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 2024 Form 10-K, and our unaudited consolidated financial statements for the fiscal quarter ended April 4, 2025, 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 expectations and assumptions as of the date of this Form 10-Q and 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 2024 Form 10-K.

Executive Overview

onsemi Overview

We provide 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 and industrial power. Our intelligent power solutions for the automotive industry allow our customers to exceed range targets with lower weight and reduce system cost through efficiency. We are utilizing our extensive range of power technologies to address the growing power demands of artificial intelligence and data centers. 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.

Business Strategy Developments

We are focused on generating operating cash and returning capital to our shareholders through our Share Repurchase Program. Our goal is to achieve revenue growth with stable gross margins by capitalizing on high-growth megatrends in our primary end-markets of automotive and industrial infrastructure. Despite the current challenges posed by geopolitical and macroeconomic factors, we continue to optimize and right-size our manufacturing footprint to align our capacity with anticipated long-term growth, while maintaining gross margins through efficiencies. We design products for differentiated markets, focusing on addressing customer needs. We aim to achieve efficiencies in our operating and capital expenditures and invest in research and development initiatives to accelerate growth in high-margin products.

2025 Manufacturing Realignment Program

During the first quarter of 2025, we announced restructuring and cost reduction initiatives based on an evaluation of our operating structure, business strategy, manufacturing technologies and internal capabilities to realign our internal manufacturing capacity and capabilities with anticipated long-term needs.

We expect to incur total severance costs and related benefit expenses of $63 million related to the termination of approximately 2,400 employees. Of this, approximately $60.2 million was recognized during the quarter ended April 4, 2025. Additionally we recorded non-cash impairment charges of $431.5 million during the quarter ended April 4, 2025 relating to previous investments in manufacturing equipment at certain manufacturing facilities pursuant to held-for-sale accounting guidance. Other charges of $44.9 million, comprised of estimated costs associated with selling the equipment and contract termination costs, were incurred as a result of the above initiatives. The total of the aforementioned costs was included within Restructuring, Asset Impairments and Other Charges, Net in the Consolidated Statement of Operations.

Additionally, during the quarter ended April 4, 2025, we recorded $237.7 million relating to excess and obsolete inventory charges, of which $232.2 million related to inventory primarily considered work in progress within the ISG reportable segment, as well as $45.7 million related to write-off of consumables, manufacturing supplies and obligations for certain unfulfilled purchase commitments due to the manufacturing capacity reduction actions associated with the 2025 Manufacturing Realignment Program. These charges were recorded within Cost of revenue in the Consolidated Statement of Operations.

For additional information, see Note 5: ''Restructuring, Asset Impairments and Other Charges, Net'' in the notes to our unaudited consolidated financial statements included elsewhere in this Form 10-Q.

Share Repurchases

During the quarter ended April 4, 2025, we repurchased approximately 6.1 million shares of common stock for an aggregate purchase price of $302.6 million. For additional information, see Note 8: ''Earnings Per Share and Equity'' in the notes to our unaudited consolidated financial statements included elsewhere in this Form 10-Q.

Results of Operations

Quarter Ended April 4, 2025 compared to the Quarter Ended March 29, 2024

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
			April 4, 2025						March 29, 2024						Dollar Change
Revenue			$	1,445.7					$	1,862.7					$	(417.0)
Cost of revenue			1,151.9						1,009.1						142.8
Gross profit			293.8						853.6						(559.8)
Operating expenses:
Research and development			164.1						150.0						14.1
Selling and marketing			68.3						69.1						(0.8)
General and administrative			84.4						95.3						(10.9)
Amortization of acquisition-related intangible assets			11.4						12.6						(1.2)
Restructuring, asset impairments and other charges, net			539.3						1.4						537.9
Total operating expenses			867.5						328.4						539.1
Operating income (loss)			(573.7)						525.2						(1,098.9)
Other income (expense), net:
Interest expense			(18.0)						(15.6)						(2.4)
Interest income			26.6						27.6						(1.0)
Other income (expense)			4.1						1.0						3.1
Other income (expense), net			12.7						13.0						(0.3)
Income (loss) before income taxes			(561.0)						538.2						(1,099.2)
Income tax (provision) benefit			75.8						(84.5)						160.3
Net income (loss)			(485.2)						453.7						(938.9)
Less: Net income attributable to non-controlling interest			(0.9)						(0.7)						(0.2)
Net income (loss) attributable to ON Semiconductor Corporation			$	(486.1)					$	453.0					$	(939.1)

The following table summarizes certain information relating to our segment results (in millions):

			Quarter Ended April 4, 2025						As a % of Total						Quarter Ended March 29, 2024						As a % of Total						Dollar Change
Revenue:
PSG			$	645.1					44.6		%				$	874.2					46.9		%				$	(229.1)
AMG			566.4						39.2		%				697.0						37.4		%				(130.6)
ISG			234.2						16.2		%				291.5						15.7		%				(57.3)
Total			$	1,445.7					100.0		%				$	1,862.7					100.0		%				$	(417.0)
Cost of revenue:
PSG			$	521.9					45.3		%				$	508.8					50.4		%				$	13.1
AMG			265.5						23.1		%				358.2						35.5		%				(92.7)
ISG			364.5						31.6		%				142.1						14.1		%				222.4
Total			$	1,151.9					100.0		%				$	1,009.1					100.0		%				$	142.8
Gross profit: (1)
PSG			$	123.2					19.1		%				$	365.4					41.8		%				$	(242.2)
AMG			300.9						53.1		%				338.8						48.6		%				(37.9)
ISG			(130.3)						(55.6)		%				149.4						51.3		%				(279.7)
Total			$	293.8					20.3		%				$	853.6					45.8		%				$	(559.8)

(1) Gross profit margin as a percentage of respective segment revenue balances.

Revenue

Revenue was $1,445.7 million and $1,862.7 million for the quarters ended April 4, 2025 and March 29, 2024, respectively, representing a decrease of $417.0 million, or approximately 22%, year over year. We had one customer, a distributor, whose revenue accounted for approximately 10% of our total revenue for each of the quarters ended April 4, 2025 and March 29, 2024.

Revenue from PSG

Revenue from PSG decreased by $229.1 million, or approximately 26%, for the quarter ended April 4, 2025 compared to the quarter ended March 29, 2024. Revenue from our Automotive Power Division, Multi-Market Power Division and Industrial Power Division decreased by $165.7 million, $54.5 million and $8.9 million, respectively, primarily due to the continued decrease in demand in the automotive and industrial end-markets.

Revenue from AMG

Revenue from AMG decreased by $130.6 million, or approximately 19%, for the quarter ended April 4, 2025 compared to the quarter ended March 29, 2024. Revenue from our Sensor Interface Division, Power Management Division and Integrated Circuit Division decreased by $57.6 million, $72.8 million and $0.2 million, respectively, primarily due to the continued decrease in demand in the automotive and industrial end-markets.

Revenue from ISG

Revenue from ISG decreased by $57.3 million, or approximately 20%, for the quarter ended April 4, 2025 compared to the quarter ended March 29, 2024, largely driven by a decrease in revenue from our Industrial and Consumer Solutions Division and Automotive Sensing Division of $19.0 million and $38.3 million, respectively, primarily due to the continued decrease in demand in the automotive and industrial end-markets.

Revenue by Geographic Location

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

			Quarter Ended April 4, 2025						As a % of Total Revenue (1)						Quarter Ended March 29, 2024						As a % of Total Revenue (1)
Hong Kong			$	370.1					25.6		%				$	405.4					21.8		%
Singapore			273.8						18.9		%				433.2						23.3		%
United Kingdom			367.5						25.4		%				444.0						23.8		%
United States			292.6						20.2		%				419.0						22.5		%
Other			141.7						9.8		%				161.1						8.6		%
Total revenue			$	1,445.7											$	1,862.7

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

Gross Profit and Gross Margin

Gross profit decreased by $559.8 million, or approximately 66%, to $293.8 million for the quarter ended April 4, 2025 compared to $853.6 million for the quarter ended March 29, 2024. We recorded excess and obsolete inventory charges of $237.7 million, of which $232.2 million related to inventory primarily considered work in progress within the ISG reportable segment as a result of changes in business strategy due to the 2025 Manufacturing Realignment Program. See Note 5: ''Restructuring, Asset Impairments and Other Charges, Net,'' for additional information. We also continued to experience a decrease in sales volume from existing products and new products that negatively impacted gross profit by approximately $201.3 million and $120.8 million, respectively.

PSG gross profit decreased by $242.2 million, primarily driven by the decline in sales volume from existing products and new products which negatively impacted gross profit by approximately $121.4 million and $120.8 million, respectively. Also included in the gross profit decrease was the $43.9 million write-off of consumables and manufacturing supplies associated with the manufacturing capacity reduction actions taken under the 2025 Manufacturing Realignment Program. PSG gross margin decreased by 22.7 percentage points to 19.1% from 41.8% as a result of the decline in sales volume, underutilization, the related impact of unfavorable product mix and the impact of the consumables and manufacturing supplies write-off discussed above.

AMG gross profit decreased by $37.9 million, primarily driven by the decline in sales volume from existing products and the excess and obsolete inventory charges discussed above attributable to AMG of approximately $5.5 million. AMG gross margin increased by 4.5 percentage points to 53.1% from 48.6%, primarily due to improved product mix and the reduction in lower-margin manufacturing services revenue at our EFK location.

ISG gross profit decreased by $279.7 million, primarily driven by the excess and obsolete inventory charges discussed above. Additionally the decline in sales volume from existing products added to the decrease. ISG gross margin decreased to (55.6)% from 51.3%, primarily due to the excess and obsolete inventory charges.

Operating Expenses

Research and development expenses were $164.1 million for the quarter ended April 4, 2025, as compared to $150.0 million for the quarter ended March 29, 2024, representing an increase of $14.1 million, or approximately 9%. The increase was primarily attributable to an increase in production supplies and payroll and related expenses.

Selling and marketing expenses were $68.3 million for the quarter ended April 4, 2025, as compared to $69.1 million for the quarter ended March 29, 2024, representing a decrease of $0.8 million, or approximately 1%. There were no meaningful differences in any of the expense categories.

General and administrative expenses were $84.4 million for the quarter ended April 4, 2025, as compared to $95.3 million for the quarter ended March 29, 2024, representing a decrease of $10.9 million, or approximately 11%. The decrease was primarily attributable to a decrease in payroll and related expenses and expenses for outside services.

Other Operating Expenses

Amortization of Acquisition-Related Intangible Assets

Amortization of acquisition-related intangible assets was $11.4 million for the quarter ended April 4, 2025, as compared to $12.6 million for the quarter ended March 29, 2024, representing a decrease of $1.2 million, or approximately 10%.

Restructuring, Asset Impairments and Other, Net

Restructuring, asset impairments and other, net was $539.3 million for the quarter ended April 4, 2025, as compared to $1.4 million for the quarter ended March 29, 2024. Charges incurred for the quarter ended April 4, 2025 primarily relate to restructuring actions during the period. See Note 5: ''Restructuring, Asset Impairments and Other Charges, Net'' in the notes to our unaudited consolidated financial statements included elsewhere in this Form 10-Q for additional information.

Interest Expense

Interest expense increased by $2.4 million to $18.0 million during the quarter ended April 4, 2025, as compared to $15.6 million during the quarter ended March 29, 2024. Our average gross long-term debt for the quarter ended April 4, 2025 was $3,379.9 million at a weighted-average interest rate of 2.1%, as compared to $3,379.9 million at a weighted-average interest rate of 1.8% for the quarter ended March 29, 2024.

Interest Income

Interest income decreased by $1.0 million, or approximately 4%, to $26.6 million during the quarter ended April 4, 2025 compared to $27.6 million during the quarter ended March 29, 2024.

Other Income (Expense)

During the quarter ended April 4, 2025, other income was $4.1 million compared to $1.0 million during the quarter ended March 29, 2024, primarily driven by higher dividend income.

Income Tax Provision

We recorded an income tax benefit of $75.8 million and income tax provision of $84.5 million for the quarters ended April 4, 2025 and March 29, 2024, respectively, representing effective tax rates of 13.5% and 15.7%, respectively. The decrease in the effective tax rate in 2025 was due to unfavorable discrete adjustments.

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

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. Our cash and cash equivalents and short-term investments were approximately $3.0 billion as of April 4, 2025, 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. 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 $602.3 million and $498.7 million for the quarters ended April 4, 2025 and March 29, 2024, respectively. Although the decrease in net income was driven by lower end-market demand for our products and by the non-cash asset impairment and other restructuring-related charges incurred during the quarter ended April 4, 2025, the operating cash flows increase of $103.6 million was driven by the timing of cash receipts and payments related to working capital balances.

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.

Investing Activities

Our cash flows used in investing activities were $214.9 million and $235.3 million for the quarters ended April 4, 2025 and March 29, 2024, respectively. The decrease of $20.4 million was primarily attributable to a decrease in capital expenditures partially offset by the acquisition of a business and net purchases of short-term investments during the quarter ended April 4, 2025. Our capital expenditures as a percentage of revenue were approximately 10%, and we expect capital expenditures to be approximately 5% of revenue for the remainder of 2025.

Financing Activities

Our cash flows used in financing activities were $317.6 million and $130.8 million for the quarters ended April 4, 2025 and March 29, 2024, respectively. The increase of $186.8 million was primarily attributable to increased share repurchases during the quarter ended April 4, 2025 compared to the same period in 2024.

We do not have any meaningful debt maturing during the next 12 months. 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.

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 April 4, 2025, we were in compliance with the indentures relating to our 0% Notes, 0.50% Notes and 3.875% Notes and with covenants included in the Credit Agreement. The 0% Notes, 0.50% Notes and 3.875% 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 Note 3: ''Recent Accounting Pronouncements and Other Developments'' in the notes to the unaudited consolidated financial statements included elsewhere in this Form 10-Q and our 2024 Form 10-K.