ON Semiconductor 10-Q 2023-09-29

Filed 2023-10-30. 8 sections, 183K 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 September 29, 2023


☐			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.)

5701 N. Pima Road

Scottsdale, AZ 85250

(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 25, 2023:


Title of Each Class						Number of Shares
Common Stock, par value $0.01 per share						430,697,587

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	28
	Item 3. Quantitative and Qualitative Disclosures About Market Risk	37
	Item 4. Controls and Procedures	37
Part II: Other Information
	Item 1. Legal Proceedings	39
	Item 1A. Risk Factors	39
	Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	40
	Item 3. Defaults Upon Senior Securities	40
	Item 4. Mine Safety Disclosures	40
	Item 5. Other Information	40
	Item 6. Exhibits	41
	Signatures	42

(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
0.50% Notes						0.50% Convertible Senior Notes due 2029
1.625% Notes						1.625% Convertible Senior Notes due 2023

3.875% Notes						3.875% Senior Notes due 2028
ADAS						Advanced driver-assistance systems
Amended and Restated SIP						ON Semiconductor Corporation Amended and Restated Stock Incentive Plan, as amended




ASU						Accounting Standards Update









Commission or SEC						Securities and Exchange Commission
New Credit Agreement						Credit agreement, dated as of June 22, 2023, by and among the Company, as borrower, the several lenders party thereto, JP Morgan Chase Bank, N.A., as administrative agent, and certain other parties, providing for the Revolving Credit Facility
EFK						East Fishkill, New York fabrication facility
ESPP						ON Semiconductor Corporation 2000 Employee Stock Purchase Plan, as amended
Exchange Act						Securities Exchange Act of 1934, as amended

GTAT						GT Advanced Technologies Inc.



IP						Intellectual property



















IRS						United States Internal Revenue Service
IT						Information Technology
Existing 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 Revolver due 2024 and the Term Loan “B” Facility
Revolver due 2024						A $1.97 billion revolving credit facility created pursuant to the Existing Credit Agreement
QCS						Division within ASG, primarily associated with the legacy Quantenna division
Revolving Credit Facility						A $1.5 billion senior revolving credit facility created pursuant to the New Credit Agreement
ROU						Right-of-use
RSU						Restricted stock unit
SCI LLC						Semiconductor Components Industries, LLC
SiC						Silicon carbide




Securities Act						Securities Act of 1933, as amended



Term Loan "B" Facility						A $2.4 billion term loan "B" facility created pursuant to the Existing Credit Agreement
U.S. or United States						United States of America

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)


	September 29, 2023		December 31, 2022
Assets
Cash and cash equivalents	$	2,679.2	$	2,919.0

Receivables, net	958.2		842.3
Inventories	2,084.8		1,616.8
Other current assets	363.2		351.3

Total current assets	6,085.4		5,729.4

Property, plant and equipment, net	4,314.5		3,450.7
Goodwill	1,577.6		1,577.6
Intangible assets, net	312.8		359.7
Deferred tax assets	579.3		376.7
ROU financing lease assets	43.0		45.8
Other assets	368.7		438.6
Total assets	$	13,281.3	$	11,978.5
Liabilities and Stockholders’ Equity
Accounts payable	$	911.3	$	852.1
Accrued expenses and other current liabilities	665.4		1,047.3
Current portion of financing lease liabilities	5.2		14.2
Current portion of long-term debt	912.9		147.8
Total current liabilities	2,494.8		2,061.4
Long-term debt	2,541.1		3,045.7
Deferred tax liabilities	35.1		34.1
Long-term financing lease liabilities	21.6		23.0
Other long-term liabilities	684.7		607.3
Total liabilities	5,777.3		5,771.5
Commitments and contingencies (Note 9)
ON Semiconductor Corporation stockholders’ equity:
Common stock ($0.01 par value, 1,250,000,000 shares authorized, 611,473,768 and 608,367,713 issued, 430,594,632 and 431,936,415 outstanding, respectively)	6.1		6.1
Additional paid-in capital	4,745.8		4,670.9
Accumulated other comprehensive loss	(44.9)		(23.2)
Accumulated earnings	5,985.4		4,364.4
Less: Treasury stock, at cost: 180,879,136 and 176,431,298 shares, respectively	(3,208.1)		(2,829.7)
Total ON Semiconductor Corporation stockholders’ equity	7,484.3		6,188.5
Non-controlling interest	19.7		18.5
Total stockholders’ equity	7,504.0		6,207.0
Total liabilities and stockholders’ equity	$	13,281.3	$	11,978.5

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
	September 29, 2023		September 30, 2022		September 29, 2023		September 30, 2022
Revenue	$	2,180.8	$	2,192.6	$	6,234.9	$	6,222.6
Cost of revenue	1,150.1		1,134.3		3,293.3		3,165.9
Gross profit	1,030.7		1,058.3		2,941.6		3,056.7
Operating expenses:
Research and development	143.4		145.4		427.1		463.8
Selling and marketing	68.2		69.5		211.6		213.7
General and administrative	110.7		84.9		273.8		246.0

Amortization of acquisition-related intangible assets	12.0		21.9		39.0		65.1
Restructuring, asset impairments and other charges, net	9.4		40.3		63.5		25.6
Goodwill and intangible asset impairment charges	—		271.8		—		386.8
Total operating expenses	343.7		633.8		1,015.0		1,401.0
Operating income	687.0		424.5		1,926.6		1,655.7
Other income (expense), net:
Interest expense	(16.2)		(23.7)		(59.0)		(67.4)
Interest income	25.7		4.9		66.8		6.4
Loss on debt prepayment	—		—		(13.3)		(7.3)

Gain (loss) on divestiture of business	(0.1)		0.2		(0.7)		2.1

Other income	1.1		0.9		4.5		9.4
Other income (expense), net	10.5		(17.7)		(1.7)		(56.8)
Income before income taxes	697.5		406.8		1,924.9		1,598.9
Income tax provision	(114.6)		(94.9)		(302.7)		(299.4)
Net income	582.9		311.9		1,622.2		1,299.5
Less: Net income attributable to non-controlling interest	(0.2)		—		(1.2)		(1.6)
Net income attributable to ON Semiconductor Corporation	$	582.7	$	311.9	$	1,621.0	$	1,297.9

Net income for diluted earnings per share of common stock (Note 7)	$	583.1	$	312.4	$	1,622.2	$	1,299.4
Net income per share of common stock attributable to ON Semiconductor Corporation:
Basic	$	1.35	$	0.72	$	3.76	$	2.99
Diluted	$	1.29	$	0.70	$	3.61	$	2.90
Weighted-average shares of common stock outstanding:
Basic	431.2		432.9		431.6		433.5
Diluted	450.7		448.7		449.3		448.3

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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 2022 Form 10-K and our unaudited consolidated financial statements for the fiscal quarter ended September 29, 2023, which are 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 2022 Form 10-K.

Executive Overview

onsemi Overview

onsemi provides intelligent power and intelligent sensing solutions with a primary focus towards automotive and industrial markets to help our customers solve challenging problems and create cutting-edge products for a better future. Our intelligent power technologies enable the electrification of the automotive industry that allows for lighter and longer-range electric vehicles, empowers efficient fast-charging systems and propels sustainable energy for the highest efficiency solar strings, industrial power and storage systems. Our intelligent power solutions for automotive allow customers to exceed range targets with lower weight and reduce system cost through efficiency. Our intelligent sensing technologies support the next generation industry, allowing for smarter 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.

We believe the evolution of the automotive industry, with advancements in autonomous driving, ADAS, vehicle electrification, and the increase in electronics content for vehicle platforms, is reshaping the boundaries of transportation. Through sensing integration, we believe our intelligent power solutions achieve superior efficiencies compared to our peers. This integration allows lower temperature operation and reduced cooling requirements while saving costs and minimizing weight. In addition, our power solutions deliver power with less die per module, achieving higher range for a given battery capacity. As of September 29, 2023, we were organized into the three operating and reportable segments of PSG, ASG and ISG.

Business Strategy Developments

Our primary focus continues to be on profitable revenue and operating income growth by capturing high-growth megatrends in our focused end-markets of automotive and industrial infrastructure, as well as obtaining LTSAs with strategic end-customers. We are designing products in highly differentiated markets focused on customer needs while optimizing our manufacturing footprint to support growth and expanding gross margins through efficiencies and new product ramps. We continue to rationalize our product portfolio by moving away from non-differentiated, non-strategic products, which in most cases had lower gross margins.

2023 Business Realignment

During the first and second quarters, we realigned our operating models in ASG and the Corporate IT organization in order to streamline our operations and achieve organizational efficiencies. Under this business realignment, approximately 460 employees were notified of their employment termination.

During the third quarter, in order to right-size our workforce to consolidate resources into fewer, common sites across the world, we announced the elimination of approximately 900 positions, primarily in our manufacturing locations. We incurred severance and related charges of $54.5 million related to all these actions.

2023 Financing activities

0.50% Convertible Senior Notes due 2029

During the first quarter of 2023, we completed the offering of $1.5 billion aggregate principal amount of our 0.50% Notes and utilized the net proceeds along with cash generated from operations to (i) repay $1,086.0 million of the outstanding indebtedness under the Term Loan “B” Facility and the related transaction fees and expenses, (ii) pay $171.5 million net cost of the related convertible note hedges after such costs were offset by the proceeds from the sale of warrants, and (iii) for general corporate purposes.

New Credit Agreement

During the second quarter of 2023, we entered into the New Credit Agreement to replace the Revolver due 2024 which was maturing on June 28, 2024. We drew $375.0 million against the Revolving Credit Facility and repaid the entire outstanding balance under the Revolver due 2024. We repaid $125.0 million of the outstanding balance under the Revolver due 2024 during the first quarter of 2023. As of September 29, 2023, we had approximately $1.1 billion available under the Revolving Credit Facility for future borrowings.

1.625% Notes maturity and repayment

On October 16, 2023, we repaid $119.6 million of the remaining outstanding principal amount of the 1.625% Notes in cash and settled the excess over the principal amount by issuing 4.5 million shares of our common stock. Under the previously executed bond hedge agreements, we also repurchased an equivalent number of shares of our common stock for no additional consideration, to effectively offset the issuance of shares.

For additional information on these financing activities, see Note 6: ''Long-Term Debt'' in the notes to our unaudited consolidated financial statements included elsewhere in this Form 10-Q.

Results of Operations

Quarter Ended September 29, 2023 compared to the Quarter Ended September 30, 2022

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
	September 29, 2023		September 30, 2022		Dollar Change
Revenue	$	2,180.8	$	2,192.6	$	(11.8)
Cost of revenue	1,150.1		1,134.3		15.8
Gross profit	1,030.7		1,058.3		(27.6)
Operating expenses:
Research and development	143.4		145.4		(2.0)
Selling and marketing	68.2		69.5		(1.3)
General and administrative	110.7		84.9		25.8

Amortization of acquisition-related intangible assets	12.0		21.9		(9.9)
Restructuring, asset impairments and other charges, net	9.4		40.3		(30.9)
Goodwill and intangible asset impairment charges	—		271.8		(271.8)
Total operating expenses	343.7		633.8		(290.1)
Operating income	687.0		424.5		262.5
Other income (expense), net:
Interest expense	(16.2)		(23.7)		7.5
Interest income	25.7		4.9		20.8

Gain (loss) on divestiture of business	(0.1)		0.2		(0.3)


Other income	1.1		0.9		0.2
Other income (expense), net	10.5		(17.7)		28.2
Income before income taxes	697.5		406.8		290.7
Income tax provision	(114.6)		(94.9)		(19.7)
Net income	582.9		311.9		271.0
Less: Net income attributable to non-controlling interest	(0.2)		—		(0.2)
Net income attributable to ON Semiconductor Corporation	$	582.7	$	311.9	$	270.8

Revenue

Revenue remained flat at $2,180.8 million compared to $2,192.6 million for the quarters ended September 29, 2023 and September 30, 2022, respectively. We had one customer, a distributor, whose revenue accounted for approximately 11% and

12% of our total revenue for the quarters ended September 29, 2023 and September 30, 2022, respectively. Revenue by operating and reportable segments was as follows (dollars in millions):


	Quarter Ended September 29, 2023		As a % of Total Revenue (1)		Quarter Ended September 30, 2022		As a % of Total Revenue (1)
PSG	$	1,230.6	56.4	%	$	1,116.1	50.9	%
ASG	621.6		28.5	%	734.3		33.5	%
ISG	328.6		15.1	%	342.2		15.6	%
Total revenue	$	2,180.8			$	2,192.6

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

Revenue from PSG increased by $114.5 million, or approximately 10%, for the quarter ended September 29, 2023 compared to the quarter ended September 30, 2022. Revenue from our Advanced Power Division increased by $172.5 million, primarily driven by our continued ramp in SiC and other power automotive solutions. This was partially offset by a decrease of $58.1 million in our Integrated Circuits, Protection and Signal Division driven by planned customer product exits and reduced demand driven by lower end-market requirements for these products.

Revenue from ASG decreased by $112.7 million, or approximately 15%, for the quarter ended September 29, 2023 compared to the quarter ended September 30, 2022. This was primarily due to the decrease in revenue from our Power Management Division driven by planned end of life for targeted products, as well as a general drop in demand for these products.

Revenue from ISG decreased by $13.6 million, or approximately 4%, for the quarter ended September 29, 2023 compared to the quarter ended September 30, 2022, largely driven by a decrease in revenue from our Industrial and Consumer Solutions Division of $27.0 million, partially offset by an increase of $13.3 million in our Automotive Sensing Division. The decrease was due to a decrease in demand for these products.

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


	Quarter Ended September 29, 2023		As a % of Total Revenue (1)		Quarter Ended September 30, 2022		As a % of Total Revenue (1)
Hong Kong	$	581.9	26.7	%	$	617.9	28.2	%
Singapore	506.8		23.2	%	544.0		24.8	%
United Kingdom	464.2		21.3	%	372.5		17.0	%
United States	424.5		19.5	%	415.4		18.9	%
Other	203.4		9.3	%	242.8		11.1	%
Total revenue	$	2,180.8			$	2,192.6

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

Gross Profit and Gross Margin

Gross profit was $1,030.7 million for the quarter ended September 29, 2023 compared to $1,058.3 million for the quarter ended September 30, 2022. Our gross profit decreased by $27.6 million primarily due to the decline in existing product revenue which negatively impacted gross profit by approximately $130 million, and higher manufacturing costs at our EFK location of approximately $30 million, which includes start up and ramp up costs, along with an unfavorable impact from our foundry business. This decrease was partially offset by new product sales which improved gross profit by approximately $110 million and the inventory reserves on exited product lines recorded during the previous year which did not recur.

Our gross margin decreased by 1% quarter over quarter, primarily due to the impact of the decline in gross margin in ASG and ISG, partially offset by the increase in PSG, which are explained below.

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


	Quarter Ended September 29, 2023		As a % of Segment Revenue (1)		Quarter Ended September 30, 2022		As a % of Segment Revenue (1)

PSG	$	591.0	48.0	%	$	508.5	45.6	%
ASG	283.6		45.6	%	381.7		52.0	%
ISG	156.1		47.5	%	168.1		49.1	%
Total gross profit	$	1,030.7	47.3	%	$	1,058.3	48.3	%

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

Explanation for the increase or decrease in gross profit amounts and gross margin percentages for the quarter ended September 29, 2023 compared to the quarter ended September 30, 2022 is provided below:

PSG gross profit increased by $82.5 million, primarily driven by new product sales which contributed approximately $110 million, and was partially offset by a decline in existing products revenue which negatively impacted gross profit by approximately $40 million. Additionally, we had recorded inventory reserves for certain exited product lines during the prior year which did not recur. PSG gross margin increased by 2.4% to 48.0% from 45.6% due to the above factors.

ASG gross profit decreased by $98.1 million primarily driven by the impact of a decline in product revenue amounting to approximately $80 million and higher manufacturing costs at our EFK location which includes an unfavorable impact of our foundry business of approximately $20 million. ASG gross margin decreased by 6.4% to 45.6% from 52.0%, primarily due to the decline in revenue and impact of the foundry business.

ISG gross profit and gross margin decreased by $12.0 million and 1.6%, respectively, primarily driven by an increase in manufacturing costs to qualify new suppliers.

Operating Expenses

Research and development expenses were $143.4 million for the quarter ended September 29, 2023, as compared to $145.4 million for the quarter ended September 30, 2022, representing a decrease of $2.0 million, or approximately 1%. The decrease in variable compensation expense was offset by an increase in new product development costs.

Selling and marketing expenses were $68.2 million for the quarter ended September 29, 2023, as compared to $69.5 million for the quarter ended September 30, 2022, representing a decrease of $1.3 million, or approximately 2%.

General and administrative expenses were $110.7 million for the quarter ended September 29, 2023, as compared to $84.9 million for the quarter ended September 30, 2022, representing an increase of $25.8 million, or approximately 30%. There was an increase in expenses associated with information technology initiatives and a bad debt provision on outstanding receivable balances generated under an agreement with a business partner. This was partially offset by a decrease in variable compensation expense.

Other Operating Expenses

Amortization of Acquisition-Related Intangible Assets

Amortization of acquisition-related intangible assets was $12.0 million for the quarter ended September 29, 2023, as compared to $21.9 million for the quarter ended September 30, 2022, representing a decrease of $9.9 million, or approximately 45%. The decrease was due to the impairment of intangible assets due to the QCS wind down during the third quarter of 2022 and a reduction in amortization expense as certain intangible assets became fully amortized.

Restructuring, Asset Impairments and Other, Net

Restructuring, asset impairments and other, net was $9.4 million for the quarter ended September 29, 2023, as compared to $40.3 million for the quarter ended September 30, 2022. Amounts incurred for the quarter ended September 29, 2023 related primarily to the business realignment efforts in the third quarter of 2023. Amounts incurred during the quarter ended September 30, 2022 related primarily to severance charges, contract termination costs and litigation expenses related to the QCS wind down.

Goodwill and Intangible Asset Impairment

Goodwill and intangible asset impairment was zero for the quarter ended September 29, 2023, as compared to $271.8 million for the quarter ended September 30, 2022. During the third quarter of 2022, we approved an exit plan to wind down QCS and and impaired the remaining goodwill and unamortized intangible assets of $215.0 million and $56.8 million, respectively.

Interest Expense

Interest expense decreased by $7.5 million to $16.2 million during the quarter ended September 29, 2023, as compared to $23.7 million during the quarter ended September 30, 2022. The decrease was primarily due to the repayment of the balances under the Term Loan "B" Facility and replacement by the issuance of the 0.50% Notes. Our average gross long-term debt for the quarter ended September 29, 2023 was $3,499.5 million at a weighted-average interest rate of 1.8%, as compared to $3,250.1 million at a weighted-average interest rate of 2.9% for the quarter ended September 30, 2022. The calculation of our weighted-average interest rates includes the effect of our interest rate swap agreements.

Other Income (Expense)

During the quarter ended September 29, 2023, other income (expense) was an expense of $1.1 million compared to an income of $0.9 million during the quarter ended September 30, 2022.

Income Tax Provision

We recorded an income tax provision of $114.6 million and $94.9 million for the quarters ended September 29, 2023 and September 30, 2022, respectively, representing effective tax rates of 16.4% and 23.3%. The decrease in our effective tax rate is due to the goodwill impairments in the prior year, which were not deductible for tax purposes.

For additional information, see Note 12: ''Income Taxes'' and Note 5: ''Balance Sheet Information and Other Supplemental Disclosures'' in the notes to the unaudited consolidated financial statements included elsewhere in this Form 10-Q.

Results of Operations

Nine Months Ended September 29, 2023 compared to the Nine Months Ended September 30, 2022

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
	September 29, 2023		September 30, 2022		Dollar Change
Revenue	$	6,234.9	$	6,222.6	$	12.3
Cost of revenue	3,293.3		3,165.9		127.4
Gross profit	2,941.6		3,056.7		(115.1)
Operating expenses:
Research and development	427.1		463.8		(36.7)
Selling and marketing	211.6		213.7		(2.1)
General and administrative	273.8		246.0		27.8

Amortization of acquisition-related intangible assets	39.0		65.1		(26.1)
Restructuring, asset impairments and other charges, net	63.5		25.6		37.9
Goodwill and intangible asset impairment charges	—		386.8		(386.8)
Total operating expenses	1,015.0		1,401.0		(386.0)
Operating income	1,926.6		1,655.7		270.9
Other income (expense), net:
Interest expense	(59.0)		(67.4)		8.4
Interest income	66.8		6.4		60.4
Loss on debt prepayment	(13.3)		(7.3)		(6.0)

Gain (loss) on divestiture of business	(0.7)		2.1		(2.8)

Other income	4.5		9.4		(4.9)
Other income (expense), net	(1.7)		(56.8)		55.1
Income before income taxes	1,924.9		1,598.9		326.0
Income tax provision	(302.7)		(299.4)		(3.3)
Net income	1,622.2		1,299.5		322.7
Less: Net income attributable to non-controlling interest	(1.2)		(1.6)		0.4
Net income attributable to ON Semiconductor Corporation	$	1,621.0	$	1,297.9	$	323.1

Revenue

Revenue was relatively flat at $6,234.9 million compared to $6,222.6 million for the nine months ended September 29, 2023 and September 30, 2022, respectively. We had one customer, a distributor, whose revenue accounted for approximately 10.0% of our total revenue for the nine months ended September 29, 2023 and 12% of our total revenue for the nine months ended September 30, 2022.

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


	Nine Months Ended September 29, 2023		As a % of Total Revenue (1)		Nine Months Ended September 30, 2022		As a % of Total Revenue (1)
PSG	$	3,363.2	53.9	%	$	3,159.8	50.8	%
ASG	1,863.9		29.9	%	2,140.3		34.4	%
ISG	1,007.8		16.2	%	922.5		14.8	%
Total revenue	$	6,234.9			$	6,222.6

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

Revenue from PSG increased by $203.4 million, or approximately 6%, for the nine months ended September 29, 2023 compared to the nine months ended September 30, 2022. The revenue from our Advanced Power Division increased by $407.5 million, offset by a decrease of $204.3 million in our Integrated Circuits, Protection and Signal Division. The increase was primarily driven by our continued ramp in SiC and other power automotive solutions, while the decrease was primarily driven by planned customer product exits and reduced demand driven by lower end-market requirements for these products.

Revenue from ASG decreased by $276.4 million, or approximately 13%, for the nine months ended September 29, 2023 compared to the nine months ended September 30, 2022. The revenue from our Power Management Division decreased by $298.6 million, primarily driven by the QCS wind down, planned end of life for targeted products as well as a general drop in end-market demand for these products. This was partially offset by an increase of $22.3 million in our Sensor Interface Division driven by foundry business through our EFK location.

Revenue from ISG increased by $85.3 million, or approximately 9%, for the nine months ended September 29, 2023 compared to the nine months ended September 30, 2022, which was largely driven by an increase in revenue from our Automotive Sensing Division of $134.9 million primarily due to an increase in average selling prices for some of our products. This was partially offset by a decrease of $49.4 million in our Industrial and Consumer Solutions Division due to lower demand.

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 September 29, 2023		As a % of Total Revenue (1)		Nine Months Ended September 30, 2022		As a % of Total Revenue (1)
Hong Kong	$	1,602.5	25.7	%	$	1,731.9	27.8	%
Singapore	1,476.8		23.7	%	1,655.5		26.6	%
United Kingdom	1,326.8		21.3	%	1,077.7		17.3	%
United States	1,194.5		19.2	%	1,088.3		17.5	%
Other	634.3		10.2	%	669.2		10.8	%
Total revenue	$	6,234.9			$	6,222.6

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

Gross Profit and Gross Margin

Gross profit was $2,941.6 million for the nine months ended September 29, 2023 compared to $3,056.7 million for the nine months ended September 30, 2022, representing a decrease of $115.1 million, primarily driven by the decline in existing product revenue which negatively impacted gross profit by approximately $200 million, and higher manufacturing costs at our EFK location of approximately $110 million, which includes start up and ramp up costs, along with an unfavorable impact of our foundry business. This decrease was partially offset by new product sales which improved gross profit by approximately $200 million.

Our gross margin decreased by 1.9% from 49.1% for the nine months ended September 30, 2022 to 47.2% for the nine months ended September 29, 2023, due to the impact of the factors explained above.

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


	Nine Months Ended September 29, 2023		As a % of Segment Revenue (1)		Nine Months Ended September 30, 2022		As a % of Segment Revenue (1)

PSG	$	1,608.0	47.8	%	$	1,494.4	47.3	%
ASG	845.2		45.3	%	1,128.7		52.7	%
ISG	488.4		48.5	%	433.6		47.0	%
Total gross profit	$	2,941.6	47.2	%	$	3,056.7	49.1	%

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

Explanation for the increase or decrease in gross profit amounts and gross margin percentages for the nine months ended September 29, 2023 compared to the nine months ended September 30, 2022 is provided below:

PSG gross profit increased by $113.6 million primarily driven by increased revenue from new product sales which contributed approximately $200 million, and was partially offset by the impact of the decrease in revenue in existing products amounting to approximately $90 million. PSG gross margin increased by 0.5% from 47.3% to 47.8% primarily due to the new product sales which have lower margins compared to the PSG segment.

ASG gross profit decreased by $283.5 million primarily driven by the decline in existing product revenue which impacted gross profit by approximately $200 million, as well as the higher manufacturing costs at our EFK location which includes the unfavorable impact of our foundry business of approximately $100 million. ASG gross margin decreased by 7.4% from 52.7% to 45.3%, primarily driven by the decline in sales and mix related to our foundry business.

ISG gross profit and gross margin increased by $54.8 million and 1.5%, respectively, primarily driven by favorable pricing and product mix.

Operating Expenses

Research and development expenses were $427.1 million for the nine months ended September 29, 2023, as compared to $463.8 million for the nine months ended September 30, 2022, representing a decrease of $36.7 million, or approximately 8%. The decrease was primarily due to a reduction in expenses relating to variable compensation and consulting and outside services, partially offset by an increase in new product development costs.

Selling and marketing expenses were $211.6 million for the nine months ended September 29, 2023, as compared to $213.7 million for the nine months ended September 30, 2022, representing a decrease of $2.1 million, or approximately 1%. The decrease in variable compensation expense was partially offset by increases in commissions and travel expenses.

General and administrative expenses were $273.8 million for the nine months ended September 29, 2023, as compared to $246.0 million for the nine months ended September 30, 2022, representing an increase of $27.8 million, or approximately 11%. There was an increase in expenses associated with information technology initiatives and a bad debt provision on outstanding receivable balances generated under an agreement with a business partner. This was partially offset by a decrease in variable compensation expense.

Other Operating Expenses

Amortization of Acquisition-Related Intangible Assets

Amortization of acquisition-related intangible assets was $39.0 million and $65.1 million for the nine months ended September 29, 2023 and September 30, 2022, respectively, representing a decrease of $26.1 million, or approximately 40%. The decrease was due to the impairment of intangible assets associated with the QCS wind down and a reduction in amortization expense as certain intangible assets became fully amortized.

Restructuring, Asset Impairments and Other, Net

Restructuring, asset impairments and other, net was $63.5 million for the nine months ended September 29, 2023, as compared to a credit of $25.6 million for the nine months ended September 30, 2022, representing an increase of $37.9 million. Amounts incurred for the nine months ended September 29, 2023 related primarily to the business realignment efforts in the first and third quarters of 2023. Amounts incurred for the nine months ended September 30, 2022 related to severance charges, contract termination costs and litigation expenses related to the QCS wind down.

Goodwill and Intangible Asset Impairment

Goodwill and intangible asset impairment was zero for the nine months ended September 29, 2023, as compared to $386.8 million for the nine months ended September 30, 2022. During the second quarter of 2022, we recorded a goodwill impairment charge of $115.0 million as a result of a shift in our focus on long-term product mix in our strategic markets. During the third quarter of 2022, we approved an exit plan to wind down QCS and recorded goodwill and intangible asset impairment charges of $215.0 million and $56.8 million, respectively.

Interest Expense

Interest expense decreased by $8.4 million to $59.0 million during the nine months ended September 29, 2023, as compared to $67.4 million during the nine months ended September 30, 2022. The decrease was primarily due to the repayment of the

balances under the Term Loan "B" Facility and replacement by the issuance of the 0.50% Notes. Our average gross long-term debt balance for the nine months ended September 29, 2023 was $3,363.9 million at a weighted-average interest rate of 2.3%, as compared to $3,253.5 million at a weighted-average interest rate of 2.8% for the nine months ended September 30, 2022. The calculation of our weighted-average interest rates includes the effect of our interest rate swap agreements.

Loss on Debt Prepayment

Loss on debt prepayment was $13.3 million for the nine months ended September 29, 2023 due to the write-off relating to the repayment of the Term Loan "B" Facility, as compared to $7.3 million for the nine months ended September 30, 2022 due to the write-off relating to the partial repayment of the Term Loan "B" Facility. See Note 6: ''Long-Term Debt'' 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 income of $4.5 million for the nine months ended September 29, 2023 as compared to income of $9.4 million for the nine months ended September 30, 2022. The decrease was primarily due to an increase in transaction losses resulting from fluctuations in foreign currencies, partially offset by a gain resulting from the termination of interest rate swaps.

Income Tax Provision

We recorded an income tax provision of $302.7 million and $299.4 million during the nine months ended September 29, 2023 and September 30, 2022, respectively, representing effective tax rates of 15.7% and 18.7%. The decrease in our effective tax rate is due to the goodwill impairments during the prior year, which were not deductible for tax purposes.

Liquidity and Capital Resources

Overview

Our principal sources of liquidity are cash on hand, cash generated from operations, available borrowings under our Revolving Credit Facility as well as new debt and/or equity issuances. In the near term, we expect to fund our cash requirements by utilizing any or a combination of these principal sources, including any amounts required to satisfy our current portion of long-term debt. Our cash and cash equivalents was approximately $2.7 billion as of September 29, 2023, and the Revolving Credit Facility has approximately $1.1 billion available for future borrowings.

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) incur capital expenditures; and (iv) repurchase our common stock. During the ordinary course of business, we evaluate our cash requirements and, if necessary, adjust our 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. Future capital expenditures may be impacted by events and transactions that are not currently forecasted.

We believe that our cash on hand, cash generated from our operations and the amounts available under the Revolving Credit Facility are adequate to meet our working capital requirements and other business needs for at least the next 12 months.

Operating Activities

Our cash flows from operating activities were $1,366.3 million and $1,901.8 million for the nine months ended September 29, 2023 and September 30, 2022, respectively. The decrease of $535.5 million was primarily attributable to increased working capital requirements in light of our strategic investments in SiC products and LTSA commitments.

Our ability to maintain positive operating cash flows is dependent on, among other factors, our success in achieving our revenue goals, and in meeting LTSA commitments 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.

Investing Activities

Our cash flows used in investing activities were $1,352.7 million and $563.6 million for the nine months ended September 29, 2023 and September 30, 2022, respectively. The increase of $789.1 million was primarily attributable to capital expenditures and the remaining payment of $236.3 million related to the acquisition of our EFK location. During the nine months ended September 29, 2023 and September 30, 2022, we paid $1,185.1 million and $663.0 million, respectively, for capital expenditures. Our capital expenditures as a percent of revenue during the nine months ended September 29, 2023 increased to approximately 19%, primarily as a result of investments to expand SiC manufacturing capacity. For the remainder of 2023, we expect capital expenditures to remain at approximately 19% of revenue.

Financing Activities

Our cash flows used in financing activities were $254.3 million and $240.3 million for the nine months ended September 29, 2023 and September 30, 2022, respectively. The increase of $14.0 million was primarily attributable to proceeds and payments related to long-term borrowings and share repurchase activity. During the second quarter of 2023, we replaced the Revolver due 2024 maturing on June 28, 2024 with the Revolving Credit Facility. Other than the 1.625% Notes, we do not have any meaningful debt maturing during the next 12 months. Our 0% Notes are also classified as a current liability based on share price trigger provisions. We expect to continue our Share Repurchase Program subject to market conditions, the price of our shares and other factors (including liquidity needs). However, the Share Repurchase Program may be modified, suspended or terminated by the Board of Directors at any time without prior notice.

See Note 6: ''Long-Term Debt'' and Note 7: ''Earnings Per Share and Equity'' in the notes to our unaudited consolidated financial statements included elsewhere in this Form 10-Q for additional information.

Key Factors Potentially Affecting Liquidity

We believe that the key factors that could adversely affect our internal and external sources of cash include, among other considerations:

changes in demand for our products, 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; and
the debt and equity capital markets could impact our ability to obtain needed financing on acceptable terms or to respond to business opportunities and developments as they arise, including interest rate fluctuations, macroeconomic conditions, 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.

Debt Guarantees and Related Covenants

As of September 29, 2023, we were in compliance with the indentures relating to our 0% Notes, 0.50% Notes, 3.875% Notes and 1.625% Notes and with covenants included in the New Credit Agreement. The 0% Notes, 0.50% 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 2022 Form 10-K.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

There have been no material changes in market risk from the information presented in Part II, Item 7A “Quantitative and Qualitative Disclosures About Market Risk,” in the 2022 Form 10-K.

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 September 29, 2023.

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 September 29, 2023 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 9: ''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 2022 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 2022 Form 10-K.

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," "anticipates," "should" or similar expressions, 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.

Important factors that could cause our actual results to differ materially from those anticipated in the forward-looking statements are described under Part I, Item 1A "Risk Factors" in the 2022 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, which speaks only as of the date made, except as may be required by law. Investing in our securities involves a high degree of risk and uncertainty, and you should carefully consider the trends, risks and uncertainties described in the aforementioned reports and subsequent reports filed with or furnished to the SEC before making any investment decision with respect to our securities. The risk factors described herein and in our 2022 Form 10-K are not all of the risks we may face. Other risks not presently known to us or that we currently believe are immaterial may materially affect our business. If any of the 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 September 29, 2023:


Period (1)	Total Number of Shares Purchased	Average Price Paid per Share ($)	Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Approximate Dollar value of Shares that May Yet be Purchased Under the Plans or Programs (in millions) ($)
July 1, 2023 - July 28, 2023	109	99.17	—	2,836.0
July 29, 2023 - August 25, 2023	581,839	93.73	580,967	2,781.5
August 26, 2023 - September 29, 2023	477,642	95.42	477,606	2,736.0
Total	1,059,590	94.49	1,058,573

(1) These time periods represent our fiscal month start and end dates for the third quarter of 2023.

Shares withheld to satisfy statutory tax withholding requirements related to the vesting of share-based awards are not issued or considered repurchases of our common stock under our Share Repurchase Program and, therefore, are excluded from the table above.

Share Repurchase Program

In February 2023, the Board of Directors approved a new share repurchase program (the “Share Repurchase Program”), which allows for the repurchase of 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 Share Repurchase Program, which does not require us to purchase any minimum amount of our common stock, has an aggregate limit of $3.0 billion from February 8, 2023 through December 31, 2025 (exclusive of fees, commissions and other expenses). Any repurchases will be at the Company’s discretion and will be subject to market conditions, the price of our shares and other factors (including liquidity needs). The Share Repurchase Program may be modified, suspended or terminated by the Board of Directors at any time without prior notice.

There were 1.1 million shares of the Company's common stock repurchased under the share repurchase program during the quarter ended September 29, 2023. As of September 29, 2023, the authorized amount remaining under the Share Repurchase Program was approximately $2.7 billion.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

Insider Trading Arrangements

During the quarter ended September 29, 2023, two individuals, one serving as a director and a second serving as an officer (as defined in Rule 16a-1(f) of the Exchange Act) of the Company, adopted or terminated a trading arrangement for the purchase or sale of the Company’s securities as described in Item 408 of Regulation S-K. The material terms of these plans, each of which is intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) of the Exchange Act (“Rule 10b5-1 Plan”), are as follows:

Alan Campbell, a director of the Company, adopted a Rule 10b5-1 Plan on August 4, 2023. Under this plan, a total of 36,269 shares of the Company’s common stock may be sold before the plan expires on December 31, 2024.
Thad Trent, Executive Vice President, Chief Financial Officer and Treasurer of the Company, adopted a Rule 10b5-1 Plan on September 14, 2023. Under this plan, a total of 50,000 shares of the Company’s common stock may be sold before the plan expires on December 31, 2024.

Item 6. Exhibits

EXHIBIT INDEX



Exhibit No.		Exhibit Description*****




	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:	October 30, 2023	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)