ON Semiconductor Corp 2026 Technology Conference

Good morning. Thank you. Thanks.

Yeah, I mean, overall, we talked about, you mentioned in the first quarter, we talked about automotive kind of hitting the bottom. We do believe right now we're shipping to natural demand across all of our end markets. Natural demand doesn't mean strong or not strong. It's just at least we're at an equilibrium. What makes us positive about the outlook and where we are in the cycle is really if you look at the metrics that drive the business, we've had our book to bill above parity. Already, we've had a much better visibility. If I remember a year ago, we were talking about we're on a good quarter. We have visibility maybe 90 days out. Right now, we have much longer visibility into 2027, sometimes into 2028, depending on the product and the markets.

Sitting here today in 2026, we had better visibility about 2027 than we had while we were in the same spot in 2025 into 2026. Our lead times have been extending in overall, but we do have constraints in some technologies where we see the strength across a lot of the end markets, commonalities about the end markets. All of these are signs of an improving end market demand. Again, not all of it is equal. A lot of it is driven by our AI data center, which we've taken that number, that outlook up from doubling to more than doubling year-on-year. However, the business health across all of the metrics that we look at from an operational side have been moving all in the right direction.

Yeah, I think, well, that depends on how quickly some end markets wake up to what the realities are. What I mean by that is, we all know AI data center, we have the outlook, the demand is strong, and we're shipping to that demand, which is also creating some constraints in some technologies that are shared across a lot of the markets. We talked about some of our power technology, which is driving a lot of our demand in AI data center. We have some constraints. It's not broad-based constraint, but we do have technologies where we are constrained. We talked in the last quarter that we had to make some allocation trade-offs between auto and AI data center. But overall, to answer your question about the shape of it, we have the capacity. Let me just start with that. We're not worried about capacity.

You're not going to see a big CapEx cycle from onsemi. That's all behind us. We have the capacity. We're comfortable about the growth. We're comfortable about the capacity we've installed. The challenge is going to be how quickly does demand layer into the backlog. If it's going to be a snapback, there's always a cycle time. We do have some inventory in die bank we can launch into back end. That's a 2-week cycle time, but that quickly depletes if the snapback is very steep. If the snapback is kind of a gradual increase where you have the AI data center strength and it layers in an outlook of an automotive strength over the last kind of 2, 3 quarters, then we can start building for that, and we're able to support it.

If we get orders today and they need them in, I don't know, October, November, and you get a snapback of orders, it's like, yeah, I'll see you, the lead times are going to extend, allocation is going to start. It's going to be back like the COVID days. It's going to actually be worse than the COVID days, because back in COVID, AI data center was not a big consumer of capacity.

Today, data center is one of the largest consumers of capacity. So the call to action that I've been giving our customers across auto and industrial is put in your backlog, stand behind it, and we will together manage on how to build to it because we do have the capacity.

Melissa, just to put some numbers to what Hassane said, shape of that recovery. We exited last year with our utilization at 68%.

Last quarter, we were at 83%. In a matter of six months, we've taken utilization up very quickly because of the demand that we're seeing. What we think is going to happen is, our cycle time, we think about from the time we launch a wafer to an end product is four to six months. I think, as we guided, we said, look, utilization is probably going to go plus or minus from here on. If the recovery gets steeper again, our utilization goes up further. That helps gross margin again. I think just that rate of us improving the utilization shows you the strength of the business, of what we've seen of that order pattern just getting that much stronger, that faster.

We took some capacity offline.