01—Abstract
Summary
Summary of the 10-K filed February 19, 2020. Cited figures are marked; the original filing is the authoritative source.
ON Semiconductor Corporation (ON) reported total revenue of $5,517.9 milliona for 2019, down from $5,878.3 million in 2018, a decrease of $360.4 million, or 6.1%.
Gross margin fell to 35.8% from 38.1%, attributed to a competitive pricing environment and decreased demand. Net income attributable to ON Semiconductor was $211.7 millionb ($0.51 per diluted share), compared with $627.4 million in 2018. Results were hit by a $169.5 million litigation settlement with Power Integrations, Inc. (PI), paid in October 2019, and the acquisition of Quantenna Communications, Inc. for $1,039.3 million, completed June 19, 2019, which contributed $84.8 million of revenue and a $39.3 million net loss from the closing date through year-end.
Cash flow from operations declined to $694.7 millionc from $1,274.2 million, while capital expenditures were $534.6 million. Total outstanding indebtedness was $3,749.2 million at December 31, 2019, against cash and cash equivalents of $894.2 million. The company drew $900.0 million on its Revolving Credit Facility to fund the Quantenna deal, and its Term Loan "B" Facility was increased to $1.635 billion in September 2019.
The company repurchased 7.8 million shares for $138.9 milliond under its 2018 Share Repurchase Program, with $1,361.1 million remaining authorized. The filing also flags tariffs and U.S.-China trade restrictions, including the May 2019 addition of Huawei Technologies Co., Ltd. to the Entity List, as risks to demand. The company is exploring the sale of its Oudenaarde, Belgium facility, plans to close a New York facility in 2020, and has agreed to acquire a GLOBALFOUNDRIES site in East Fishkill, New York for $400.0 million, with closing expected around December 31, 2022.
02—Key points
Key Highlights
- Revenue of $5,517.9 million, down 6.1% from $5,878.3 million in 2018; PSG revenue fell about 8%, ASG about 5%, and ISG 1.5%.
- Gross margin declined to 35.8% from 38.1%, driven by a competitive pricing environment and lower demand.
- Net income attributable to ON Semiconductor was $211.7 million, or $0.51 per diluted share, versus $627.4 million in 2018.
- Quantenna Communications, Inc. acquired June 19, 2019 for $1,039.3 million, funded by a $900.0 million Revolving Credit Facility draw and cash on hand.
- $169.5 million litigation settlement with Power Integrations, Inc., with $175.0 million paid in cash in October 2019.
- Operating cash flow fell to $694.7 million from $1,274.2 million; capital expenditures were $534.6 million.
- Total debt of $3,749.2 million at year-end, against cash and cash equivalents of $894.2 million; 2018 Share Repurchase Program has $1,361.1 million remaining.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2019, On Semiconductor kept $0.04.
- Revenue$5.52B100.0%
- Cost of revenue−$3.54B64.2%
- Gross profit$1.97B35.8%
- Operating costs−$1.54B27.9%
- Operating income$432.7M7.8%
- Interest, other & tax−$221.0M4.0%
- Net income$211.7M3.8%
Where FY2019 revenue went
$5.52B- Cost of revenue: $3.54B, 64% of revenue
- Operating costs: $1.54B, 28% of revenue
- Net income: $211.7M, 3.8% of revenue
- Interest, other & tax: $221.0M, 4.0% of revenue
Kept 3.8% as net incomeNet income $211.7M · 3.8%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2019filed February 19, 2020Financial Statements
FY2019 against FY2018
| Line item | FY2019FY2018 | Change |
|---|---|---|
| Revenue | $5.52B$5.88B | −6.1% |
| Cost of Revenue | $3.54B$3.64B | −2.6% |
| Gross Profit | $1.97B$2.24B | −11.8% |
| Operating Expenses | $1.54B$1.39B | +10.7% |
| Operating Income | $432.70M$847.20M | −48.9% |
| Interest Expense | $148.30M$128.20M | +15.7% |
| Net Income | $211.70M$627.40M | −66.3% |
| EPS (Basic) | $0.52$1.48 | −64.9% |
| EPS (Diluted) | $0.51$1.44 | −64.6% |
| Shares Outstanding (Basic) | 410.90M423.80M | −3.0% |
| Shares Outstanding (Diluted) | 416.00M435.90M | −4.6% |
05—Questions
Frequently Asked Questions
How did ON Semiconductor's revenue and profitability change in 2019?
Revenue fell $360.4 million, or 6.1%, to $5,517.9 million, mainly from reduced demand across PSG, ASG and ISG. Net income attributable to the company dropped to $211.7 million from $627.4 million, reflecting lower demand and the $169.5 million litigation settlement charge. Diluted EPS was $0.51 versus $1.44 in 2018.
What drove the decline in gross margin?
Gross margin decreased to 35.8% in 2019 from 38.1% in 2018. The filing attributes the decline to a competitive pricing environment that reduced average selling prices, higher demand for lower-margin products, higher manufacturing costs from a greater mix of external manufacturing, and decreased demand. Gross profit also included a $19.6 million inventory fair market value step-up expense from the Quantenna acquisition.
How is ON Semiconductor's debt position and liquidity?
Total outstanding indebtedness was $3,749.2 million at December 31, 2019, including $1,630.9 million under the Term Loan "B" Facility and $800.0 million under the Revolving Credit Facility. Cash and cash equivalents were $894.2 million, with about $371.9 million held in the United States. Current maturities of long-term debt were $736.0 million. Management believes cash flows and existing resources are adequate for at least the next 12 months.
What are the main risks flagged in the filing?
Key risks include tariffs and other U.S.-China trade actions, export restrictions such as the May 2019 addition of Huawei Technologies Co., Ltd. to the Entity List, cyclical semiconductor demand, customer concentration (the 10 largest end-customers represented about 27% of 2019 revenue), reliance on the automotive, industrial and communications end-markets, and substantial leverage with variable-rate debt and convertible notes that could dilute shareholders.
06—Continue