安森美 (ON) 2003 Q1 法說會逐字稿

Hello, and welcome to the ON Semiconductor first quarter 2003 earnings teleconference.

At the request of ON Semiconductor this conference is being recorded for instant replay purposes.

At this time I would like to turn the conference over to Mr. Scott Sullinger, Director of Investor Relations.

Sir, you may begin.

Thank you, Sean.

Good afternoon and thanks for joining ON Semiconductor's first quarter 2003 conference call.

I am joined today by Keith Jackson, our CEO, and Donald Colvin, our CFO.

The call is being simultaneously webcast on the investor relations section of our website at www.onsemi.com, and the webcast will be available on the website for 30 days.

Now I would like to highlight our upcoming event calendar.

We will be presenting at the J.P.

Morgan Technology and Telecom conference on May 6, the Deutsche Bank Global Semiconductor and Semiconductor Capital Equipment conference on May 13, the U.S.

Bancorps Piper Jaffery Technology conference on May 13, and the Friedman, Billings, Ramsey Technology and Growth Investor conference on May 28.

We also will be holding our annual stockholder meeting on May 21 at the Embassy Suites in Phoenix.

During the course of this conference call we will make projections or other forward-looking statements regarding future events or the future financial performance of the company.

The words estimate, intend, expect, plan, or similar expressions are intended to identify forward-looking statements.

We wish to caution that such statements are subject to risk and uncertainties that could cause actual events or result to differ materially.

Important factors relating to our business, including factors that could cause actual results to differ from our forward-looking statements, are described in our form 10-K and other files with the SEC.

The company assumes no obligation to update forward-looking statements to reflect actual results, or changed assumptions or other factors.

Now, let's hear from our CFO, Donald Colvin who will provide an overview of the first quarter.

Thank you Scott, and thank you to everyone for joining us today.

Despite the numerous market challenges of the first quarter, I'm happy to report that we were able to grow our revenues slightly compared to the fourth quarter of last year.

Our revenues in the first quarter were $266.5 million, an increase of approximately $1 million over the fourth quarter.

On a mix adjusted basis, average selling prices were down around 5% quarter over quarter, primarily resulting from contractual price negotiations that took place with our customers in the fourth quarter of last year.

The price decline in the first quarter was slightly higher than previously anticipated.

As a result of the price reductions, the gross margin for the first quarter of this year declined by 1.2% sequentially, to 26.4%.

Operating income for the first quarter was $11.4 million, or approximately 4% of revenues.

We reported a net loss of 30.6 million in the first quarter, compared to a loss of 39.6 million in the fourth quarter.

The company reported a loss of 19 cents per share in the first quarter, compared to a loss of 24 cents per share in the fourth quarter.

Our first quarter results included a $3.5 million, or 2 cents per share, loss on debt repayment, stemming from an issuance of $200 million of first yen notes to pay down our bank debt.

Our fourth quarter results included $17.5 million or 10 cents per share of restructuring and other charges.

EBITDA for the first quarter was $41 million, compared to 29.9 million for the fourth quarter.

EBITDA for the first quarter included 3.5 million of loss on debt repayment, and EBITDA for the fourth quarter included 17.5 million of restructuring and other charges.

Despite making a supplemental interest payment of $27 million in the first quarter, the cash and cash equivalents increased $6.7 million from last year to $189 million.

This represents the fourth quarter in a row that we have improved our cash position.

At the end of the quarter our days of sales outstanding for receivables was 44 days.

Inventory at the end of the first quarter increased slightly from last quarter to $166.7 million, but remains at a reasonable 78 days on a cost basis.

Capital expenditures during the first quarter were approximately $6 million.

During the first quarter the company issued $200 million of senior secured notes due in 2010, and used the proceeds from these notes to further reduce our bank debt.

This now stands at approximately $520 million.

This offering also enabled us to eliminate certain restrictive covenants attached to our bank agreements, and also reduced the debt maturities during the period 2003 through 2006.

This provides our company with much more flexibility as we prepare for the next semiconductor uptongue.(phonetic)

In summary, our results were slightly better than our previous guidance, despite the numberous challenges of the first quarter, and we continue to align our course structure to a prudent projection of business growth.

Now, I would like to turn it over to our CEO, Keith Jackson, for additional comments on the business environment.

Thanks, Don.

A break down of our first quarter revenues of 266.5 million by product family is as follows: Power management and standard analog revenues were down 6% sequentially to $84 million, primarily resulting from a post-holiday slowdown from Asian consumer products companies,including game console manufacturers.

ON's power revenues were up by 5% sequentially to 36 million, primarily resulting from increased sales in the computing market.

Standard component revenues were up 1% sequentially to 128 million, and our high frequency, or our ACL revenues, were up 15% sequentially to 19 million in the quarter, primarily resulting from increased demand in the automated test equipment marketplace.

From an end market perspective as a percentage of our total revenues, automotive and computing were both up slightly, consumer and wireless were both down slightly, and industrial and networking were both flat.

Our revenues continued to shift toward the Asia Pacific region.

In the first quarter of 2003, Asia Pacific, excluding our Japan, represented 42% of [INAUDIBLE] our sales.

The Americas were 35%, Europe 18%, and Japan 5% of our total sales.

Looking across the channels, distribution accounted for 44% of our revenue, direct sales to OEMs accounted for 47%, and the EMS channel accounted for 9%.

Let's now review some of our new product opportunities.

We focused much of our efforts on new products and we continue to build our strengths in the power management arena, particularly when if comes to MOSFETS.

This quarter we introduced our first MOSFETS based on trench technology.

Not only do these devices outperform competitive offerings by as much as 40% in nonresistance, they also provide us with more substantial footing in the portable computing space and advanced automotive applications.

We have strengthened our MOSFET portfolio with the introduction of two low power devices targeted at the computing and networking markets.

These devices are based on our planer technologies that have enabled us to strengthen our position in the low power MOSFET arena.

We continue to strengthen our offerings in all of our end markets that we address.

In the automotive space we introduced two voltage regulators that provide precise micro power voltage regulation for a wide variety of applications, including power train, body control, and entertainment systems.

Rounding out this quarter's power management products we delivered a new pulse width modulation, or PWM, controller for sophisticated telecom power supplies in advanced 42-volt automotive systems.

We expanded our portfolio of micro integration devices with the introduction of a series of data line protection devices and filters to protect sensitive components from disruptive electrical transients in applications ranging from portable computing applications to set top boxes and portable consumer products.

This quarter our ACL business experienced an uptick in the automated test equipment market segment when we introduced two new advanced logic devices.

The first device is a multiple signal translator that keeps jitter and skew to a minimum in high performance medical and instrumentation applications.

This device is based on our Eclipse Plus technology.

Our new ECL market offerings have enabled us to maintain more than 70% market share in this space.

We've maintained our leadership in providing customers with advanced clock management devices for critical timing functions found in virtually all high-speed data functions.

We introduced a new phase lock loop, or PLL, synthesizer that is a high performance product targeted at ATE and networking markets.

From a manufacturing standpoint we continue to increase our presence in low cost regions with the opening of our second wafer fab in Slovakia.

The new fab uses the companies advanced MOSFET HD3E technology platform to manufacture power management semiconductors used in many of today's electronic systems, such as wireless computing and automotive applications.

Now, I would like to highlight some of our progress in the world's fastest growing market, China.

In the first quarter we opened ON Semiconductor Shanghai Trading Limited, our trading company in China, enabling us to bill China customers in local currency and shorten lead times.

This strengthens our presence in China that include Leshan-Phoenix, our joint venture in Western China, a corporate service center in Shenzen (phonetic), four representative offices in Bang Jeng, Shanghai, Chang Du, and Shenzen, (phonetics), design centers in Hong Kong and Shanghai, and our regional headquarters in Hong Kong.

In February, we announced a partnership agreement with the University of Electronic Science and Technology of China in Chang Du, the capital of Sechzwan Province in Western China, to establish the Semiconductor Center for micro electronic studies on the university campus situated close to ON Semiconductor's successful joint venture.

This venture aims to attract talented students by working on practical power devices and analog IC projects with commercial value.

Our sales in China grew by more than 50% from the first quarter of 2002 to the first quarter of 2003 as a result of our continued emphasis on this fast growing market.

In summary, we're continuing to gain ground with our new product initiatives with the introduction of devices for the significant markets that we address, and the introduction of technologies and manufacturing capabilities to continue this trend.

Our business in China goes beyond manufacturing.

We also put in place sophisticated business practices to make us more competitive.

And we have continued to emphasize controlling our costs.

We are confident that we can continue our progress, despite the many issues that challenge the market today, and we have built the foundation for the future growth of the company.

One of the potential market challenges we will continue to monitor is the SARS illness that has had a strong impact on parts of Asia.

So far, we haven't seen any material negative impact on our business resulting from SARS, however, we will continue to monitor the situation.

Now, I would like to turn it back over to Donald for our second quarter guidance.

Thank you, Keith.

Regarding our second quarter outlook we anticipate that total revenues will be similar to the first quarter.

Backlog levels at the beginning of the second quarter of this year were similar to backlog levels at the beginning of the first quarter of this year.

Although we continue to be in a high tons environment, and tons may increase this quarter, we are assuming, prudently, that tons levels in this quarter will be consistent with the first quarter.

We do expect that our gross margins and operating margins will increase slightly this quarter as a result of our cost reductions measures.

Growing EBITDA is a key corporate priority, and we expect our cost reduction measures to result in EBITDA improvement in the second quarter.

We project a slight reduction in the cash balance this quarter due to modest changes in working capital.

Capital expenditures for 2003 are projected in the $50 to $60 million range.

With that guidance, I would now like to start the Q&A session.

Thank you for listening.

The lines are opened for any questions.

Thank you.

At this time we will have the question and answer session.

If you have a question you may press star one on your telephone touch pad.

And if you are using speaker equipment, you may need to lift your handset prior to pressing star one.

To cancel your question press star two.

Once again, that is star one if you have a question, star two to cancel.

One moment while the questions register, please.

And the first question comes from Mark Edelstone with Morgan Stanley.

Good afternoon, guys.

What were the actual turns in Q1?

The turns in Q1 were in the 20 to 25% range.

And just as a question on the guidance, certainly it seems prudent to think about turns being flat quarter to quarter.

But I wonder when you think through the seasonality of the business and we eliminate the fact that we don't have the lunar new year to deal with here in Q2, and presumably we don't have the slow start to the year as people are looking at inventories and things of that nature, when you look at the order patterns that you saw late in Q1 and what you have seen here in the month of April, is there something there that leads you to believe the turns will only be flat, or is there at least a descent possibility that turns could grow quarter to quarter?

I ask myself exactly the same question, and I look to the history of turns over the last five or six quarters, and clearly, there has been a movement towards more of a turns business, not just in our business, but also in our competitor's business.

There was a lot of uncertainty out there with the war and with the SARS, so we did not want to take the most extreme view.

But there is some truth in what you say.

Unfortunately, the nature of turns is you cannot tell it until you've turned it.

So we want to make sure that we don't current on just having a top line growth to make our EBITDA improvement numbers.

So we have kept our options opened by taking a modest growth in-- assuming flat growth in the top line so that we can still continue to modestly improve our EBITDA.

But you are right, we still have a hope, and maybe Keith will address that, that the top lines can be stronger, but we think it is prudent to be conservative at this phase.

If you look at some of our competitors, certainly those that have business mixes similar to ours, I think they are also shaving that prudent outlook and we think it is most appropriate to be prudent on the top line while taking efforts to make sure that we squeeze as much as possible the expenses, to make sure that under all circumstances we meet an EBITDA improvement.

Certainly seems prudent.

I guess, just as two quick follow ons.

One is, what were inventories in distribution at the end of the quarter?

And then maybe just a follow on for Keith on the marketplace.

You mentioned that the MOS power business was up quarter to quarter and driven by the computing sector, which would, seemingly, be out of phase with normal seasonality in Q1, I wonder if you could comment on that?

Is that just an inventory replenishment issue happening, or was there something else going on in the product line to support that growth?

Okay Mark, I will address both of those.

From an inventory position in distribution, we were down in the 12-week range, so we continue to run very healthily in that channel.

It was certainly, again, a very lean environment, as we talked about earlier.

Relative to the MOSFET business, we believe there is every possibility there that there may be some share changing hands in the first quarter.

We certainly don't have all the data in to verify that at this point, but I don't think, as you were alluding to, it was necessarily an industry trend in the first quarter.

Thanks, a lot, guys

Thank you, Mark

The next question comes from Dan Niles of Lehman Brothers.

Thank you.

Going back to some of the prior questions.

I guess, in terms of your DSDY (phonetic) direct EMS business, can you give us some sense of -- you gave us the percentages, I think, that they were of our revenue, but can you give us how those changed on a sequential basis?

And then just, sort of, year over year?

And then I've got a couple follow ups to that.

Okay.

Distribution actually grew slightly on a quarterly basis for us.

We actually saw very strong sales out in the first quarter.

EMS was down marginally, as was OEM as a result, of course.

It's a balancing equation for the company's mix.

So basically, distribution was our strongest channel in the first quarter.

Okay.

Then I guess, maybe tied in to that, do you get some sense of why the DSDY business would be that much stronger than the direct?

In other words, you kind of brought up a little bit, in terms of the war et cetera, do you think that there's some of that, is just being moved in as upper stock or is there some other dynamic going on?

Yeah.

There's a couple of trends that I have talked about in the past that I think are still true.

One of them is that distribution certainly plays a very strong position in Asia relative to the manufacturers over there.

We do see more manufacturing going on in Asia and therefore, from an ON Semiconductor sales perspective, we are anticipating that that channel should remain strong, if you will.

Because again, it is a preferred channel by many of our manufacturing customers in Asia.

And then secondly, relative to inventory, I guess the data we have would be the opposite of that.

Again, these were-- we only measure sales out of distribution.

So,we certainly wouldn't have any visibility in the end customer inventories, but certainly from a distribution perspective, they continue to get skinnier.

And then, I guess in terms of your order patterns and in terms of looking at your business, I mean, did you see any impact in your business due to the war, or is that just more of a comment in that there was a war going on, and so it may have impacted business some what?

Yeah.

I don't think there is anything we can point to across the quarter that had a war impact on it, frankly.

Is that a similar statement around SARS, as well?

Well, again, SARS, I think is a very similar statement on a to-date basis.

We certainly have concerns, future tense, that there might be some impact, but so far we have seen no impact, whatsoever.

Okay.

Great.

Thank you.

Okay

Thank you.

The next question comes from Jeff Harlib of Lehman Brothers.

Good afternoon.

Can you talk a little about the current pricing environment, as well as how the different market segments look into the second quarter?

And clearly, automotive production schedules have been cut, I am wondering how that has impacted you?

And also, capacity utilization.

Okay.

Relative to the pricing environment, it remains an aggressive environment.

Certainly we are not expecting as significant price declines as we had in the first quarter.

Again, most of that was annual contract renewals, so although it remains aggressive, it certainly, from an impact perspective, is going to be less significant for the rest of the year.

Relative to looking at the end markets as we enter Q2, you very rightly pointed out that the automotive expectations of weakening.

The number of automobiles expected to be built is forecasted to be down in the second quarter, and so we are expecting that.

But the rest of the markets, I would say, were very similar to the trends we have been seeing here in the first quarter, with that one exception.

Go ahead

Okay.

And capacity utilization?

Capacity utilization remains in the 70-80 percent range, depending on which portion of our business, you know, front end-back end, etc., but on a blended basis has not changed substantially.

Just one point on automotive is that ON a global company and we do ship parts into automotive in Europe, and I don't think that there is the same sequential decline for automotive in Europe where we are also getting some benefit from a stronger Euro against the dollar.

So it is not like we're a proxy for the North American automobile market, even in that sector.

Okay.

And Don, can you talk a little more on where you stand in terms of the cost reduction efforts?

I know you were looking to take out about 120 million in annualized savings.

Can you talk about how far along you are through that and what are some of the incremental actions that need to be completed?

I think I edited that ambitious one, and even though there was a phasing of that, which I think is public knowledge, which was, mainly, more of it was in the second half than the first half, I can tell you that in the six weeks or so I have had a chance to review the numbers I am confident that there is a lot of things we can do both this year and next year.

So I am working closely with Keith on actions, through cost reductions, that will help us compensate for any price aggregation.

And I don't have a precise number.

I believe in a very simple model, that when you take costs out, your total expenses, including your cogs, must fall.

And although there is a complex interaction with price changes and increased volumes, we have to see a coming out of the total expenses.

Some of the price reductions we were using to offset cost reductions, I'm looking for absolute savings.

So I'm confident we can do that.

That is why I gaited, we gaited to growing EBITDA this quarter, and we will continue to push on these actions for the second half.

So hopefully, next conference call we can give a bit more color, but we will continue, and will continue to benefit from, cost reduction and ongoing actions to reduce our total expense levels.

The kind of things we we're looking at to meet savings in the obvious areas, obviously with SARS, there is a savings in travel, but that is a small amount.

Looking at tighter control over manufacturing.

Moving activities from certain areas to more efficient areas et cetera, et cetera.

These are the actions we are taking, and they reap a benefit.

This is Keith Jackson.

I guess Don wasn't around when we rolled those plans out.

I think, to put a few words in his mouth, the programs that we had kicked off are still on track.

We're still moving forward with those, and Don is helping us identify additional opportunities.

Okay.

Fine.

And just on the first quarter performance, your gross margins came in above your guidance, but you said pricing was a little worse than expected.

Can you talk about that?

Was there some product mix?

Was it the cost savings?

And also, you can comment on the payables, which increased by around 40 million.

Is that something that should reverse, and maybe just a little color on that.

I think our payables went up a few days.

Just off the top of my head, I think it was-- of course we squeezed a few extra days, but with the 60 days I think it was [INAUDIBLE] DPO or something like.

We had been paying our suppliers really fast and I don't think there is any -- it is very difficult to simulate these things.

We were prudent when we gained in to the cash, the -- there is no reason why it should significantly go down, and we're looking at that.

As I say, it is difficult to tell what we can run at on an ongoing basis, but there is some good reasons to believe, if we look at the semicolon industry that the DPOs can stay, or even improve from the level they are.

And we will continue to do that.

At the same time managing our DSOs, which still remain very low.

That is something else that we will have to keep our eye on, but we had a good performance there this quarter.

So there it no reason why we should give back a lot of that this quarter.

From a days perspective, this levels this quarter were similar to the levels a year ago.

No change.

Okay.

And last follow up is on the end debt to pay down bank debts.

Which bank debt was paid down, and just what is your revolver balance and availability at quarter end?

We stated in the [INAUDIBLE] that we paid down the bank debt, which was part of the total bank debt, which started off at 720 million, I think and we--

I'm sorry, I meant the other piece of debt you referred to, the end.

What other piece?

I'm --

I'm sorry, I'm sorry.

Skip that question.

Okay.

But you did ask a question which I do have the answer for, which is how much is the meaning under the revolver, and I think it is in the $6 million range.

Okay.

Thank you.

Thank you.

And as a remainder, that is star one if you have a question.

And I show that the next question comes from David Bitterman of Deutsche Bank.

Good afternoon, gentlemen.

A couple things.

One is, gloming on to Jeff's last question, so at end of the day, assume that the revolver outstanding is 6 million and the rest of the proceeds went to pay down the term facilities, is that right?

Correct.

That's correct.

And can you just update us on the current amortization for '03, '04, and '05?

That's easy.

I'll give it next to nothing.[INAUDIBLE].

Four single digits for '03 and '04 and 156 million, approximately for 2005.

So the algorithm I have there is the total amount of debt repayment over the next three years is less than the cash we have available.

Excellent

I think that really is the best illustration of the good work in this refinancing in the first quarter, which happened before my day so I can't take credit for that.

But it was a job well done, which allowed us to take away some very restrictive covenants and amortization, and really position us well to develop the company, grow us EBITDA, and prepare for the next upturn without having the shadow of debt looming over our head.

Great.

In fact Donald, you give me the opportunity to ask the next question, which is, relative to your arrival, and I realize you have only been at the company a short time, but what do you see as your biggest opportunities as CFO?

Surprisingly enough, I think there is a lot of excellent things happening on the product development front and that is going to reap its benefits over time.

And I'm very pleased with the initiatives I see in the year in time to market and introducing new products and market share.

But I think that I am comfortable in the cost savings program, and I believe again, I have to make it happen, and I don't want to sound too confident, but I am comfortable that we can, by organizing ourselves in an efficient manner, having one IS platform, taking advantage of the low cost manufacturing, and continuing to look at that area, operating as a global company in low cost areas, and really examining, as Keith has launched, initiatives in the SG&A area, to make us benchmarkers there, compared to the competition, that we have the scope and the possibility to reap significant cost savings and to benefit EBITDA.

I'm encouraged by that, and I think we can improve, even if the markets remain rather tepid, and at the same time not sacrificing our ability to respond if the markets warm up.

Last question, and that is a question for Keith.

Keith, you alluded to, in Jeff's question, a little bit towards the second half, not looking for guidance, per se, but just general tone on the market for second half of this year to the extent that you're comfortable with any insight.

Well, I think we continue to expect the second half will be stronger than the first half of the year in general markets.

Basically, the impediments and concerns, if you will, that have certainly potentially been hanging over the market, should have been resolved at that point.

And you know, inventories remain very low at this point, so the expectation is second half should be stronger overall than first half, from a market perspective.

Thank you, Keith

Okay

Thank you and the next question comes from James Croom of Morgan Stanley.

Good afternoon.

I'm going, I guess, back a little just so we can understand the working capital side.

You said that you would actually burn cash to working capital, but I think, also, you said that you don't expect your payables to come down, and you should hold your DSOs flat.

I'm just trying to understand where you would need to burn the working capital.

We were -- we had an excellent performance in cash in the first quarter.

Despite the repaying supplemental interest, again, I think it was like 24 or 25 million, something like that.

And then we also paid off some cash restructuring charges.

So we had over $30 million of cash out.

Despite that, we were still able to slightly grow our cash.

I think that was a pretty -- I wouldn't say remarkable, but it was a very good performance.

So again, being prudent, there may be a slight use in the working capital part of the balance sheet for some cash this quarter.

But we are not talking about any significant decline.

Projections are probably more in the high single digits than anything else, so that is just a modest decline.

I know cash is a key measure for you guys, as it is for us, and that is just what we stated.

So there is nothing to get concerned or alarmed about.

Okay.

And in the past there has been some discussion about new product revenues as a percent of total revenues.

Keith, I was wondering you could speak to that?

Yeah, I can.

We have started calculating the new product sales now on a sell-through basis.

Last quarter we did not give out any numbers because those were not available, only to sell in basis which had traditionally been used.

But on a sell through basis, we are now running about 20% in the first quarter.

And do you have a sense what that was a year ago, or in the fourth quarter?

Either one?

Hold on a second.

You know, I don't -- I don't -- they have not gone back to recalculate that past tense, but it was roughly the same as the fourth quarter, but I don't have a year ago comparisons.

And without talking, I mean, as you look forward, do you have any goals as to where you think that can go?

I mean where I would like to drive that is up to the 30% range on that sell through basis, and so, I mean, the expectation here is to drive continuous progress toward that.

You know, over the next eight quarters or so.

Thank you.

Thank you.

The next question comes from Eric Ruble with Miller, Tabick, Roberts.

Hi.

Good afternoon, gentlemen.

A question on ASPs and units.

With the ASP decline in the corner, can you talk a little bit about how units were?

How they ended the quarter and what you're seeing right now in the first few weeks?

Well, we have given the guidance for the second quarter relative to the first quarter, again the ASPs were down about 4%, and we were up a little more than 1%.

So clearly, we grew some units.

The bulk of those were in the small signal arena , as one might expect, because they have very, very low ASPs.

And so the declines there certainly translate to some higher units.

But again, it did not have an appreciable effect on our factory loadings, so it is fairly slight increase quarter on quarter, something less than 5%.

Okay.

Great.

Most of my questions have been answered.

You talked about a new product targeted for the 42-volt battery market in the auto, and if you could give a little color on how that market is, you know, turning out?

And when could we expect that, and what is your what is ON's opportunity in that transition?

I think we're very early in the opportunity for 42-volt, both in telecom and in automotive.

What we're looking to do there is secure design wins at this point and enjoy the early production.

Based on feedback from our customers, that certainly could be as early as the second half of this year.

But should, you know, at some point in time become the dominant standard.

Thank you.

Thank you.

And the next question comes from Craig Berger of Smith Barney.

Hi.

Thanks for taking my question.

Real quickly, I just wanted to dig in a little bit on the utilizations, which you said were 70 to 80%, depending on the business.

So basically my question is, does that imply that your upside is 20 to 30% of revenues from here?

No, not at all.

Kind of two aspects there.

One is, that is that is just our internal factory utilization.

We have many manufacturing partners, and that is not reflected in the totals that we have done.

Frankly, in times where our factories are underloaded we tend to load our factories a little heavier, and as the market picks up, we certainly utilize the external subcontractors to a much higher degree.

And then secondly, that reflects kind of a backwards looking measurement of utilization based on the equipment there, and we are always working on aspects to increase our yields of throughput.

And of course, we're got several capital plans which we have been public with to increase that capacity over time.

Just one comment that you guys can probably better interpret.

I think as this capacity utilization moves towards through the 80%, which as long as we continue to have a modest amount of unit growth, should happen in the not too distant future.

I think we should start to see then a lot more stabilization in prices, and a little bit more of pricing power coming back to the supplier.

When that magic moment happens, I don't know, but I think it is a lot healthier to see the utilization in the 70 to 80% then the lower levels we have seen over the last few year.

So clearly, we're not quite there yet but the promised land can't be too far away.

I don't know when it is going to turn, but at least we are moving in the right direction and we still continue to enjoy unit growth without any evidence of any large-scale investment anywhere in new capacity.

So this should reap us benefits sometime in the future.

Sounds good.

One quick follow up, since you touched on pricing.

SIA data, which certainly is questionable, at best, shows that discreet pricing has been relatively flat for quite a few months in a row now.

And I was wondering, since you had pretty tough contract renegotiations at end of the year, how does their, sort of, data line up with what you are seeing in the market or what you expect?

Yeah, I'm not sure that I can draw a one to one conclusion there.

I'm not sure we can give you the answer to that one.

Thank you.

One thing is, I have-- [INAUDIBLE] our prices, and I would have to believe, and again, this is not based upon the analysis that I gave you before.

And clearly, we were trying our best internally to lumber up for that is that, as Keith mentioned, the price decreases we have seen in the past have certainly fallen off, and with a minimum of help from the market, hopefully, in the future, we will also see a more reasonable erosion in prices.

On the 5% price decline, how much was mix versus same part price declines?

Well, that 5%, I believe, is calculated 100% on same part price decline.

Got it.

Thank you.

Thank you.

At this time ladies and gentlemen, this does conclude the ON Semiconductor first quarter 2003 earnings teleconference.

Thank you for your attendance.

At this time you may disconnect.

Have a pleasant day.