01—Abstract
Summary
Summary of the 10-K filed February 14, 2022. Cited figures are marked; the original filing is the authoritative source.
ON Semiconductor Corporation, together with its wholly and majority-owned subsidiaries (operating under the onsemi brand), reported 2021 revenue of $6,739.8 milliona, up 28.3% from $5,255.0 million in 2020.
Gross margin rose to 40.3% from 32.7%, and operating income increased to $1,287.6 millionb from $348.7 million. Net income attributable to ON Semiconductor Corporation was $1,009.6 million, compared with $234.2 million in 2020, and diluted earnings per share were $2.27 versus $0.56. Management attributed the improvement to stronger demand across its three segments (PSG, ASG and ISG), higher sales volume, favorable mix, higher average selling prices, better factory utilization and restructuring savings.
Operating cash flow was $1,782.0 millionc, and cash and cash equivalents ended the year at $1,352.6 million. Management's stated strategy is to expand gross and operating margins, move toward a lighter internal fabrication model, and rationalize its manufacturing footprint, including exploring the sale of select facilities. In 2021 the company completed the acquisition of GT Advanced Technologies Inc. (GTAT), a SiC producer, for $434.9 million, and divested one of its businesses.
It also implemented an involuntary severance plan affecting approximately 960 employees with charges of $65.3 milliond. Capital expenditures are expected to rise to 11% to 12% of revenue in 2022, up from a historical range of about 6% to 7%. The balance sheet carried $3,258.3 million of gross debt at year-end, including $805.0 million of 0% Convertible Senior Notes due 2027 issued in 2021 and $155.1 million of 1.625% Notes that were reclassified to current liabilities.
Working capital including cash and the current portion of long-term debt was $2,238.2 million. Investors should weigh the convertible note conversion and dilution provisions, the cash settlement requirements, and the company's exposure to automotive demand, which accounted for approximately 34% of 2021 revenue.
02—Key points
Key Highlights
- Revenue rose 28.3% to $6,739.8 million in 2021, with PSG up 32.0%, ASG up 25.6% and ISG up 22.0%.
- Gross margin expanded roughly 760 basis points to 40.3% (from 32.7%), and operating income reached $1,287.6 million versus $348.7 million in 2020.
- Net income attributable to ON Semiconductor Corporation was $1,009.6 million ($2.27 diluted EPS), compared with $234.2 million ($0.56) in 2020.
- Operating cash flow was $1,782.0 million, up from $884.3 million, while capital expenditures were $444.6 million.
- The GTAT acquisition closed on October 28, 2021 for $434.9 million, and the company is exploring the sale of select manufacturing facilities.
- Gross debt was $3,258.3 million at December 31, 2021, including $805.0 million of 0% Notes due 2027 and $155.1 million of 1.625% Notes that were reclassified to current liabilities.
- Capital expenditures are expected to increase to 11% to 12% of revenue in 2022, versus a historical range of roughly 6% to 7%.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2021, On Semiconductor kept $0.15.
- Revenue$6.74B100.0%
- Cost of revenue−$4.03B59.7%
- Gross profit$2.71B40.3%
- Operating costs−$1.43B21.2%
- Operating income$1.29B19.1%
- Interest, other & tax−$278.0M4.1%
- Net income$1.01B15.0%
Where FY2021 revenue went
$6.74B- Cost of revenue: $4.03B, 60% of revenue
- Operating costs: $1.43B, 21% of revenue
- Net income: $1.01B, 15% of revenue
- Interest, other & tax: $278.0M, 4.1% of revenue
Kept 15% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2021filed February 14, 2022Financial Statements
FY2021 against FY2020
| Line item | FY2021FY2020 | Change |
|---|---|---|
| Revenue | $6.74B$5.25B | +28.3% |
| Cost of Revenue | $4.03B$3.54B | +13.7% |
| Gross Profit | $2.71B$1.72B | +58.2% |
| Operating Expenses | $1.43B$1.37B | +4.4% |
| Operating Income | $1.29B$348.70M | +269.3% |
| Interest Expense | $130.40M$168.40M | −22.6% |
| Net Income | $1.01B$234.20M | +331.1% |
| EPS (Basic) | $2.37$0.57 | +315.8% |
| EPS (Diluted) | $2.27$0.56 | +305.4% |
| Shares Outstanding (Basic) | 425.70M410.70M | +3.7% |
| Shares Outstanding (Diluted) | 443.80M418.80M | +6.0% |
05—Questions
Frequently Asked Questions
What drove the improvement in profitability in 2021?
Management attributed the increase in operating income and net income to significantly better gross margins from higher sales volume, favorable product mix, higher average selling prices, better factory utilization and savings from restructuring. Gross profit rose $998.5 million to $2,714.3 million.
How much debt does the company carry, and what are the key repayment risks?
Gross long-term debt was $3,258.3 million at December 31, 2021. The 1.625% Notes ($155.1 million) were classified as current, and the filing notes that conversion features and holder repurchase rights could require significant cash. The 0% Notes require principal of $805.0 million to be settled in cash on conversion, and the Amended Credit Agreement is collateralized by substantially all domestic personal property.
What is the company's strategic direction for manufacturing?
The company is pursuing a lighter internal fabrication model with less volatile financial performance, rationalizing its manufacturing footprint in 2022, and exploring the sale of select facilities. A facility in Oudenaarde, Belgium was divested on February 8, 2022, and the company has committed to achieving net zero emissions by 2040.
How concentrated is the customer base?
Sales to distributors accounted for approximately 64% of 2021 revenue, and one distributor represented approximately 13% of total revenue. Automotive customers accounted for approximately 34% of revenue. The filing states that the loss of one of its large customers would have a material adverse effect on the affected segment.
What is the outlook for capital spending and shareholder returns?
The company expects capital expenditures of 11% to 12% of revenue in 2022 to expand manufacturing capabilities. No shares were repurchased under the Share Repurchase Program in 2021, leaving $1,295.8 million authorized. The company has neither declared nor paid cash dividends since its initial public offering.
06—Continue