安森美 (ON) 2004 Q1 法說會逐字稿

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  • Operator

  • Hello and welcome to the ON Semiconductor first quarter 2004 earnings release 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. Ken Risvi, director of investor relations.

  • Sir, you may begin.

  • Ken Risvi - Investor Relations Director

  • Great, thank you, Wendy.

  • Good afternoon and thanks for joining ON Semiconductor's first quarter 2004 conference call.

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

  • This call is being 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 first quarter of 2004 is available on our website in the Investor Relations section.

  • Our earnings release in this presentation includes certain non-GAAP financial measures.

  • Reconciliations of these non-GAAP financial measures are the most direct comparable measures under GAAP are posted on our website in the financial section of the earnings release under the "News" category and in the Investor Relations section under the heading "Annual Reports and Financial Releases."

  • Now I would like to highlight our upcoming event calendar.

  • We will be hosting our annual shareholder meeting in Phoenix on May 19 and our Analyst Day in San Francisco on May 27th.

  • We will also be presenting at the J.P.

  • Morgan Technology and Telecom Conference, May 4; the Charles Schwab Semiconductor Conference, May 11; the Piper Jaffray Technology Equity Conference, May 18; and the Credit Suisse First Boston Semiconductor Conference on May 26.

  • And now the Safe Harbor statement -- during the course of this 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.

  • The important factors relating to our business including factors that could cause actual results to differ from our forward-looking statements are described in our amended 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 assumptions or other factors.

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

  • Donald.

  • Donald Colvin - CFO

  • Thank you, Ken, and thank you to everyone who is joining us today.

  • ON Semiconductor today announced that total revenues in the first quarter of 2004 were $308.2m, an increase of 11% from the fourth quarter of 2003.

  • During the first quarter of 2004, the company reported a net loss of $47.6m, or 23 cents per share.

  • That was included restructuring, asset impairments, and other charges of $13.1m, or 6 cents a share, and a loss on debt prepayment of $33m, or 14 cents per share.

  • During the fourth quarter of 2003, the company reported a net loss of $42.4m, or 21 cents per share, that included a net loss of $29.9m, or 14 cents per share from restructuring, asset impairment, and other, and a loss on debt prepayment of $1.3m, or 1 cent per share.

  • On a mix-adjusted basis, average selling prices in the first quarter of 2004 were up approximately 1% from the fourth quarter of 2003.

  • The company's gross margin was 31.1%, an increase of approximately 300 basis points compared to the fourth quarter of 2003.

  • This increase was due to a combination of increased average selling prices, improved product mix, and increased unit volumes and cost reductions.

  • EBITDA for the first quarter of 2004 was $14.2m, and this included restructuring, asset impairments, and other charges of $13.1m and $33m, a loss on debt prepayment.

  • EBITDA for the fourth quarter of 2003 was $20.6m, and this included a net loss of $29.9m from restructuring, asset impairment, and other, and a $1.3m loss on debt prepayment.

  • A full reconciliation of this non-GAAP financial measure to the company's net loss and net cash provided by operating activities prepared in accordance with U.S.

  • GAAP is included on our website and in our earnings release under the related Form 8-K filed today with the SEC.

  • The $13.1m in restructuring, asset impairment, and other charges for the first quarter of 2004 included approximately $12m of non-cash charges for a loss on sale of fixed assets and approximately $1.1m of cash charges primarily for severance expenses.

  • Total cash and non-cash charges included $12.3m for the loss and sale of fixed assets and employee severance related to the outstanding of certain IT activities and the sale of the related assets to Hewlett Packard, and $0.8m for employee severance and other charges related to the company's impending East Greenwich, Rhode Island, manufacturing closure and the transfer of certain manufacturing capabilities out of the Rosnov, Czech Republic facility.

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

  • The total cash and non-cash charges included $19.1m for asset impairment and employee severance at the company's East Greenwich, Rhode Island facility; $5.4m for asset impairments and employee severance at Rosnov, Czech Republic facility; $2.3m for the write-down of a note receivable relating to assets sold in 2001; $2m for the write-down of a cost basis investment; and approximately $1.1m for other restructuring activities in the United States and Europe.

  • During the first quarter, cash and cash equivalents increased by $34.8m from the end of the fourth quarter of 2003 to $221.4m.

  • Proceeds of our February equity offering net of debt prepayment resulted in $31m of this increase.

  • At the end of the first quarter, day sales outstanding was 45 days compared to 44 days at the end of the fourth quarter.

  • And inventory was relatively flat on a day's basis compared to last fourth quarter at 79 days on a cost basis.

  • Capital expenditures during the first quarter were $31m compared with $18m in the fourth quarter of 2003.

  • Distributable weeks of inventory at the end of the quarter decreased from 12 weeks to 11 weeks.

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

  • Keith.

  • Keith Jackson - CEO

  • Thanks, Don.

  • A breakdown of our fourth quarter revenues of $308.2m by end market showed some seasonal changes from the previous quarter.

  • Industrial, automotive, networking, and wireless revenue increased slightly as a percent of sales.

  • Industrial rose from 16% to 17%; automotive rose from 20% to 22%; networking rose from 7% to 8%; and wireless rose from 13% to 14%; computing fell as a percentage of sales from 25% to 20% and consumer remained flat at 18% of sales.

  • During the quarter sales to our largest OEM customer, Motorola, increased to $24m, or approximately 8% of revenues from $19.4m or approximately 7% of revenues in the fourth quarter of 2003.

  • This growth appears to reflect the recent strength that Motorola has shown.

  • Our top five customers for the first quarter, in alphabetical order, were Delphi, Flextronics, Motorola, Siemens, and Visteon.

  • On the geographic basis, our contribution this quarter from sales in North America increased by 500 basis points to 31% reflecting the increased strength in automotive and networking markets on an seasonal basis.

  • Asia, excluding Japan, was 46% of our revenues as compared to 49% in the previous quarter.

  • Our sales in Japan decreased from 7% of revenues in the fourth quarter to 6% of revenues in the first quarter, and our sales in Europe now represent 17% of our total sales.

  • Our channel breakout has also changed from the previous quarter.

  • Looking across the channels, direct sales to OEMs accounted for 43% of our revenue compared to 40% last quarter and was offset by distribution, which accounted by 45% of our revenue compared to 48% last quarter.

  • DMS channel remained flat at 12%.

  • This is also consistent with the strength of our automotive and networking segments.

  • Now I would like to provide you with some details on the progress we've made in the markets we address.

  • In the automotive market, we have teamed with Melexis, a leader in automotive semiconductors in Europe, to expand the technology option for auto manufacturers who are looking for a sophisticated approach to deliver power to the expanding array of electronic options found in today's automobiles.

  • We are now jointly marketing a portfolio of devices based on LIN and CAN technologies and are independently developing next-generation products using these technologies.

  • In the first quarter we earned a commendation from Delphi for exceeding Delphi's expectations on our jointly developed roadmap to zero defects.

  • In a separate award, Delphi Electronics Europe presented us with its Supplier of the Year award for outstanding quality and progress in service to Delphi sites in Europe.

  • In the computing space, Intel presented us with its Preferred Quality Supplier Award for outsourcing performance in delivering products and services essential for Intel's success.

  • Strengthening our presence in the wireless space in the first quarter we joined the Mobile Industry Processor Interface Alliance, or MIPI, and we are participating in the Consortium System Power Management Investigation Group to reduce board space and improve performance in today's space-restricted wireless applications.

  • We introduced an integrated power amplifier that simplifies design for the system and reduces costs.

  • We made several accomplishments in the first quarter to address the power supply needs in the industrial and consumer markets.

  • We introduced a new line of high-voltage MOSFETS that simplify the designs found in numerous applications in the industrial space.

  • We also introduced a highly integrated voltage-mode, PWM controller that is the first in the industry to offer a high-voltage startup for active clamp circuits that are perfect for high-end consumer goods such as plasma screen televisions.

  • The EPA EnergyStar program has identified AC-DC power supplies as a major opportunity for reducing global energy consumption and greenhouse gas emissions.

  • We have taken our power management leadership and addressed this issue through our support of Power Efficiency 2004, the international power supply design contest sponsored by the EPA and California Energy Commission where our engineers provided technical support and semiconductor design kits.

  • We continued our legacy of providing innovative power management solutions that meet the sophisticated requirements of the networking and telecommunications markets.

  • In the first quarter we introduced a miniature, high-voltage, monolithic switching regulator that features a power switch and a startup circuit.

  • We also see considerable interest in our series of smart, highly integrated devices that simplify the implementation of hot-swap power protection on boards that are regularly switched in and out of powered-up computing and telecom systems.

  • We introduced these devices in the fourth quarter of last year.

  • We signed an agreement with Digi-Key, a leading global distributor that will accelerate the availability of our products to designers in the critical early stages of their product development as well as expand availability to those in research and development firms and academia.

  • We have deepened our executive level of talent with the hiring of Peter Green as vice president and general manager of our Integrated Power Products Division, and Larry Sims as vice president and general manager of our Analog Products Division.

  • Peter has 21 years of experience in the high-tech arena and has led six different divisions at Intel, and Larry has 25 years of experience across a broad spectrum of analog technologies.

  • Now I would like to turn it back over to Donald for updates on our recent financial and strategic transactions and our forward-looking guidance.

  • Donald.

  • Donald Colvin - CFO

  • Thank you, Keith.

  • During the first quarter and subsequent to the quarter's end, we completed three major financial transactions.

  • The first transaction was a $240m common stock offering with net proceeds used to repurchase $175m aggregate principal over 12% and 13% senior secured notes due in 2008 and 2010, and also the balance of the proceeds being used to increase our cash balance as discussed in the quarter overview.

  • The second transaction was a zero percent, zero coupon, $260m convertible senior subordinated note offering.

  • Net proceeds were used to repurchase and retire our 12% senior subordinated notes due in 2009.

  • The third was a refinancing of our bank credit facilities, reducing the rate from LIBOR + 325 basis points to LIBOR + 275 basis points.

  • These transactions are consistent with a long-term strategy to strengthen the company's balance sheet and reduce our interest expense.

  • On a projected annual basis, these transactions reduce our interest expense by approximately $53m, or 40%, as compared to a projected annual interest expense at the beginning of 2004.

  • On an operating basis, excluding restructuring, asset impairment, and other charges, we exceeded our expectations.

  • While interest rate expense reduction took effect late in the quarter, we expect to realize the full benefit of our actions, going forward.

  • In the second quarter we expect interest expense of approximately $25m.

  • During the first quarter we entered into a strategic partnership agreement with Hewlett Packard to outsource certain IT functions and sell related IT assets.

  • This outsourcing agreement will allow ON to realized savings in its IT operations as well as leverage the skills of the entire Hewlett Packard organization.

  • In the near term, we expect cost savings of approximately $1m per quarter due to these actions.

  • In conjunction with additional actions, ON expects to increase projected IT savings to approximately $2m per quarter by year-end.

  • Second quarter outlook -- based upon bookings trends, backlog levels, and estimated turns levels, we anticipate that total revenues will rise in the second quarter by between 6% and 7% sequentially over the first quarter.

  • Backlog levels at the beginning of the second quarter of 2004 were up significantly from backlog levels at the beginning of the first quarter of 2004, and represented greater than 90% of our anticipated second quarter revenues.

  • We expect the average selling prices will be up for the second quarter of 2004 and that our gross margins will increase by 150 to 200 basis points.

  • For the 2004 calendar year, we expect cash capital expenditures of approximately $80m.

  • For the second quarter of 2004, we expect SG&A expenses to range from 11% to 12% of sales, and R&D expenses to range from 7% to 8% of sales.

  • We also expect shares outstanding to be approximately 254m shares in the second quarter.

  • We have prepared the company for ongoing profitability, and we look forward to reaping the full benefits of our actions as we enter the seasonally strong second half of the year.

  • With that, I would now like to open the session for questions and answers.

  • Operator

  • Thank you.

  • If, at any time, you have a question, please press star followed by 1 on your telephone touchpad.

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

  • Michael Masdea - Analyst

  • Thanks a lot.

  • Congratulations on the quarter, guys.

  • The first question is about inventory.

  • You said it is balanced distribution.

  • Now it looks like your inventory is fairly flat on a day's basis.

  • Can you just tell us what your customers are thinking on inventory?

  • Do you see distributors trying to build?

  • Or any color you can give us on inventory would be helpful.

  • Keith Jackson - CEO

  • Inventory in the distribution channel, we actually were not able to grow much, as you can see, and certainly on a day's basis, it actually declined as we went through the first quarter.

  • Certainly our distribution partners would like to see us increase those levels in the second quarter primarily to prepare themselves for a stronger second half, which is pretty normal.

  • So a simple answer to your question is, of course, our partners would like to see us ship more inventory in the second quarter, which we will move to do, as opposed to the first quarter.

  • Michael Masdea - Analyst

  • Okay.

  • I guess just a follow-up for that -- on the competitive capacity front, any major changes there that you see now or anytime soon?

  • And also are your competitors doing similar things on pricing or is there any disconnects?

  • Keith Jackson - CEO

  • On the competitive front, I guess we've heard of nothing that really changes that landscape.

  • Lead times appear to be holding steady in the 10- to 12-week range and, of course, everyone is adding capacity, as are we.

  • You can see, from our capital expenditures in the first quarter, that we are, indeed, putting on that capacity.

  • So really no major changes, I guess, on a relative basis, and certainly pricing in the marketplace is going up.

  • That's not something that one company can do alone, and so I would say that, again, we are seeing that as a broad-based action.

  • Michael Masdea - Analyst

  • Okay, just the last question on ASPs.

  • Donald, you gave us a mix-adjusted number.

  • Was it much different than the non-mix adjusted?

  • And then what contribution is that in the second quarter to that growth number?

  • Donald Colvin - CFO

  • I think there is no formal way, Michael, to calculate these things.

  • If you look at the revenue growth we enjoyed, 11%; our units were up something in the 2% to 3% range; our ASPs were up in the 1%.

  • So you have a residual something like 7% for mix improvement.

  • We don't see something as powerful as that in the second quarter, but we do not expect significant -- we expect continued ASP improvement in the second quarter and also some mix improvement in the second quarter to add to some unit improvement.

  • Michael Masdea - Analyst

  • Okay, thanks, guys.

  • Keith Jackson - CEO

  • Thanks, Mike.

  • Operator

  • Tristan Gerra of Schwab Soundview.

  • Tristan Gerra - Analyst

  • Good afternoon.

  • I was wondering if you could talk about contract pricing and expectation of pricing in the second half.

  • Keith Jackson - CEO

  • Yes, pricing is very difficult to project for the second half but, again, I think back to the principles that drive pricing.

  • It's certainly a supply-versus-demand situation.

  • Our current look at the second half from our customers would estimate that it is stronger on a unit basis than the first half.

  • Several key things driving that.

  • And then, secondly, from a capacity perspective, certainly, again, as I mentioned, the industry is bringing on capacity, but there have not been any real step function changes.

  • So I guess the expectation at this point is for a not substantially different situation in the second half versus the first half, which would mean we would expect some continued ASP strengthening as we go throughout the year.

  • Tristan Gerra - Analyst

  • Are there any specific end markets that you can pinpoint in terms of the unit outlook that you just mentioned for the second half?

  • Keith Jackson - CEO

  • Yes, the computing industry certainly would be expecting more units from a component basis in the second half.

  • The movement to the Grantsdale [sp] platform certainly uses many more power components, which we provide.

  • So we're definitely expecting some of that to strengthen.

  • And then, secondly, on a seasonality basis, the consumer market picks up in the second half of each year and, again, that is a very high component or unit count driver for the company.

  • So both of those areas should be driving demand upwards.

  • Donald Colvin - CFO

  • Tristan, it's Donald.

  • I think if you could see from Keith's overview in the first quarter, we did see that seasonal weakness in the computer sector.

  • We have early visibility into the third quarter, and we can tell you that the third quarter backlog is developing very nicely in line with our thesis that the second half will be much stronger than the first half.

  • And if you look at what happened last year with the consumer base of end-market demand being so important, our second-half units were up something like 15% over the first-half units.

  • So we see a very healthy evolution of our third quarter backlog at this stage.

  • Tristan Gerra - Analyst

  • Okay, thank you.

  • Operator

  • Mark Edelstone, Morgan Stanley.

  • Mark Edelstone - Analyst

  • Good afternoon, guys, and nice job on getting the company ready to take advantage of the up cycle here.

  • A couple of questions, I guess, if I could.

  • The first one is, what did the actual turn percentage of the business end up being relative to the final revenues that you reported?

  • Keith Jackson - CEO

  • Relative to the final revenues, it ended up being just under 10% at about 9%.

  • Mark Edelstone - Analyst

  • Okay, great.

  • And then, Keith, I guess as you look at the business now, you guys have obviously done a lot of things already.

  • Do you see any other major strategic initiatives that you need to undertake here, whether it be additional restructuring items or product pruning as you go through the rest of the up cycle here?

  • Keith Jackson - CEO

  • Really not.

  • We've announced, again, the closure of our East Greenwich facility.

  • That is really the end of what we see as the restructuring opportunities.

  • We are expanding our capacities in those low cost regions of the world per plan and continue to have other cost actions but really nothing of the restructuring nature.

  • Of course, we're going to continue to work on de-levering the balance sheet as a primary strategy, as is appropriate in the marketplace.

  • Donald Colvin - CFO

  • One point to add, Mark, is that, to a certain extent, we're being penalized now because we are actually paying the price to decommission the EG facility in that we are paying the transfer of these products across regions while still paying to run the EG facility.

  • Starting the beginning of next year, we will reap the benefits of that, estimated at between $4m and $5m per quarter of cost savings.

  • So although we are paying the price now, we are really preparing ourselves well for next year.

  • Mark Edelstone - Analyst

  • Great, and just a last question on capacity utilization in the quarter for both front and back-end operations.

  • Keith Jackson - CEO

  • We ran approximately 90% capacity utilization in the first quarter, and we expect that those types of levels will be maintained throughout the year, even with some aggressive market growth, as our capital expenditures are keeping pace with the growth in the marketplace.

  • Donald Colvin - CFO

  • One point, as well, is about 30% of our total capacity is outsourced, and when we have been adding capital expenditure, we have been making sure it's an area that we can be certain as we can that we can use it.

  • So if there is any weakness in any end markets, then we have the flexibility of reducing outsourced capacity and keep our own internal capacity at full utilization.

  • Mark Edelstone - Analyst

  • Just, lastly, there, Donald, then, is the 90% utilization -- is that equivalent for both front and back-end operations?

  • Keith Jackson - CEO

  • It's approximately equal.

  • Mark Edelstone - Analyst

  • Okay.

  • Thanks a lot, guys.

  • Nice job.

  • Keith Jackson - CEO

  • Thanks.

  • Operator

  • Chris Danely, JP Morgan.

  • Chris Danely - Analyst

  • Thanks, guys, just a couple of quickies.

  • On lead times, it sounds like they're pretty flat.

  • When do you think you'll be able to bring those in?

  • Keith Jackson - CEO

  • Again, with the outlook demand and the objective we have of staying around 90% utilized, I would not expect that coming in much at all this year.

  • I would say we'd stay in that 10- to 12-week range, probably throughout the year.

  • Chris Danely - Analyst

  • Okay, great.

  • Then you talked about end-market strength you expected in the second half of the year.

  • Keith, can you just give us a sense of which end markets you expect to be stronger, a little bit weaker, for Q2?

  • Keith Jackson - CEO

  • You know, Q2 will not, should not be dramatically different than Q1.

  • You know, the interesting patterns that are developing from a seasonal perspective, it's really becoming more of a half phenomenon.

  • Computering will stay around the same kind of levels.

  • You might see a little bit more strengthening in the consumer sectors but, in general, it will be a similar profile to Q1.

  • It's really the second half that you get very strong pickup in the computing segment and in the consumer segments.

  • Chris Danely - Analyst

  • And then what was the breakout by product lines for the quarter?

  • Do you guys have that?

  • Donald Colvin - CFO

  • We have that, and I don't think there was any major switch from what you normally see -- our standard components coming in about half of our business -- just under half.

  • Our analog business was a little bit stronger that quarter, if you put the ECL just over 30%, and the power MOS business coming in just under 20%.

  • Chris Danely - Analyst

  • Great, and then last question -- can you give us the exact book to bill?

  • Donald Colvin - CFO

  • We do not give the exact book-to-bill number, but what we can say it was significantly greater than one.

  • Chris Danely - Analyst

  • That will do it.

  • Thanks, guys.

  • Keith Jackson - CEO

  • Thanks.

  • Operator

  • Lee Zeltser, Needham.

  • Lee Zeltser - Analyst

  • Hey, guys, a couple of questions.

  • First off, you mentioned the share count guidance of 254.

  • Is that inclusive of the convertible preferred and what would that be if you included that?

  • Donald Colvin - CFO

  • The convertible preferred has what's called the "contingent conversion," Lee -- 120% of the converted price, which is 955.

  • So we do not include that in the 250 million share count.

  • The total shares approximately, I think, 26 million shares, from the convertible.

  • Lee Zeltser - Analyst

  • Oh, no, I'm sorry, I think there's a redeemable preferred that's currently out there.

  • Donald Colvin - CFO

  • The redeemable preferred, sorry -- maybe that was my confusion.

  • That is not included in there, either, and there is 43 or 44 million -- low 40 million shares from the preferred.

  • Lee Zeltser - Analyst

  • Okay, and with regard to profitability, would you expect profitability in the second quarter?

  • Donald Colvin - CFO

  • Well, I mean, we don't -- it all depends on how the market goes, and I think there are certain legal ramifications if I am to give a specific guidance or indication on that, which I would rather avoid.

  • But I think that we are giving all the building blocks so that you guys can put the different elements together.

  • Clearly, we believe that as a result of the actions we have taken to reduce the interest expense by 40%, we have taken to use our operating expenses with the Hewlett Packard deal, and the improvement in our revenue and our gross margins, that we are heading very comfortably in the right direction.

  • Lee Zeltser - Analyst

  • Okay, fair enough.

  • And then just one last question on the competitive landscape -- are you seeing any share shifts and, if so, are you benefiting or have you benefited from any of that in the quarter?

  • Keith Jackson - CEO

  • We believe that there are certainly some share shifts.

  • I'm not sure that any of them are substantial, but we definitely have been seeing what appears to be share gains on our MOS power business and in other aspects on the balance of the business.

  • So, again, I don't know that there's anything I would call substantial but certainly some signs that there is some pickup going on.

  • Lee Zeltser - Analyst

  • Great, okay, thanks very much.

  • Operator

  • Once again, if you have a question, please press star followed by 1 on your telephone touchpad.

  • Our next question comes from Vernon Essi, Janney Montgomery Scott.

  • Vernon Essi - Analyst

  • Thank you.

  • I was wondering, Donald, if you could talk a little bit about opex -- nothing too specific -- on a sequential basis, but it looks like it's tracking in line with sales, and you've got this HP thing going on.

  • Is there anything else that you can point to to show that -- or at least explain to us that you might get more leverage out of opex in Q2 and going into the rest of the year?

  • Donald Colvin - CFO

  • We gave a range on the opex.

  • Obviously, with Keith we're trying to manage it to the bottom of the range.

  • There are certain actions we're taking in the R&D area.

  • I mentioned transferring some products that were also beefing up our product development pipeline to take advantage of opportunities we see in the power management area, and so we need a little bit of wiggle room, but I hear your message.

  • It's one we are working on.

  • We gave a range, and we will try to get to the tight end of the range.

  • Vernon Essi - Analyst

  • Okay, and, Keith, I was wondering, just, if you look at all the markets you participate in, is there any that you see, perhaps, that was weaker than expected and could resume growth in Q2?

  • Are you getting visibility opposite to your backlog into Q2 that you can talk about?

  • Keith Jackson - CEO

  • We have good visibility into Q2, without question.

  • What I would say, again, things met, pretty much, our expectations, as we have been talking, going into the quarter and coming out of the quarter, were pretty much the same types of expectations.

  • Minor tweaks, downward, perhaps, a little bit more on the computing space but not much, and minor tweaks upward a little bit in the wireless space but, again, not much -- so, really, no major surprises.

  • We had over 90% of the backlog in Q1 on the books, going into the quarter.

  • We've got over 90% going into Q2.

  • So, really, the outlook, I think, is fairly solid as I've given it earlier.

  • Vernon Essi - Analyst

  • Okay, and then, finally, just to get a little more granular on a previous question -- how did the ECL business do specifically from Q4 to Q1?

  • Keith Jackson - CEO

  • It was up quite nicely.

  • You know, within, again, the range of the whole company, certainly, you know, in that 9% to 10% type of range overall.

  • Vernon Essi - Analyst

  • Okay, how do you think that will shape up for the rest of the year, sort of growing with the top line or perhaps faster?

  • Keith Jackson - CEO

  • It appears to be growing very near the top-line results for the first half.

  • I'd say the second half, I would expect, again, the strong demand in consumer and computing to be a larger element.

  • Vernon Essi - Analyst

  • Okay.

  • All right, nice quarter, thank you.

  • Keith Jackson - CEO

  • Thanks.

  • Operator

  • John Barton, Wachovia Securities.

  • John Barton - Analyst

  • Yes, thank you.

  • Keith, I wonder if you could just dig into the pricing a little bit deeper.

  • You know, obviously, you mentioned what it did last question in aggregate, but if you look at it by products, are the price increases isolated to MOSFETS?

  • How does it distribute itself across the different types of products, please?

  • Keith Jackson - CEO

  • In general, the pricing is coming up across the entire product spectrum that we sell.

  • In some of the areas, it's come up a bit faster and a bit quicker but, again, I don't think it's certainly not a one-product thing or even a two-product thing.

  • It's pretty much across the board.

  • We certainly saw earlier price rises in the MOSFET arena, than the other sectors and in the small-signal area sooner than the others but, again, it's coming up across the board and, as I mentioned earlier, we actually would expect those price increases to strengthen as we go through the year.

  • We started off at about a 1% gain in Q1, and I would expect it to be somewhat higher as we go forward through the year.

  • John Barton - Analyst

  • And strengthen across the board again, not isolated to a given product type?

  • Keith Jackson - CEO

  • Again, strengthen across the board.

  • John Barton - Analyst

  • And a final question, if I could.

  • You guys did a shelf registration of approximately 111 million shares for your single largest shareholder.

  • Is there any insight you can provide with respect to the intentions of those shares as we go forward?

  • Donald Colvin - CFO

  • I think the shareholder has filed a shelf registration is all we can see.

  • We are not privy to any information.

  • They say a right to file it with these people are sophisticated financial operators, and we have been told by them that they will handle this in an ordered, controlled manner, and we feel confident that this will happen, and that the shareholders should not be too focused on this, as it's not an increase in the net shares, it's just a new home for the shares, and that what will drive our stock price will be our operating performance, and that's something we are working on to improve, and we feel that it's really moving in the right direction.

  • John Barton - Analyst

  • Thanks, Donald.

  • Operator

  • Tim Luke of Lehman Brothers.

  • Tim Luke - Analyst

  • Thank you.

  • I was wondering, with the HP outsourcing deal, would that begin to help your operating expenses already in -- your costs already in the second quarter or when would that kick in?

  • I was also wondering if you could just clarify the number again -- so the capex in the second quarter?

  • Donald Colvin - CFO

  • The HP outsourcing deal will help us about in the second quarter, and the number will be a saving of $1m in the operating expense will rise at the end of the year when we complete further actions in our IT migration strategy.

  • The total cash capital expenditures for the second quarter, I think, will be around $20m.

  • Tim Luke - Analyst

  • And with respect to the order momentum and the linearity of the order momentum -- is it fair to say that you sense that your order momentum picked up as you moved through March and into April?

  • Keith Jackson - CEO

  • The order momentum, actually, through the entire first half of the year, so far, has been continuing on a fairly strong pace with the exception of the Chinese New Year week.

  • So there really hasn't been a significant change in the momentum throughout the whole year.

  • It's still very strong and, as we mentioned earlier, Q3 is shaping up to be stronger than Q2.

  • Tim Luke - Analyst

  • And with the big upward move in the business with Motorola, is that something that you have visibility to suggest that that might continue or do you think that's a catch-up from the late delivery of some phones that were sort of orientated previously towards the track order?

  • Keith Jackson - CEO

  • No, actually, we do think that Motorola, as our customer, has been gaining strength and will continue to gain strength with the models they've got out there, and certainly the prognosis they have given us does not show any weakening at all.

  • Tim Luke - Analyst

  • And is the same applicable to the mix between OEM and [DISTI] as in terms of OEM increases as a percentage of -- or at least stabilizing as percentage of sales, or how do you see that?

  • Keith Jackson - CEO

  • Again, it's hard -- that's a little more difficult to read on the exact percentage basis, because we measure DISTI on a sell-through basis and have a little bit of a lag picture there.

  • But, again, I would not expect extraordinary shifts between the two.

  • They have both been filling in from a backlog perspective at approximately the same kinds of rates we've been seeing.

  • Tim Luke - Analyst

  • Congratulations on the quarter.

  • Thank you.

  • Keith Jackson - CEO

  • Thank you.

  • Operator

  • Tristan Gerra, Schwab Soundview.

  • Tristan Gerra - Analyst

  • Hi.

  • I wanted to know if we should expect R&D to be remain 7 to 10 level beyond the second quarter?

  • Donald Colvin - CFO

  • I think I said to the previous question -- 7% to 8% was a range we gave for that.

  • We will be trying to manage it at the tight end of the range, and that was again for the second quarter.

  • As we go into the second half, which shows you a half, we believe we'll be seasonably stronger than the first half.

  • Then, obviously, it will start to trend clearly towards the tight end of that range.

  • We do not see any major incremental dollars and any R&D projects in the second half.

  • So as a percent of an increasing revenue, it will come down.

  • Tim Luke - Analyst

  • Great, thank you.

  • Operator

  • Thank you.

  • At this time we show no further questions.

  • This concludes today's ON Semiconductor first quarter 2004 earnings teleconference.

  • Thank you for attending.

  • You may disconnect at this time.

  • Thank you.