安森美 (ON) 2003 Q4 法說會逐字稿

Hello and welcome to the ON Semiconductor fourth quarter and year end, 2003, earnings teleconference.

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

At this time I'd like to turn the conference over to Mr. Scott Sellinger, Director of Investor Relations.

Sir, you may begin.

Good afternoon, and thanks for joining - Sorry!

Good morning, actually.

Thanks for joining ON Semiconductor's fourth quarter 2003 conference call.

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

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

In addition, our earnings release for the fourth quarter of 2003 is available on the Investor Relations section of our website.

Now I would like to highlight our upcoming event calendar.

We will be presenting at the Citigroup High Yield conference on February 10th; the Morgan Stanley Semiconductor and Systems conference on March 2nd; and the Lehman Brothers High Yield conference on March 22nd.

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 risks and uncertainties that could cause actual events or results 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 filings with the SEC.

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

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

Thank you, Scott.

And thanks to everyone for joining us today.

ON Semiconductor Corporation today announced that total revenues in the fourth quarter of 2003 were $279 million, an increase of 5% from the third quarter of 2003.

During the fourth quarter of 2003, the company reported a net loss of $42 million, or 21 cents per share.

That included restructuring, asset impairment and other charges of $29.9 million, or 14 cents per share, and a loss on debt repayment of $1.3 million, or one cent per share.

During the third quarter of 2003 the company reported a net loss of $60 million, or ten cents per share.

That included a net gain of $3.3 million, or two cents per share from restructuring, asset impairments and other.

And a loss on debt prepayment of $2.9 million, or two cents per share.

On a mix adjusted basis, average selling prices in the fourth quarter of 2003 were down 2.8% from the third quarter of 2003.

Despite the decline in average selling prices the company's gross margin remained essentially flat in the fourth quarter due to a combination of increased cost reductions, improved product mix and increased unit volumes as compared to the third quarter of 2003.

EBITDA for the fourth quarter of 2003 was $21 million and included restructuring, asset impairment and other charges of $29.9 million, and a $1.3 million loss on debt prepayment.

EBITDA for the third quarter of 2003 was $51 million and included the net gain of $3.3 million from restructuring, asset impairment and other.

And the $2.9 million loss on debt prepayment.

A full reconciliation of this nonGAAP financial measure to the companies net loss and net cash provided by operating activities, prepared in accordance with U.S.

GAAP, is included in our earnings release and related 8-K filed with the SEC today.

$29.9 million in restructuring, asset impairments, and other charges for the fourth quarter of 2003 included approximately $5.4 million of cash charges, primarily for severance and approximately $24.5 million of non-cash charges for asset impairments.

Total cash and non-cash charges included $19.1 million and $15.3 million non-cash for asset impairments and employee severance at the company's East Greenwich, Rhode Island, facility; $5.4 million, $4.9 million non-cash for asset impairments and employee severance at its Rossnoff, Cech Republic facility; $2.3 million noncash, for the writedown of a note receivable relating to assets sold in 2001; $2 million non-cash for the writedown of a cost basis investment; and approximately $1.1 million for other restructuring activities in the United States and Europe.

The net gain of $3.3 million in restructuring, asset impairments and other for the third quarter of 2003 included a $4.6 million gain on the sale of the companies assembly and test facility in Guadalajara, Mexico, offset by a $1.3 million of net restructuring charges.

Total revenues for 2003 were $1.069 billion, a decrease of 2% from $1.094 billion in 2002.

During 2003 the company reported a net loss of $167 million, that included restructuring, asset impairments and other charges of $61.2 million; a loss on debt prepayment of $7.7 million; and a cumulative effect of accounting change of $21.5 million.

During 2002 the company reported a net loss of $142 million that included restructuring, asset impairments and other charges of $27.7 million, and a loss on debt prepayment of $6.5 million.

The company's gross margin increased by 90 basis points to 28.1% in 2003 from 27.2% in 2002, primarily as a result of manufacturing cost reductions which were partially offset by price declines.

During the fourth quarter cash and cash equivalents increased by $3 million from the end of the third quarter to $187 million.

At the end of the fourth quarter, days sales outstanding were 44 compared to 52 at the end of the third quarter.

Inventory remained relatively flat compared to our last quarter at $172 million, or 78 days on a cost basis.

Capital expenditures during the fourth quarter were $18 million compared with $17 million in the third quarter.

Distributor weeks of inventories at the end of the quarter declined to 12 weeks from 13 weeks at the prior quarter end.

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

Thanks, Don.

A breakdown of our fourth quarter revenues of $279 million by end market showed very little change from the previous quarter.

Industrial revenue increased slightly as a percent of sales from 15% to 16% and consumer increased slightly as a percent of sales from 17% to 18%.

Automotive and computing each fell slightly as a percent of sales.

Automotive fell to 20% from 21% and computing fell to 25% from 26%.

Both networking and wireless were flat with networking at 7% of sales and wireless at 14% of sales.

During the quarter our sales of Motorola declined slightly to $19.4 million, or approximately 7% of revenues, from $22 million, or approximately 8% of revenues in the third quarter.

On a geographic basis our contribution this quarter from sales in Asia, excluding Japan, was 49% of revenues as compared to 50% of revenues last quarter.

Our sales in Japan increased from 5% of revenues in Q3 to 7% of revenues in Q4.

Our sales in North America declined by 2% to 26% and our sales in Europe increased by 1% to 18%.

Our channel breakout remains the same as previous quarter.

Looking across the channels, distribution accounted for 48% of our revenue; direct sales to OEMs accounted for 40%; and the electronic manufacturing services channel accounted for 12%.

Let's now review some of our product highlights.

In November we became the first and only chip maker to receive recognition two consecutive years running from China's highest authority for certifying energy conservation products.

This organization presented us with the award to recognize our support of China's efforts to reduce stand-by power consumption in the office. (loss of audio) automation products including printers and fax machines.

The award comes just 12 months after they recognized our products' availability to improve power efficiency in color television sets that continue to use power in the stand-by mode.

In the computing space we continue to expand our portfolio of solutions.

We introduced a family of multiphase controllers to meet the power management needs of today's advanced CPU's.

These multiphase controllers also put us on a development trajectory to meet the needs of next generation microprocessors that will require up to 200 amps.

This family builds on the success of the controller we introduced in the third quarter to provide the sophisticated power management requirements for the DDR memory found on the motherboards that are in production today.

This product, the NCP 5201, began ramming into full production in the fourth quarter and is gaining sales momentum if the first quarter of 2004.

We also introduced new devices that ease the design hot swap protection of computing and telecom circuit boards.

These are gaining the attention of our customers in these markets, and we're finding them designed into telecommunications gear where the engineers are driving for reduced part count and increased reliability.

Taking a look at our new product efforts within the portable and wireless markets, we introduced a series of boost regulators that provide engineers with low cost power conversion solutions for a number of sub-systems within the tiny, silicondensed environment that characterize today's cell phones, MP3 players and digital cameras.

To provide overvoltage protection for the portable devices that we plug in to recharge at our home or in our cars, we introduced an overvoltage production IC that delivers superior voltage capability and faster turnoff speed than standard CMOS supervisory circuits.

We expanded our strength in MOSFETs with the introduction of a series of trench MOSFETs and flip chip packages that deliver the performance and size requirements that the newer, multi-feature cell phones demand.

Reaching into this quarter we announced last week that we now are partnering with Melixis to expand the LIN and CAN offerings to the automotive market.

As the automotive industry introduces more electronic features into cars we will have to find an innovative way to multiplex the power to various systems, and the LIN and CAN technologies enable us to do that.

Our overall backlog at the beginning of the first quarter is at the highest level we have seen since the first quarter of 2001.

Moreover, based on our contract negotiations, we've seen improvement in the pricing environment, such that prices are expected to increase in the first quarter of 2004.

While our backlog is up across all product categories, we have seen the biggest increase in backlog from our high frequency business which primarily serves the communication market.

For our high frequency business we generated $23 million of revenue in the fourth quarter.

We have seen backlog grow by greater than 50%(sic), reaching a level that we haven't seen since the second quarter of 2001.

We continue to hold a commanding market position in the high frequency market and we are beginning to see some signs of strength in the advanced test equipment and communications end market that this product line serves.

Now I'd like to turn it back over to Donald for our forward-looking guidance.

Thank you, Keith.

Based upon bookings trends, backlog levels, and estimated turns levels, we anticipate the total revenues will be up by 5 to 6% sequentially in the first quarter.

Backlog levels at the beginning of the first quarter of 2004 were up from backlog levels at the beginning of the fourth quarter of 2003 and represented greater than 90% of our anticipated first quarter revenues.

We expect that average selling prices will be up for the first quarter of 2004 and that gross margins will increase to between 29 and 30%.

For 2004 we expect capital expenditures of approximately $80 million.

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

Thank you, sir.

Once again, if you would like to ask a question, please press star one on your telephone touchpad.

When you do press star one, you will be prompted to record your name for pronunciation purposes.

Our first question comes from Michael Masdea of Credit Suisse First Boston.

Yeah.

Thanks a lot and congratulations on the good quarter here, guys.

I guess the first question is the stainability.

Obviously we have seen a few (INAUDIBLE) from the last couple of years in semis.

Just what gives you confidence, if you have it, that this is sustainable?

Michael, it's Keith Jackson.

The factors I would point to is we see continued strong GDP growth worldwide.

Certainly Japan has been strengthening, as well as, of course, China continuing on a strong path, and the United States continuing on its relatively strong path.

So we don't see anything on the near horizon economically that we believe would change the environment.

Secondly, I believe that business spending, or enterprise spending, does appear to be on the increase, and this would be as comparative to last year when it was relatively light ,as it was the year before.

So we are seeing a combination of factors that would kind of indicate there is more strength than just one segment or one area of the world.

And then lastly, of course, we do monitor bookings on a daily basis and those bookings do continue to indicate that there is certainly strength left in this market.

Great.

I guess the high frequency seems to be a little bit of a change in tone that's been building here.

Can you remind us how that plays out for profitability for you guys and how you have kind of positioned yourself competitively as we start to come back after not seeing much activity for quite a while?

Yes, that is one of our most profitable businesses that we've gone got in the company with margins that exceed twice our corporate average.

So it certainly positions us very well on a margin basis.

And then relative to positioning within that marketplace, we've continued to invest at the leading edge of frequency there with our silicon germanium gigacom parts, et cetera, to make sure that we remain in the latest and newest year.

What we are seeing at this point is a renewed interest in products that have not been ordered for awhile, as we believe those have been largely in our customers inventory for the last couple of years.

Great.

Last question from me.

You take a look out , kind of going forward, looking where inventories are now, lead times, et cetera where we are in the cycle.

From your past experience, is this something where we could see a mix improvement, and ASP improvement, for a quarter or two quarters, or how sustainable is it, do you think, from a cyclical perspective, if you will?

Yeah, I guess $64 million question.

No one really can answer that one.

Again, the factors I pointed to earlier, on the economy, I think would certainly lead us to be positive on the number of quarters.

Looking at history, we do see from the WSTS data, that normally when pricing starts heading up, it does so for multiple quarters in a row.

Not with large amounts, quarter on quarter, but nonetheless all positive for several quarters and I guess at this point we have no reason to believe that this will be substantially different from those past trends.

Great.

Thanks a lot.

Thank you.

Our next question comes from Tristan Gerra of Schwab Soundview.

Good morning.

I wanted to know if you can talk about your expectations from cost cutting this year?

Certainly.

Cost cutting, as you know, is an integral part of our business plan.

We do believe that we need to drive to be the lowest cost producer in strong markets and/or weak markets alike.

So again, we have repeated our practice of setting some aggressive cost cutting targets for this year that will end up being very similar to the targets we set in the previous year, getting our costs of goods down and also addressing the recurring costs in our G&A spending.

So, again I would expect similar magnitudes to past years to occur again this year.

Okay.

Then just a quick follow up.

If you could talk about your wafer costs outlook in the MOSFET arena for this year?

Wafer costs in the MOSFET arena?

Is that the question?

(INAUDIBLE)

Yes.

We have certainly been ramping our MOSFET business, had some new wafer fabs, which had us with a cost basis there that was significantly below the corporate average.

At this point we've been addressing those in both the third quarter, fourth quarter, and believe that, here entering the first quarter we've got a significant amount of that behind us and by mid-year should be having averages there that approach the corporate average.

Great.

Thank you.

Thank you.

Our next question comes from Mark Edelstone of Morgan Stanley.

Good morning, guys.

Good morning.

A couple of questions if I could.

One is, what was the capacity utilization for the company overall in the quarter?

We announced between 85% and 90% capacity utilization in the fourth quarter, and that's on a man to machine basis.

Great. thanks Keith.

And then, if you look at it just from the high frequency parts, what's the utilization look like there?

I'm not sure that's a fair comparison, but the simple answer to that one is, we have an extreme amount of flexible capacity there for that business.

So in, as you would imagine, with the highest margins in the company we certainly would make sure that we fully responded to that business.

Right.

Exactly.

Last question there, what percentage of the backlog right now is comprised of the high frequency parts?

That is not a number I have.

Do you have that number?

Approximately two-thirds of the high frequency business is on the backlog entering the quarter.

The high frequency business is normally generating a reasonable amount of tons(ph) business as it goes through the distribution channel.

So it would be about 4% to 5%, something of that.

Let me just do the math again.

Yes, that magnitude.

So 4% to 5% (INAUDIBLE).

Yes.

Great.

Thanks, guys.

Thank you.

Our next question comes from Jeff Harlib of Lehman Brothers.

Hi.

Good morning.

Just in your revenue guidance for Q1, can you talk about how much of that is price improvement and what areas you are seeing pricing improvement?

And about how much of your business is fixed through '04 based on your contracts?

Okay.

I'll try and get all three of those.

In the first quarter we do expect some contribution from ASP improvements.

Again, I can't give you a specific number at this time because there are still many factors that will play before the end of the quarter, but something in the low single digits certainly.

From a percent of the business that's on the books on an annual basis, et cetera, we do have annual contracts with some of our OEMs.

This tends to be the smallest portion of the business, something less than 20%.

Okay.

And just the areas, products that you are seeing the best pricing?

I think it's basically in any kind of a market that starts to turn up like this, where you see the pricing firm up first is where the industry has a utilizations that are relatively high.

These would be, right now, in areas like the power MOSFETs and small signal transistors.

We do believe that capacity is pretty much across the industry are tight and as a result are seeing the most price increases at this time.

Okay.

In just the order improvement you are seeing in backlog improvement, can you talk about how much that is coming, is it more distributors increasing some of their inventories?

Is it OEMs?

Do you think distributors are starting to increase their inventories back up beyond the 12 weeks?

Yeah.

You may have noticed our inventories in the distribution channel went down on a weekly basis.

So the answer is, no, we do know that our distributors are not building inventory at this point.

As you know we are on a sell through basis.

Certainly no benefit to the company to allow that to move upwards and we worked very, very closely with our distribution partners to make sure they have the materials they need without having excess things on their shelf.

Relative to the backlog, the mix comes in substantially the same as we've seen in the past.

So, in other words, all the channels are up, and we are not anticipating a significant shift in our channel distribution as we go through the quarter.

Okay.

And just last question, on Cap Ex that you mentioned. 85 to 90% of capacity.

How are you going to, in other words how are you going to meet increased demand going forward given you are at that capacity utilization level?

Are you going to bring some more business out to foundries?

And what are your plans for the China facility?

Our capacity, as we mentioned earlier, we spent about $60 million in capital last year.

This year we'll spend about $80 million, so we will be again increasing our capacities overall.

We don't do this on a "wait till the new year" basis, that is a continuous process as you see.

We spend money every quarter to increase those capacities and we will continue doing that.

It is our an anticipation that the types of rates I just mentioned will be more than sufficient to keep up with market demands this year without creating significant gluts of capacity in the marketplace.

Thank you.

Thank you.

Thank you.

Next question comes from John Barton of Wachovia Securities.

Yes.

Good morning.

Thank you.

On the ASP front, you've made the comment now several times that, obviously, ASPs are headed in the right direction here in the first quarter.

If I remember correctly, when you looked into the fourth quarter you had a pretty favorable view with respect to ASPs that apparently did not materialize.

Granted, this conference call is a full month into the quarter, and it seems as though you are reporting actuals, as opposed to trying to forecast it, but if you could just help me understand your confidence in that and acknowledge that, it indeed it's already been taking place as we go through the quarter.

Certainly.

As we went into the fourth quarter we did expect ASP declines.

Those declines were slightly higher than we expected.

And really, as a result of the turns aspect of the business not becoming as positive as quickly as we expected.

And some of the contracts that were let in the summertime basically having some very higher volumes than was originally anticipated.

So we did expect it to be negative.

It was a little bit more negative than our expectations, but not dramatically so.

As we look to the first quarter, as I mentioned earlier, we have some of our contracts which were done on an annual basis, the majority of them being done on a quarterly basis.

In both cases, the December quarter sees us renewing substantially all of our contracts.

We've analyzed those contracts and see a positive trend throughout the sum of those contracts, and as you also heard earlier, we've got over 90% of our backlog in place coming in the quarter as opposed to only 80% the prior quarter.

Could you comment on lead time trends as of late, please?

Yeah, lead times have lengthened.

They are now 8 to 12 weeks as opposed to a couple of weeks shorter than that in previous quarters.

Final question if I could.

Maybe this is for Donald, but if I look at the R&D and the S&M spending, you know, sequentially up in the December quarter, obviously G&A down pretty nicely, how do we think about that as we go through '04, please?

I think, John, you can look at that roughly as 19% of store sales, 7% for R&D, 6 to 7% for sales and marketing, and the remainder for G&A.

Thank you very much.

Thank you.

Our next question comes from Lee Zeltser from Needham and Company.

Hey, guys.

A couple questions.

First, if you could give us a break out of product mix in the quarter, and if you could talk about your near term expectations just a little more quantitatively for us?

The product mix was roughly the same as in the previous quarters.

Roughly half of our business coming from standard components, about 50%, from the analog, and 20% from the MOSFET and the high frequency.

The expectation, I think we gave a clear statement that the highest backlog increases actually come from the high frequency business, so I would expect that that would rise a little bit by a point or so, depending on how the dynamics of the other parts of the business.

But not any dramatic changes in mix.

Don, as you look at your profile by product, are there any areas which you feel might not, might be noncore long-term and might be areas that you would consider for were divestment to (INAUDIBLE) pay down debt or other purposes?

Not really.

I think one of the good features of our business today is that I wouldn't say it's firing strongly across the board.

We are not seeing any particular weakness in any one area, and we are seeing pricing strength and booking strength across the board.

So there is no obvious candidate for execution.

Clearly the high frequency business has been painful to bear the past few years when the business went down the toilet, but we have the manufacturing capacity to support that business and it's very pleasant now ,that as Keith mentioned on the back of the ETE automatic test equipment strength, and now the positive bookings from the communications space, that that bottom the going to be [inaudible] so we have nothing that is on the block.

Okay.

Thanks very much, guys.

Thank you.

Our next question comes from Jeff Palmer of Friedman Billings and Ramsey.

Good morning gentlemen.

Both of my questions have been asked and answered, but maybe you can give us a little bit more details on product breakout in terms of the gross margins, where each of those lines sit relative to corporate margins.

We don't normally go into sort of (INAUDIBLE) into detailed marginally assist but we give directional indicators.

And I think Keith, (INAUDIBLE) for instance, on the high frequency business stated that the margins are not, the gross margins of course, where 2x the corporate average.

And the gross margins in the standard component business, the major part of our sales, are roughly equivalent to the corporate average, the analog business is a bit better and the MOSFET, where we have cost reduction actions and there were questions on that, how we are doing on cost reductions, underneath the corporate average.

Okay.

Thank you for (INAUDIBLE) .Quick follow up if I may.

With R&D being up about 25% quarter on quarter, what kind of areas are you guys focusing on or investing in and when should were see new products coming out of bond?

The main focus on the R&D is in the analog area where we have the main focus of the company, new product activity, in different segments.

So we are applying most of our R&D efforts there.

But we still continue to apply R&D to technology.

As a Keith mentioned, in the high frequency area and also packaging and product development in the standard component area.

I gave the guidance I would expect the R&D percent going forward something in the 6.5, 7% of sales range.

Thank you very much, Donald.

Appreciate it.

Thank you.

Next question comes from Eric Rubel(ph) of Miller, Taybeck and Roberts.

Good morning, gentlemen.

Cap Ex guidance for '04, depreciation has been running around 27 million.

Is that a good number to use for '04 on a quarterly basis?

Yes.

I think something in the 105 range, I think 27 multiplied by four, 108, that's a reasonable assessment.

Okay.

And, Donald, you spoke generally, or Keith spoke generally to the cost savings for '04.

Can you quantify the cost savings that you would look to achieve and give a split between gross margin and Op Ex?

We give a direction, the program that we had officially announced last year was a program of $100 million in annualized saving.

This year's program will not be quite as high as that.

Just over half of it has been targeted.

Most of the savings will be going against COGS, actions that we have, some of which were touched upon, closure of assembly and test facilities, improved yields, reduced wafer costs, and improved freight costs are all the major elements.

So 80 to 90% of the savings will go against the COGS line.

And also we are working on some finds(sic) in the G&A area to reduce the cost of our IT function by outsourcing some of these activities and moving on to a single platform.

Right now, we still have a dual platform IT with a lot of legacy systems running on a mainframe and we will be migrating to a single ERP platform and eliminating the duplicate cost.

Okay.

Any, you mentioned some cash restructuring charges in the quarter.

What is remaining do you expect for '04?

We do not expect any material cash reduction costs in '04.

Okay.

And, you performed well on DSOs.

Is that a level that we can look to continue to achieve here or as you expect to grow in '04 do you see working capital being a use of cash?

Here we have, I think, demonstrated good performance in working capital, whether it's on inventories, DSOs or DPOs.

There's no reason why that should dramatically change.

But some thing you can't see like the last quarter as depending on where the sales are made to, you can see changes in DSOs.

More OEM sales direct, especially if that are in Europe, are desirable from a strategic standpoint and a margin standpoint but are not as good for DSOs as shipping to distributors in North America.

So you can't see certain mix changes, but I would not expect any significant directional change in any of these major parameters.

So working capital may be for tracking the business, but not consuming more than the business growth.

One more quick one.

You said that you, you gave the breakout by product, but in the past you've reported four categories, analog, MOS power, logic, MOS power and logic separately.

Could you break out those by the four, analog seemed to go get muted a little bit.

I think basically we are showing the split, analog we said was about 50% of our business.

We have about, the MOS power is about in the mid-teens and the ECL was about 6, 7% or so of our business, that's the normal split we give.

Great.

Thank you.

Thank you.

Our next question comes from David Biderman of Deutsche Banc.

Good morning.

A couple things.

Can you give us a sense of what your capital structure plans are for, say, the next 12 to 18 months?

And, two, what do you see really as your Cap Ex needs step up, what are your working capital needs as business starts to realize growth and how does that fit in with your balance sheet plans?

Well, on the capital structure there's obviously a certain (INAUDIBLE) that can be made in our current market environment.

It's a secret to no one that we have some high coupon debt and a reasonable amount of debt [inaudible].

Obviously we will be oppurtinistic in seeing what we can do to reduce the burden of that.

For obvious reasons, I can't go into any more details and I'm sure you'll all understand.

But you can be sure that that's an opportunity that we will not be declining.

As far as capital expenditure is concerned, one important part of our business model is that we get a great leverage for our dollar of investment, especially in front end equipment.

We can pick that equipment up at less than 5 cents on the dollar.

So for a $20 million investment we can get a $400 million original cost equipment.

So we are able to piggyback on fully depreciated logic equipment that's available on the market ,and is totally appropriate for our level of technologies that do not require expensive pieces of micron equipment.

So we do get a big advantage in being able to use equipment for long life cycles, in excess of ten years, for the front end equipment.

So we don't think that $80 million is an inappropriate number for, to support our business.

We have many fabs that have space within the four walls.

So we will not be needing to build any major fab investments.

We can equip the fabs on a modular basis with the secondhand equipment at less than 5 cents on the dollar, and our assembly and test capacity, we will add on a modular basis when we have visibility from our customers on where they require our products.

Okay.

Thank you.

I appreciate it.

Thank you.

Our next question comes from Matthew Sandshaffer(ph) of Avenue Capital Management.

My questions have been answered.

Thank you.

Thank you.

Our next question comes from James Croom of Morgan Stanley.

Good morning.

Could you just talk, I guess you said units were up, do you know how many units you actually produced in December?

The total units for the company are approximately in the high 20 billion if you use the Q4 run rate.

That's where we stand.

And if you look at the official announcements, revenue is up and ESP is down so there was a reasonable sequential growth in units in the fourth quarter.

Is it safe to say the fourth quarter was a record unit shipment quarter?

If it wasn't quite a record it must be close to it.

If we look at, in the past you talked about new business as a percent of sales, around 30 percent, and I'm assuming that's packages three years or younger, is that consistent in this fourth quarter?

This is Keith Jackson.

The answer to that is actually we have not been advertising in the 30% range.

That's a target.

We've actually, most recently announced in the mid 20s, and that is consistent with the fourth quarter performance.

Thanks.

And then if you could recap seasonal trends?

Historically for various reasons it appears that first quarter typically is down.

You are talking about an up first quarter.

You also are talking about low inventory levels.

Can you kind of revisit, kind of, seasonally what happens, kind of, the balance of the year and given the strength, maybe give us some insight as to, kind of, your view going out past the first quarter?

Normally, if there is such a thing as normally any longer, on a seasonal basis you would expect our sales to increase as we go to the second and third quarters.

And then the fourth quarter roughly flat with the third.

So, and then one being slightly down or around neutral.

That is kind of a seasonal pattern.

It does show the influence of the more consumer related businesses that are slower in the back half of the year, and in the front half of the year the more industrial communications and automotive types of sectors being relatively stronger.

And so that's kind of the pattern look and so, again, normally Q1 is down slightly and it is up at this point and normally we would expect to see strength from here.

Thank you.

Thank you.

Our next question comes from Denny Cuo of JP Morgan.

Good morning, Keith.

In looking outside the wireline market, can you give us a sense, for the first quarter, do you expect any of the end markets to up or down versus normal seasonality?

Yeah, on the wireline side, we are seeing a major of our communications customers coming in with good orders.

As we mentioned earlier, this is pretty much a turns business and we service most of that through distribution, so we don't have a precise look at which systems those are going into.

But I would say pretty much across the board, all of the big communications names have increased their order rates here in the first quarter.

Maybe outside the wireline markets looking at automotive, PCs, industrial, do you expect any of those end markets to be better than seasonal?

We are definitely seeing good strength in the industrial segment.

I expect that will continue here in the first quarter.

The PCs, handsets and the consumer sector, all again season are a little light in Q1, and I would expect that to happen again this year in the first quarter.

We are seeing good strength from communications and industrial and some improved strength in automotive.

Maybe a little bit color about (INAUDIBLE)?

Have you seen any (INAUDIBLE) channels increased orders, are you seeing OEMs or (INAUDIBLE), being a little stronger than what you expected?

No, really no change in patterns before and after Chinese new year.

Great.

Just a couple of housekeeping questions.

Looking at, how should we look at interest expense going forward?

Again, for a variety of reasons, I'm not in a position to give any clear color on what that could be.

I think everyone is aware of certain things that are happening and can do their own as simulations.

For taxes you are still looking at $1.5 to $2 million per quarter then?

Yes, I can't be clearer than that.

We are talking about approximately $2 million tax charge going forward.

Great.

Thanks.

Thank you.

Our final question comes from Eric Tobin of Banc of America Securities.

Good morning.

Do you expect '04 Cap Ex to be front end or back end loaded or even throughout the year?

It's probably a little bit front end loaded.

The last time I looked at it as a relatively healthy amount on the front end, and indeed, if you look on the balance sheet, we've actually paid for some of the equipment which we have not yet installed.

So relatively front end loaded.

Great.

Thanks a lot.

Thank you.

This concludes today's ON Semi-conductor fourth quarter and year end 2003 earnings teleconference.

Thank you for attending and you may disconnect at this time.