ON Semiconductor (ON) Deutsche Bank 2024 Technology Conference summary

Market conditions and recovery outlook

• Recovery remains L-shaped with no significant change in outlook; true recovery depends on end-consumer demand, not just backlog or orders.

• Some markets, like automotive and energy infrastructure, show stabilization and early signs of growth, while industrial softness was anticipated and managed through early structural changes.

• Inventory digestion continues, with customer approaches varying from aggressive reductions to more disciplined management, making industry-wide predictions difficult.

• Pricing is not expected to follow historical patterns of scheduled reductions; instead, it is value-driven and tied to product innovation and customer agreements.

Pricing strategy and long-term agreements

• Pricing actions were part of a broader portfolio rationalization, accelerated by post-pandemic demand but not fundamentally changed by it.

• Long-term agreements (LTAs) with customers, often spanning 4-10 years, provide pricing and demand visibility, supporting more stable relationships.

• LTAs are structured to avoid overshipping and inventory issues, with executive-level engagement ensuring strategic alignment and flexibility.

• Recent LTAs have been signed as customers seek supply security, especially after experiencing shortages during the pandemic.

Silicon carbide and EV market trends

• EV market continues to grow, though with short-term lumpiness; silicon carbide penetration in EVs is still at an early stage (6%) but accelerating.

• Most new EV designs are shifting to silicon carbide due to efficiency at higher voltages, with the majority of recent design wins in this area.

• Hybrid vehicle architectures vary by region, with content value for the company ranging from $50 in internal combustion to $750 in range extender hybrids.

• Commoditization risk in silicon carbide is seen as low, as value is driven by device and package technology, not substrate supply.

• Vertical integration, including internal substrate production, provides flexibility and supply security, as demonstrated by strategic wins like VW.