01—Abstract
Summary
Summary of the 10-K filed February 16, 2021. Cited figures are marked; the original filing is the authoritative source.
ON Semiconductor Corporation, together with its subsidiaries, reported 2020 revenue of $5,255.0 milliona, down 4.8% from $5,517.9 million in 2019, primarily due to reduced demand from the COVID-19 pandemic.
Operating income fell to $348.7 millionb from $432.7 million, and gross margin decreased to 32.7% from 35.8%. Net income attributable to ON Semiconductor was $234.2 million, compared with $211.7 million in 2019, with the increase attributed to an income tax benefit recorded during the year. Diluted EPS was $0.56 versus $0.51 in 2019.
The company stated that its primary focus is gross margin expansion alongside significant revenue growth in automotive, industrial and communication infrastructure markets. It is evaluating its product portfolio, moving away from non-differentiated products, and rationalizing its manufacturing footprint, including exploring sales of six-inch fabs in Oudenaarde, Belgium and Niigata, Japan, while pursuing a pending $400.0 millionc acquisition of GLOBALFOUNDRIES' East Fishkill, New York site expected around December 31, 2022. Balance sheet and liquidity items to note: total debt was $3,589.5 million at year-end, with the 1.625% Notes classified as current after a conversion trigger was met, and cash and cash equivalents were $1,080.7 million.
Operating cash flow was $884.3 milliond and capital expenditures were $383.6 million. The company also repurchased 3.6 million shares for $65.3 million in 2020 and had $1,295.8 million remaining under its 2018 Share Repurchase Program. Mr. Bernard Gutmann retired as CFO on the filing date, and Thad Trent was appointed to succeed him.
02—Key points
Key Highlights
- Revenue declined 4.8% to $5,255.0 million in 2020, with PSG, ASG and ISG revenue decreasing 6.5%, 3.1% and 2.5%, respectively, mainly due to COVID-19 demand impacts.
- Gross margin decreased about 310 basis points to 32.7% (from 35.8%), and operating income fell to $348.7 million from $432.7 million.
- Net income attributable to ON Semiconductor rose to $234.2 million from $211.7 million, driven by a $59.8 million income tax benefit, including a $63.0 million discrete benefit from the Domestication of certain foreign subsidiaries.
- Total debt was $3,589.5 million at December 31, 2020, including a $700.0 million 3.875% Notes issuance in August 2020 and $1,614.5 million outstanding under the Term Loan B Facility.
- The 1.625% Notes' conditional conversion feature was triggered as of December 31, 2020, causing $515.6 million net of discount and issuance costs to be reclassified as a current liability.
- Operating cash flow was $884.3 million and capital expenditures were $383.6 million; cash and cash equivalents ended the year at $1,080.7 million.
- Pending acquisition of GLOBALFOUNDRIES' East Fishkill, New York facility for $400.0 million, with $170.0 million deposited to date and $230.0 million due around December 31, 2022.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2020, On Semiconductor kept $0.04.
- Revenue$5.25B100.0%
- Cost of revenue−$3.54B67.3%
- Gross profit$1.72B32.7%
- Operating costs−$1.37B26.0%
- Operating income$348.7M6.6%
- Interest, other & tax−$114.5M2.2%
- Net income$234.2M4.5%
Where FY2020 revenue went
$5.25B- Cost of revenue: $3.54B, 67% of revenue
- Operating costs: $1.37B, 26% of revenue
- Net income: $234.2M, 4.5% of revenue
- Interest, other & tax: $114.5M, 2.2% of revenue
Kept 4.5% as net incomeNet income $234.2M · 4.5%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2020filed February 16, 2021Financial Statements
FY2020 against FY2019
| Line item | FY2020FY2019 | Change |
|---|---|---|
| Revenue | $5.25B$5.52B | −4.8% |
| Cost of Revenue | $3.54B$3.54B | −0.1% |
| Gross Profit | $1.72B$1.97B | −13.1% |
| Operating Expenses | $1.37B$1.54B | −11.3% |
| Operating Income | $348.70M$432.70M | −19.4% |
| Interest Expense | $168.40M$148.30M | +13.6% |
| Net Income | $234.20M$211.70M | +10.6% |
| EPS (Basic) | $0.57$0.52 | +9.6% |
| EPS (Diluted) | $0.56$0.51 | +9.8% |
| Shares Outstanding (Basic) | 410.70M410.90M | 0.0% |
| Shares Outstanding (Diluted) | 418.80M416.00M | +0.7% |
05—Questions
Frequently Asked Questions
What drove the decline in ON Semiconductor's 2020 revenue and profitability?
The filing attributes the $262.9 million revenue decline primarily to reduced demand for products across all three segments due to the COVID-19 pandemic, along with delays in fulfilling customer orders from factories in China, the Philippines and Malaysia that ran at reduced capacity in the first half of 2020. Gross profit fell $257.8 million, mainly from lower sales volume and lower average selling prices.
Why did net income increase even though operating income declined?
The filing states that the increase in net income attributable to ON Semiconductor was due to an income tax benefit of $59.8 million recorded in 2020, compared with a $62.7 million tax provision in 2019. The benefit included discrete items such as $63.0 million from the Domestication of certain foreign subsidiaries and a $49.4 million release of state valuation allowance.
What is the company's strategy for gross margins and manufacturing?
The company says its primary focus is gross margin expansion. It plans to shift investment toward high-margin products and end-markets, move away from non-differentiated products, and transition to a lighter internal fabrication model. It is also rationalizing its manufacturing footprint, including exploring the sale of its six-inch fabs in Oudenaarde, Belgium and Niigata, Japan.
What are the main debt-related risks for investors?
Total debt was $3,589.5 million at year-end. The filing highlights that the 1.625% Notes' conditional conversion feature was triggered, which led to a reclassification to current liabilities and could reduce net working capital. It also notes variable-rate exposure of $814.5 million, with a 50 basis point rate increase estimated to raise annual interest expense by about $4.1 million, and that the Amended Credit Agreement is secured by substantially all personal property of the company and most domestic subsidiaries.
Who is the new Chief Financial Officer and what changed in management?
Bernard Gutmann retired as Executive Vice President, Chief Financial Officer and Treasurer effective upon the filing of the 10-K on February 16, 2021. Thad Trent, who previously served as CFO of Cypress Semiconductor, was appointed to the role effective immediately after that filing. Hassane S. El-Khoury became President and CEO in December 2020.
06—Continue