ON Semiconductor (ON) 10-K risk factor changes: FY2019 vs FY2018

[removed: _Forward-Looking Statements_][added: Forward-Looking Statements]

All statements, other than statements of historical facts, included or incorporated in this Form 10-K could be deemed forward-looking statements, particularly statements about our plans, strategies and prospects under the [removed: headings] [added: heading] “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business.” Forward-looking statements are often characterized by the use of words such as “believes,” “estimates,” “expects,” “projects,” “may,” “will,” “intends,” “plans,” or “anticipates,” or by discussions of strategy, plans or intentions.

[removed: These] [added: Among these] factors [removed: include, among others:] [added: are] our revenue and operating performance; economic conditions and markets (including current financial conditions); [added: risk related to changes in tariffs or other government trade policies, including between the U.S. and China;] risks related to our ability to meet our assumptions regarding outlook for revenue and gross margin as a percentage of revenue; effects of exchange rate fluctuations; the cyclical nature of the semiconductor industry; changes in demand for our products; changes in inventories at our customers and distributors; [added: risks associated with restructuring actions and workforce reductions;] technological and product development risks; [added: risks that our products may be accused of infringing the IP rights of others;] enforcement and protection of our IP rights and related risks; risks related to the security of our information systems and secured network; availability of raw materials, electricity, gas, water and other supply chain uncertainties; our ability to effectively shift production to other facilities when required in order to maintain supply continuity for our customers; variable demand and the aggressive pricing environment for semiconductor products; our ability to successfully manufacture in increasing volumes on a cost-effective basis and with acceptable quality for our current products; risks associated with our [removed: acquisition of Fairchild and with other] acquisitions and [removed: dispositions,] [added: dispositions generally,] including our ability to realize the anticipated benefits of our acquisitions and [removed: dispositions;] [added: dispositions, including our acquisition of Quantenna;] risks that acquisitions or dispositions may disrupt our current plans and operations, the risk of unexpected costs, charges or expenses resulting from acquisitions or dispositions and difficulties arising from integrating and consolidating acquired businesses, our timely filing of financial information with the SEC for acquired businesses and our ability to accurately predict the future financial performance [removed: of acquired businesses; competitor actions, including the adverse impact of competitor product announcements; pricing and gross profit pressures; loss of key customers; order cancellations or reduced bookings; changes in manufacturing yields; control of costs and expenses and realization of cost savings and synergies from restructurings; significant litigation; risks associated with decisions to expend cash reserves for various uses in accordance with our capital allocation policy such as debt prepayment, stock repurchases or acquisitions rather than to retain such cash for future needs; risks associated with our substantial leverage and restrictive covenants in our debt agreements that may be in place from time to time; risks associated with our worldwide operations, including changes in trade policies, foreign employment and labor matters associated with unions and collective bargaining arrangements, as well as man-made and/or natural disasters affecting our operations or financial results; the threat or occurrence of international armed conflict and terrorist activities both in the United States and internationally; risks of changes in U.S. or international tax rates or legislation, including the impact of the recent U.S. tax legislation; risks and costs associated with increased and new regulation of corporate governance and disclosure standards; risks related to new legal requirements; and risks involving environmental or other governmental regulation.]

[removed: _Downturns] [added: Downturns] or volatility in general economic conditions could have a material adverse effect on our business and results of [removed: operations._][added: operations.]

We believe that the state of [added: global] economic conditions [removed: in the United States] is particularly uncertain due to recent and expected shifts in [added: political,] legislative and regulatory conditions concerning, among other matters, international trade and taxation, and that an uneven recovery or a renewed global downturn may put pressure on our sales due to reductions in customer demand as well as customers deferring purchases.

Volatile [removed: and/or] [added: or] uncertain economic [removed: conditions] [added: conditions, as well as continuing political unrest in markets in which we conduct significant business, including Hong Kong,] can adversely impact sales and profitability and make it difficult for us and our competitors to accurately forecast and plan our future business activities.

[removed: _The] [added: The] loss of one of our largest customers, or a significant reduction in the revenue we generate from these customers, could materially adversely affect our revenue, profitability, and results of [removed: operations._][added: operations.]

For instance, for the [removed: years] [added: year] ended December 31, [removed: 2018 and 2017,] [added: 2019,] revenue from our 10 largest end-customers collectively represented approximately [removed: 25% and 24%, respectively,] [added: 27%] of our total [removed: revenue for those years.][added: revenue.]

[removed: _Because] [added: Because] a significant portion of our revenue is derived from customers in the automotive, industrial and communications industries, a downturn or lower sales to customers in either industry could materially adversely affect our business and results of [removed: operations._][added: operations.]

Sales into these industries represented approximately [removed: 31%, 27%,] [added: 33%, 26%,] and [removed: 18%] [added: 19%] of our revenue, respectively, for the year ended December 31, [removed: 2018,] [added: 2019,] and those percentages will vary from quarter to quarter.

[removed: _The] [added: The] semiconductor industry is highly [removed: cyclical,] [added: competitive,] and [removed: significant downturns or upturns in customer demand can] [added: our inability to compete effectively could] materially adversely affect our business and results of [removed: operations._][added: operations.]

[removed: The] [added: Historically, the] semiconductor industry [removed: is] [added: has been] highly cyclical and, as a result, [removed: is] subject to significant downturns and upturns in customer demand for semiconductors and related products.

[removed: _Rapid] [added: Rapid] innovation and short product life cycles in the semiconductor industry can result in price erosion of older products, which may materially adversely affect our business and results of [removed: operations._][added: operations.]

Moreover, [added: in certain limited cases,] we may not be able to cease production of older products, either due to contractual obligations or for customer relationship reasons and, as a result, may be required to bear a loss on such products for a sustained period of time.

[removed: _Shortages] [added: Shortages] or increased prices of raw materials could materially adversely affect our results of [removed: operations._][added: operations.]

[removed: _Many] [added: Many] of our facilities and processes are interdependent and an operational disruption at any particular facility could have a material adverse effect on our ability to produce many of our products, which could materially adversely affect our business and results of [removed: operations._][added: operations.]

For example, our facility in Rožnov pod Radhoštěm, Czech Republic, manufactures silicon wafers used by a number of our facilities, and [removed: our Intelligent Sensing Group] [added: ISG] relies predominantly on one third-party for manufacturing at the front-end of its manufacturing process, and any operational disruption, natural or man-made disaster or other extraordinary event that impacted either of those facilities would have a material adverse effect on our ability to produce a number of our products worldwide.

[removed: _If] [added: If] our technologies are subject to claims of infringement on the IP rights of [removed: third parties,] [added: others,] efforts to address such claims could have a material adverse effect on our results of [removed: operations._][added: operations.]

We may from time to time be subject to claims that we may be infringing [removed: third-party] [added: the] IP [removed: rights.][added: rights of others.]

In the event of an adverse outcome [removed: in] [added: or pursuant to the terms of a settlement of] any such litigation, we may be required to:

[removed: | | • | |] [added: -] pay substantial [removed: damages; |][added: damages or settlement costs;]

[removed: | | • | |] [added: -] indemnify customers or distributors; [removed: |]

[removed: | | • | |] [added: -] cease the manufacture, use, sale or importation of infringing products; [removed: |]

[removed: | | • | |] [added: -] expend significant resources to develop or acquire non-infringing technologies; [removed: |]

[removed: | | • | |] [added: -] discontinue the use of processes; or [removed: |]

[removed: | | • | |] [added: -] obtain licenses, which may not be available on reasonable terms, to the infringing technologies. [removed: |]

Please see Note 13: [removed: “Commitments] [added: ''Commitments] and [removed: Contingencies”] [added: Contingencies''] in the notes to our audited consolidated financial statements included elsewhere in this Form 10-K for a more detailed description of the litigation [removed: and related administrative matters with PI and other legal matters] we are currently engaged in.

[removed: _We] [added: We] may be unable to successfully integrate new strategic acquisitions, which could materially adversely affect our business, results of operations and financial [removed: condition._][added: condition.]

[removed: _We] [added: We] may be unable to maintain manufacturing efficiency, which could have a material adverse effect on our results of [removed: operations._][added: operations.]

[removed: Our manufacturing efficiency is] and will continue to be an important factor in our future profitability, and we cannot assure you that we will be able to maintain our manufacturing efficiency, increase manufacturing efficiency to the same extent as our competitors, or be successful in our manufacturing rationalization plans.

[removed: _The] [added: The] failure to successfully implement cost reduction initiatives, including through restructuring activities, could materially adversely affect our business and results of [removed: operations._][added: operations.]

Because our restructuring activities involve changes to many aspects of our business, [added: including but not limited to] the [added: location of our production facilities and personnel, the] associated cost reductions could materially adversely impact productivity and sales to an extent we have not anticipated.

[removed: _If] [added: If] we are unable to identify and make the substantial research and development investments required to remain competitive in our business, our business, financial condition and results of operations may be materially adversely [removed: affected._][added: affected.]

In addition, the lengthy development cycle for our products limits our ability to adapt quickly to changes affecting the product markets and requirements of our customers and [removed: end-users.][added: end-users, and we may be unable to develop innovative responses to our customers’ and end-users’ evolving needs on the timelines they require or at all.]

To the extent that we underinvest in our research and development efforts, [added: fail to recognize the need for innovation with respect to our products,] or that our investments and capital expenditures in research and development do not lead to sales of new products, we may be unable to bring to market technologies and products that are attractive to our customers, and as a result our business, financial condition and results of operations may be materially adversely affected.

[removed: _We] [added: We] may be unable to develop new products to satisfy changing customer demands or regulatory requirements, which may materially adversely affect our business and results of [removed: operations._][added: operations.]

[removed: _Uncertainties] [added: Uncertainties] regarding the timing and amount of customer orders could lead to excess inventory and write-downs of inventory that could materially adversely affect our financial condition and results of [removed: operations._][added: operations.]

[removed: As] markets level off and supply capacity begins to match actual market demands, we could experience an increased risk of inventory write-downs, which may materially adversely affect our results of operations and our financial condition.

[removed: _If] [added: If] we do not have access to capital on favorable terms, on the timeline we anticipate, or at all, our financial condition and results of operations could be materially adversely [removed: affected._][added: affected.]

[removed: _The] [added: The] semiconductor industry has experienced rapid consolidation and our inability to compete with large competitors or failure to identify attractive opportunities to consolidate may materially adversely affect our [removed: business._][added: business.]

of acquired businesses; competitor actions, including the adverse impact of competitor product announcements; pricing and gross profit pressures; risks associated with the addition of Huawei Technologies Co., Ltd. and its non-U.S. affiliates and subsidiaries, and other customers, to the U.S. Departments of Commerce, Bureau of Industry Security Entity List; loss of key customers; order cancellations or reduced bookings; changes in manufacturing yields; control of costs and expenses and realization of cost savings and synergies from restructurings; the costs to defend against or pursue litigation and the potential significant costs associated with adverse litigation outcomes; risks associated with decisions to expend cash reserves for various uses in accordance with our capital allocation policy such as debt prepayment, stock repurchases or acquisitions rather than to retain such cash for future needs; risks associated with our substantial leverage and restrictive covenants in our debt agreements that may be in place from time to time; risks associated with our worldwide operations, including changes in trade policies, foreign employment and labor matters associated with unions and collective bargaining arrangements, continuing political unrest in markets in which we do significant business, including Hong Kong, as well as man-made and/or natural disasters affecting our operations or financial results; the threat or occurrence of international armed conflict and terrorist activities both in the United States and internationally; risks of changes in U.S. or international tax rates or legislation; risks and costs associated with increased and new regulation of corporate governance and disclosure standards; risks related to new legal requirements; risks related to the potential impact of climate change and regulations related thereto on our operations; and risks and expenses involving environmental or other governmental regulation.

Export restrictions may also include technical discussions with customers that can impede our ability to pursue design-wins with customers and thus may impact future sales.

For example, in May 2019, the U.S. Department of Commerce added Huawei Technologies Co., Ltd. and its non-U.S. affiliates and subsidiaries, and certain other customers, to the U.S. Department of Commerce’s Bureau of Industry and Security’s Entity List, imposing significant restrictions on the export and transfer of U.S. goods and technologies to such entities, and the U.S. may ban the export of U.S. products, goods and technologies to additional foreign customers.

We believe our business today is driven more by secular growth drivers and not solely by macroeconomic and industry cyclicality, as was the case historically.

As experienced in 2019, we could again experience period-to-period fluctuations in operating results due to general industry or economic conditions.

- that we will be able to successfully enforce our IP rights in the U.S. or foreign countries.

Our manufacturing efficiency is

In addition, we continuously monitor productivity and capital expenditures at our facilities in order to make strategic determinations regarding the temporary or permanent shutdown or disposition of facilities to improve our cost structure.

As

Consolidation among our competitors and integration among our customers could erode our market share, negatively impact

For example, as a result of the outbreak of the Coronavirus in the first quarter of 2020, we and/or certain of our third party vendors may experience decreased production in our facilities in China and elsewhere, which may lead to interruptions in our supply chain, delays in delivery of or inability to deliver products on expected timeframes or at all, and/or loss of customers.

The changes arising from the BEPS project, if adopted by countries in which we do business, could increase tax uncertainty and may

adversely affect our provision for income taxes, which could, ultimately, materially adversely affect our financial condition, results of operations and cash flows.

Labor disputes could lead to disruption from time to time in our union and non-union facilities.

Our operations are subject to various environmental, health and safety laws and regulations.

past.

our products to existing and prospective customers and could materially adversely affect our business, results of operations and financial condition.

In addition, among other applicable laws, California adopted significant new consumer privacy laws in June 2018 that became effective on January 1, 2020 and Thailand adopted the Personal Data Protection Act B.E. 2562 in May 2019.

In addition, from time to time our global operations may require importing, exporting or transferring data across international borders in compliance with both U.S. customs and export control regulations, including the Export Administration Regulations and the International Traffic in Arms Regulations.

Expectations of the Company relating to environmental, social and governance factors may impose additional costs and expose us to new risks.

There is an increasing focus from certain investors, employees and other stakeholders concerning corporate social responsibility ("CSR"), specifically related to environmental, social and governance factors.

Some investors may use these factors to guide their investment strategies and, in some cases, may choose not to invest in us if they believe our policies relating to CSR are inadequate.

Third-party providers of CSR ratings and reports on companies have increased to meet growing investor demand for measurement of CSR performance.

In addition, the criteria by which companies’ CSR practices are assessed may change, which could result in greater expectations of us and cause us to undertake costly initiatives to satisfy such new criteria.

Alternatively, if we elect not to or are unable to satisfy such new criteria, investors may conclude that our policies with respect to CSR are inadequate.

We may face reputational damage in the event that our CSR procedures or standards do not meet the standards set by various constituencies.

Furthermore, if our competitors’ CSR performance is perceived to be greater than ours, potential or current investors may elect to invest with our competitors instead.

In addition, in the event that we communicate certain initiatives and goals regarding environmental, social and governance matters, we could fail, or be perceived to fail, in our achievement of such initiatives or goals, or we could be criticized for the scope of such initiatives or goals.

If we fail to satisfy the expectations of investors, employees and other stakeholders or our initiatives are not executed as planned, our reputation and financial results could be materially and adversely affected.

Climate change, and the regulatory and legislative developments related to climate change, may materially adversely affect our business and financial condition.

The potential physical impacts of climate change on our operations are highly uncertain and would be particular to the geographic circumstances in areas in which we operate.

These may include changes in rainfall and storm patterns and intensities, water shortages, changing sea levels and changing temperatures.

The impacts of climate change may materially and adversely impact the cost, production and financial performance of our operations.

Further, any impacts to our business and financial condition as a result of climate change are likely to occur over a sustained period of time and are therefore difficult to quantify with any degree of specificity.

For example, extreme weather events may result in adverse physical effects on portions of our infrastructure, which could disrupt our supply chain and ultimately our business operations.

In addition, disruption of transportation and distribution systems could result in reduced operational efficiency and customer service interruption.

Climate-related events have the potential to disrupt our business, including the business of our customers, and may cause us to experience higher attrition, losses and additional costs to resume operations.

A number of governments or governmental bodies have introduced or are contemplating legislative and regulatory changes in response to various climate change interest groups and the potential impact of climate change.

Legislation and increased regulation regarding climate change could impose significant costs on us and our suppliers, including costs related to increased energy requirements, capital equipment, environmental monitoring and reporting, and other costs to comply with such regulations.

Any future climate change regulations could also negatively impact our ability to compete with companies situated in areas not subject to such limitations.

Additional factors that could affect our future results or events are described from time to time in our SEC reports.

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There are several civil litigation proceedings with Power Integrations, Inc. (“PI”), many of which were pending prior to the Fairchild Transaction, and there are also over two dozen outstanding administrative proceedings between the parties at the United States Patent and Trademark Office (the “USPTO”) in which each party is challenging the validity of the other party’s patents.

_The semiconductor industry is highly competitive, and our inability to compete effectively could materially adversely affect our business and results of operations._

_Our global operations subject us to risks inherent in doing business on a global level that could adversely impact our business, financial condition and results of operations._

A significant amount of our total revenue is derived from the Asia/Pacific region and Europe, and we maintain significant operations in these regions.

In addition, we rely on a number of contract manufacturers whose operations are primarily located in the Asia/Pacific region.

Risks inherent in doing business on a global level include, among others, the following:

| | • | | economic and geopolitical instability (including as a result of the threat or occurrence of armed international conflict or terrorist attacks); |

| | • | | changes in regulatory requirements, international trade agreements, tariffs, customs, duties and other trade barriers; |

| | • | | licensing requirements for the import or export of certain products; |

| | • | | exposure to different legal standards, customs, business practices, tariffs, duties and other trade barriers, including changes with respect to price protection, competition practices, IP, anti-corruption and environmental compliance, trade and travel restrictions, pandemics, import and export license requirements and restrictions, and accounts receivable collections; |

| | • | | transportation and other supply chain delays and disruptions; |

| | • | | power supply shortages and shutdowns; |

| | • | | difficulties in staffing and managing foreign operations, including collective bargaining agreements and workers councils, exposure to foreign labor laws and other employment and labor issues; |

| | • | | currency fluctuations; |

| | • | | currency convertibility and repatriation; |

| | • | | taxation of our earnings and the earnings of our personnel; |

| | • | | limitations on the repatriation of earnings and potential additional taxation of foreign profits in the U.S.; |

| | • | | potential violations by our international employees or third-party agents of international or U.S. laws relevant to foreign operations (e.g., the Foreign Corrupt Practices Act (“FCPA”)); |

| | • | | difficulty in enforcing intellectual property rights; and |

| | • | | other risks relating to the administration of or changes in, or new interpretations of, the laws, regulations and policies of the jurisdictions in which we conduct our business. |

We cannot assure you that we will be successful in overcoming the risks that relate to or arise from operating in international markets, the materialization of any of which could materially adversely affect our business, financial condition and results of operations.

These changes, if adopted by countries, could increase tax uncertainty and may adversely affect our provision for income taxes.

For example, the U.S. Department of Commerce could ban the export of U.S. products to foreign customers.

Currently, certain of our U.S. employees in Pennsylvania are represented by labor unions.

In addition, we may from time to time experience union organizing activities in our non-union facilities.

*You should read the following discussion in conjunction with our audited historical consolidated financial statements, including the notes thereto, which are included elsewhere in this Form 10-K.

Management's Discussion and Analysis of Financial Condition and Results of Operations contains statements that are forward-looking.

These statements are based on current expectations and assumptions that are subject to risk, uncertainties, and other factors.

Actual results could differ materially because of the factors discussed in "Risk Factors" included elsewhere in this Form 10-K.*

Executive Overview

This executive overview presents summarized information regarding our industry, markets, business, and operating trends only.

For further information relating to the information summarized herein, see "Management's Discussion and Analysis of Financial Condition and Results of Operations" in its entirety.

*Industry Overview*

According to WSTS (an industry research firm), worldwide semiconductor industry sales were $412.1 billion in 2019, a decrease of approximately 12.1% from $468.8 billion in 2018.

We participate in unit and revenue surveys and use data summarized by WSTS to evaluate overall semiconductor market trends and to track our progress against the market in the areas we provide semiconductor components.

The following table sets forth total worldwide semiconductor industry revenue since 2015:

| | | | | | | | | | | | | | | | | | | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| Year Ended December 31, | | | | | | Worldwide Semiconductor Industry Sales (1) | | | | | | Percentage Change | | | | | | | | | | | | | | |

| | | | | | | (in billions) | | | | | | | | | | | | | | | | | | | | |

| 2019 | | | | | | $412.1 | | | | | | (12.1)% | | | | | | | | | | | | | | |

| 2018 | | | | | | $468.8 | | | | | | 13.7% | | | | | | | | | | | | | | |

| 2017 | | | | | | $412.2 | | | | | | 21.6% | | | | | | | | | | | | | | |

| 2016 | | | | | | $338.9 | | | | | | 1.1% | | | | | | | | | | | | | | |

| 2015 | | | | | | $335.2 | | | | | | (0.2)% | | | | | | | | | | | | | | |

_______________________

(1)Based on shipment information published by WSTS.

We believe the data provided by WSTS is reliable, but we have not independently verified it.

WSTS periodically revises its information.

We assume no obligation to update such information.

As indicated above, worldwide semiconductor sales increased from $335.2 billion in 2015 to $412.1 billion in 2019.

The decrease of 12.1% from 2018 to 2019 was the result of decreased demand for semiconductor products.

Our revenue decreased by $360.4 million, or 6.1%, from 2018 to 2019.

ON Semiconductor Overview

Our new product development efforts continue to be focused on building solutions in product areas that appeal to customers in focused market segments and across multiple high-growth applications.

We collaborate with our customers to identify desired innovations in electronic systems in each end-market that we serve.

This enables us to participate in the fastest growing sectors of the market.

We also innovate in advanced packaging technologies to support ongoing size reduction in electronic systems and in advanced thermal packaging to support high performance power conversion applications.

It is our practice to regularly re-evaluate our research and development spending, to assess the deployment of resources and to review the funding of high-growth technologies.

We deploy people and capital with the goal of maximizing our investment in research and development in order to facilitate continued growth by targeting innovative products and solutions for high growth applications that position us to outperform the industry.

Our design expertise in analog, digital, mixed signal and imaging ICs, combined with our extensive portfolio of standard products enable the company to offer comprehensive, value-added solutions to our global customers for their electronics systems.

We believe that some of the key factors and trends affecting our current and future results of operations include, but not limited to:

- Macroeconomic conditions affecting the semiconductor industry;

- The cyclicality and seasonality of the semiconductor industry;

- The global economic climate;

As of December 31, [removed: 2018,] [added: 2019,] our long-term debt (including current maturities) totaled [removed: $2,939.0] [added: $3,749.2] million.

We have no interest rate exposure to rate changes on our fixed rate debt, which totaled [removed: $2,295.4] [added: $2,265.1] million.

We do have interest rate exposure with respect to the [removed: $643.6] [added: $1,484.1] million balance of our variable interest rate debt outstanding as of December 31, [removed: 2018.][added: 2019.]

A 50 basis point increase in interest rates would impact our expected annual interest expense for the next 12 months by approximately [removed: $3.2] [added: $7.4] million.

However, some of this impact would be offset by additional interest earned on our cash and cash equivalents should rates on [removed: deposits and investments also increase.]

We entered into interest rate swaps to hedge some of the risk of variability in cash flows resulting from future interest payments on our variable interest rate [removed: debt under the Term Loan “B” Facility.][added: debt.]

We are subject to risks associated with transactions that are denominated in currencies other than our functional currencies, as well as the effects of translating amounts denominated in a foreign currency to the [removed: United States] [added: U.S.] Dollar as a normal part of the reporting process.

The notional amount of foreign [removed: currency] [added: exchange] contracts at December 31, [removed: 2018] [added: 2019] and [removed: 2017] [added: 2018] was [removed: $157.3] [added: $183.3] million and [removed: $130.5] [added: $157.3] million, respectively.

However, a significant amount of our operating expenditures and capital purchases are transacted in local currencies, including Japanese Yen, Euros, Korean Won, Malaysian Ringgit, [removed: Philippines] [added: Philippine] Peso, Singapore Dollars, Swiss Francs, Chinese Renminbi, and Czech Koruna.

For example, we determined that based on a hypothetical weighted-average change of 10% in currency exchange rates, our results would have impacted our income before taxes by approximately [removed: $102.9] [added: $105.7] million for the year ended December 31, [removed: 2018,] [added: 2019,] assuming no [removed: inter-relationship between the currencies.][added: offsetting hedge position or correlated activities.]

See Note 15: [removed: “Financial Instruments”] [added: ''Financial Instruments''] in the notes to the audited consolidated financial statements included elsewhere in this Form 10-K for further information with respect to our hedging activity.

deposits and investments also increase.

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ON Semiconductor Corporation, together with its [added: wholly and majority-owned] subsidiaries [removed: (“we,” “us,” “our,” “ON Semiconductor,”] [added: ("ON Semiconductor, "we," "us," "our,"] or the [removed: “Company”),] [added: "Company"),] was incorporated under the laws of the state of Delaware in 1992 under the name Motorola Energy Systems, Inc. Immediately prior to our August 4, 1999 recapitalization, we were a wholly-owned subsidiary of [removed: Motorola, Inc.][added: Motorola.]

Our devices are found in a wide variety of end products, including automobiles, smartphones, data center and enterprise servers, wearable medical devices, [removed: personal computers,] [added: PCs,] industrial building and home automation systems, factory automation, consumer white goods, security and surveillance systems, machine vision and robotics, LED lighting, power supplies, networking and telecom equipment, medical diagnostics, [removed: imaging] [added: imaging, wireless routers] and hearing health.

As of December 31, [removed: 2018,] [added: 2019,] we were organized into the following three operating and [removed: reporting] [added: reportable] segments: the Power Solutions [removed: Group,] [added: Group ("PSG"),] the [removed: Analog] [added: Advanced] Solutions Group [added: ("ASG")] and the Intelligent Sensing [removed: Group.][added: Group ("ISG").]

[removed: During 2018, we] [added: We] changed the name of [removed: one of] our [removed: operating] [added: Analog Solutions Group to the Advanced Solutions Group] and [removed: reporting segments from] the [added: name of our] Image Sensor Group to the Intelligent Sensing [removed: Group.][added: Group in December 2019 and December 2018, respectively.]

| Analog products | | [added: | | | |] Analog products | | [added: | | | |] LSI products | [added: | | | | |]

| Discrete products | | [added: | | | |] ASIC products | | [added: | | | |] Sensors | [added: | | | | |]

| [removed: HD] [added: IPM] products | | [added: | | | |] ECL products | | | [added: | | | | | | | | |]

| [removed: IPM] [added: Isolation] products | | [added: | | | |] Foundry products / services | | | [added: | | | | | | | | |]

| Memory products | | [added: | | | |] LSI products | | | [added: | | | | | | | | |]

| PIM products | | [added: | | | |] Standard logic products | | | [added: | | | | | | | | |]

| Standard logic products | | | | | [added: | | | | | | | | | | | | |]

| WBG products | | | | | [added: | | | | | | | | | | | | |]

We also have foreign design operations in [added: Australia,] Belgium, Canada, China, the Czech Republic, France, Germany, India, Ireland, Israel, Italy, Japan, [added: South] Korea, [added: the] Philippines, Romania, [added: Russia,] Singapore, [removed: Slovakia,] [added: Slovak Republic,] Slovenia, Switzerland, Taiwan and the United Kingdom.

Additionally, we currently operate domestic manufacturing facilities in Idaho, Maine, Pennsylvania, New York and Oregon and have foreign manufacturing facilities in Belgium, Canada, China, the Czech Republic, Japan, [added: South] Korea, Malaysia, the Philippines and Vietnam.

[removed: _Company] [added: Company] Highlights for the year ended December 31, [removed: 2018_][added: 2019]

[removed: | | • | |] [added: -] Total revenue of [removed: $5,878.3] [added: $5,517.9] million [removed: |]

[removed: | | • | |] [added: -] Gross margin of [removed: 38.1% |][added: 35.8%]

[removed: | | • | |] [added: -] Net income of [removed: $1.44] [added: $0.51] per diluted share [removed: |]

[removed: | | • | |] [added: -] Cash and cash equivalents of [removed: $1,069.6] [added: $894.2] million [removed: |]

[removed: _Completed Acquisitions_][added: Completed Acquisitions]

On May 8, 2018, we acquired 100% of the outstanding shares of SensL, a company specializing in [removed: silicon photomultipliers, single photon avalanche diode] [added: SiPM, SPAD] and LiDAR sensing products for the automotive, medical, industrial and consumer [removed: markets] [added: markets,] for $71.6 million, funded with cash on hand.

On [removed: September] [added: June] 19, [removed: 2016,] [added: 2019,] we completed our acquisition of [removed: Fairchild] [added: Quantenna] pursuant to the [added: definitive] Agreement and Plan of Merger with each of [removed: Fairchild] [added: Quantenna] and [removed: Falcon] [added: Raptor] Operations Sub, Inc., [removed: a Delaware corporation and] our wholly-owned [removed: subsidiary, pursuant to] [added: subsidiary (“Raptor”),] which [removed: Fairchild became] [added: provided for the merger of Quantenna with Raptor, whereby Quantenna continued as the surviving corporation and] our wholly-owned [removed: subsidiary (the “Fairchild Transaction”).][added: subsidiary.]

See Note 5: [removed: “Acquisitions,] [added: ''Acquisitions,] Divestitures and Licensing [removed: Transactions”] [added: Transactions''] in the notes to our audited consolidated financial statements included elsewhere in this Form 10-K for additional information.

See [removed: “Business Overview”] [added: "Business Overview"] above and Note 3: [removed: “Revenue] [added: ''Revenue] and Segment [removed: Information”] [added: Information''] in the notes to our audited consolidated financial statements included elsewhere in this Form 10-K for other information regarding our segments and their revenue and property, plant and equipment and the income derived from each segment.

[removed: The Power Solutions Group] [added: PSG] offers a wide array of [added: analog,] discrete, module and integrated semiconductor products that perform multiple application functions, including power switching, power conversion, signal conditioning, circuit protection, signal amplification and voltage [removed: reference] [added: regulation] functions.

Certain of [removed: the Power Solutions Group’s] [added: PSG's] broad portfolio of products and solutions are summarized below:

[removed: | | • | | _Automotive Electronics_ |][added: *•Automotive Electronics*]

[removed: | | • | | _Industrial Electronics_ |][added: *•Industrial Electronics*]

[removed: | | • | | _Computing_ |][added: *•Computing*]

[added: SiC and] GaN technology enables drastic reduction in power adaptor size.

[removed: | | • | | _Communications_ |][added: *•Communications*]

Low capacitance ESD and common mode filters for [removed: high speed] [added: high-speed] serial interface protection.

[removed: The Analog Solutions Group] [added: ASG] designs and develops analog, [removed: mixed-signal and] [added: mixed-signal,] advanced [removed: logic ASICs] [added: logic, ASSPs] and [removed: ASSPs,] [added: ASICs, WiFi] and power solutions for a broad base of end-users in the automotive, consumer, computing, industrial, communications, medical and aerospace/defense markets.

Additionally, [removed: the Analog Solutions Group] [added: ASG] offers trusted foundry and design services for [removed: certain of] our government customers as well as manufacturing [removed: services and IPD products technology,] [added: services,] which leverage the Company’s broad range of manufacturing, IC design, packaging, and silicon technology offerings to provide turn-key solutions for our customers.

Certain of [removed: the Analog Solutions Group’s] [added: ASG’s] broad portfolio of products and solutions are summarized below:

[removed: | | _•_ | | _Automotive Electronics_ |][added: *•Automotive Electronics*]

[removed: | | _•_ | | _Industrial Electronics_ |][added: *•Industrial Electronics*]

[removed: Power efficient communication and] [added: Efficient power conversion products,] sensor interface products and motor control products.

[removed: Residential and] [added: Residential,] commercial [removed: grade] [added: and industrial-grade] circuit breaking products for GFCI [removed: &] [added: and] AFCI applications.

Solutions for a wide range of voltage and current options ranging from multi-phase [removed: 30 volt] power [added: conversion] for VCORE processors, power stage and [removed: single cell battery] point of load.

Our high performance Wi-Fi solution creates a strong platform for addressing connectivity solutions for industrial IoT.

We shipped approximately 66.2 billion units in 2019, and approximately 75.7 billion units in 2018.

| | | | | | | | | | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| PSG | | | | | | ASG | | | | | | ISG | | | | | |

| HD products | | | | | | Connectivity products | | | | | | | | | | | |

| MOSFET products | | | | | | Gate Driver products | | | | | | | | | | | |

| Sensors | | | | | | | | | | | | | | | | | |

- Acquired Quantenna Communications, Inc. ("Quantenna") for $1,039.3 million

- Settled litigation with Power Integrations, Inc. ("PI")

Following the acquisition, Quantenna changed its name to ON Semiconductor Connectivity Solutions, Inc. The purchase price totaled $1,039.3 million, of which $1,026.6 million was paid in cash during the year ended December 31, 2019, with the proceeds from a $900.0 million draw against our Revolving Credit Facility and cash on hand.

We believe the acquisition of Quantenna creates a strong platform for addressing connectivity solutions for industrial IoT by combining our expertise in power management and bluetooth technologies with Quantenna's Wi-Fi technologies and software capabilities.

PSG

The recent increase in the use of WBG MOSFETs and diodes, including SiC and GaN, is further expanding the use of semiconductor products.

New semiconductor products based upon WBG technologies, including SiC, are rapidly being adopted for EV/HEV traction and charging applications due to the higher efficiencies, they provide.

ASG

Multi-phase DC-DC power conversion for compute-intensive solutions for assisted and autonomous driving is also a focus area.

*•Computing*

*•Communications*

maximize the performance of their products while preserving critical battery life.

ISG

Although payment terms may vary, most distributor agreements require payment within 30 days.

With respect to public sector clients, the government’s remedies may include suspension or debarment from future government business.

In addition, almost all of our contracts have default provisions, and certain of our contracts in the public sector are terminable at any time for convenience of the contracting agency.

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| Approximate percentage of 2019 Revenue | | | 33% | | | 26% | | | 19% | | | 11% | | | 11% | | | | | | | | |

| | | | | | | | | | | | | | | | | | | | | | | | |

| | | | | | | AR/VR | | | | | | Routers/Modems | | | | | | | | | | | |

| | | | | | | | | | | | | | | | | | | | | | | | |

Distributors Sales to distributors accounted for approximately 57% of our revenue in 2019 and 60% of our revenue in each of 2018 and 2017.

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| Gresham, Oregon | | | | | | ASG, ISG and PSG | | | | | | 558,457 | | |

| Pocatello, Idaho | | | | | | ASG, ISG and PSG | | | | | | 582,384 | | |

| Oudenaarde, Belgium (5) | | | | | | ASG, ISG and PSG | | | | | | 422,605 | | |

| Niigata, Japan | | | | | | ASG, ISG and PSG | | | | | | 1,106,779 | | |

| | | | | | | | | | | | | | | |

| Carmona, Philippines (3) | | | | | | ASG, ISG and PSG | | | | | | 926,367 | | |

We shipped approximately 75.7 billion units in 2018, as compared to 72.8 billion units in 2017.

##### [Table of Contents](#toc)

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| --- | --- | --- | --- | --- |

| Power Solutions Group | | Analog Solutions Group | | Intelligent Sensing Group |

| Sensors | | TMOS products | | |

| TMOS products | | | | |

| --- | --- | --- | --- |

The aggregate purchase price of the Fairchild Transaction was approximately $2,532.2 million and was funded with cash on hand and by borrowings under a Credit Agreement, dated as of April 15, 2016, by and among the Company, as borrower, the several lenders party thereto, Deutsche Bank AG, New York Branch , as administrative agent and collateral agent, and certain other parties (as subsequently amended, the “Amended Credit Agreement”) which, as subsequently amended, provides for a $1.0 billion revolving credit facility (the “Revolving Credit Facility”) and a $2.4 billion term loan “B” facility (the “Term Loan “B” Facility”).

_Power Solutions Group_

_Analog Solutions Group_

_Intelligent Sensing Group_

We allocate the transaction price to each distinct product based on its relative stand-alone selling price.

| | | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| Approximate percentage of 2018 Revenue | | 31% | | 27% | | 18% | | 13% | | 11% |

| | | AI | | AR/VR | | | | Robotics | | |

| | | | | AI | | | | | | |

_Distributors_ Sales to distributors accounted for approximately 60% of our revenue in 2018, 60% of our revenue in 2017 and 56% of our revenue in 2016, the 2017 increase being attributed to our acquisition of Fairchild, which had a greater distribution mix than our historical business.

We developed our new internal processes and systems which enabled us to reliably estimate upfront the effects of returns and allowances and thus began recognizing revenue at the time of sales to the distributors beginning in the first quarter of 2017.

Prior to 2017, for products sold to distributors who are entitled to returns and allowances (generally referred to as “ship and credit rights”), we recognized related revenue and cost of revenue when we were informed by the distributors that they had resold the products to the end-user.

Originally, these companies were involved primarily in the assembly of printed circuit boards, but they now typically provide design, supply management and manufacturing solutions as well.

We are pursuing a number of strategies to penetrate this increasingly important marketplace.

| Gresham, Oregon | | Analog Solutions Group, Intelligent Sensing Group and Power Solutions Group | | 558,457 |

| Pocatello, Idaho | | Analog Solutions Group, Intelligent Sensing Group and Power Solutions Group | | 582,384 |

| Oudenaarde, Belgium | | Analog Solutions Group, Intelligent Sensing Group and Power Solutions Group | | 422,605 |

| Niigata, Japan | | Analog Solutions Group, Intelligent Sensing Group and Power Solutions Group | | 1,106,779 |

| Carmona, Philippines (3) | | Analog Solutions Group, Intelligent Sensing Group and Power Solutions Group | | 926,367 |

| Shenzhen, China (1) | | Analog Solutions Group, Intelligent Sensing Group and Power Solutions Group | | 275,463 |

The semiconductor industry, particularly the market for general-purpose semiconductor products like ours, is highly competitive.

Research and Development

Research and development costs in 2018, 2017 and 2016 were $650.7 million, $594.7 million and $446.8 million, respectively, representing 11% of revenue for each of those years.

We seek to maximize the investment of our people and capital in research and development by targeting innovative products and solutions for high growth applications that position the Company to outperform the industry.

Our design expertise in analog, digital, mixed signal and imaging ICs, combined with our extensive portfolio of standard products, enable the company to offer comprehensive, value added solutions to our global customers for their electronics systems.

Our headquarters in Phoenix, Arizona are located on property that is a “Superfund” site, which is a property listed on the National Priorities List and subject to clean-up activities under the Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”).

Motorola and Freescale (acquired by NXP Semiconductors N.V.) have been involved in the cleanup of on-site solvent-contaminated soil and groundwater and off-site contaminated groundwater pursuant to consent decrees with the State of Arizona.

As part of our separation from Motorola in 1999, Motorola retained responsibility for this contamination, and Motorola and Freescale have agreed to indemnify us with respect to remediation costs and other costs or liabilities related to this matter.

Our former front-end manufacturing location in Aizu, Japan is located on property where soil and ground water contamination was detected.

We believe that the contamination originally occurred during a time when the facility was operated by a prior owner.

We worked with local authorities to implement a remediation plan and have completed remediation construction.

See Note 13: [removed: “Commitments] [added: ''Commitments] and [removed: Contingencies”] [added: Contingencies''] under the heading “Legal Matters” in the notes to our audited consolidated financial statements included elsewhere in this Form 10-K for a description of legal proceedings and related matters.

| [removed: |] ☒ | [added: | |] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | [added: | |]

For the fiscal year ended December 31, [removed: 2018][added: 2019]

| [removed: |] ☐ | [added: | |] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | [added: | |]

| Delaware | | [added: | | | |] 36-3840979 | [added: | |]

| (State or other jurisdiction [removed: of incorporation] [added: of incorporation] or organization) | | [added: | | | |] (I.R.S. [removed: Employer Identification] [added: Employer Identification] No.) | [added: | |]

| Securities Registered Pursuant to Section 12(b) of the Act: | | | | | [added: | | | | | | | | | |]

| [removed: Title] [added: Title] of [removed: Each Class] [added: each class] | | | [added: Trading Symbol(s)] | [removed: Name] [added: | | Name] of [removed: Each Exchange] [added: each exchange] on [removed: Which Registered] [added: which registered] | [added: | | | | | | | |]

| Common Stock, par value $0.01 per share | | | [added: ON] | [added: | |] The Nasdaq Stock Market LLC | [added: | | | | | | | |]

| Large accelerated filer [removed: ☒] | | | [added: ☒] | [added: | |] Accelerated filer [added: | | |] ☐ | [added: | |]

| Non-accelerated filer [removed: ☐] | | | [added: ☐] | [added: | |] Smaller reporting company [added: | | |] ☐ | [added: | |]

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant was [removed: $9,369,083,794] [added: $8,172,927,739] as of June [removed: 29, 2018,] [added: 28, 2019,] based on the closing sales price of such stock on the Nasdaq Global Select Market.

The number of shares of the [removed: registrant’s] [added: registrant's] common stock outstanding at February [removed: 15, 2019] [added: 13, 2020] was [removed: 409,710,366.][added: 411,065,636.]

Portions of the [removed: registrant’s] [added: registrant's] Definitive Proxy Statement relating to its [removed: 2019] [added: 2020] Annual Meeting of Stockholders, which is expected to be filed pursuant to Regulation 14A within 120 days after the [removed: registrant’s] [added: registrant's] fiscal year ended December 31, [removed: 2018,] [added: 2019,] are incorporated by reference into Part III of this Form 10-K.

ON SEMICONDUCTOR [removed: CORPORATION AND SUBSIDIARIES][added: CORPORATION]

| | | [added: |] Part I | | | | | [added: | | | |]

| [removed: _Item 1._] [added: *Item 1.*] | | [removed: [Business](#tx664850_1)] | [added: Business] | | [removed: 5] | [added: [5](#i_0_16)] | [added: | | | | |]

| | | [removed: [Business Overview](#tx664850_2)] | [added: Business Overview] | | [removed: 5] | [added: [5](#i_0_19)] | [added: | | | | |]

| | | [removed: [Products] [added: | Products] and [removed: Technology](#tx664850_3)] [added: Technology] | | | [removed: 7] [added: [6](#i_0_22)] | | [added: | | | |]

| | | [removed: [Customers](#tx664850_4)] | [added: Customers] | | [removed: 9] | [added: [8](#i_0_25)] | [added: | | | | |]

| | | [removed: [End-Markets] [added: | End-Markets] for Our [removed: Products](#tx664850_5)] [added: Products] | | | [removed: 10] [added: [9](#i_0_28)] | | [added: | | | |]

| | | [removed: [Manufacturing Operations](#tx664850_6)] | [added: Manufacturing Operations] | | [removed: 11] | [added: [9](#i_0_31)] | [added: | | | | |]

| | | [removed: [Raw Materials](#tx664850_7)] | [added: Raw Materials] | | [removed: 13] | [added: [11](#i_0_34)] | [added: | | | | |]

| | | [removed: [Sales,] [added: | Sales,] Marketing and [removed: Distribution](#tx664850_8)] [added: Distribution] | | | [removed: 14] [added: [11](#i_0_37)] | | [added: | | | |]

| | | [removed: [Patents,] [added: | Patents,] Trademarks, Copyrights and Other Intellectual Property [removed: Rights](#tx664850_9)] [added: Rights] | | | [removed: 14] [added: [11](#i_0_40)] | | [added: | | | |]

| | | [removed: [Seasonality](#tx664850_10)] | [added: Seasonality] | | [removed: 14] | [added: [11](#i_0_43)] | [added: | | | | |]

| | | [removed: [Backlog] [added: | Backlog] and [removed: Inventory](#tx664850_11)] [added: Inventory] | | | [removed: 14] [added: [12](#i_0_46)] | | [added: | | | |]

| | | [removed: [Competition](#tx664850_12)] | [added: Competition] | | [removed: 15] | [added: [12](#i_0_49)] | [added: | | | | |]

| [added: IPRD] | | [removed: [Research and Development](#tx664850_13)] | | | [removed: 16] | [added: In-process research and development] | [added: | |]

| | | [removed: [Government Regulation](#tx664850_14)] | [added: Government Regulation] | | [removed: 16] | [added: [13](#i_0_55)] | [added: | | | | |]

| | | [removed: [Employees](#tx664850_15)] | [added: Employees] | | [removed: 18] | [added: [13](#i_0_58)] | [added: | | | | |]

| | | [removed: [Executive] [added: | Executive] Officers of the [removed: Registrant](#tx664850_16)] [added: Registrant] | | | [removed: 18] [added: [14](#i_0_61)] | | [added: | | | |]

| | | [removed: [Geographical Information](#tx664850_17)] | [added: Geographical Information] | | [removed: 21] | [added: [16](#i_0_64)] | [added: | | | | |]

| | | [removed: [Available Information](#tx664850_18)] | [added: Available Information] | | [removed: 21] | [added: [16](#i_0_67)] | [added: | | | | |]

| [removed: _Item 1A._] [added: *Item 1A.*] | | [removed: [Risk Factors](#tx664850_19)] | [added: Risk Factors] | | [removed: 22] | [added: [16](#i_0_70)] | [added: | | | | |]

| [removed: _Item 1B._] [added: *Item 1B.*] | | [removed: [Unresolved] [added: | Unresolved] Staff [removed: Comments](#tx664850_20)] [added: Comments] | | | [removed: 47] [added: [35](#i_0_73)] | | [added: | | | |]

| [removed: _Item 2._] [added: *Item 2.*] | | [removed: [Properties](#tx664850_21)] | [added: Properties] | | [removed: 48] | [added: [35](#i_0_76)] | [added: | | | | |]

| [removed: _Item 3._] [added: *Item 3.*] | | [removed: [Legal Proceedings](#tx664850_22)] | [added: Legal Proceedings] | | [removed: 48] | [added: [36](#i_0_79)] | [added: | | | | |]

| [removed: _Item 4._] [added: *Item 4.*] | | [removed: [Mine] [added: | Mine] Safety [removed: Disclosures](#tx664850_23)] [added: Disclosures] | | | [removed: 48] [added: [36](#i_0_82)] | | [added: | | | |]

| | | [added: |] Part II | | | | | [added: | | | |]

| [removed: _Item 5._] [added: *Item 5.*] | | [removed: [Market] [added: | Market] for [removed: Registrant’s] [added: Registrant's] Common Equity, Related Stockholder Matters and Issuer Purchases of Equity [removed: Securities](#tx664850_24)] [added: Securities] | | | [removed: 49] [added: [36](#i_0_88)] | | [added: | | | |]

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| Signatures | | | | | | | | | [68](#i_0_163) | | |

ON SEMICONDUCTOR CORPORATION

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| AP/Gateway | | | | | | Access Point/Gateway | | |

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| EPA | | | | | | Environmental Protection Agency | | |

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| ODM | | | | | | Original device manufacturers | | |

| PRP | | | | | | Potentially Responsible Party | | |

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| Wi-Fi | | | | | | Wireless radio technologies compliant with Institute of Electrical and Electronics Engineers Standard 802.11b and commonly used in wireless local area networking devices | | |

10-K 1 d664850d10k.htm 10-K

##### [Table of Contents](#toc)

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| | | | | (Nasdaq Global Select Market) |

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.

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| [Signatures](#tx664850_39) | | | | | 93 | |

| AI | | Artificial intelligence |

| EE | | Electrically erasable |

| IPRD | | In-process research and development |

| SANYO Electric | | SANYO Electric Co., Ltd. |

| TMOS | | T-metal oxide semiconductor |

| VREG | | Voltage regulator |

##### [Table of Contents](#toc)

The size [removed: and/or] [added: and] location of these [removed: properties] [added: properties, which are used by all of our reportable segments,] change from time to time based on business requirements.

See [removed: “Business - Manufacturing Operations”] [added: "Business—Manufacturing Operations"] included elsewhere in this Form 10-K for information on properties used in our manufacturing operations.

Additionally, we own [added: and lease] research and development facilities located in [added: Australia,] Belgium, Canada, China, the Czech Republic, France, Germany, Hong Kong, India, Japan, Singapore, South Korea, Romania, [added: Russia,] the Slovak Republic, Switzerland, [removed: Taiwan] [added: Taiwan, the United Kingdom] and the United States.

See Note 9: [removed: “Long-Term Debt”] [added: ''Long-Term Debt''] in the notes to our audited consolidated financial statements included elsewhere in this Form 10-K for further information.

See [removed: “Business - Manufacturing Operations”] [added: “Business—Manufacturing Operations"] and [removed: “Sales,] [added: "Sales,] Marketing and Distribution” included elsewhere in this Form 10-K for [removed: further details on our properties and “Business-Governmental Regulation” for further details on environmental regulation of our properties.]

further details on our properties and "Business-Governmental Regulation" for further details on environmental regulation of our properties.

##### [Table of Contents](#toc)

As of February [removed: 15, 2019,] [added: 13, 2020,] there were approximately [removed: 233] [added: 222] holders of record of our common stock and [removed: 409,710,366] [added: 411,065,636] shares of common stock outstanding.

Our outstanding debt facilities may limit the amount of dividends we are permitted to pay and the amount we are permitted to buy back shares under the [added: 2018] Share Repurchase [removed: Programs] [added: Program] (as defined below).

So long as no default has occurred and is continuing or results therefrom, our Amended Credit Agreement permits us to pay cash dividends to our common stockholders, buy back shares under the [added: 2018] Share Repurchase [removed: Programs,] [added: Program,] or a combination thereof, in an amount up to $100.0 million.

Additionally, we may pay dividends and buy back shares under the [added: 2018] Share Repurchase [removed: Programs] [added: Program] in an unlimited amount so long as, after giving effect thereto, the consolidated total net leverage ratio (calculated in accordance with our Amended Credit Agreement) does not exceed 2.50 to 1.00.

See Note 9: [removed: “Long-Term Debt”] [added: ''Long-Term Debt''] in the notes to the audited consolidated financial statements included elsewhere in this Form 10-K for further discussion of our Amended Credit Agreement.

The following table provides information regarding repurchases of our common stock during the quarter ended December 31, [removed: 2018:][added: 2019:]

| [removed: Period (1)] [added: Period (1)] | | [added: | | | |] Total Number of Shares Purchased (2) | | | | [added: | |] Average Price Paid per [removed: Share (3)] [added: Share (3)] | | | | [added: | |] Total Number of Shares Purchased as part of Publicly Announced Plans or Programs | | | | [added: | |] Approximate dollar value of Shares that may yet be Purchased under the Plans or Programs ($ in [removed: millions) (4) (5)] [added: millions)(4)] | | |

[removed: |] (1) [removed: |] These time periods represent our fiscal month start and end dates for the fourth quarter of [removed: 2018. |][added: 2019.]

[removed: |] (2) [removed: |] The number of shares purchased represents shares of common stock held by employees who tendered owned shares of common stock to the Company to satisfy the employee withholding taxes due upon the vesting of [removed: RSUs and shares purchased under the Share Repurchase Programs. |][added: RSUs.]

[removed: |] (3) [removed: |] The price per share is based on the fair market value at the time of tender or repurchase, respectively. [removed: |]

[removed: |] (4) [removed: |] On [removed: December 1, 2014,] [added: November 15, 2018,] we announced a [removed: capital allocation policy (the “Capital Allocation Policy”) and a] [added: new] share repurchase program pursuant to the Capital Allocation Policy (the [removed: “2014] [added: “2018] Share Repurchase [removed: Program”)] [added: Program”] for up to [removed: $1.0] [added: $1.5] billion of our common [removed: stock over a four-year period] [added: stock,] effective [added: from] December 1, [removed: 2014,] [added: 2018,] exclusive of any fees, commissions or other expenses. [removed: The 2014 Share Repurchase Program expired on November 30, 2018, and approximately $288.2 million that remained unutilized was canceled. |]

[removed: _Share] [added: *Share] Repurchase [removed: Programs_][added: Program*]

Under the [removed: 2014] [added: 2018] Share Repurchase Program, we [removed: were permitted to] [added: may] repurchase up to [removed: $1.0] [added: $1.5] billion (exclusive of fees, commissions and other expenses) of our common stock [removed: over a period of four years] from December 1, [removed: 2014,] [added: 2018 through December 31, 2022,] subject to certain contingencies.

We repurchased [removed: 11.5] [added: approximately 7.8] million shares of [removed: our] common stock for [removed: approximately $200.0] [added: $138.9] million under the [removed: 2014] [added: 2018] Share Repurchase Program during the [removed: quarter] [added: year] ended December 31, [removed: 2018.][added: 2019.]

See Note 10: [removed: “Earnings] [added: ''Earnings] Per Share and [removed: Equity”] [added: Equity''] of the notes to our audited consolidated financial statements included elsewhere in this Form 10-K for further information on shares of common stock tendered to the Company by employees to satisfy applicable employee withholding taxes due upon vesting of [removed: RSUs, the 2014 Share Repurchase Program] [added: RSUs] and the 2018 Share Repurchase Program.

| | | | | | | | | | | | | | | | | | | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| September 28, 2019 - October 25, 2019 | | | | | | 44,381 | | | | | | $ | 18.29 | | | | | — | | | | | | $ | 1,361.1 | |

| October 26, 2019 - November 22, 2019 | | | | | | 12,285 | | | | | | 21.66 | | | | | | — | | | | | | 1,361.1 | | |

| November 23, 2019 - December 31, 2019 | | | | | | 41,358 | | | | | | 21.11 | | | | | | — | | | | | | 1,361.1 | | |

| Total | | | | | | 98,024 | | | | | | 19.90 | | | | | | — | | | | | | | | |

The 2018 Share Repurchase Program expires on December 31, 2022.

Of the total amount authorized, $1,361.1 million remained unutilized as of December 31, 2019.

| | | | | | | | | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| _September 29, 2018 - October 26, 2018_ | | | 3,622,003 | | | $ | 16.84 | | | | 3,570,198 | | | $ | 428.2 | |

| _October 27, 2018 - November 23, 2018_ | | | 7,916,139 | | | | 17.73 | | | | 7,901,299 | | | | 288.2 | |

| _November 24, 2018 - December 31, 2018_ | | | 69,875 | | | | 17.75 | | | | — | | | | 1,500.0 | |

| _Total_ | | | 11,608,017 | | | | 17.46 | | | | 11,471,497 | | | | | |

| --- | --- |

##### [Table of Contents](#toc)

| (5) | On November 15, 2018, we announced a new share repurchase program pursuant to the Capital Allocation Policy (the “2018 Share Repurchase Program” and, together with the 2014 Share Repurchase Program, the “Share Repurchase Programs”) for up to $1.5 billion of our common stock over a four-year period effective from December 1, 2018, exclusive of any fees, commissions or other expenses. |

We were permitted to repurchase our common stock from time to time in privately negotiated transactions or open market transactions, including pursuant to a trading plan in accordance with Rule 10b5-1 and Rule 10b-18 of the Exchange Act, or by any combination of such methods or other methods.

The timing of any repurchases and the actual number of shares repurchased depended on a variety of factors, including our stock price, corporate and regulatory requirements, restrictions under our debt obligations and other market and economic conditions.

The 2014 Share Repurchase Program did not require us to purchase any particular amount of common stock and was subject to a variety of factors including the Board’s discretion.

The 2014 Share Repurchase Program expired on November 30, 2018.

Under the 2018 Share Repurchase Program, we may repurchase up to $1.5 billion (exclusive of fees, commissions and other expenses) of our common stock over a period of four years from December 1, 2018, subject to certain contingencies.

No shares were repurchased under the 2018 Share Repurchase Program during the quarter ended December 31, 2018.

As of December 31, 2018, $1.5 billion remained of the total amount authorized to purchase common stock pursuant to the 2018 Share Repurchase Program.

| | | [added: |] Year ended December 31, | | | | | | | | | | | | | | | | | | | [added: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |]

| | | [added: | 2019 | | | | | |] 2018 | | | | [added: | |] 2017 | | | | [added: | |] 2016 | | | | [added: | |] 2015 | | | | [removed: 2014] | | | [added: | | | | | | | | | | | | | | | | | | | |]

| | | [added: |] (in millions, except per share data) | | | | | | | | | | | | | | | | | | | [added: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |]

| Consolidated Statements of [removed: Operations data:] [added: Operations:] | | | | | | | | | | | | | | | | | | | | | [added: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |]

| Revenue | | [added: |] $ | [added: 5,517.9 | | | | | $ |] 5,878.3 | | | [added: | |] $ | 5,543.1 | | | [added: | |] $ | 3,906.9 | | | [added: | |] $ | 3,495.8 | | | [removed: $] | [removed: 3,161.8] | | [added: | | | | | | | | | | | | | | | | | | | |]

| Net income | | | [added: 213.9 | | | | | |] 629.9 | | | | [added: | |] 813.0 | | | | [added: | |] 184.5 | | | | [added: | |] 209.0 | | | | [removed: 192.1] | | [added: | | | | | | | | | | | | | | | | | | | | |]

| Diluted net income per common share attributable to ON Semiconductor Corporation | | | [added: 0.51 | | | | | |] 1.44 | | | | [added: | |] 1.89 | | | | [added: | |] 0.43 | | | | [added: | |] 0.48 | | | | [removed: 0.43] | | [added: | | | | | | | | | | | | | | | | | | | | |]

| Consolidated Balance [removed: Sheets data:] [added: Sheets:] | | | | | | | | | | | | | | | | | | | | | [added: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |]

| Total assets (1) | | [added: |] $ | [added: 8,425.5 | | | | | $ |] 7,587.6 | | | [added: | |] $ | 7,195.1 | | | [added: | |] $ | 6,924.4 | | | [added: | |] $ | 3,869.6 | | | [removed: $] | [removed: 3,822.1] | | [added: | | | | | | | | | | | | | | | | | | | |]

| Total [removed: stockholders’] [added: stockholders'] equity | | | [added: 3,324.1 | | | | | |] 3,194.1 | | | | [added: | |] 2,801.0 | | | | [added: | |] 1,845.0 | | | | [added: | |] 1,631.9 | | | | [removed: 1,647.4] | | [added: | | | | | | | | | | | | | | | | | | | | |]

[removed: | (1) | Increased in 2016 primarily due to the Fairchild Transaction.] See Note [added: 4: ''Recent Accounting Pronouncements'', Note] 5: [removed: “Acquisitions,] [added: ''Acquisitions,] Divestitures and Licensing [removed: Transactions”] [added: Transactions''] and Note [removed: 9: “Long-Term Debt”] [added: 13: ''Commitments and Contingencies''] in the notes to our audited consolidated financial statements included elsewhere in this Form 10-K for [removed: additional] [added: further] information. [removed: |]

| | | [added: | 2019 | | | | | |] 2018 | | | | [added: | |] 2017 | | | | [added: | |] 2016 | | | | [removed: 2017 to 2018] | | [added: 2015] | | [removed: 2016 to 2017] | | | [added: | | | | | | | | | | | | | | | | | | | | | |]

| Income tax [removed: benefit] (provision) [added: benefit] | | | [removed: (125.1] [added: (62.7)] | [removed: )] | | | [added: | | (125.1) | | | | | |] 265.5 | | | | [added: | |] 3.9 | | | | [removed: (390.6] | [removed: )] | [added: (10.8)] | | [removed: 261.6] | | [added: | | | | | | | | | | | | | | | | | | | | | | |]

| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |

| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |

| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |

| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |

| | | | As of | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |

| | | | (in millions) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |

| Net long-term debt, including current maturities (1) | | | 3,612.5 | | | | | | 2,766.1 | | | | | | 2,951.8 | | | | | | 3,622.3 | | | | | | 1,393.9 | | | | | | | | | | | | | | | | | | | | | | | | | | |

| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |

_______________________

(1)Increased in 2016 primarily due to the acquisition of Fairchild.

| | | | | | | | | | | | | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| Restructuring, asset impairments and other, net | | | 4.3 | | | | 20.8 | | | | 33.2 | | | | 9.3 | | | | 30.5 | |

| Goodwill and intangible asset impairment charges | | | 6.8 | | | | 13.1 | | | | 2.2 | | | | 3.8 | | | | 9.6 | |

| Net long-term debt, including current maturities, less capital lease obligations (1) | | | 2,765.2 | | | | 2,947.6 | | | | 3,609.3 | | | | 1,365.7 | | | | 1,150.9 | |

| Capital lease obligations | | | 0.9 | | | | 4.2 | | | | 13.0 | | | | 28.2 | | | | 40.8 | |

| --- | --- |

_Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations_

_You should read the following discussion in conjunction with our audited historical consolidated financial statements, including the notes thereto, which are included elsewhere in this Form 10-K.

Management’s Discussion and Analysis of Financial Condition and Results of Operations contains statements that are forward-looking.

These statements are based on current expectations and assumptions that are subject to risk, uncertainties, and other factors.

Actual results could differ materially because of the factors discussed in “Risk Factors” included elsewhere in this Form 10-K._

Executive Overview

This executive overview presents summarized information regarding our industry, markets, business, and operating trends only.

For further information relating to the information summarized herein, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in its entirety.

##### [Table of Contents](#toc)

_Industry Overview_

According to WSTS (an industry research firm), worldwide semiconductor industry sales were $468.8 billion in 2018, an increase of approximately 13.7% from $412.2 billion in 2017.

We participate in unit and revenue surveys and use data summarized by WSTS to evaluate overall semiconductor market trends and also to track our progress against the market in the areas we provide semiconductor components.

The following table sets forth total worldwide semiconductor industry revenue and revenue in our Serviceable Addressable Market (“SAM”) since 2014:

| | | | | | | | | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| Year Ended December 31, | | Worldwide Semiconductor Industry Sales (1) | | | | Percentage Change | | | | Serviceable Addressable Market Sales (1) (2) | | | | Percentage Change | | |

| | | (in billions) | | | | | | | | (in billions) | | | | | | |

| 2018 | | $ | 468.8 | | | | 13.7 % | | | $ | 82.0 | | | | 10.2 % | |

| 2017 | | $ | 412.2 | | | | 21.6 % | | | $ | 74.4 | | | | 12.6 % | |

| 2016 | | $ | 338.9 | | | | 1.1 % | | | $ | 66.1 | | | | 5.4 % | |

| 2015 | | $ | 335.2 | | | | (0.2)% | | | $ | 62.7 | | | | (1.9)% | |

| 2014 | | $ | 335.8 | | | | 9.9 % | | | $ | 63.9 | | | | 11.5 % | |

| (1) | Based on shipment information published by WSTS. We believe the data provided by WSTS is reliable, but we have not independently verified it. WSTS periodically revises its information. We assume no obligation to update such information. |

| (2) | From time to time, we reassess the WSTS product categories that our SAM comprises. For comparison purposes, the information for 2014 through 2017 in the table above has been revised from previously-reported SAM sales to reflect our current assessment. Our SAM comprises mainly the following WSTS product categories: (a) discrete products, which includes diodes, small signal transistors, power transistors and modules, rectifiers and thyristors; (b) image sensors; (c) general purpose analog; (d) application specific analog for computer, automotive, and industrial; and (e) MOS general purpose logic. Our SAM is derived using the most recent information available, excluding foundry exposure, at the time of the filing of each respective period’s annual report and is revised in subsequent periods to reflect final results. |

As indicated above, worldwide semiconductor sales increased from $335.8 billion in 2014 to $468.8 billion in 2018.

The increase of 13.7% from 2017 to 2018 was the result of increased demand for semiconductor products.

Sales in our SAM increased from $63.9 billion in 2014 to $82.0 billion in 2018.

The increase of 10.2% from 2017 to 2018 is consistent with the trend in the worldwide semiconductor market.

_ON Semiconductor Overview_

Our new product development efforts continue to be focused on building solutions in product areas that appeal to customers in focused market segments and across multiple high-growth applications.

We collaborate with our customers to identify desired innovations in electronic systems in each end-market that we serve.

This enables us to participate in the fastest growing sectors of the market.

##### [Table of Contents](#toc)

[removed: _Evaluation] [added: *Evaluation] of Disclosure Controls and [removed: Procedures_.][added: Procedures*.]

[removed: _Changes] [added: *Changes] in Internal Control Over Financial [removed: Reporting._][added: Reporting.*]

We also carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of changes to our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) that occurred during the fiscal quarter ended December 31, [removed: 2018.][added: 2019.]

There have been no changes to our internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) that occurred during the fiscal quarter ended December 31, [removed: 2018] [added: 2019] which have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

[removed: _Management’s] [added: *Management's] Report on Internal Control Over Financial [removed: Reporting._][added: Reporting.*]

Our management assessed the effectiveness of our internal control over financial reporting as of December 31, [removed: 2018.][added: 2019.]

In making this assessment, we used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in [removed: _Internal Control_—_Integrated] [added: *Internal Control*—*Integrated] Framework [removed: 2013_.][added: 2013*.]

Based on this assessment, management has concluded that our internal control over financial reporting was effective as of December 31, [removed: 2018.][added: 2019.]

The effectiveness of our internal control over financial reporting as of December 31, [removed: 2018] [added: 2019] has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which appears in [removed: “Exhibits] [added: "Exhibits] and Financial Statement [removed: Schedules”] [added: Schedules"] of this Form 10-K.

Management’s assessment of the effectiveness of our internal control over financial reporting as of December 31, 2019 excluded Quantenna, which was acquired by the Company on June 19, 2019.

Quantenna is a wholly-owned subsidiary of the Company that is excluded from management’s assessment of internal control over financial reporting and represented approximately 1% and 2% of total assets and total revenue, respectively, of the related consolidated financial statement amounts as of and for the year ended December 31, 2019.

##### [Table of Contents](#toc)

Information concerning directors and persons nominated to become directors and executive officers is incorporated by reference from the text under the captions [removed: “Management] [added: "Management] Proposals—Proposal No. 1: Election of [removed: Directors,” “The] [added: Directors," "The] Board of Directors and Corporate [removed: Governance,” “Section] [added: Governance," "Section] 16(a) Reporting [removed: Compliance”] [added: Compliance"] and [removed: “Miscellaneous] [added: "Miscellaneous] Information—Stockholder Nominations and [removed: Proposals”] [added: Proposals"] in our Proxy Statement to be filed pursuant to Regulation 14A within 120 days after our fiscal year [removed: ended December 31, 2018 in connection with our 2019 Annual Meeting of Stockholders (“Proxy Statement”).]

[removed: _Code] [added: Code] of Business [removed: Conduct_][added: Conduct]

ended December 31, 2019 in connection with our 2020 Annual Meeting of Stockholders ("Proxy Statement").

Information concerning executive compensation is incorporated by reference from the text under the captions [removed: “The] [added: "The] Board of Directors and Corporate [removed: Governance—2018] [added: Governance—2019] Compensation of [removed: Directors,” “Compensation] [added: Directors," "Compensation] of Executive [removed: Officers,” “Compensation] [added: Officers," "Compensation] Committee [removed: Report,” “Compensation] [added: Report," "Compensation] Discussion and [removed: Analysis”] [added: Analysis," "ON Semiconductor 2019 Pay Ratio Disclosure"] and [removed: “Compensation] [added: "Compensation] Committee Interlocks and Insider [removed: Participation”] [added: Participation"] in our Proxy Statement.

Information concerning certain relationships and related transactions involving us and certain others is incorporated by reference from the text under the captions [removed: “Management] [added: "Management] Proposals—Proposal No. 1: Election of [removed: Directors,” “The] [added: Directors," "The] Board of Directors and Corporate [removed: Governance,” “Compensation of Executive Officers”] [added: Governance,"] and [removed: “Relationships] [added: "Relationships] and Related [removed: Transactions”] [added: Transactions"] in our Proxy Statement.

Information concerning principal accounting fees and services is incorporated by reference from the text under the caption [removed: “Management Proposals—Proposal No. 3: Ratification of Appointment of Independent Registered Public Accounting Firm—Audit] [added: "Audit] and Related [removed: Fees”] [added: Fees"] in our Proxy Statement.

| | | | | | |

| --- | --- | --- | --- | --- | --- |

| Item 15. | | | Exhibits and Financial Statement Schedules | | |

| | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- |

| | | | (a) | | | The following documents are filed as part of this Annual Report on Form 10-K: | | |

| | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- |

| | | | (1) | | | Consolidated Financial Statements: | | |

| | | | | | |

| --- | --- | --- | --- | --- | --- |

| ON Semiconductor Corporation Consolidated Financial Statements: | | | | | |

| Report of Independent Registered Public Accounting Firm | | | [69](#i_0_166) | | |

| Consolidated Balance Sheets as of December 31, 2019 and December 31, 2018 | | | [71](#i_0_172) | | |

| Consolidated Statements of Operations and Comprehensive Income for the years ended December 31, 2019, 2018 and 2017 | | | [73](#i_0_178) | | |

| Consolidated Statements of Stockholders' Equity for the years ended December 31, 2019, 2018 and 2017 | | | [74](#i_0_181) | | |

| Consolidated Statements of Cash Flows for the years ended December 31, 2019, 2018 and 2017 | | | [75](#i_0_187) | | |

| Notes to Consolidated Financial Statements | | | [76](#i_0_190) | | |

| | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- |

| | | | (2) | | | Consolidated Financial Statement Schedule: | | |

| | | | | | |

| --- | --- | --- | --- | --- | --- |

| Schedule II - Valuation and Qualifying Accounts for the years ended December 31, 2019, 2018 and 2017 | | | [125](#i_0_268) | | |

All other schedules are omitted because they are not applicable or the required information is shown in the financial statements or related notes

| | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- |

| | | | (3) | | | Exhibits: | | |

EXHIBIT INDEX*

| | | | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| Exhibit No. | | | | | | Exhibit Description | | | | | |

| | | | | | | | | | | | |

| 2.1 | | | | | | [Asset Purchase Agreement, dated as of March 11, 1997, between Fairchild Semiconductor Corporation and National Semiconductor Corporation (incorporated by reference to Exhibit 2.02 to Fairchild Semiconductor Corporation’s Registration Statement filed with the Commission on May 12, 1997 (File No. 333-26897))†](http://www.sec.gov/Archives/edgar/data/1036960/0000912057-97-016828.txt) | | | | | |

| | | | | | | | | | | | |

| 2.2 | | | | | | [Reorganization Agreement, dated as of May 11, 1999, among Motorola, Inc., SCG Holding Corporation and Semiconductor Components Industries, LLC (incorporated by reference to Exhibit 2.1 to the Company’s Registration Statement filed with the Commission on November 5, 1999 (File No. 333-90359))†](http://www.sec.gov/Archives/edgar/data/1097864/000091205799003561/0000912057-99-003561.txt) | | | | | |

| | | | | | | | | | | | |

| 2.3(a) | | | | | | [Agreement and Plan of Recapitalization and Merger, as amended, dated as of May 11, 1999, among SCG Holding Corporation, Semiconductor Components Industries, LLC, Motorola, Inc., TPG Semiconductor Holdings LLC, and TPG Semiconductor Acquisition Corp. (incorporated by reference to Exhibit 2.2 to the Company’s Registration Statement filed with the Commission on November 5, 1999 (File No. 333-90359))†](http://www.sec.gov/Archives/edgar/data/1097864/000091205799003561/0000912057-99-003561.txt) | | | | | |

| | | | | | | | | | | | |

| 2.3(b) | | | | | | [Amendment No. 1 to Agreement and Plan of Recapitalization and Merger, dated as of July 28, 1999, among SCG Holding Corporation, Semiconductor Components Industries, LLC, Motorola, Inc., TPG Semiconductor Holdings LLC, and TPG Semiconductor Acquisition Corp. (incorporated by reference to Exhibit 2.3 to the Company’s Registration Statement filed with the Commission on November 5, 1999 (File No. 333-90359))†](http://www.sec.gov/Archives/edgar/data/1097864/000091205799003561/0000912057-99-003561.txt) | | | | | |

##### [Table of Contents](#toc)

| [added: | | | | | |] ON Semiconductor Corporation | | |

| [removed: By:] | | [added: | | | | By:] /s/ KEITH D. JACKSON | [added: | |]

| [added: | | | | | |] Name: Keith D. Jackson | | |

| [added: | | | | | |] Title: President and Chief Executive Officer | | |

| [removed: | |] Signature | | [added: |] Titles | | [added: |] Date | [added: | |]

| [removed: | |] /s/ KEITH D. JACKSON [added: Keith D. Jackson] | | [added: |] President, Chief Executive Officer [added: and Director (Principal] | | [added: |] February [removed: 20, 2019] [added: 19, 2020] | [added: | |]

| [removed: | |] /s/ BERNARD GUTMANN [added: Bernard Gutmann] | | [added: |] Executive Vice President, Chief [added: Financial Officer and Treasurer] | | [added: |] February [removed: 20, 2019] [added: 19, 2020] | [added: | |]

| | | [removed: Bernard Gutmann] | [removed: |] [added: (Principal] Financial Officer and [removed: Treasurer (Principal Financial] [added: Principal Accounting] Officer) | | | [added: | | |]

| [removed: | |] * | | [added: |] Chair of the Board of Directors | | [added: |] February [removed: 20, 2019] [added: 19, 2020] | [added: | |]

| [removed: | |] Alan Campbell | | | | | [added: | | | |]

| [removed: | |] * | | [added: |] Director | | [added: |] February [removed: 20, 2019] [added: 19, 2020] | [added: | |]

| [removed: | |] Atsushi Abe | | | | | [added: | | | |]

| [removed: | |] Curtis J. Crawford | | | | | [added: | | | |]

| [removed: | |] Gilles Delfassy | | | | | [added: | | | |]

| [removed: | |] Emmanuel T. Hernandez | | | | | [added: | | | |]

| [removed: | |] Paul A. Mascarenas | | | | | [added: | | | |]

| [removed: | |] Daryl A. Ostrander | | | | | [added: | | | |]

| [removed: | |] Teresa M. Ressel | | | | | [added: | | | |]

| [removed: | |] Christine Y. Yan | | | | | [added: | | | |]

| *By: [removed: | |] /s/ BERNARD GUTMANN [added: Bernard Gutmann] | | [added: |] Attorney in Fact | | [added: |] February [removed: 20, 2019] [added: 19, 2020] | [added: | |]

To the Board of Directors and Stockholders of [added: ON Semiconductor Corporation]

[removed: ON Semiconductor Corporation][added: ON SEMICONDUCTOR CORPORATION]

[removed: _Opinions] [added: Opinions] on the Financial Statements and Internal Control over Financial [removed: Reporting_][added: Reporting]

We have audited the accompanying consolidated balance sheets of ON Semiconductor Corporation and its subsidiaries [added: (the “Company”)] as of December 31, [removed: 2018] [added: 2019] and [removed: 2017,] [added: 2018,] and the related consolidated statements of operations and comprehensive income, of stockholders’ equity and of cash flows for each of the three years in the period ended December 31, [removed: 2018,] [added: 2019,] including the related notes and [added: financial statement] schedule [removed: of valuation and qualifying accounts for each of the three years] [added: listed] in the [removed: period ended December 31, 2018] [added: index] appearing under Item 15(a)(2) (collectively referred to as the “consolidated financial statements”).

We also have audited the [removed: Company’s] [added: Company's] internal control over financial reporting as of December 31, [removed: 2018,] [added: 2019,] based on criteria established in [removed: _Internal Control—Integrated Framework_] [added: *Internal Control - Integrated Framework*] (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, [removed: 2018] [added: 2019] and [removed: 2017,] [added: 2018,] and the results of its operations and its cash flows for each of the three years in the period ended December 31, [removed: 2018] [added: 2019] in conformity with accounting principles generally accepted in the United States of America.

Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, [removed: 2018,] [added: 2019,] based on criteria established in [removed: _Internal Control—Integrated Framework_] [added: *Internal Control - Integrated Framework*] (2013) issued by the COSO.

[removed: _Change] [added: *Change] in Accounting [removed: Principle_][added: Principle*]

As discussed in Note [removed: 11: “Share-Based Compensation”] [added: 4] to the consolidated financial statements, the Company changed the manner in which it accounts for [removed: the excess tax benefits from share-based compensation] [added: leases] in [removed: 2017.][added: 2019.]

[removed: _Basis] [added: Basis] for [removed: Opinions_][added: Opinions]

The [removed: Company’s] [added: Company's] management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Report on Internal Control [removed: over Financing] [added: Over Financial] Reporting appearing under Item 9A.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) [removed: (“PCAOB”)] [added: (PCAOB)] and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

[removed: _Definition] [added: Definition] and Limitations of Internal Control over Financial [removed: Reporting_][added: Reporting]

ON SEMICONDUCTOR [removed: CORPORATION AND SUBSIDIARIES][added: CORPORATION]

| | | [removed: December 31, 2018] | | | | [removed: December] [added: As of December] 31, [added: 2019 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | As of December 31, 2018 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | As of December 31,] 2017 | | | [added: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |]

| Assets | | | | | | | | | [added: | | |]

| Cash and cash equivalents | | [added: | | | |] $ | [added: 894.2 | | | | | $ |] 1,069.6 | | | [added: | |] $ | 949.2 | | [added: | | | | | | | | | | | |]

| Receivables, net | | | [removed: 686.0] [added: 705.0] | | | | [removed: 701.5] | | [added: 686.0 | | |]

| Inventories | | | [removed: 1,225.2] [added: 1,232.4] | | | | [removed: 1,089.5] | | [added: 1,225.2 | | |]

| Other current assets | | | [removed: 187.0] [added: 188.4] | | | | [removed: 193.0] | | [added: 187.0 | | |]

| February 19, 2020 | | | | | | | | |

| | | | Executive Officer) | | | | | |

| * | | | Director | | | February 19, 2020 | | |

| * | | | Director | | | February 19, 2020 | | |

| * | | | Director | | | February 19, 2020 | | |

| * | | | Director | | | February 19, 2020 | | |

| * | | | Director | | | February 19, 2020 | | |

| * | | | Director | | | February 19, 2020 | | |

| * | | | Director | | | February 19, 2020 | | |

As described in Management’s Report on Internal Control Over Financial Reporting, management has excluded Quantenna from its assessment of internal control over financial reporting as of December 31, 2019 because it was acquired by the Company in a purchase business combination during 2019.

We have also excluded Quantenna from our audit of internal control over financial reporting.

Quantenna is a wholly-owned subsidiary whose total assets and total revenues excluded from management’s assessment and our audit of internal control over financial reporting represent approximately 1% and 2%, respectively, of the related consolidated financial statement amounts as of and for the year ended December 31, 2019.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that (i) relate to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

*Ship and Credit Reserves*

As described in Notes 2 and 8 to the consolidated financial statements, the Company’s ship and credit reserves are $178.7 million as of December 31, 2019.

Sales returns and allowances, which include ship and credit reserves for distributors, are estimated by management based on historical claims data and expected future claims.

Provisions for ship and credit claims are provided for in the same period the related revenue is recognized, and are netted against revenue.

The principal considerations for our determination that performing procedures relating to ship and credit reserves is a critical audit matter are there was significant judgment by management to estimate the reserves, which in turn led to significant auditor judgment, subjectivity and effort in performing procedures to evaluate management’s expected future claims assumptions.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements.

These procedures included testing the effectiveness of controls relating to the ship and credit reserves.

These procedures also included, among others, testing management’s process for determining the estimate, evaluating the appropriateness of the approach used by management in developing the estimate and the reasonableness of the expected future claims assumptions, and testing the completeness and accuracy of historical claims data.

Evaluating the assumptions related to the expected future claims involved evaluating whether the assumptions used were reasonable considering the past claim activity.

As described in Notes 2 and 8 to the consolidated financial statements, the Company’s inventory balance of $1,232.4 million as of December 31, 2019, is stated at the lower of standard cost (which approximates actual cost on a first-in, first-out basis) or net realizable value.

Management writes down excess and obsolete inventories based upon a regular analysis of inventory on hand compared to historical and projected end-user demand.

The principal considerations for our determination that performing procedures relating to the valuation of inventories is a critical audit matter are there was significant judgment by management in developing the write down for excess and obsolete inventories.

This in turn led to significant auditor judgment, subjectivity and effort in performing procedures to evaluate the reasonableness of management’s analysis, including the inputs utilized and the significant assumptions related to projected end-user demand employed within the analysis.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall

opinion on the consolidated financial statements.

These procedures included testing the effectiveness of controls relating to the valuation of inventories.

These procedures also included, among others, testing management’s process for developing the write down for excess and obsolete inventories, evaluating the appropriateness of the analysis and the reasonableness of the significant assumptions used by management in developing the write down for excess and obsolete inventories, including projected end-user demand.

Evaluating the reasonableness of the assumptions related to projected end-user demand involved considering the performance of product sales and whether they were consistent with evidence obtained in other areas of the audit.

*Acquisition of Quantenna – Valuation of Developed Technology*

As described in Notes 2 and 5 to the consolidated financial statements, the Company acquired 100% of the outstanding shares of Quantenna for $1,039.3 million on June 19, 2019, which resulted in $58.3 million of developed technology intangible assets being recorded.

Management determined the value assigned to developed technology using the income approach, which is predicated upon the value of the future cash flows that an asset is expected to generate over its economic life.

Determining the fair value is judgmental in nature and requires the use of significant estimates and assumptions, including the discount rate, revenue growth rates, projected gross margins, and estimated research and development expenses.

The principal considerations for our determination that performing procedures relating to the valuation of developed technology in connection with the acquisition of Quantenna is a critical audit matter are there was significant judgment by management when developing the fair value measurement of the developed technology acquired.

This in turn led to a high degree of auditor judgment, subjectivity and effort in performing procedures and evaluating audit evidence related to management’s cash flow projections and significant assumptions, including the discount rate, revenue growth rates, projected gross margins, and estimated research and development expenses.

In addition, the audit effort involved the use of professionals with specialized skill and knowledge to assist in performing these procedures and evaluating the audit evidence obtained from these procedures.

##### [Table of Contents](#toc)

February 20, 2019

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| | | Keith D. Jackson | | and Director (Principal Executive Officer) | | |

| | | /s/ BERNARD R. COLPITTS, JR. | | Chief Accounting Officer | | February 20, 2019 |

| | | Bernard R. Colpitts, Jr. | | (Principal Accounting Officer) | | |

| | | Bernard Gutmann | | | | |

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| Balance at December 31, 2015 | | | 534,134,721 | | | $ | 5.3 | | | $ | 3,420.3 | | | $ | (42.3) | | | $ | (709.4) | | | | (122,094,916) | | | $ | (1,065.7) | | | $ | 23.7 | | | $ | 1,631.9 | |

| Stock option exercises | | | 1,849,777 | | | | 0.1 | | | | 14.8 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 14.9 | |

| Reclassification of 2.625% Notes, Series B, equity component to mezzanine equity | | | — | | | | — | | | | (32.9) | | | | — | | | | — | | | | — | | | | — | | | | — | | | | (32.9) | |

| Comprehensive (loss) income | | | — | | | | — | | | | — | | | | (7.9) | | | | 182.1 | | | | — | | | | — | | | | 2.4 | | | | 176.6 | |

| Write-down of excess inventories | | | 55.7 | | | | 67.0 | | | | 66.2 | |

| Inventories | | | (185.2) | | | | (126.9) | | | | (7.9) | |

| Cash placed in escrow | | | — | | | | — | | | | (67.7) | |

| Cash received from escrow | | | — | | | | — | | | | 23.8 | |

| Proceeds from debt issuance | | | 15.3 | | | | 1,106.2 | | | | 2,586.9 | |

During the year ended December 31, 2018, the Company adopted the provisions of ASU No 2017-07—Compensation-Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost (“ASU 2017-07”) retrospectively, which required the net benefit cost to be split in the income statement resulting in the service cost component to be included in operating income while the other components, including the interest cost and the expected return on plan assets, are reported separately outside of operating income.

The Company utilized the practical expedient to estimate the impact of ASU 2017-07 for the years ended December 31, 2017 and 2016 using the information previously disclosed in the notes to the consolidated financial statements in the 2017 Form 10-K.

This resulted in the operating income increasing by $0.7 million and $10.7 million for the years ended December 31, 2017 and 2016, respectively, compared to the amounts previously disclosed, with offsetting impact to other expense.

Investments in nonconsolidated affiliates that represent less than 20% of the related ownership interests and where the Company does not have the ability to exert significant influence are accounted for as cost method investments.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

A potential impairment charge is evaluated when the undiscounted expected cash flows derived from an asset group are less than its carrying amount.

The Company’s impairment evaluation of goodwill consists of a qualitative assessment to determine if it is more likely than not that the fair value of a reporting unit exceeds its carrying amount.

The quantitative test compares the fair value of a reporting unit with its carrying amount, including goodwill.

If the fair value of the reporting unit exceeds the carrying value of the net assets associated with that unit, goodwill is not considered impaired.

Changes in these estimates based on evolving economic conditions or business strategies could result in material impairment charges in future periods.

The Company bases its fair value estimates on assumptions it believes to be reasonable.

Actual results may differ from those estimates.

An IPRD asset is considered to be impaired when the asset’s carrying amount is greater than its fair value.

Impairment losses are measured as the amount by which the carrying value of an asset group exceeds its fair value and are recognized in operating results.

Judgment is used when applying these impairment rules to determine the timing of the impairment test, the undiscounted cash flows used to assess impairments and the fair value of an asset group.

| | (a) | The following documents are filed as part of this Annual Report on Form 10-K: |

| --- | --- | --- |

| | (1) | Consolidated Financial Statements: |

| --- | --- | --- |

| | | | | |

| --- | --- | --- | --- | --- |

| ON Semiconductor Corporation and Subsidiaries Consolidated Financial Statements: | | | | |

| [Report of Independent Registered Public Accounting Firm](#tx664850_41) | | | 94 | |

| [Consolidated Balance Sheets as of December 31, 2018 and December 31, 2017](#tx664850_42) | | | 96 | |

| [Consolidated Statements of Operations and Comprehensive Income for the years ended December 31, 2018, 2017 and 2016](#tx664850_43) | | | 97 | |

| [Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2018, 2017 and 2016](#tx664850_44) | | | 98 | |

| [Consolidated Statements of Cash Flows for the years ended December 31, 2018, 2017 and 2016](#tx664850_45) | | | 99 | |

| [Notes to Consolidated Financial Statements](#tx664850_46) | | | 100 | |

| | | | | |

| (2) Consolidated Financial Statement Schedule: | | | | |

| | | | | |

| --- | --- | --- | --- | --- |

| | | | | |

| [Schedule II - Valuation and Qualifying Accounts](#tx664850_47) | | | 168 | |

All other schedules are omitted because they are not applicable or the required information is shown in the financial statements or related notes

(3) Exhibits:

##### [Table of Contents](#toc)

EXHIBIT INDEX*

| | | |

| --- | --- | --- |

| Exhibit No. | | Exhibit Description |

| | | |

| 2.1 | | [Reorganization Agreement, dated as of May 11, 1999, among Motorola, Inc., SCG Holding Corporation and Semiconductor Components Industries, LLC (incorporated by reference to Exhibit 2.1 to the Company’s Registration Statement filed with the Commission on November 5, 1999 (File No. 333-90359))†](http://www.sec.gov/Archives/edgar/data/1097864/000091205799003561/0000912057-99-003561.txt) |

| | | |

| 2.2(a) | | [Agreement and Plan of Recapitalization and Merger, as amended, dated as of May 11, 1999, among SCG Holding Corporation, Semiconductor Components Industries, LLC, Motorola, Inc., TPG Semiconductor Holdings LLC, and TPG Semiconductor Acquisition Corp. (incorporated by reference to Exhibit 2.2 to the Company’s Registration Statement filed with the Commission on November 5, 1999 (File No. 333-90359))†](http://www.sec.gov/Archives/edgar/data/1097864/000091205799003561/0000912057-99-003561.txt) |

| | | |

| 2.2(b) | | [Amendment No. 1 to Agreement and Plan of Recapitalization and Merger, dated as of July 28, 1999, among SCG Holding Corporation, Semiconductor Components Industries, LLC, Motorola, Inc., TPG Semiconductor Holdings LLC, and TPG Semiconductor Acquisition Corp. (incorporated by reference to Exhibit 2.3 to the Company’s Registration Statement filed with the Commission on November 5, 1999 (File No. 333-90359))†](http://www.sec.gov/Archives/edgar/data/1097864/000091205799003561/0000912057-99-003561.txt) |

| | | |

| 2.3(a) | | [Purchase Agreement by and among ON Semiconductor Corporation, Semiconductor Components Industries, LLC and SANYO Electric Co., Ltd. dated July 15, 2010 (incorporated by reference to Exhibit 2.1 to the Company’s Quarterly Report on Form 10-Q filed with the Commission on November 4, 2010)†](http://www.sec.gov/Archives/edgar/data/1097864/000119312510248237/dex21.htm) |

| | | |

| 2.3(b) | | [Amendment No. 1 to Purchase Agreement by and among ON Semiconductor Corporation, Semiconductor Components Industries, LLC and SANYO Electric Co., Ltd. dated November 30, 2010 (incorporated by reference to Exhibit 2.2 to the Company’s Current Report on Form 8-K filed with the Commission on January 6, 2011)†](http://www.sec.gov/Archives/edgar/data/1097864/000119312511002665/dex22.htm) |

| | | |

| 2.4 | | [Agreement and Plan of Merger by and among ON Semiconductor Benelux B.V., Alpine Acquisition Sub, Aptina, Inc. and Fortis Advisors LLC, as Equityholder Representative, dated as of June 9, 2014 (incorporated by reference to Exhibit 2.1 to the Company’s Quarterly Report on Form 10-Q filed with the Commission on August 1, 2014)†](http://www.sec.gov/Archives/edgar/data/1097864/000119312514290065/d760205dex21.htm) |

| | | |

| 2.5 | | [Agreement and Plan of Merger, dated November 18, 2015, by and among Fairchild Semiconductor International, Inc., ON Semiconductor Corporation and Falcon Operations Sub, Inc. (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed with the Commission on November 18, 2015)†](http://www.sec.gov/Archives/edgar/data/1097864/000119312515380168/d46684dex21.htm) |