned it multiple times.

Speaker Change: Yeah, so if you recall in our last, this is Hassane, if you recall in our last call, we talked about the mass market. So it's not really the the top customers or the named customers that we have. It's more of the tail of customers that we really

Hassane Arcuri: And during the, you know, call it the pandemic, where we didn't have a lot of, we were supply constrained, we prioritized all of our customers at the expense of the broad market or mass market. Right now, we talked about how we're starting to replenish and address the mass market. We started last quarter, so we expected that slight uptick. So it is being driven strategically by us. Obviously, the metric, just to give you a little insight into how I look at it and why it's important for us, I look at it as new customer counts that we are adding.

Speaker Change: We ourselves have starved, and I've mentioned it multiple times, and during the, you know, call it the pandemic, where we didn't have a lot of, we were supply constrained, we prioritize all of our deep customer at the expense of the broad market or mass market.

Hassane El-Korey: We talked about how we started to replenish and address the mass market. We started last quarter. So we expected that slight uptick. So it is driven strategically by us. Obviously, the metric for just to give you a little insights of how I look at it and why it's important for us. I look at it as new customer accounts that we are adding, and that's again mass market thousands of customers. As that remains on an upward trajectory even today, we will continue to replenish the mass market. So strategically, that's the closed loop approach that we that I look at operationally to manage.

Speaker Change: Right now, we talked about how we are starting to replenish and address the mass market. We started last quarter, so we expected that slight uptick.

Speaker Change: So it is driven strategically by us, obviously the metric for, just to give you a little insight of how I look at it and why it's important for us, I look at it as new customer counts that we are adding, and that's again, mass market, thousands of customers.

Hassane Arcuri: And that's, again, the mass market, thousands of customers. As that remains on an upward trajectory, even today, we will continue to replenish the mass market. So strategically, that's the closed loop approach that I look at operationally to manage. Yeah, and Chris, if you look at that 8.9 weeks, there's actually a mix shift within that 8.9 weeks, right?

Speaker Change: As that remains on an upward trajectory, even today, we will continue to replenish the mass market. So strategically, that's the closed loop approach that I look at operationally to manage this.

Thad Trent: John Chris, if you look at that 8.9 weeks, there's actually a mix shift within that 8.9 weeks, right? So, more going to the mass market and less going into specifics for customers as we continue to bleed through that inventory. So, we're managing that inventory extremely tight in the channel. And just keep in mind, you know, historical levels of inventory in the channel were 11 to 13 weeks. So, we're significantly below where the company have been, you know, historically.

Thad Trent: So more going to the mass market and less going into specifics for customers as we continue to bleed through that inventory. So we're managing that inventory extremely tight in the channel. And just keep in mind, you know, historical levels of inventory in the channel were 11 to 13 weeks. So we're significantly below where the company had been historically. Is there any volatility?

Speaker Change: Yeah, and Chris, if you if you look at that 8.9 weeks, there's actually a mix shift within that 8.9 weeks, right? So more going to the mass market and less going into specifics for customers as we continue to bleed through that inventory. So we're managing that inventory extremely tight.

Speaker Change: in the channel. And just keep in mind, you know, historical levels of inventory in the channel was 11 to 13 weeks. So we're significantly below where the company had been, you know, historically.

Chris Danely: Thanks, guys, that's really helpful.

Hassane El-Korey: And then for my follow-up on silicon carbide, I don't know, you're not, you know, given any numbers or anything. But if we look at your backlog and pricing for the year for next year, was there any volatility? Has that changed in the last three months? Any sort of changes in your own like 24 or 25 backlog or pricing assumptions? No, no, pricing is stable. If you recall. I mean, whether the units are coming in exactly what we had in the LTSA's or not, pricing isn't the LTSA. So, we've been very consistent about; we discussed with customers on the LTSA's to reach to a win-win.

Speaker Change: Thanks guys, that's really helpful. And then for my follow-up on silicon carbide, I know you're not, you know, giving any numbers or anything, but...

Speaker Change: If we look at your backlog and pricing for the year, for next year, was there any volatility, has that changed in the last three months? Any sort of changes in your own like 24, 25 backlog or pricing assumptions?

Hassane Arcuri: Has, No, no pricing stable. If you recall, I mean, whether the units are coming in exactly what we had in the LTSAs or not, pricing is in the LTSAs. So we've been very consistent about, we discuss with customers on the LTSAs to reach a win-win. But we invested based on the ROI.

Speaker Change: No, no. Pricing is stable, if you recall. I mean...

Speaker Change: Whether the units are coming in exactly what we had in the LTSAs or not, pricing is in the LTSAs. So we've been very consistent about, we discuss with customers on the LTSAs to reach to a win-win. But we invested based on the ROI. An ROI is specific not just on volume, but also pricing.

Hassane El-Korey: But we invested based on the ROI. And ROI is specific, not just on volume, but also pricing. We can't control volume; neither can our customers to a first order, as market dependent. So, we're flexible there. But from an investment and pricing, I would say that's stable. And that's really stable across all of our business. I won't just say about Silicon carbide. And it's seen in the margin, hold in where it is versus historical. So pricing is stable, and recall when we started on this transformation journey, I said we're pricing for value. Value doesn't change based on market environment.

Hassane Arcuri: And ROI is specific, not just on volume, but also price. We can't control volume, neither can our customers, so first order is market dependent, so we're flexible there, but from an investment and pricing point of view, I would say that's stable, and that's really stable across all of our business. I won't just say about silicon carbide, and it's seen in the margin. Holden where it is versus historical.

Speaker Change: We can't control volume, neither can our customers, so first order is market dependent, so we're flexible there, but from an investment and pricing, I would say that's stable, and that's really stable across all of our business. I won't just say about silicon carbide, and it's seen in the margin.

Hassane Arcuri: So pricing is stable. And recall when we started on this transformation journey, I said we're pricing for value. Value doesn't change based on the market environment. If the product brings value, then the product brings value and will price accordingly, and then the volume in units will follow up with the market.

Speaker Change: Holden, where it is versus historical. So pricing is stable and recall when we started on this transformation journey, I said we're pricing for value. Value doesn't change based on market environment.

Hassane El-Korey: If the product rings value, then the product rings value and will price accordingly, and then the volume and units will follow up with the market.

Speaker Change: If the product brings value, then the product brings value and will price accordingly, and then the volume in units will follow up with the market.

Hassane El-Korey: Great.

Hassane El-Korey: Thanks, son.

Operator: One moment for our next question. Our next question comes from Christopher Rolland with Susquehanna. Your line is open.

Holden: Great. Thanks, John .

Speaker Change: One moment for our next question.

Christopher Rowland: Our next question comes from Christopher Rowland with Susquehanna. Your line is open.

Christopher Rowland: Hey guys, thanks for the question. Just given some of your announcements mid-quarter on data center power using SEC. I was wondering if you guys could size that opportunity. It sounded like AI in 25 was at least a half billion dollar opportunity. Just running some rough numbers there. But if you could size the opportunity to talk about kind of your expected market share or any other details, that would be terrific.

Christopher Adam Jackson Rolland: Hey guys, thanks for the question. Just given some of your announcements mid-quarter on data center power using SICK, I was wondering if you guys could size that opportunity. It sounded like AI in 25 was at least a half billion dollar opportunity just running, rough numbers there.

Speaker Change: Our next question comes from Christopher Rolland with Susquehanna. Your line is open.

Speaker Change: Hey guys, thanks for the question. Just given some of your announcements mid-quarter on data center power using SICK,

Christopher Adam Jackson Rolland: I was wondering if you guys could size that opportunity, it sounded like.

Christopher Adam Jackson Rolland: AI in 25 was at least a half billion dollar opportunity, just running some rough numbers there. But if you could size the opportunity, talk about, you know, kind of your expected market share or any other details, that would be terrific.

Hassane Arcuri: But if you could size the opportunity to talk about, you know, kind of your expected market share or any other details, that would be terrific. Yeah, we're not breaking the AI market at that level, but we will as that market really, in my view, starts proliferating. For us, you know, if you recall, the same thing we did with energy infrastructure where we started talking about it from a design phase until it became a more meaningful part of revenue and a more meaningful part of the market.

Hassane El-Korey: Yeah, I'm not breaking the AI market at that level. We will, as that market really, in my view, starts proliferating for us. You know, if you recall, the same thing we did with the energy infrastructure where we started talking about it from a design when until it became a more meaningful part of revenue and a more meaningful part of the market. So stay tuned. What I would like what I talked about today is the opportunity from a product perspective design and really that call it the Sam per rack. And as we make progress through these and with our new product introduction on the mixed signal analog, not just on the power, will give out a little bit more detail on it.

Hassane Arcuri: So stay tuned; what I would like, what I talked about today is the opportunity from a product perspective to design in and really call it the SAM per rack. And as we make progress through these, and with our new product introduction on the mixed signal analog, not just on the power, we'll give out a little bit more detail on that.

Speaker Change: Yeah, I'm not breaking the AI market at that level. We will, as that market really, in my view, starts proliferating for us. You know, if you recall the same thing we did with energy infrastructure, where we started talking about it from a design win until it became a more meaningful part of revenue and more meaningful part of the market.

Speaker Change: So stay tuned. What I would like, what I talked about today is the opportunity from a product perspective, design, and really

Speaker Change: that call it the SAM per rack. And as we make progress through these and with our new product introduction on the mixed signal analog, not just on the power, we'll give out a little bit more detail on that.

Thad Trent: And Chris, if you go back to our analyst day last year, we talked about the data center growing at 22% over a multi-year period. You know, I think with AI and data center ramping, you can think about that over a multi-year period probably being higher than that. Excellent.

Hassane El-Korey: Chris, if you go back to our Analyst Day last year, we talked about the data center growing at 22% over a multi-year period. I think with AI and data center ramping, you can think about that over a multi-year period. It's probably being higher than that. Excellent.

Speaker Change: And Chris, if you go back to our analyst day last year, we talked about the data center growing at 22% over a multi-year period. You know, I think with AI and data center ramping, you can think about that over a multi-year period as probably being higher than that.

Christopher Rowland: Thank you.

Christopher Adam Jackson Rolland: And then my second question is around LTSAs. I don't know if you have any numbers or updates there, but just kind of how are they trending? Have you noticed in terms of pushouts, renegotiations, have those slowed? Have they become more favorable in those negotiations, any changes over the past? Chris, I would say it's pretty stable.

Christopher Rowland: And then my second question is around LTSA.

Hassane El-Korey: I don't know if you have any numbers or updates there, but just kind of how are they trending? Have you noticed, in terms of pushouts, renegotiations? Have those slowed? Have they become more favorable in those negotiations? Any changes over the past couple of quarters here? Chris, I would say it's pretty stable. So the lifetime value of our LTSA is 14.7 billion dollars. If you look at what's shipable over the next 12 months, it's about 4.4 billion, so about 30% of that. Pretty consistent with what we've been seeing. You know, as you ship LTSA, I think, as we've said, LTSA's pricing is stable.

Christopher Brett Danely: Excellent, thank you.

Speaker Change: And then my second question is around LTSAs. I don't know if you have any numbers or updates there, but just kind of how are they trending?

Speaker Change: Have you noticed in terms of push-outs, renegotiations, have those slowed, have they become more favorable in those negotiations, any changes over the past couple of quarters here?

Thad Trent: So the lifetime value of our LTSAs is $14.7 billion. If you look at what's shippable over the next 12 months, it's about $4.4 billion, so about 30% of that. Pretty consistent with what we've been seeing as you ship LTSAs. I think, as we've said, the LTSA pricing is stable; it gives us that call on demand changes and why we've seen many market shifts prior to many of our peers. I think the LTSAs are strategic in the way that they're actually proving value in how we manage our business.

Speaker Change: Chris, I would say it's pretty stable. So the lifetime value of our LTSAs are $14.7 billion.

Speaker Change: If you look at what's shippable over the next 12 months, it's about $4.4 billion, so about 30% of that. Pretty consistent with...

Speaker Change: With what we've been seeing, you know, as you ship LTSAs, you know, I think, as we've said, the LTSAs, you know, pricing is stable. It gives us that call on demand changes and why we've seen many of the market shifts, you know, prior to many of our peers.

Hassane El-Korey: It gives us that call on demand changes. And why we've seen many of the market shifts, you know, prior to many of our peers. So I think the LTSA are strategic in the way that they're actually proving value and how we manage our business. Yeah, I mean, even today with the market environment that we've been talking about, we do have customers asking for LTSA because it's not, you don't need the LTSA when the market is what it is today. They stage on needing the LTSA when the actual market recovers, and they don't want to be stuck in traffic in allocation.

Speaker Change: So, I think the LTSAs are strategic in the way that they're actually proving value in how we manage our business. Yeah, I mean, even today with the market environment that we've been talking about, we do have customers asking for LTSA because...

Hassane Arcuri: I mean, even today in the market environment that we've been talking about, we do have customers asking for LTSA because you don't need the LTSA when the market is what it is today. They stage on needing the LTSA when the actual market recovers, and they don't want to be stuck in traffic in the allocation. If the snapback is across all markets and very quick, so it's future proofing, it's a strategic tool, and of course, it drives that discussion with the customer about what their needs are based on new products and existing product ramps. Thank you guys; very helpful. Our next question comes from Harlan Sur with J.P. Morgan. Your line is open.

Speaker Change: It's not, you don't need the LTSA when the market is what it is today. You're, they stage on needing the LTSA when the actual market recovers and they don't want to be stuck in traffic in the allocation.

Hassane El-Korey: If the snapback is across all markets and very quick, so it's a future proofing is a strategic tool and a force that drives that discussion with the customer about what is their need based on new products and existing product ramps.

Speaker Change: If the snapback is across all markets and very quick, so it's a future proofing, it's a strategic tool, and of course it drives that discussion with the customer about what is their need based on new products and existing product ramps.

Hassane El-Korey: Thank you, guys.

Speaker Change: Thank you guys, very helpful. One moment for our next question.

Harlan Sur: Our next question comes from Harlan Sir with JP Morgan. Your line is open.

Harlan Sur: Yeah, good morning. Thanks for taking my question. Your direct customer business was down about 18% sequentially in the June quarter versus your district business, which was up five. So, so teams that most of the inventory related issues are with your direct customers and given that orders are probably the best indicator of inventory dynamics at your direct customers.

Harlan L. Sur: Yeah, good morning. Thanks for taking my question. Your direct customer business was down about 18% sequentially in the June quarter versus your district business, which was up five. So it seems that most of the inventory-related issues are with your direct customers. And given that orders are probably the best indicator of inventory dynamics at your direct customers since you don't monitor the sell through, did the order trends in direct start to stabilize in Q2?

Speaker Change: Our next question comes from Harlan Sur with J.P. Morgan. Your line is open.

Harlan L. Sur: Yeah, good morning. Thanks for taking my question.

Harlan L. Sur: Your direct customer business was down about 18% sequentially in the June quarter versus your district business, which was up 5%. So it seems that most of the inventory-related issues

Harlan L. Sur: with your direct customers. And given that

Harlan Sur: Since you don't monitor the sell-through, did the order trends in direct start to stabilize in Q2 and has that stabilization continued so far?

Speaker Change #103: Transcribed by https://otter.ai

Harlan L. Sur: And has that stabilization continued so far quarter to date? Yeah, so first of all, in the mix shift between DISTE and DIRECT, keep in mind that most of that industrial business goes through distribution. So that's that long tail of customers.

Speaker Change #101: Did the order trends in direct start to stabilize in Q2 and has that stabilization continued so far quarter to date?

Hassane El-Korey: What are the days? Yeah, so first of all, in the mix shift between DIST and direct, keep in mind, most of that industrial business goes through the distribution. So that's that long deal of customers. So that's why you're seeing a little bit more there where we're the big automotive guys typically are direct, so you're right. As we've seen some recovery in industrial, you're seeing a little bit more of a shift to DIST and a little bit less on direct. So I think it's just kind of a short term as you go through this digestion period.

Speaker Change #102: Yeah, so first of all, in the mix shift between DISTE and DIRECT, keep in mind, most of that industrial business goes through the distribution, so that's that long tail of customers.

Thad Trent: So that's why you're seeing a little bit more there where the big automotive guys typically are direct. So you're right, as we've seen some recovery in industrial, you're seeing a little bit more of a shift to distribution and a little bit less on direct. So I think it's just kind of a short-term thing as you go through this digestion period.

Speaker Change #102: So that's why you're seeing a little bit more there where where the big automotive guys typically are direct So you so you're right as we've seen some recovery in industrial. You're seeing a little bit more of a shift to Disney

Thad Trent: Looking forward, I would say, you know, things are stabilizing. Thanks for that. And then other of your peers in the analog and power markets have seen a pickup in China. I know in the first quarter you had not seen the seasonal pickup post-Chinese New Year's. As you move through the second quarter, it looks like Asia, which includes China, you did see slight sequential revenue growth. So have the order trends also started to stabilize or improve in this region? And is it broad-based or biased more towards industrial and or automotive? Yeah, so, we said in our prepared remarks that we're seeing China stabilizing. We're seeing growth there. It's both the automotive and the industrial.

Speaker Change #102: and a little bit less on direct so I think it's just kind of a short term as you go through this this digestion period. Looking forward I would say you know things are things are stabilizing here.

Hassane El-Korey: Looking forward, I would say things are stabilizing.

Hassane El-Korey: Peter.

Hassane El-Korey: Great thing for that. And then, other of your peers in the analogium power markets have seen a pickup in China. I know in the first quarter, you'd not seen the seasonal pickup post Chinese New Year's as you move through the second quarter. It looks like Asia, which includes China. You did see slight sequential revenue growth.

Speaker Change #104: Great. Thanks for that.

Speaker Change #105: and then other of your peers in the.

Speaker Change #106: Analog and Power Markets have seen a pickup in China. I know in the first quarter you had not seen the seasonal pickup post-Chinese New Year.

Speaker Change #107: As you move through the second quarter, it looks like Asia, which includes China, you did see slight sequential revenue growth. So have the order trends also started to stabilize or improve in this region? And is it broad based or biased more towards industrial and or automotive?

Hassane El-Korey: So have the order trends also started to stabilize or improve in this region. And is it brought based or biased more towards industrial and or automotive? Yeah, so, you know, we set it in our prepared remarks. You know, we're seeing China stabilizing. We're seeing growth there. It's both automotive industrial. We talked about energy infrastructure as well as the second half recovery. So that would be a lot of that goes through China. But yeah, I would say it's the broader market of auto and industrial in China. And that's definitely leading the recovery right now. Great color.

Speaker Change #108: Yeah, so, you know, we said it in our prepared remarks, you know, we're seeing China stabilizing, we're seeing growth there.

Speaker Change #109: It's both automotive and industrial. We talked about energy infrastructure as well as the second half recovery. So that would be, a lot of that goes through China. But yeah, I would say it's the broader market of auto and industrial in China, and that's definitely leading the recovery right now.

Thad Trent: We talked about energy infrastructure as well as the second half recovery. So that would be a lot that goes through China. But yeah, I would say it's the broader market for auto and industrial products in China, and that's definitely leading the recovery right now. Great color. Thank you. Our next question comes from... Tristan Gerr with Baird. Your line is open. Hi, good morning.

Speaker Change #110: Great color. Thank you.

Tristan Gerra: Our next question comes from Tristan Gerra with Beard. Your line is open.

Speaker Change #111: One moment for our next question.

Speaker Change #112: Our next question comes from...

Tristan Gerra: Hi, good morning. Thanks for letting me in. Just follow up on China. How sustainable do you believe this is? How would you categorize inventories in China specifically? Are you hearing any type of government incentives? Or is it just that does it rebound after civil quarters of weakness? I guess that's a tough question to posture. But the market pick up in China. I think the demand is coming back. We've had a pretty big rough, you know, what we talked about in the prior question. You know, there was no recovery after the Chinese New Year. We've been talking about potential regards.

Tristan Gerra: Thanks for letting me in. I will just follow up on China. How sustainable do you believe this is? How would you categorize inventories in China specifically? Are you seeing any type of government incentives? Or is it just that there is a rebound after several quarters of weakness? I guess that's a tough question to pose, but the market pickup in China, I think the demand is coming back. We've had a pretty big drop. As we talked about in the prior question, there was no recovery after the Chinese New Year.

Speaker Change #112: Tristan Gerr with Baird, your line is open.

Tristan Gerra: Hi, good morning. Thanks for letting me in. Just to follow up on China, how sustainable do you believe this is? How would you categorize inventories in China specifically?

Tristan Gerra: Are you seeing any type of government incentives or is it just that there's a rebound after several quarters of weakness?

Speaker Change #114: I guess that's a tough question to

Speaker Change #115: The market pickup in China, I think the demand is coming back. We've had a pretty big drop, you know, what we talked about in the prior question. You know, there was no recovery after the Chinese New Year. We've been talking about potential recovery. So I look at it as as driven by end market demand, not necessarily specific government incentives or any of that, because I haven't really seen any.

Tristan Gerra: We've been talking about potential recovery. I look at it as driven by end market demand, not necessarily specific government incentives or any of that because I haven't really seen any major announcements in China to drive their economy.

Hassane El-Korey: So I look at it as driven by and market demand, not necessarily specific government incentives or any of that because I haven't really seen any major announcements in China to drive their economy. So therefore, I would call it as a broad base demand stabilization towards a recovery for us. With our penetration in China on silicon carbide and really on the silicon across across the board, we will just benefit and we will see it. Given that we are very tight on the inventory in the channel, we will see the cell through much quicker than having to wait to drain through large channel inventory, like potentially some of our fears.

Hassane Arcuri: Therefore, I would call it a broad-based demand stabilization towards a recovery. For us, with our penetration in China for silicon carbide and really for silicon across the board, we will just benefit, and we will see it. Given that we are very tight on the inventory in the channel, we will see the sell-through much quicker than having to wait to drain through large channel inventory like potentially some of our peers.

Speaker Change #115: major announcements in China to drive their economy. So therefore,

Speaker Change #115: I would call it as a broad-based demand stabilization towards a recovery for us with our penetration in China on silicon carbide and really on the silicon across the board.

Speaker Change #116: We will just benefit and we will see it. And given that we are very tight on

Speaker Change #116: The inventory in the channel.

Speaker Change #116: We will see the cell through much quicker than having to wait to drain through large channel inventory like potentially some of our peers. So from our view, we've established ourselves in a very good position to see the uptick really quick. We start to see it in Asia, specifically in China, like we talked about, but I wouldn't call it any...

Hassane El-Korey: So from our view, we've established ourselves in a very good position to see the optic really quick. We start to see it in Asia, specifically in China, like we talked about, but I wouldn't call it any specific incentives that may or may not be sustainable. So therefore, as long as the market stays the way it is, I would call that sustainable.

Hassane Arcuri: From our view, we've established ourselves in a very good position to see the uptick really quickly. We started to see it in Asia, specifically in China, as we talked about, but I wouldn't call it any... specific incentives that may or may not be sustainable.

Tristan Gerra: So, therefore, as long as the market stays the way it is, I would call that sustainable. Okay, great. Very useful. And then, as my follow-up, Maybe I missed it.

Speaker Change #116: specific incentives that may or may not be sustainable so therefore as long as the market stays the way it is I would call that sustainable

Thad Trent: Okay, great. Very useful. And then, as my follow-up, maybe I missed it.

Thad Trent: What was the point of sales for DSTs in Q2 sequentially, and what was the percentage of DST of your total revenue in the quarter? Yeah, all that's on the website that we post distribution as a percentage of total increased where direct actually decreased, but that's all posted on the revenue trends we put on the website there. Great, thank you.

Speaker Change #117: Okay, great. Very useful. And then as my follow-up, maybe I missed it. What was the point of sales for DSTs in Q2 sequentially and what was the percentage of DST of your total revenue in the quarter?

Thad Trent: What was the point of sales for DSTs in Q2 sequentially, and what was the percentage of DST of your total revenue in the quarter? Yeah, all that's on the website that we post. Distribution as a percentage of total increased; were direct actually decreased, but that's all posted on the revenue trends. that we put on the website there.

Speaker Change #118: Yeah, all that's on the website that we post. Distribution as a percentage of total increased where direct actually decreased, but that's all posted on the revenue trends that we put on the website there.

Thad Trent: Great, thank you.

Harsh Kumar: One more for our next question.

Harsh V. Kumar: One moment for our next question. Our next question comes from Harsh Kumar with Piper Stanley. Your line is open.

Speaker Change #119: Great, thank you. One moment for our next question.

Harsh Kumar: Our next question comes from Harsh Kumar, with Piper Stanley; your line is open. Yeah, hey, thanks guys. I guess congratulations on buttering the storm reasonably well in the cycle, gentlemen. Hassan, one for you, is it fair to say that your win at Volkswagen should put all the wafer quality rumors, causal conjecture, whatever you want to call it, that you've been going on in the last year, that should be put to rest now that you've got a major win like Volkswagen. And then the second part of that question is, is there still, are your wins in token carbide, still a function of wafer availability, the fact that you are, you can make your own wafer.

Harsh V. Kumar: Yeah, hey, thanks, guys. I guess congratulations on weathering the storm reasonably well in this cycle, gentlemen. Hassane, one for you.

Harsh V. Kumar: Our next question comes from Harsh Kumar with Piper Stanley. Your line is open. Yeah, hey, thanks guys. I guess congratulations on weathering the storm reasonably well in this cycle, gentlemen. Hassane, one for you. Is it fair to say that your win at Volkswagen

Hassane Arcuri: Is it fair to say that your win at Volkswagen should put all the way for quality rumors, guzzle, conjecture, whatever you want to call it that's been going on in the last year that should be put to rest now that you've got a major win like Volkswagen. And then the second part of that question is, is there still, are your wins in Silicon Carbide still a function of way for availability? The fact that you can make your own way for, and did you say that you're in the lead at Volkswagen for this particular set of wins? Yeah, so by the way, I am now.

Harsh V. Kumar: should put all the wafer quality rumors, scuzzle, conjecture, whatever you want to call it, that's been going on in the last year, that should be put to rest now that you've got a major win like Volkswagen. And then the second part to that question is,

Speaker Change #121: Is there still, are your VINs in silicon carbide still a function of wafer availability, the fact that you can make your own wafer? And did you say that you're the lead at Volkswagen for this particular set of VINs?

Hassane El-Korey: And did you say that you're the lead at Volkswagen for this particular set of wins? Yeah, so by the way, by now, I thought the whole rumors about yields and quality and all that nonsense has been put to bed. But just for the record, if not, the answer is, of course, the answer has always been. So for the few non-believers out there, I think they're either not listening, not looking at the signs, not listening to the announcement, or their head is buried in the sand. We've been very clear about our performance. Our wins have been speaking for themselves.

Hassane Arcuri: I thought the whole rumors about yields and quality and all that nonsense had been put to bed. But just for the record, if not, the answer is, of course. The answer has always been... So for the few non-believers out there, I think they're either not listening, not looking at the signs, not listening to the announcement, or their heads are buried in the sand.

Speaker Change #122: Yeah, so, by the way, I'm, bye now.

Speaker Change #123: I thought the whole rumors about yields and quality and all that nonsense has been put to bed, but just for the record, if not, the answer is, of course.

Speaker Change #124: The answer has always been, so for the few non-believers out there, I think they're either not listening, not looking at the signs, not listening to the announcement, or the head is buried in the sand.

Hassane Arcuri: We've been very clear about our performance. Our wins have been speaking for themselves. So the answer is, of course, somebody like Volkswagen Group doesn't award contracts on a whim. They award contracts based on audits, based on reviews, and based on in-depth, on-site, and technical depth and reviews.

Hassane El-Korey: So the answer is, of course, somebody like VW Group doesn't award on a win. They award based on audits, based on reviews, and based on in-depth on-site and technical depth and reviews. So I'll just put it as that.

Speaker Change #124: We've been very clear about our performance. Our wins have been speaking for themselves. So the answer is, of course, somebody like VW Group.

Speaker Change #125: Don't award on a whim. They award based on audits, based on reviews, and based on in-depth, on-site, and technical depth and reviews. So I'll just put it at that.

Hassane Arcuri: So I'll just put it at that. As far as, you know, the VW win, we are the primary, which is, you know, to answer your question. Yes, we are the primary for that, and the breadth is for the VW brand overall or the VW group overall. Appreciate it, Hassanen. And for my follow-up, you know, in the past cycles, we've seen the channel recover fast, particularly when it's been stocked in this manner. I guess I'm going to put you in a theoretical spot here.

Hassane El-Korey: As far as the VW win, we are the primary, which is to answer your question. Yes, we are the primary for that. And the breadth is for the VW brand overall or the VW Group overall.

Speaker Change #125: As far as the VW win, we are the primary, which is, to answer your question, yes, we are the primary for that, and the breadth is for the VW brand overall, or the VW group overall.

Harsh Kumar: And for my follow-up, in the past cycles of the Sun, we've seen the channel recover fast, particularly when it's been stopped in this manner.

Hassane: Appreciate it, Hassanen.

Hassanen: And for my follow-up, you know, in the past cycles, Hassan, we've seen the channel recover fast, particularly when it's been stalled in this manner.

Hassane El-Korey: I guess I'm going to put you in a theoretical spot here. Why do you think the channel is not spiking up? Is it because there are still plenty of inventory out there, and they don't feel like they need to load up just yet? And it's going to come, or something shifted in the way they're thinking about stocking products.

Harsh V. Kumar: Why do you think the channel is not spiking up? Is it because there is still plenty of inventory out there, and they don't feel like they need to load up just yet, and it's going to come? Or is there something shifted in the way they're thinking about stocking products? Yeah, for look, I mean, I can speak for the channel in general; I can speak for what we've done in the channel. If you recall, in the last few years, we've been managing the channel way tighter than a lot of our peers and really way tighter than they would want us to manage.

Speaker Change #127: I guess I'm going to put you in a theoretical spot here, why do you think the channel is not spiking up? Is it because there is still plenty of inventory out there and they don't feel like they need to load up just yet and it's going to come or is something shifted in the way they are thinking about stocking product?

Hassane El-Korey: Yeah, look, I mean, I can't speak for the channel in general. I can speak for what we've done in the channel. If you recall the last few years, we've been managing the channel way tighter than a lot of our peers and really way tighter than they would want us to manage. They would take more if we ship more. But we didn't want to have a balloon in the channel inventory, like some of our peers have, because that puts us quarters away from seeing a recovery. Because even if you get the POS recovered and you have a lot of weeks in the channel, that's that latency that we didn't want to have and we want to be closely tight.

Speaker Change #128: Yeah, for look, I mean, I can speak for the channel in general, I can speak for what we've done in the channel. If you recall, the last few years, we've been managing the channel way tighter than a lot of our peers and really way tighter than they would want us to manage.

Harsh V. Kumar: They would take more if we shipped more. But we didn't want to have a balloon in the channel inventory, like some of our peers have, because that puts us quarters away from seeing a recovery. Because even if you get the POS recovered, and you have a lot of weeks in the channel, that's that latency that we didn't want to have.

Speaker Change #129: They would take more if we ship more.

Speaker Change #129: But we didn't want to have a balloon in the channel inventory like some of our peers have because that puts us quarters away from seeing a recovery, because even if you...

Speaker Change #129: Get the POS recovered and you have a lot of weeks in the channel, that's that latency that we didn't want to have and we want to be closely tied.

Hassane El-Korey: That's why I mentioned strategically, as we ship specifically to the mass market. The metric I use is customer count increasing that we ship to. So we are shipping and replenishing the mass market. And I do monitor; again, it's not a quarterly metric. Think about it as inventory velocity. From the time we ship it to the mass market, how long before it ships out? That velocity is monitored; the number of customers is monitored. That's why I feel very good about increasing our channel inventory for the mass market. But if you talk about channel inventory for the top customers, you know, the industrial customers or what I would call the named customers, that just follows the trend.

Hassane Arcuri: And we want to be closely tied. That's why I mentioned strategically, as we ship specifically to the mass market, the metric I use is customer count, increasing the number that we ship to. So we are shipping and replenishing the mass market. And I do monitor, again, it's not a quarterly metric; think about it as inventory velocity, from the time we ship it to the mass market, how long before it ships out. That velocity is monitored, and the number of customers is monitored.

Speaker Change #129: That's why I mentioned strategically, as we ship specifically to the mass market, the metric I use is customer count increasing that we ship to.

Speaker Change #129: So, we are shipping and replenishing the mass market, and I do monitor, again, it's not a quarterly metric, think about it as inventory velocity.

Speaker Change #129: From the time we ship it to the mass market, how long before it ships out?

Hassane Arcuri: That's why I feel very good about increasing our channel inventory for the mass market. But if you talk about channel inventory for the top customers, you know, the industrial customers, or what I would call the named customers, that just follows the trend. Because look, half of our inventory in the channel is fulfilled. So it is directly related to demand.

Speaker Change #129: That velocity is monitored, the number of customers is monitored, that's why we are very good about increasing our channel inventory for the mass market.

Speaker Change #129: But if you talk about channel inventory for the top customers, you know, the industrial customers or what I would call the named customers, that just follows the trend because look, half of our inventory in the channel is fulfillment. So it is demand related directly.

Hassane El-Korey: Look, half of our inventory in the channel is fulfillment. So it is demand related directly.

Hassane El-Korey: Thank you, gentlemen.

Hassane Arcuri: Thank you, gentlemen. Ladies and gentlemen, let's conclude the Q&A portion of today's conference. I'd like to turn the call back over to Hassane Arcuri, President and CEO, for any closing remarks. We continue to prioritize operational excellence through market corrections and demonstrate the resilience of our business. We're very proud of our global teams for executing through the current demand environment with prudent financial management. We are a better structured company because of the work we put in during the downturn. Thank you all for joining us today. Ladies and gentlemen, this does conclude today's presentation. You may now disconnect and have a wonderful day.

Hassane El-Korey: Ladies and gentlemen, that concludes the Q&A portion of today's conference.

Hassane El-Korey: I'd like to turn the call back over to Hassane El, Carrie, President CEO, for any closing remarks. We continued to prioritize operational excellence through the market correction and demonstrate the resilience of our business. We're very proud of our global teams for executing through the current demand environment with prudent financial management. We are a better structured company because of the work we put in during the downturn.

Speaker Change #130: Got it. Thank you, gentlemen.

Speaker Change #131: Ladies and gentlemen, that concludes the Q&A portion of today's conference. I'd like to turn the call back over to Hassane El-Khoury, President and CEO , for any closing remarks.

Hassane El-Khoury: We continue to prioritize operational excellence through the market correction and demonstrate the resilience of our business. We're very proud of our global teams for executing through the current demand environment with prudent financial management. We are a better structured company because of the work we put in during the downturn. Thank you all for joining us today.

Hassane El-Korey: Thank you all for joining us today.

Unknown Executive: Ladies and gentlemen, that concludes today's presentation. You may now disconnect and have a wonderful day.

Speaker Change #133: Ladies and gentlemen, this does conclude today's presentation. You may now disconnect and have a wonderful day.