ON Semiconductor (ON) Citi's 2024 Global TMT Conference summary

Automotive market trends

• Automotive demand is currently stable, with no clear signs of recovery; any uptick is due to customer inventory adjustments rather than true market growth.

• Visibility into Q3 is strong, with orders already in place and shipping underway.

• Inventory management varies widely among Tier 1 suppliers, with some holding minimal stock, raising concerns for OEMs about supply resilience.

• OEMs are generally holding higher inventory levels, while distribution inventory is tightly managed.

• EV content per vehicle is significantly higher than ICE, and long-term, EVs are expected to increase as a share of total vehicles.

Long-term supply agreements (LTSAs) and customer relationships

• LTSAs provide early signals of demand changes, enabling proactive inventory and production adjustments.

• The number and value of LTSAs have remained stable, with customers still seeing value in these agreements.

• Typical LTSA backlog coverage is about 60% for the next 12 months, expected to remain steady.

• LTSAs are used as a tool for structural, long-term benefits rather than short-term optimization.

Silicon carbide and technology strategy

• Silicon carbide content is closely tied to battery voltage, with 800V batteries driving higher adoption.

• Penetration of silicon carbide in EVs is rising, with design wins heavily favoring this technology.

• Gross margin for silicon carbide is expected to reach or exceed corporate averages as capacity utilization improves.

• The company is vertically integrating by providing system-level solutions, such as power boxes, directly to OEMs.

• Customization and co-development of die and packaging are key to achieving efficiency and cost targets for customers.