ON Semiconductor 10-Q 2021-10-01

Filed 2021-11-01. 8 sections, 187K characters. Original on sec.gov · Markdown · JSON

Cover and table of contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended October 1, 2021


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

(Commission File Number) 001-39317

ON SEMICONDUCTOR CORPORATION

(Exact name of registrant as specified in its charter)


Delaware						36-3840979
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

5005 E. McDowell Road

Phoenix, AZ 85008

(602) 244-6600

(Address, zip code and telephone number, including area code, of principal executive offices)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.01 per share	ON	The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act


Large Accelerated Filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No x

The number of shares outstanding of the issuer's class of common stock as of the close of business on October 27, 2021:


Title of Each Class						Number of Shares
Common Stock, par value $0.01 per share						430,833,656

ON SEMICONDUCTOR CORPORATION FORM 10-Q

TABLE OF CONTENTS


Part I: Financial Information
	Item 1. Financial Statements (unaudited)	4
	Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	26
	Item 3. Quantitative and Qualitative Disclosures About Market Risk	37
	Item 4. Controls and Procedures	38
Part II: Other Information
	Item 1. Legal Proceedings	40
	Item 1A. Risk Factors	40
	Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	41
	Item 3. Defaults Upon Senior Securities	41
	Item 4. Mine Safety Disclosures	41
	Item 5. Other Information	41
	Item 6. Exhibits	42
	Signatures	43

(See the glossary of selected terms immediately following this table of contents for definitions of certain abbreviated terms)

ON SEMICONDUCTOR CORPORATION

FORM 10-Q

GLOSSARY OF SELECTED ABBREVIATED TERMS*


Abbreviated Term						Defined Term
0% Notes						0% Convertible Senior Notes due 2027
1.00% Notes						1.00% Convertible Senior Notes due 2020
1.625% Notes						1.625% Convertible Senior Notes due 2023

3.875% Notes						3.875% Senior Notes due 2028
ADAS						Advanced driver-assistance systems
AEC						Automotive Electronics Council
Amended Credit Agreement						Credit Agreement, dated as of April 15, 2016, as subsequently amended, 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, providing for the Revolving Credit Facility and the Term Loan “B” Facility
Amended and Restated SIP						ON Semiconductor Corporation Amended and Restated Stock Incentive Plan, as amended




ASU						Accounting Standards Update




BEPS						Base Erosion and Profit Shifting
CCD						Charge-coupled device



Commission or SEC						Securities and Exchange Commission
ESPP						ON Semiconductor Corporation 2000 Employee Stock Purchase Plan, as amended
Exchange Act						Securities Exchange Act of 1934, as amended
Fairchild						Fairchild Semiconductor International, Inc.
FASB						Financial Accounting Standards Board


IoT						Internet-of-things
IP						Intellectual property




LIBO Rate						A base rate per annum equal to the London Interbank Offered Rate as administered by the International Exchange Benchmark Administration












Quantenna						Quantenna Communications, Inc.
Revolving Credit Facility						A $1.97 billion revolving credit facility created pursuant to the Amended Credit Agreement
RSU						Restricted stock unit


SiC						Silicon Carbide
SoC						System on chip
Securities Act						Securities Act of 1933, as amended



Term Loan "B" Facility						A $2.4 billion term loan "B" facility created pursuant to the Amended Credit Agreement

Terms used, but not defined, within the body of the Form 10-Q are defined in this Glossary.

PART I: FINANCIAL INFORMATION

Item 1. Financial Statements (unaudited)

ON SEMICONDUCTOR CORPORATION

CONSOLIDATED BALANCE SHEETS

(in millions, except share and per share data)

(unaudited)


	October 1, 2021		December 31, 2020
Assets
Cash and cash equivalents	$	1,389.2	$	1,080.7

Receivables, net	720.0		676.0
Inventories	1,327.6		1,251.4
Other current assets	205.0		176.0
Total current assets	3,641.8		3,184.1

Property, plant and equipment, net	2,427.8		2,512.3
Goodwill	1,662.7		1,663.4
Intangible assets, net	390.3		469.0
Deferred tax assets	382.1		429.0
Other assets	436.0		410.2
Total assets	$	8,940.7	$	8,668.0
Liabilities, Non-Controlling Interest and Stockholders’ Equity
Accounts payable	$	599.3	$	572.9
Accrued expenses and other current liabilities	641.8		570.0
Current portion of long-term debt	203.0		531.6
Total current liabilities	1,444.1		1,674.5
Long-term debt	2,910.5		2,959.7
Deferred tax liabilities	46.8		57.3
Other long-term liabilities	394.9		418.4
Total liabilities	4,796.3		5,109.9
Commitments and contingencies (Note 10)
ON Semiconductor Corporation stockholders’ equity:
Common stock ($0.01 par value, 1,250,000,000 shares authorized, 599,738,476 and 570,766,439 issued, 430,824,004 and 411,842,629 outstanding, respectively)	6.0		5.7
Additional paid-in capital	4,498.5		4,133.1
Accumulated other comprehensive loss	(48.6)		(57.6)
Accumulated earnings	2,009.2		1,425.5
Less: Treasury stock, at cost: 168,914,472 and 158,923,810 shares, respectively	(2,341.4)		(1,968.2)
Total ON Semiconductor Corporation stockholders’ equity	4,123.7		3,538.5
Non-controlling interest	20.7		19.6
Total stockholders' equity	4,144.4		3,558.1
Total liabilities and stockholders' equity	$	8,940.7	$	8,668.0

See accompanying notes to consolidated financial statements

ON SEMICONDUCTOR CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

(in millions, except per share data)

(unaudited)


	Quarters Ended				Nine Months Ended
	October 1, 2021		October 2, 2020		October 1, 2021		October 2, 2020
Revenue	$	1,742.1	$	1,317.3	$	4,893.7	$	3,808.7
Cost of revenue (exclusive of amortization shown below)	1,021.3		876.1		3,011.6		2,590.5
Gross profit	720.8		441.2		1,882.1		1,218.2
Operating expenses:
Research and development	154.5		156.1		494.4		483.2
Selling and marketing	68.4		65.3		223.4		207.7
General and administrative	75.7		62.2		221.3		196.3

Amortization of acquisition-related intangible assets	24.7		29.6		74.5		91.0
Restructuring, asset impairments and other charges, net	(1.7)		9.0		58.3		58.0
Intangible asset impairment	—		—		2.9		1.3
Total operating expenses	321.6		322.2		1,074.8		1,037.5
Operating income	399.2		119.0		807.3		180.7
Other income (expense), net:
Interest expense	(31.9)		(42.2)		(98.4)		(126.6)
Interest income	0.5		0.9		1.1		4.3
Loss on debt refinancing and prepayment	—		—		(26.2)		—
Gain on divestiture of business	10.2		—		10.2		—

Other income (expense)	(5.8)		0.4		(2.4)		(2.3)
Other income (expense), net	(27.0)		(40.9)		(115.7)		(124.6)
Income before income taxes	372.2		78.1		691.6		56.1
Income tax (provision) benefit	(61.8)		83.1		(106.8)		90.5
Net income	310.4		161.2		584.8		146.6
Less: Net income attributable to non-controlling interest	(0.7)		(0.6)		(1.1)		(1.4)
Net income attributable to ON Semiconductor Corporation	$	309.7	$	160.6	$	583.7	$	145.2
Comprehensive income, net of tax:
Net income	$	310.4	$	161.2	$	584.8	$	146.6
Foreign currency translation adjustments	(0.3)		0.6		(2.8)		1.1
Effects of cash flow hedges	3.9		3.6		11.8		(10.2)

Other comprehensive income (loss), net of tax	3.6		4.2		9.0		(9.1)
Comprehensive income	314.0		165.4		593.8		137.5
Comprehensive income attributable to non-controlling interest	(0.7)		(0.6)		(1.1)		(1.4)
Comprehensive income attributable to ON Semiconductor Corporation	$	313.3	$	164.8	$	592.7	$	136.1
Net income per share of common stock attributable to ON Semiconductor Corporation:

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Item 2. 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, which are included in the 2020 Form 10-K and our unaudited consolidated financial statements for the fiscal quarter ended October 1, 2021 included elsewhere in this Form 10-Q. This 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 risks, uncertainties and other factors. Actual results could differ materially because of the factors discussed below or elsewhere in this Form 10-Q. See Part II, Item 1A. "Risk Factors" of this Form 10-Q and Part I, Item 1A. "Risk Factors" of the 2020 Form 10-K.

Executive Overview

onsemi Overview

onsemi’s mission is to push innovation to create intelligent power and sensing technologies that solve challenging customer problems. With our intelligent power technologies, we are engaged in the electrification of the automotive industry that allows for lighter and longer-range electric vehicles, enables efficient fast-charging systems and propels the sustainable energy evolution for efficient solar strings, industrial power and storage systems. Using our intelligent sensing technologies, we enable the next generation industry for smarter homes, factories and buildings while also enhancing the automotive mobility experience with imaging and depth sensing that make advanced vehicle safety and automated driving systems possible. As of October 1, 2021, we were organized into the three operating and reportable segments of PSG, ASG and ISG.

We serve a broad base of end-user markets, including automotive, industrial, communications, computing and consumer. We believe the evolution of automotive with advancements in autonomous driving, ADAS, vehicle electrification, and the increase in electronics content for vehicle platforms is altering the boundaries of personal transportation. With an extensive portfolio of AEC-qualified products, onsemi enables customers to design high reliability solutions while delivering peak performance. Within the industrial space, onsemi helps OEMs develop innovative products and navigate the ongoing transformation across energy infrastructure, industrial automation, smart buildings and power conversion. With every processor, memory bank or wireless base station needing power, onsemi’s computing and connectivity solutions for AC-DC conversion, multiphase conversion, point-of-load supplies, and hot swap protection support the full power range and various functions needed to power cloud infrastructure.

Business Strategy Developments

Our primary focus continues to be on gross margin and operating margin expansion, while at the same time achieving revenue growth in our focused end-markets of automotive, industrial and communications infrastructure as well as being opportunistic in other end-markets, including obtaining longer-term supply arrangements with strategic end-customers. We are also focused on achieving efficiencies in our operating expenditures. While we have made significant progress, we are continuing the process of rationalizing our product portfolio and allocated capital, research and development investments and resources to accelerate growth in high-margin products and end-markets by moving away from non-differentiated products, which have had historically lower gross margins. To this effect, onsemi announced in 2020 that it was exploring the sales of our six-inch fabrication facilities in Oudenaarde, Belgium and Niigata, Japan, and we are currently engaged in discussions with potential buyers. As actions are initiated to achieve our business strategy goals, we could incur accounting charges in the future.

We believe these actions, among others, will allow us to transition to a lighter internal fabrication model where our gross margins will be less volatile and not as heavily influenced by our internal manufacturing volumes. We are also rationalizing our manufacturing footprint to align with our investment priorities and corporate strategy. Our goal is to reduce volatility in our gross margins and maximize return on our manufacturing investments with the intention of having our product strategy drive our manufacturing footprint and capital investments.

We are focused on sustainability as we drive a common theme across all markets. Recently, onsemi announced its commitment to achieving net zero emissions and becoming carbon-neutral by 2040. As we initiate steps to achieve our sustainability goals, additional investments may be required in the future in connection with such actions, although the timing and amounts of such investments are uncertain at this time.

In order to realign investments to focus on growth drivers and key markets and to streamline our operations and achieve efficiencies, we implemented the ISP during the first quarter of 2021. Under the ISP, we notified approximately 725 employees of their employment termination and incurred severance charges and other benefits of approximately $55.1 million. We

continue to evaluate employee positions and locations for potential efficiencies and may incur additional severance and related charges in the future. Additionally, during the second quarter of 2021, we took certain steps to rationalize our capital structure.

On October 28, 2021, we closed on our previously announced acquisition of GTAT. We believe the GTAT acquisition will act as a building block to fuel growth and accelerate innovation in disruptive intelligent power technologies and secure and grow supply of SiC to meet rapidly growing customer demand for SiC-based solutions in the sustainable ecosystem.

Impact of the Novel Coronavirus Disease 2019 (“COVID-19”) Pandemic on our Business

In response to the impact of the ongoing COVID-19 pandemic on our business and industry, we have proactively implemented preventative protocols, which we continuously assess and update for current local conditions and emerging trends. These are intended to safeguard our employees, contractors, customers, suppliers and communities and to ensure business continuity in case of further government restrictions or if severe outbreaks impact operations at certain of our facilities. While substantially all of our global manufacturing sites are currently operational, our facilities could be required to temporarily curtail production levels or temporarily cease operations based on government mandates in response to further outbreaks or new variants of COVID-19. We are still unable to predict the ultimate extent to which the COVID-19 pandemic will impact our operations.

Results of Operations

Quarter Ended October 1, 2021 compared to the Quarter Ended October 2, 2020

The following table summarizes certain information relating to our operating results that has been derived from our unaudited consolidated financial statements (in millions):


	Quarters Ended
	October 1, 2021		October 2, 2020		Dollar Change
Revenue	$	1,742.1	$	1,317.3	$	424.8
Cost of revenue (exclusive of amortization shown below)	1,021.3		876.1		145.2
Gross profit	720.8		441.2		279.6
Operating expenses:
Research and development	154.5		156.1		(1.6)
Selling and marketing	68.4		65.3		3.1
General and administrative	75.7		62.2		13.5

Amortization of acquisition-related intangible assets	24.7		29.6		(4.9)
Restructuring, asset impairments and other charges, net	(1.7)		9.0		(10.7)
Intangible asset impairment	—		—		—
Total operating expenses	321.6		322.2		(0.6)
Operating income	399.2		119.0		280.2
Other income (expense), net:
Interest expense	(31.9)		(42.2)		10.3
Interest income	0.5		0.9		(0.4)

Gain on divestiture of business	10.2		—		10.2

Other income (expense)	(5.8)		0.4		(6.2)
Other income (expense), net	(27.0)		(40.9)		13.9
Income before income taxes	372.2		78.1		294.1
Income tax (provision) benefit	(61.8)		83.1		(144.9)
Net income	310.4		161.2		149.2
Less: Net income attributable to non-controlling interest	(0.7)		(0.6)		(0.1)
Net income attributable to ON Semiconductor Corporation	$	309.7	$	160.6	$	149.1

Revenue

Revenue was $1,742.1 million and $1,317.3 million for the quarters ended October 1, 2021 and October 2, 2020, respectively, representing an increase of $424.8 million, or approximately 32%. We had one customer, a distributor, whose purchases accounted for approximately 14% of our total revenue for the quarter ended October 1, 2021.

Revenue by operating and reportable segments was as follows (dollars in millions):


	Quarter Ended October 1, 2021		As a % of Total Revenue (1)		Quarter Ended October 2, 2020		As a % of Total Revenue (1)
PSG	$	892.1	51.2	%	$	647.4	49.1	%
ASG	613.5		35.2	%	494.6		37.5	%
ISG	236.5		13.6	%	175.3		13.3	%
Total revenue	$	1,742.1			$	1,317.3

(1) Certain amounts may not total due to rounding of individual amounts.

Revenue from PSG increased by $244.7 million, or approximately 38%, for the quarter ended October 1, 2021 compared to the quarter ended October 2, 2020. The revenue from our Advanced Power Division and our Integrated Circuits, Protection and

Signal Division increased by $154.1 million and $88.0 million, respectively, due to the improving economic conditions resulting in significantly increased demand for our products and an increase in average selling prices compared to the quarter ended October 2, 2020.

Revenue from ASG increased by $118.9 million, or approximately 24%, for the quarter ended October 1, 2021 compared to the quarter ended October 2, 2020. The revenue from our Mobile, Computing and Cloud Division, Industrial Solutions Division, and Automotive Division increased by $58.4 million, $33.6 million and $29.9 million, respectively. The increases were primarily due to significantly improved economic conditions, which drove up demand for our products in other end-markets along with an increase in average selling prices.

Revenue from ISG increased by $61.2 million, or approximately 35%, for the quarter ended October 1, 2021 compared to the quarter ended October 2, 2020. The revenue from our Automotive Sensing Division and Industrial and Consumer Solutions Division increased by $46.8 million and $34.2 million, respectively, and was partially offset by a decrease of $19.8 million from our exited CCD Division. The increases were due to the significant improvement of economic conditions, specifically with automotive component manufacturers and the automotive industry overall, resulting in increased demand for these products along with an increase in average selling prices.

Revenue by geographic location, based on sales billed from the respective country or regions, was as follows (dollars in millions):


	Quarter Ended October 1, 2021		As a % of Total Revenue (1)		Quarter Ended October 2, 2020		As a % of Total Revenue (1)
Singapore	$	544.0	31.2	%	$	441.9	33.5	%
Hong Kong	487.0		28.0	%	334.5		25.4	%
United Kingdom	273.2		15.7	%	206.8		15.7	%
United States	238.7		13.7	%	187.6		14.2	%
Other	199.2		11.4	%	146.5		11.1	%
Total revenue	$	1,742.1			$	1,317.3

(1) Certain amounts may not total due to rounding of individual amounts.

Gross Profit and Gross Margin (exclusive of amortization of acquisition-related intangible assets)

Our gross profit by operating and reportable segments was as follows (dollars in millions):


	Quarter Ended October 1, 2021		As a % of Segment Revenue (1)		Quarter Ended October 2, 2020 (2)		As a % of Segment Revenue (1)

PSG	$	346.0	38.8	%	$	194.2	30.0	%
ASG	280.1		45.7	%	191.2		38.7	%
ISG	94.7		40.0	%	55.8		31.8	%
Total gross profit	$	720.8	41.4	%	$	441.2	33.5	%

(1)Certain amounts may not total due to rounding of individual amounts.

(2)Beginning in the first quarter of 2021, unallocated manufacturing costs were included as part of segment operating results to determine segment gross profit. As a result, the prior-period amounts have been reclassified to conform to current-period presentation.

Our gross profit increased by $279.6 million, or approximately 63%, from $441.2 million for the quarter ended October 2, 2020 to $720.8 million for the quarter ended October 1, 2021. Our overall gross margin increased to approximately 41% for the quarter ended October 1, 2021 from approximately 34% for the quarter ended October 2, 2020.

The favorable economic environment and significant improvement in demand in all end-markets and specifically from automotive component manufacturers and the automotive industry overall contributed to increased demand and better pricing for many of our products. The increase in gross profit and gross margin was due to a significant increase in sales volume, increased utilization and a better mix in the portfolio of products sold combined with an increase in average selling prices for many of our products.

Operating Expenses

Research and development expenses were $154.5 million for the quarter ended October 1, 2021, as compared to $156.1 million for the quarter ended October 2, 2020, representing a decrease of $1.6 million, or approximately 1%. The decrease in payroll expenses and costs associated with third-party consultants was partially offset by an increase in variable compensation.

Selling and marketing expenses were $68.4 million for the quarter ended October 1, 2021, as compared to $65.3 million for the quarter ended October 2, 2020, representing an increase of $3.1 million, or approximately 5%. The increase was primarily due to the increase in variable compensation.

General and administrative expenses were $75.7 million for the quarter ended October 1, 2021, as compared to $62.2 million for the quarter ended October 2, 2020, representing an increase of $13.5 million, or approximately 22%. The increase was primarily due to the increase in variable and stock compensation.

Other Operating Expenses

Amortization of Acquisition-Related Intangible Assets

Amortization of acquisition-related intangible assets was $24.7 million for the quarter ended October 1, 2021, as compared to $29.6 million for the quarter ended October 2, 2020, representing a decrease of $4.9 million, or approximately 17%. The decrease was primarily due to full amortization of certain of our technology-related assets during 2020.

Restructuring, Asset Impairments and Other, Net

Restructuring, asset impairments and other, net was a credit of $1.7 million for the quarter ended October 1, 2021, as compared to $9.0 million for the quarter ended October 2, 2020. The expenses related to the ISP during the third quarter of 2021 and the involuntary separation program during the third quarter of 2020. For additional information, see Note 5: ''Restructuring, Asset Impairments and Other, Net'' in the notes to our unaudited consolidated financial statements included elsewhere in this Form 10-Q.

Interest Expense

Interest expense decreased by $10.3 million to $31.9 million during the quarter ended October 1, 2021, as compared to $42.2 million during the quarter ended October 2, 2020. The decrease was primarily due to a decrease in our long-term debt. Our average gross long-term debt balance (including current maturities) for the quarter ended October 1, 2021 was $3,311.9 million at a weighted-average interest rate of 3.9%, as compared to $4,601.0 million at a weighted-average interest rate of 3.7% for the quarter ended October 2, 2020.

Gain on Divestiture of Business

Gain on divestiture of business was $10.2 million during the quarter ended October 1, 2021, as compared to zero for the quarter ended October 2, 2020, due to the divestiture of a business entity engaged in research and development. See Note 4: ''Acquisition and Divestiture'' in the notes to our unaudited consolidated financial statements included elsewhere in this Form 10-Q for additional information.

Other Income (Expense)

Other income (expense) decreased by $6.2 million from an income of $0.4 million during the quarter ended October 2, 2020 to an expense of $5.8 million during the quarter ended October 1, 2021. The decrease was primarily due to the expense relating to the valuation adjustment on employee benefit plans.

Income Tax (Provision) Benefit

We recorded an income tax provision of $61.8 million and a benefit of $83.1 million during the quarters ended October 1, 2021 and October 2, 2020, respectively.

The income tax provision for the quarter ended October 1, 2021 consisted primarily of $64.7 million for income and withholding taxes of certain of our foreign and domestic operations, partially offset by discrete benefits of $0.4 million relating

to the release of reserves and interest for uncertain tax positions in foreign jurisdictions for which the statute has lapsed, $0.2 million relating to net equity award windfalls, and $2.3 million of other discrete benefits primarily related to return to provision adjustments.

The income tax benefit for the quarter ended October 2, 2020 consisted of discrete benefits of $60.4 million primarily due to the recognition of certain deferred tax assets, net of deferred tax liabilities, related to the domestication of certain foreign subsidiaries and a benefit of $49.9 million related to the release of valuation allowances against certain state deferred tax assets. These benefits were partially offset by a provision of $23.0 million for income and withholding taxes of certain of our foreign and domestic operations, a $3.1 million discrete provision related to prior year uncertain tax positions and $1.1 million of other discrete items.

For additional information, see Note 13: ''Income Taxes'' in the notes to the unaudited consolidated financial statements included elsewhere in this Form 10-Q.

Results of Operations

Nine Months Ended October 1, 2021 compared to the Nine Months Ended October 2, 2020

The following table summarizes certain information relating to our operating results that has been derived from our unaudited consolidated financial statements (in millions):


	Nine Months Ended
	October 1, 2021		October 2, 2020		Dollar Change
Revenue	$	4,893.7	$	3,808.7	$	1,085.0
Cost of revenue (exclusive of amortization shown below)	3,011.6		2,590.5		421.1
Gross profit	1,882.1		1,218.2		663.9
Operating expenses:
Research and development	494.4		483.2		11.2
Selling and marketing	223.4		207.7		15.7
General and administrative	221.3		196.3		25.0

Amortization of acquisition-related intangible assets	74.5		91.0		(16.5)
Restructuring, asset impairments and other charges, net	58.3		58.0		0.3
Intangible asset impairment	2.9		1.3		1.6
Total operating expenses	1,074.8		1,037.5		37.3
Operating income	807.3		180.7		626.6
Other income (expense), net:
Interest expense	(98.4)		(126.6)		28.2
Interest income	1.1		4.3		(3.2)
Loss on debt refinancing and prepayment	(26.2)		—		(26.2)

Gain on divestiture of business	10.2		—		10.2
Other income (expense)	(2.4)		(2.3)		(0.1)
Other income (expense), net	(115.7)		(124.6)		8.9
Income before income taxes	691.6		56.1		635.5
Income tax benefit (provision)	(106.8)		90.5		(197.3)
Net income	584.8		146.6		438.2
Less: Net income attributable to non-controlling interest	(1.1)		(1.4)		0.3
Net income attributable to ON Semiconductor Corporation	$	583.7	$	145.2	$	438.5

Revenue

Revenue was $4,893.7 million and $3,808.7 million for the nine months ended October 1, 2021 and nine months ended October 2, 2020, respectively, representing an increase of $1,085.0 million, or 28.5%. We had one customer, a distributor, whose purchases accounted for approximately 13% of our total revenue for the nine months ended October 1, 2021.

Revenue by operating and reportable segments was as follows (dollars in millions):


	Nine Months Ended October 1, 2021		As a % of Total Revenue (1)		Nine Months Ended October 2, 2020		As a % of Total Revenue (1)
PSG	$	2,485.7	50.8	%	$	1,889.7	49.6	%
ASG	1,752.6		35.8	%	1,388.4		36.5	%
ISG	655.4		13.4	%	530.6		13.9	%
Total revenue	$	4,893.7			$	3,808.7

(1) Certain amounts may not total due to rounding of individual amounts.

Revenue from PSG increased by $596.0 million, or approximately 32%, for the nine months ended October 1, 2021 compared to the nine months ended October 2, 2020. The revenue from our Advanced Power Division and Integrated Circuits, Protection and Signal Division increased by $369.6 million and $228.4 million, respectively. These increases were primarily driven by better economic conditions resulting in increased demand for our products along with a favorable mix in the products sold and an increase in average selling prices. During the first nine months of 2020, we experienced decreased demand, delays in fulfilling certain customer orders due to significant supply chain constraints and certain of our factories operating at significantly reduced capacity levels as a result of the COVID-19 pandemic, neither of which were experienced during 2021.

Revenue from ASG increased by $364.2 million, or approximately 26%, for the nine months ended October 1, 2021 compared to the nine months ended October 2, 2020. The revenue from our Mobile, Computing and Cloud Division, Automotive Division and Industrial Solutions Division increased by $186.5 million, $122.7 million and $67.1 million, respectively. The increases were primarily due to significantly improved economic conditions resulting in increased demand for our products in other end-markets along with a favorable mix in the products sold and an increase in average selling prices. Also during the first nine months of 2020, we experienced decreased demand, delays in fulfilling certain customer orders due to significant supply chain constraints and certain of our factories operating at significantly reduced capacity levels as a result of the COVID-19 pandemic, neither of which were experienced during 2021.

Revenue from ISG increased by $124.8 million, or approximately 24%, for the nine months ended October 1, 2021 compared to the nine months ended October 2, 2020. The revenue from our Automotive Solutions Division and Industrial and Consumer Solutions Division increased by $97.6 million and $70.3 million, respectively, and was partially offset by a decrease of $43.3 million from the exited CCD business. The increase in revenue was due to the significant improvement in economic conditions, specifically with automotive component manufacturers and the automotive industry overall, resulting in increased demand for these products along with a favorable mix in the products sold and an increase in average selling prices.

Revenue by geographic location, including local sales made by operations within each area, based on sales billed from the respective region, was as follows (dollars in millions):


	Nine Months Ended October 1, 2021		As a % of Total Revenue (1)		Nine Months Ended October 2, 2020		As a % of Total Revenue (1)
Singapore	$	1,586.0	32.4	%	$	1,289.6	33.9	%
Hong Kong	1,278.5		26.1	%	974.0		25.6	%
United Kingdom	818.6		16.7	%	574.7		15.1	%
United States	648.6		13.3	%	523.9		13.8	%
Other	562.0		11.5	%	446.5		11.7	%
Total revenue	$	4,893.7			$	3,808.7

(1) Certain amounts may not total due to rounding of individual amounts.

Gross Profit and Gross Margin (exclusive of amortization of acquisition-related intangible assets described below)

Our gross profit by operating and reportable segments was as follows (dollars in millions):


	Nine Months Ended October 1, 2021		As a % of Segment Revenue (1)		Nine Months Ended October 2, 2020 (2)		As a % of Segment Revenue (1)

PSG	$	906.8	36.5	%	$	549.2	29.1	%
ASG	739.2		42.2	%	500.4		36.0	%
ISG	236.1		36.0	%	168.6		31.8	%
Total gross profit	$	1,882.1	38.5	%	$	1,218.2	32.0	%

(1)Certain amounts may not total due to rounding of individual amounts.

Our gross profit was $1,882.1 million for the nine months ended October 1, 2021 compared to $1,218.2 million for the nine months ended October 2, 2020. Gross profit increased by $663.9 million, or approximately 54%. Gross profit as a percentage of revenue increased to approximately 38% for the nine months ended October 1, 2021 from approximately 32% for the nine months ended October 2, 2020.

The significant increase in gross profit and gross margin was due to a significant increase in sales volume, increased utilization and a better mix in the portfolio of the products sold combined with an increase in average selling prices for many of our products. The favorable economic environment and significant improvement in demand in all end-markets and specifically from automotive component manufacturers and the automotive industry overall contributed to increased demand and better pricing for our products.

Operating Expenses

Research and development expenses were $494.4 million for the nine months ended October 1, 2021, as compared to $483.2 million for the nine months ended October 2, 2020, representing an increase of $11.2 million, or approximately 2%. The increase was primarily due to an increase in variable compensation.

Selling and marketing expenses were $223.4 million for the nine months ended October 1, 2021, as compared to $207.7 million for the nine months ended October 2, 2020, representing an increase of $15.7 million, or approximately 8%. The increase was primarily due to an increase in variable compensation.

General and administrative expenses were $221.3 million for the nine months ended October 1, 2021, as compared to $196.3 million for the nine months ended October 2, 2020, representing an increase of $25.0 million, or approximately 13%. The increase was primarily due to an increase in variable and stock compensation.

Other Operating Expenses

Amortization of Acquisition-Related Intangible Assets

Amortization of acquisition-related intangible assets was $74.5 million and $91.0 million for the nine months ended October 1, 2021 and nine months ended October 2, 2020, respectively, representing a decrease of $16.5 million, or approximately 18%. The decrease was primarily due to full amortization of certain of our technology-related assets during 2020.

Restructuring, Asset Impairments and Other, Net

Restructuring, asset impairments and other, net was $58.3 million for the nine months ended October 1, 2021, as compared to $58.0 million for the nine months ended October 2, 2020, representing an increase of $0.3 million. For additional information, see Note 5: ''Restructuring, Asset Impairments and Other, Net'' in the notes to our unaudited consolidated financial statements included elsewhere in this Form 10-Q.

Interest Expense

Interest expense decreased by $28.2 million to $98.4 million during the nine months ended October 1, 2021, as compared to $126.6 million during the nine months ended October 2, 2020. The decrease was primarily due to decrease in long-term debt and interest rates during this period. Our average gross long-term debt balance (including current maturities) for the nine months ended October 1, 2021 was $3,449.7 million at a weighted-average interest rate of 3.8%, as compared to $4,049.0 million at a weighted-average interest rate of 4.2% for the nine months ended October 2, 2020.

Loss on Debt Refinancing and Prepayment

Loss on debt refinancing and prepayment relating to the partial repurchase or exchange of the 1.625% Notes was $26.2 million for the nine months ended October 1, 2021, as compared to zero for the nine months ended October 2, 2020.

Gain on Divestiture of a Business

Gain on divestiture of a business was $10.2 million during the nine months ended October 1, 2021, as compared to zero for the nine months ended October 2, 2020, due to the divestiture of a business entity engaged in research and development during the quarter ended October 1, 2021. See Note 4: ''Acquisition and Divestiture'' in the notes to our unaudited consolidated financial statements included elsewhere in this Form 10-Q for additional information.

Other Income (Expense)

Other income (expense) was an expense of $2.4 million for the nine months ended October 1, 2021 as compared to an expense of $2.3 million for the nine months ended October 2, 2020. The fluctuations in foreign currencies resulting in increased transaction gains was offset by the valuation adjustment on employee benefit plans.

Income Tax (Provision) Benefit

We recorded an income tax provision of $106.8 million and a benefit of $90.5 million during the nine months ended October 1, 2021 and October 2, 2020, respectively.

The income tax provision for the nine months ended October 1, 2021 consisted primarily of $118.6 million for income and withholding taxes of certain of our foreign and domestic operations and $3.9 million related to a discrete foreign tax rate change, partially offset by discrete benefits of $7.3 million relating to uncertain tax positions in foreign jurisdictions for which the statute has lapsed, $5.5 million relating to net equity award windfalls and $2.9 million of other discrete benefits primarily related to return to provision adjustments.

The income tax benefit for the nine months ended October 2, 2020 consisted primarily of a benefit of $60.4 million due to the recognition of certain deferred tax assets, net of deferred tax liabilities, related to the domestication of certain foreign subsidiaries and a benefit of $49.9 million related to the release of valuation allowances against certain state deferred tax assets. These benefits were partially offset by a provision of $15.5 million for income and withholding taxes of certain of our foreign and domestic operations, a $3.3 million discrete provision relating to prior year uncertain tax positions and $1.0 million of other discrete items.

For additional information, see Note 13: ''Income Taxes'' in the notes to the unaudited consolidated financial statements included elsewhere in this Form 10-Q.

Liquidity and Capital Resources

This section includes a discussion and analysis of our cash requirements, off-balance sheet arrangements, contingencies, sources and uses of cash, operations, working capital and long-term assets and liabilities.

Contractual Obligations

As of October 1, 2021, there were no material changes outside the ordinary course of business to our contractual obligations table, including the notes thereto, contained in the 2020 Form 10-K.

Off-Balance Sheet Arrangements

In the ordinary course of business, we provide standby letters of credit or other guarantee instruments to certain parties in connection with certain transactions, including, but not limited to: material purchase commitments, agreements to mitigate collection risk, leases, utilities or customs guarantees. As of October 1, 2021, our Revolving Credit Facility included $15.0 million of commitment for the issuance of letters of credit subject to the available balance of the Revolving Credit Facility. There were $0.9 million letters of credit outstanding under our Revolving Credit Facility as of October 1, 2021, which reduced our borrowing capacity dollar-for-dollar. As of October 1, 2021, we also had outstanding guarantees and letters of credit outside of our Revolving Credit Facility in the amount of $7.3 million.

As part of securing financing in the ordinary course of business, we have issued guarantees related to certain of our subsidiaries, which totaled $0.9 million as of October 1, 2021. Based on historical experience and information currently available, we believe that we will not be required to make payments under the standby letters of credit or guarantee arrangements for the foreseeable future.

We have not recorded any liability in connection with these letters of credit and guarantee arrangements. See Note 7: ''Long-Term Debt'' and Note 10: ''Commitments and Contingencies'' in the notes to our unaudited consolidated financial statements found elsewhere in this Form 10-Q for additional information.

Contingencies

We are a party to a variety of agreements entered into in the ordinary course of business pursuant to which we may be obligated to indemnify other parties for certain liabilities that arise out of or relate to the subject matter of the agreements. Some of the agreements entered into by us require us to indemnify the other parties against losses due to IP infringement, environmental contamination and other property damage, personal injury, our failure to comply with applicable laws, our negligence or willful misconduct or our breach of representations, warranties or covenants related to such matters as title to sold assets.

We face risk of exposure to warranty and product liability claims in the event that our products fail to perform as expected or such failure of our products results, or is alleged to result, in economic damage, bodily injury or property damage. In addition, if any of our designed products are alleged to be defective, we may be required to participate in their recall. Depending on the significance of any particular customer and other relevant factors, we may agree to provide more favorable rights to such customer for valid defective product claims.

We maintain directors’ and officers’ insurance policies that indemnify our directors and officers against various liabilities, including certain liabilities under the Exchange Act, that might be incurred by any director or officer in his or her capacity as such. We continue to carry indemnification and insurance agreements in favor of directors, officers and employees of Fairchild and Quantenna.

While our future obligations under certain agreements may contain limitations on liability for indemnification, other agreements do not contain such limitations, and under such agreements, it is not possible to predict the maximum potential amount of future payments due to the conditional nature of our obligations and the unique facts and circumstances involved in each particular agreement. Historically, payments made by us under any of these indemnities have not had a material effect on our business, financial condition, results of operations or cash flows, and we do not believe that any amounts that we may be required to pay under these indemnities in the future will be material to our business, financial condition, results of operations or cash flows.

See Note 10: ''Commitments and Contingencies'' in the notes to our unaudited consolidated financial statements under the heading "Legal Matters" included elsewhere in this Form 10-Q for possible contingencies related to legal matters. See also Part I, Item 1 "Business - Government Regulation" of the 2020 Form 10-K for information on certain environmental matters.

Sources and Uses of Cash

Our balance of cash and cash equivalents was $1,389.2 million as of October 1, 2021. We require cash to: (i) fund our operating expenses, working capital requirements, outlays for strategic acquisitions and investments; (ii) service our debt, including principal and interest; (iii) conduct research and development; (iv) make capital expenditures; and (v) repurchase our common stock.

Our principal sources of liquidity are cash on hand, cash generated from operations, funds from external borrowings and equity issuances. In the near term, we expect to fund our primary cash requirements through cash generated from operations and with cash and cash equivalents on hand. We also have the ability to utilize our Revolving Credit Facility, which has approximately $1.97 billion available for future borrowings.

We believe that the key factors that could affect our internal and external sources of cash include:

Geopolitical and macroeconomic factors caused by the COVID-19 pandemic, which has had, and is expected to continue to have, negative impacts on the economies of the majority of countries and industries. The ultimate effect of the COVID-19 pandemic and its variants and the responses of various governmental entities and industries thereto, the duration and severity and the possibility of the re-emergence of the pandemic in future months and the anticipated recovery period are uncertain.
Factors that affect our results of operations and cash flows include the impact on our business and operations as a result of changes in demand for our products, including as a result of the COVID-19 pandemic, competitive pricing pressures, supply chain constraints, effective management of our manufacturing capacity, our ability to achieve further reductions in operating expenses, our ability to make progress on the achievement of our business strategy and sustainability goals, the impact of our restructuring programs on our production and cost efficiency and our ability to make the research and development expenditures required to remain competitive in our business.
Factors that affect our access to bank financing and the debt and equity capital markets that could impair our ability to obtain needed financing on acceptable terms or to respond to business opportunities and developments as they arise include interest rate fluctuations, macroeconomic conditions (including as a result of the COVID-19 pandemic), sudden reductions in the general availability of lending from banks or the related increase in cost to obtain bank financing and our ability to maintain compliance with covenants under our debt agreements in effect from time to time.

Our ability to service our long-term debt, including the 0% Notes, 3.875% Notes, 1.625% Notes, the Revolving Credit Facility and the Term Loan "B" Facility, to remain in compliance with the various covenants contained in our debt agreements and to fund working capital, capital expenditures and business development efforts will depend on our ability to generate cash from operating activities, which is subject to, among other things, our future operating performance and the timing of the full economic recovery from the COVID-19 pandemic, as well as financial, competitive, legislative, regulatory and other conditions, some or all of which may be beyond our control.

If we fail to generate sufficient cash from operations, we may need to raise additional equity or borrow additional funds to achieve our longer-term objectives. There can be no assurance that such equity or borrowings will be available when we access the capital markets or, if available, will be at rates or prices acceptable to us.

During the ordinary course of business, we evaluate our cash requirements and, if necessary, adjust our expenditures for inventory, operating expenditures and capital expenditures to reflect the current market conditions and our projected sales and demand. Our capital expenditures are primarily directed towards manufacturing equipment, and can materially influence our available cash for other initiatives. During the nine months ended October 1, 2021 and October 2, 2020, we paid $275.0 million and $267.2 million, respectively, for capital expenditures. Our current minimum contractual capital expenditure commitment for the remainder of 2021 is approximately $168.2 million. Our estimated purchases of property, plant and equipment are expected to be 6% to 7% of revenue on an annualized basis for 2021. Future capital expenditures may be impacted by events and transactions that are not currently forecasted.

Primary Cash Flow Sources

Our long-term cash generation is dependent on the ability of our operations to generate cash. Our cash flows from operating activities were $1,155.4 million and $483.9 million for the nine months ended October 1, 2021 and October 2, 2020, respectively. The increase of $671.5 million was primarily attributable to a significant increase in net income due to better economic conditions resulting in increased demand for our products and better working capital management. Our ability to maintain positive operating cash flows is dependent on, among other factors, our success in achieving our revenue goals and manufacturing and operating cost targets. Management of our assets and liabilities, including both working capital and long-term assets and liabilities, also influences our operating cash flows, and each of these components is discussed below.

Working Capital

Working capital, calculated as total current assets less total current liabilities, fluctuates depending on end-market demand and our effective management of certain items such as receivables, inventory and payables. Our working capital, excluding cash and cash equivalents and the current portion of long-term debt, was $1,011.5 million as of October 1, 2021, and has fluctuated between $1,057.1 million and $885.0 million at the end of each of our last eight fiscal quarters. Our working capital, including cash and cash equivalents and the current portion of long-term debt, was $2,197.7 million as of October 1, 2021, and has

fluctuated between $2,379.8 million and $1,201.6 million at the end of each of our last eight fiscal quarters. The significant fluctuation was due to the withdrawal and repayment on our Revolving Credit Facility during 2020 as well as the reclassification of the 1.625% Notes as a current liability. We expect an increase in capital expenditures during 2022 and also expect to pay a significant portion of the remaining severance obligations incurred in connection with the ISP during the fourth quarter of 2021 and the first quarter of 2022.

Long-Term Assets and Liabilities

Our long-term assets consist primarily of property, plant and equipment, intangible assets, deferred taxes and goodwill. Our manufacturing rationalization plans have included efforts to utilize our existing manufacturing assets and supply arrangements more efficiently. We have taken certain measures to add manufacturing capacity with the closure of the GTAT acquisition on October 28, 2021 and in connection with the expected completion of the acquisition of the East Fishkill, New York fabrication facilities and certain related assets and liabilities on or around December 31, 2022.

Our long-term liabilities, excluding long-term debt and deferred taxes, consist of liabilities under our foreign defined benefit pension plans, operating lease liabilities and contingent tax reserves. With regard to our foreign defined benefit pension plans, our annual funding of these obligations is equal to the minimum amount legally required in each jurisdiction in which the plans operate. This annual amount is dependent upon numerous actuarial assumptions. For additional information, see Note 6: ''Balance Sheet Information and Other'' and Note 13: ''Income Taxes'' in the notes to our unaudited consolidated financial statements included elsewhere in this Form 10-Q.

Key Financing and Capital Events

Overview

Over the past several years, we have undertaken various measures to secure liquidity to pursue acquisitions, repurchase shares of our common stock, reduce interest costs, amend existing key financing arrangements and, in some cases, extend a portion of our debt maturities to continue to provide us additional operating and financial flexibility. During the nine ended October 1, 2021, we executed the Ninth Amendment, issued our 0% Notes, repurchased or exchanged a significant portion of the 1.625% Notes and repaid the remaining outstanding balance on our Revolving Credit Facility.

Cash Management

Our ability to manage cash is limited, as our primary cash inflows and outflows are dictated by the terms of our sales and supply agreements, contractual obligations, debt instruments and legal and regulatory requirements. While we have some flexibility with respect to the timing of capital equipment purchases, we must invest in capital equipment on a timely basis to allow us to maintain our manufacturing efficiency and support our platforms for new products.

Debt Guarantees and Related Covenants

As of October 1, 2021, we were in compliance with the indentures relating to our 0% Notes, 3.875% Notes and 1.625% Notes and with covenants relating to our Term Loan "B" Facility and Revolving Credit Facility. The 0% Notes, 3.875% Notes and 1.625% Notes are senior to the existing and future subordinated indebtedness of onsemi and its guarantor subsidiaries, rank equally in right of payment to all of our existing and future senior debt and, as unsecured obligations, are subordinated to all of our existing and future secured debt to the extent of the assets securing such debt.

Recent Accounting Pronouncements

For a discussion of recent accounting pronouncements, see our 2020 Form 10-K and Note 3: "Recent Accounting Pronouncements" in the notes to our unaudited consolidated financial statements included elsewhere in this Form 10-Q.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

We are exposed to financial market risks, including changes in interest rates and foreign currency exchange rates. To mitigate these risks, we utilize derivative financial instruments. We do not use derivative financial instruments for speculative or trading purposes.

As of October 1, 2021, our gross long-term debt (including current maturities) totaled $3,309.9 million. While we do not have interest rate exposure to rate changes on our fixed-rate debt, which totaled $3,207.6 million as of October 1, 2021, $102.3

million of our variable interest rate debt is subject to interest rate exposure. A 50 basis point increase in interest rates would impact our expected annual interest expense for the next 12 months by approximately $3.3 million. However, some of this impact would be offset by additional interest earned on our cash and cash equivalents should rates on deposits and investments also increase. Our interest rate swaps hedge a significant portion of the risk of variability in cash flows resulting from future interest payments on our variable interest rate debt.

While we observed stabilization in the capital markets impacted by the COVID-19 pandemic, including in connection with our recent debt transactions, there can be no assurance that equity or borrowings will be available when we access the capital markets again or, if available, will be at rates or prices acceptable to us.

To ensure the adequacy and effectiveness of our foreign exchange hedge positions, we continually monitor our foreign exchange forward positions, both on a stand-alone basis and in conjunction with their underlying foreign currency exposures, from an accounting and economic perspective. However, given the inherent limitations of forecasting and the anticipatory nature of exposures intended to be hedged, we cannot provide any assurances that such programs will offset more than a portion of the adverse financial impact resulting from unfavorable movements in foreign exchange rates.

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 U.S. Dollar as a normal part of the reporting process. Some of our Japanese operations utilize Japanese Yen as the functional currency, which results in a translation adjustment that is included as a component of accumulated other comprehensive income.

We enter into forward foreign currency contracts that economically hedge the gains and losses generated by the re-measurement of certain recorded assets and liabilities in a non-functional currency. Changes in the fair value of these undesignated hedges are recognized in other income (expense) immediately as an offset to the changes in the fair value of the assets or liabilities being hedged. The notional amount of foreign exchange contracts as of October 1, 2021 and December 31, 2020 was $301.2 million and $263.4 million, respectively. Our policies prohibit speculation on financial instruments, trading in currencies for which there are no underlying exposures or entering into trades for any currency to intentionally increase the underlying exposure.

Substantially all of our revenue is transacted in U.S. Dollars. However, a significant amount of our operating expenditures and capital purchases are transacted in local currencies, including Chinese Renminbi, Czech Koruna, Euros, Japanese Yen, Korean Won, Malaysian Ringgit, Philippine Peso and Vietnamese Dong. Due to the materiality of our transactions in these local currencies, our results are impacted by changes in currency exchange rates measured against the U.S. Dollar. 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 $111.4 million as of October 1, 2021, assuming no offsetting hedge position or correlated activities.

See Note 12: ''Financial Instruments'' in the notes to the unaudited consolidated financial statements included elsewhere in this Form 10-Q for further information with respect to our hedging activity.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act). Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered in this report, our disclosure controls and procedures were effective to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the required time periods and is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial 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 October 1, 2021.

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 October 1, 2021 which have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II: OTHER INFORMATION

Item 1. Legal Proceedings

See Note 10: "Commitments and Contingencies" under the heading "Legal Matters" in the notes to the consolidated unaudited financial statements included elsewhere in this Form 10-Q for additional information on our legal proceedings and related matters. See also Part I, Item 1 "Business - Government Regulation" of the 2020 Form 10-K for information on certain environmental matters.

Item 1A. Risk Factors

Our business, financial condition and results of operations are subject to a number of trends, risks and uncertainties. We review and, where applicable, update our risk factors each quarter. There have been no material changes from the risk factors disclosed in Part I, Item 1A of the 2020 Form 10-K, except for the below.

Compliance with regulations regarding the use of “conflict minerals” could limit the supply and increase the cost of certain raw materials used in manufacturing our products, create additional compliance costs and create reputational challenges.

The SEC, as mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, adopted disclosure regulations for public companies that manufacture products containing certain minerals that are mined from the Democratic Republic of Congo and adjoining countries and procedures pertaining to a manufacturer’s efforts regarding the source of such minerals. These "conflict minerals" are commonly found in metals used in the manufacture of semiconductors. Manufacturers are also required to disclose their efforts to prevent the sourcing of such minerals and metals produced from them. Compliance with these requirements could adversely affect the sourcing, availability and pricing of metals used in the manufacture of our products and may be time consuming for our management and supply chain personnel. In addition, we have incurred, and in the future may incur, additional costs to comply with the disclosure requirements, including costs related to determining the source of any of the relevant minerals used in our products, submitting a conflict minerals report and the audit of such report by an independent auditor. If we determine that certain of our products contain materials not determined to be conflict free or if we are unable to verify with sufficient accuracy the origins of all conflict materials used in our products, we may face difficulties in satisfying customers who may require that our products be certified as free of "conflict materials," which could harm our relationships with these customers, and other reputational challenges, which could lead to a loss of revenue.

Forward-Looking Statements

This Quarterly Report on Form 10-Q includes "forward-looking statements," as that term is defined in Section 27A of the Securities Act and Section 21E of the Exchange Act. All statements, other than statements of historical facts, included or incorporated in this Form 10-Q could be deemed forward-looking statements, particularly statements about our plans, strategies and prospects under the heading "Management’s Discussion and Analysis of Financial Condition and Results of Operations." 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. All forward-looking statements in this Form 10-Q are made based on our current expectations, forecasts, estimates and assumptions and involve risks, uncertainties and other factors that could cause results or events to differ materially from those expressed in the forward-looking statements. Certain factors that could affect our future results or events are described under Part I, Item 1A "Risk Factors" in the 2020 Form 10-K, in this Form 10-Q and from time to time in our other SEC reports. Readers are cautioned not to place undue reliance on forward-looking statements. We assume no obligation to update such information, except as may be required by law. You should carefully consider the trends, risks and uncertainties described in those reports and subsequent reports filed with or furnished to the SEC before making any investment decision with respect to our securities. If any of the following trends, risks or uncertainties actually occurs or continues, our business, financial condition or operating results could be materially adversely affected, the trading prices of our securities could decline and you could lose all or part of your investment. All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by this cautionary statement.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

The following table provides information regarding repurchases of our common stock during the quarter ended October 1, 2021:


Period (1)	Total Number of Shares Purchased (2)	Average Price Paid per Share ($) (3)	Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Approximate Dollar value of Shares that May Yet be Purchased Under the Plans or Programs (in millions) ($)
July 3, 2021 - July 30, 2021	—	—	—	1,295.8
July 31, 2021 - August 27, 2021	7,303	45.06	—	1,295.8
August 28, 2021 - October 1, 2021	42,209	44.99	—	1,295.8
Total	49,512	45.00	—

(1) These time periods represent our fiscal month start and end dates for the third quarter of 2021.

(2) 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 RSUs.

(3) The price per share is based on the fair market value at the time of tender, repurchase or exercise of outstanding put options, respectively.

Share Repurchase Program

Under the Share Repurchase Program, we may repurchase up to $1.5 billion (exclusive of fees, commissions and other expenses) of our common stock from December 1, 2018 through December 31, 2022, subject to certain contingencies. Subject to the discretion of our board of directors, we may 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, and the timing of any repurchases and the actual number of shares repurchased depend on a variety of factors, including our stock price, corporate and regulatory requirements, restrictions under our debt obligations and other market and economic conditions. There were no shares repurchased under the Share Repurchase Program during the quarter ended October 1, 2021.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

Item 6. Exhibits

EXHIBIT INDEX



Exhibit No.		Exhibit Description*****


	2.1	Agreement and Plan of Merger, dated August 25, 2021, by and among ON Semiconductor Corporation, Semiconductor Components Industries, LLC, Terra Merger Sub, Inc., GT Advanced Technologies Inc. and Pirinate Consulting Group 2, LLC, as equityholder representative (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed with the Commission on August 25, 2021).†

	3.1	Certificate of Elimination of Series B Junior Participating Preferred Stock of ON Semiconductor Corporation (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the Commission on August 20, 2021).

	10.1	Form of Voting and Support Agreement (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Commission on August 25, 2021).



	31.1	Certification by CEO pursuant to Rule 13(a)-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of Sarbanes-Oxley Act of 2002(1).

	31.2	Certification by CFO pursuant to Rule 13(a)-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of Sarbanes-Oxley Act of 2002(1).

	32	Certification by CEO and CFO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002(2).

	101.INS	XBRL Instance Document(1)

	101.SCH	XBRL Taxonomy Extension Schema Document(1)

	101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document(1)

	101.DEF	XBRL Taxonomy Extension Definition Linkbase Document(1)

	101.LAB	XBRL Taxonomy Extension Label Linkbase Document(1)

	101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document(1)

	104	Cover Page Interactive Data File - the cover page XBRL tags are embedded within the Inline XBRL document.


*			Reports filed under the Exchange Act (Form 10-K, Form 10-Q and Form 8-K) are filed under File No. 000-30419 and File No. 001-39317.
†			The Company has omitted certain schedules and exhibits pursuant to Item 601(b)(2) of Regulation S-K and, upon request by the Commission, agrees to furnish supplementally to the Commission a copy of any omitted schedule or exhibit.


(1)			Filed herewith.
(2)			Furnished herewith.

SIGNATURES

Pursuant to the requirements of the Exchange Act, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.




		ON SEMICONDUCTOR CORPORATION (Registrant)

Date:	November 1, 2021	By:	/s/ THAD TRENT
			Thad Trent
			Executive Vice President, Chief Financial Officer and Treasurer
			(Principal Financial Officer and officer duly authorized to sign this report)

		By:	/s/ BERNARD R. COLPITTS, JR.
			Bernard R. Colpitts, Jr.
			Chief Accounting Officer
			(Principal Accounting Officer and officer duly authorized to sign this report)