安森美 (ON) 2009 Q4 法說會逐字稿

完整原文

使用警語:中文譯文來源為 Google 翻譯,僅供參考,實際內容請以英文原文為主

  • Operator

  • Good afternoon.

  • I will be your conference operator today.

  • At this time, I would like to welcome everyone to the ON Semiconductor fourth quarter earnings conference call.

  • All lines have been placed on mute to prevent any background noise.

  • (Operator Instructions).

  • I would now like to turn the conference over to Ken Rizvi.

  • Please go ahead, sir.

  • - Director of IR

  • Thank you, Stephanie.

  • Good afternoon, and thank you for joining ON Semiconductor Corporation's fourth quarter 2009 conference call.

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

  • This call is being webcast on the Investor Relations section of our website at www.onsemi.com and will be available for approximately 30 days following this conference call, along with our earnings release for the fourth quarter of 2009.

  • The script for today's call is posted on our website and will be furnished via a Form 8K filing.

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

  • Reconciliations of these non-GAAP financial measures to the most directly comparable measures under GAAP are in our earnings release and posted separately on our website in the Investor Relations section.

  • In the upcoming quarter, we will present at the Deutsche Bank small and mid cap conference on February 9, the Morgan Stanley Technology, Media and Telecom Conference on March 3, and we will be hosting our analyst day in Scottsdale, Arizona on February 26.

  • 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.

  • he words believe, estimate, anticipate, 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 results or events 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, Form 10-Qs and other filings with the SEC.

  • The Company assumes no obligation to update forward-looking statements to reflect actual results, changes, assumptions or other factors.

  • Now, let's hear from Donald Colvin who will provide an overview of the fourth quarter and 2009 annual results.

  • Donald?

  • - CFO

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

  • ON Semiconductor Corporation today announced that total revenues in the fourth quarter of 2009 were $497.1 million, an increase of approximately 5% from the third quarter of 2009.

  • During the fourth quarter of 2009, the Company reported GAAP net income of $68 million, or $0.15 per fully diluted share.

  • The fourth quarter 2009 GAAP net income included net charges of $16.9 million, or $0.04 per fully diluted share from special items, which are detailed in schedules to our earnings release.

  • Fourth quarter 2009 non-GAAP net income was $84.9 million, or $0.19 per share on a fully diluted basis and includes stock-based compensation expense.

  • Stock-based compensation expense was previously excluded in our non-GAAP net income and fourth quarter 2009 outlook.

  • We intend to include stock-based compensation expense on a go-forward basis in our non-GAAP outlook based upon practices of our industry peers and feedback from the analyst community.

  • Net income during the fourth quarter of 2009 benefited from an actuarial gain on our overseas pension plans and receipt of research and development grants during the quarter, resulting in a net benefit to income per fully diluted share of approximately $0.03 during the fourth quarter.

  • We do not expect to see a similar benefit in the first quarter of 2010, and therefore, our operating expense guidance reflects an increase over fourth quarter 2009 levels.

  • We exited the fourth quarter of 2009 with cash, cash equivalents and short-term investments of approximately $571.2 million, a record high in the Company's history.

  • In addition, we exited the fourth quarter with the lowest net debt position in our history as a publicly traded company with approximately $362 million in net debt or less than 1 time our last 12 months adjusted EBITDA.

  • At the end of the fourth quarter, total days sales outstanding decreased from the third quarter by approximately three days to approximately 48 days.

  • ON Semiconductor's total internal inventory was flat with third quarter levels on a days basis at approximately 81 days.

  • Included in our total inventory is approximately $2 million of inventory written up to fair value related to our acquisition, and approximately $27 million of bridged inventory related to our announced closures of front-end manufacturing lines.

  • Net of the bridge inventory and inventory written up to fair value, our inventory days would have been approximately 73 days at the end of the fourth quarter.

  • Distribution inventories were at their lowest level in the Company's history, exiting the fourth quarter on a week's basis at approximately eight weeks.

  • Cash capital expenditures during the fourth quarter were approximately $9 million, which was approximately $15 million below our initial expectation.

  • As a result, this $15 million delta will roll into our 2010 capital expenditure plan for 2010.

  • Therefore, we anticipate approximately $135 million in cash capital expenditures.

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

  • - CEO, President

  • Thanks, Don.

  • Now for an overview of our end markets.

  • During the fourth quarter of 2009, our end market splits were as follows.

  • The computing end market represented approximately 26% of fourth quarter 2009 sales.

  • The automotive end market represented approximately 19% of fourth quarter sales.

  • Consumer electronics end market represented approximately 18% of sales, the industrial, military and aerospace end market represented approximately 18% of sales, the communications end market, which includes wireless and networking, represented approximately 15% of sales and medical represented approximately 4% of sales.

  • During the fourth quarter on a direct billing basis, no ON Semiconductor product OEM customer represented more than 6% of sales.

  • Our top five OEM customers were Continental Automotive Systems, Delta, Hella, Motorola and Samsung.

  • On a geographic basis, our contribution from sales in Asia represented approximately 63% of revenue.

  • Our sales in the Americas represented approximately 21% of revenue, and Europe represented approximately 16% of revenue during the quarter.

  • Looking across the channels, direct sales to OEMs represented approximately 43% of the fourth quarter 2009 revenue.

  • Sales through the distribution channel were approximately 46% of fourth quarter revenue, and the EMS channel represented approximately 11% of revenue.

  • During the fourth quarter, ON Semiconductor revenues broken out by our segments were as follows.

  • The standard products group represented approximately 33% of sales.

  • The computing and consumer group represented approximately 23% of fourth quarter sales.

  • The automotive and power group represented approximately 23% of sales, and the digital and mixed signal product group represented approximately 21% of sales.

  • We will publish the quarterly and yearly revenue, gross margin and operating margin breakout of these segments in our Form 10-K filing for the year ended December 31, 2009.

  • Now, I'd like to provide you some details of other progress we've made.

  • Following the end of the fourth quarter of 2009, we closed on the acquisition of California Micro Devices.

  • With a combination of ON Semiconductor's global footprint, effective channels of distribution and world class manufacturing, we expect to be able to support a broader and deeper penetration of CNB's overall product portfolio.

  • The acquisition of CMD is another step forward enabling ON Semiconductor to continue delivering increased value to our customers, shareholders and employees.

  • Given the timing of the close of the CMD acquisition and the acquisition related accounting of inventory at CMD's distribution partners, we expect that CMD will have minimal revenue and earnings impact to first quarter 2010 results on a non-GAAP basis.

  • In the computing end market, we continue to see strong demand from key customers in both desk tops and notebooks for our energy efficient power management solutions, audio amplifiers, protection devices, thermal management and standard products.

  • Since the first quarter of 2009, our computing end market revenues have grown by approximately 44%.

  • We also believe we enter 2010 as a leader in the core power management for the next generation desktops.

  • In the notebook market, we believe we have exceeded our earlier expectations in core power management and based on design wins, we believe we enter 2010 with more than 30% market share in next generation notebook platforms.

  • We continue to expand our product portfolio and designs for this end market.

  • Our energy efficient 80-plus compliant GreenPoint reference design is ramping at leading customers.

  • In addition, we are adding new products that enable efficient thermal, LCD panel and battery level management.

  • We are also continuing to see the benefits from our prior acquisitions and have recently won a customized C design focused on LED backlighting and bus control for a leader in multimedia computing.

  • The automotive end market experienced the largest sequential growth of all of our end markets, growing by approximately 14% versus the third quarter of 2009.

  • This market grew approximately 48% since the first quarter of 2009.

  • We believe the automotive market and automotive component inventories experienced dramatic reductions in 2009.

  • During 2010, we anticipate automotive production unit growth as vehicle production rates normalize and growth continues from developing economies such as China.

  • We also expect ON Semiconductor to see the benefits of recent design wins in both infotainment, fuel efficiency and pollution reduction sensor applications.

  • The consumer end market experienced sequential growth of approximately 9% when compared to the third quarter of 2009.

  • During the fourth quarter, growth from LCD TV's, set top boxes and MP3 players more than offset the seasonal decline in gained console builds.

  • From a product standpoint we saw growth in this end market from the adoption of our portfolio of efficient power management, video amplification and ESD protection solutions.

  • In the fourth quarter, we continue to win awards from our customers and the media.

  • Electronic Design News named ON Semiconductor's new 180-nanometer mixed signal process among their hot 100 of 2009.

  • Three ON Semiconductor devices won leading product awards to 2009 EDN China Innovation Awards.

  • These included one of our PDMN controllers for V core power supplies, a MOSFET driver for panel display power conversion and a high power AC/DC adapters and pure edge high speed networking clock solution.

  • Wahwei Technologies presented ON Semiconductor with a 2009 Core Partner Award, recognizing our commitment to an achievement of technology, product quality, delivery, service and cost.

  • Additionally, ON Semiconductor was named as one of the three leading suppliers in China in the discrete semiconductor category at the 2009 China Market Electronics Component Manufacturer awards.

  • Now, I'd like to turn it back over to Donald for other comments and our other forward-looking guidance.

  • Donald?

  • - CFO

  • Thank you, Keith.

  • First quarter 2010 outlook.

  • Based upon current product booking trends, backlog levels and estimated turns levels, we anticipate that total revenues will be approximately $515 million to $525 million in the first quarter of 2010.

  • Backlog levels at the beginning of the first quarter of 2010 were up from backlog levels at the beginning of the fourth quarter of 2009 and represent over 90% of our anticipated first quarter 2010 revenues.

  • We expect that the average selling prices for the first quarter of 2010 will be down approximately 1% to 2% sequentially from the fourth quarter.

  • We expect cash capital expenditures of approximately $30 million to $40 million in the first quarter.

  • For the first quarter, we expect GAAP gross margin of approximately 40% to 41%.

  • Our GAAP gross margin in the first quarter will be negatively impacted from, among other things, expensing of appraised inventory, fair value step up associated with our acquisitions of approximately $3 million.

  • We expect non-GAAP gross margin of approximately 40.5% to 41.5%.

  • For the first quarter of 2010, we also expect total GAAP operating expenses of approximately $132 million to $136 million.

  • Our GAAP operating expenses include the amortization of intangibles, restructuring asset impairments and other charges of approximately $10 million.

  • We also expect total non-GAAP operating expenses of approximately $122 million to $126 million.

  • As previously discussed on our last conference call, this is also slightly up from the fourth quarter 2009 level due to reinstatement to full salary levels and bonus accruals.

  • We anticipate GAAP net interest expense and other expenses will be approximately $19 million to $20 million for the first quarter of 2010, which include non-cash interest expense of approximately $9 million from the adoption of FASB staff position number APB 14-1 relating to a convertible senior subordinated note.

  • We anticipate our non-GAAP net interest expense and other expenses will be approximately $10 million to $11 million.

  • GAAP taxes and cash taxes are expected to be approximately $4 million.

  • We also expect stock-based compensation of approximately $13 million to $14 million in the first quarter of 2010, of which approximately $4 million is expected to be in cost of goods sold and the remaining in operating expenses.

  • This expense is included in our non-GAAP financial measures.

  • Our current fully diluted share count is approximately 445 million shares based on the common stock price.

  • Further details on share count and EPS calculations are provided regularly in our quarterly and annual reports on Form 10-Q and Form 10-K.

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

  • - CFO

  • (Operator Instructions).

  • Your first question comes from the line of Jim Schneider with Goldman Sachs.

  • - Analyst

  • Hi guys.

  • This is Ian in for Jim, thanks for taking the questions.

  • It seems like lead times are stretching out across the industry and capacity is tight, and I assume you guys are no exception.

  • Can you just talk a little bit about your consolidation plans in that light and update the timing and the savings you expect, if unchanged at all?

  • Thanks.

  • - CEO, President

  • Sure.

  • So from a consolidation perspective, we had announced four factory closures last year.

  • The last of them was expected to close at the end of this quarter -- calendar quarter, calendar quarter 2010.

  • Three of those we did either earlier than we announced or on time, so three of them did get closed in 2009.

  • The one that was anticipated here in Phoenix to close in the first quarter, because of the extreme strength in the demand, we are going to delay that at this stage.

  • It looks something that might be more close to the third quarter, but of course, we will monitor that as time goes on and if demand stays strong, adjust accordingly.

  • And just on that closure, how much benefit would you expect in the third quarter from that closure?

  • That quarter, that specific closure, when it is fully realized, it takes about a quarter to work through some of the inventory numbers, et cetera.

  • Should be somewhere between $5 million and $8 million per quarter.

  • - Analyst

  • Great, thanks.

  • And for my followup, could you just talk a little bit about discrete pricing here?

  • It seems like just given, again, where the industry is at, you may expect commodity prices to be firming or maybe even rising here.

  • Would you expect any of that benefit to accrue in 2010, or it's just not seeing it happen?

  • - CEO, President

  • The prices in the discrete areas have been firming.

  • We did announce that we had less than 1% price erosion in the fourth quarter.

  • I I think that's indicative of a lessening of the normal trends there, which are closer to 2%.

  • We did predict a little bit higher number here for Q1, that's when we do our annual contracts.

  • So there is a little bit more leakage when we reprice all that backlog.

  • But in general, I'd give you the direction of firming prices, not just in the discreets, but pretty much around all of the multiple source products.

  • Operator

  • Your next question comes from the line of Craig Berger with FBR Capital Markets.

  • - Analyst

  • Hey guys, thanks for taking my question.

  • This is Robert stepping in for Craig.

  • I wanted to get your thoughts on channel inventory embedded in your guidance.

  • Do you guys think inventories in the channel are going to be replenished in the first quarter, or do you think they're going to be roughly flat?

  • Thank you.

  • - CEO, President

  • I expect that there will be some replenishment in the channel in Q1, but I think it will be quite minor.

  • I believe we will exit Q1 still with significantly low inventories below our normal expectation, and frankly, below where they need to be to get the customers the products they need.

  • - Analyst

  • Okay.

  • And in going to your OpEx guidance, for the first quarter, your guys are seeing quite a step up.

  • Can you guys explain what you plan to do with OpEx for the rest of 2010?

  • Thank you.

  • - CFO

  • Well, I think that I explained there's a bit of a step-up compared to the fourth quarter which benefited from an OpEx, something like $0.02 or $9 million of goodness, that R&D grants and pension revaluations.

  • So actually, the fourth quarter came in very well below our guidance, and that's why there's maybe more of a step up to the first quarter.

  • But if you adjust the fourth quarter back to our guidance levels and where we were telling people to expect the run rate, I think you'll find that we did expect that we would get an increase in expenses due to the restitution of salaries and bonus, which we said on the last call was something like $5 million or $6 million, and I believe that that is fully encompassed in our guidance and there is no further step function move for the rest of the year.

  • - Analyst

  • Thank you.

  • Operator

  • Your next question comes from the line of Parag Agarwal with UBS.

  • - Analyst

  • Congratulations on the third quarter, guys.

  • I had a question about your outlook.

  • Needless to say, it is seasonally strong, and one might wonder that how much of that is pulled in from the June quarter.

  • So if you could just provide a little color on what order (inaudible) you're seeing for the June quarter, and also if you could break down your guidance in terms of the end market.

  • - CEO, President

  • Yes, so the question there, I guess I'll paraphrase, basically how much of the strength in Q1 is really headed towards inventory building that normally we would see in Q2.

  • I know it's not exactly what you said, but I mean, that's normally what people are worried about.

  • At this stage, with the inventories where they are and our expectation for how much of the product we will be able to deliver to the marketplace, we think we're still very close to the actual run rate.

  • So barring a major change in the economy, we would not expect to see inventory built in Q1 which would lead us to a drop in order rates in Q2.

  • So right now, I'd have to say we definitely are not seeing anything that looks like getting ahead of the game and the deteriorating Q2.

  • I would also add just from a data perspective, as I always do, our backlog for the second quarter at the same time in the quarter we're in, is stronger than it was for the first quarter in the same time we were in Q4.

  • - Analyst

  • Okay.

  • And if we look at your gross margin going forward, like other than inflation, is there any other driver especially you have pushed out the closure of Phoenix fab in Q3.

  • So the question is for the rest of the year, how should we think about your gross margins, and also, what is your utilization rate now?

  • - CFO

  • Well, utilization rate has risen, I see approximately in the 80% to 90% rate.

  • Business backlog has been strong, so that's helping drive end overhead, that's a positive.

  • But a negative, as Keith mentioned, the cost reduction plans are somewhat delayed because of the strength of business.

  • So I'd say that one is more or less offsetting the other.

  • On the last conference call, I laid out a model that was $525 million in revenue and 43% gross margin.

  • That was our full non-GAAP, and as you all probably have noticed, at the request of many of you, we are now including stock based compensation in our non-GAAP measures.

  • So it has to be adjusted down for that.

  • I think that is still a good basis.

  • Approximately 43% gross margin, adjusted for stock expense would be 42% on a $525 million run rate.

  • So that is still where we are with the improved factory utilization offsetting the delayed cost reductions.

  • - CEO, President

  • This is Keith.

  • I would add to that the pricing information we give you each quarter is also very important.

  • We have normal cost reductions that we do in our factories all the time that do normally offset the 2% per quarter kinds of decreases in ASPs.

  • So to the extent that pricing firms, it gives us more opportunity to increase as we go through the year.

  • - Analyst

  • Thank you very much.

  • Operator

  • Your next question comes from the line of Romit Shah with Barclays Capital.

  • Mr.

  • Shah, your line is open.

  • - Analyst

  • Hey, Keith, it's Romit.

  • Could we just get your read on each of the major end markets, specifically what your expectation is for the computing business coming out of Chinese new year?

  • - CEO, President

  • We expect computing to be strong all year.

  • The first half is mostly consumer-led with some enterprise buying sneaking in in the second quarter.

  • But in general, we're seeing some good pickup.

  • That's all based on some outstanding pricing at the low end of the computing spectrum driving a lot of sales.

  • So from a semiconductor supplier's perspective, we expect to see pretty good first half driven by consumers and a strong second half driven by enterprise.

  • So I think that's probably, across the year, going to be one of the strongest stories, and our Q1 expectations are certainly well above normal seasonality.

  • The wireless business, we get questions on that one, that is looking quite seasonal to us.

  • We don't see any drivers that, like I mentioned in the computing side, that would lead us to believe that it would be other than kind of a normal seasonal year.

  • Of course, there's growth, of course there's interest in the high end feature phones and multimedia phones that will be good for that industry.

  • But again, it's going to look like a fairly normal seasonal pattern from our perspective.

  • Automotive is normally strong in the first half of the year, it does look like that will continue.

  • And the strength that we saw going into Q4 looks like it's spilling over into the first quarter and probably the second quarter.

  • So, again, I think at least the first half for automotive will look quite good.

  • Industrial for us, if you want me to finish the whole gamut, industrial started strengthening for us in the fourth quarter, and again, the first half of the year normally is the best time for that.

  • And again, I would expect that to look seasonal and be stronger here in the first half than it was in the second half of last year.

  • - Analyst

  • Okay.

  • And just to follow up on distribution, I know it's not as meaningful for you guys because you recognize on sell through, but you talked about just the inventories being at record low levels.

  • Is eight weeks kind of a new normal, or do you expect --

  • - CEO, President

  • No, I don't think eight weeks is sustainable.

  • We look at the manufacturing cycle times and the order patterns out there.

  • We really do believe that even a lean distributor model for our types of products is going to be closer to ten weeks than it is to eight.

  • - Analyst

  • Thank you.

  • Operator

  • Your next question comes from the line of John Barton with Cowen.

  • - Analyst

  • Thank you.

  • Keith, you mentioned a couple times pricing trends, that we're seeing a little bit of firming, but they're not major swings.

  • We didn't see a major downturn or major compression of pricing at a downturn, we're not seeing a major upswing now.

  • I'm really curious your thoughts over the long time -- over the long term.

  • Is this what we're dealing with going forward, or are they just kind of two offsetting anomalies here and we go back to the more substantial price swings through cycles going forward?

  • - CEO, President

  • The answer to that lies in both the demand in the end market and in the capacity or capital spending behavior of our industry.

  • Traditionally, we see these rises, we overspend on capital, which creates a glut, which gives buying power back to the customers, et cetera, and it just kind of, between the ying and the yang there's a medium, but they're always in one state or the other.

  • I do see continued constraint -- or restraint, I should say, not constraint, but restraint on the capital spending.

  • Certainly people will be spending more in the fourth quarter of '09 through the fourth quarter of 2010 than they did the previous 12 months, but they don't -- I haven't seen anything that looks like they're going outside of what I would call a normal range for our industry.

  • So I'm hopeful that we'll see continuing economy that supports the kind of levels that we're looking at right now of demand and the capacities don't get out of hand, and so it will be a much lower beta on that as we go through 2010.

  • - Analyst

  • Sounds like a California Micro Devices, I believe you said that there was no impact to earnings in this quarter.

  • Could you give us some insight on how it might impact the OpEx line, both here in the March quarter and in the full June quarter?

  • - CFO

  • This is Donald.

  • I think we're thinking a couple of million bucks of OpEx there, $2 million to $3 million range.

  • The EPS impact will be minimal this quarter, and then over time that OpEx will come down as we integrate into our systems.

  • I certainly think in the second half we should see mild accretion and really get the benefit of the acquisition next year, John.

  • - Analyst

  • Last question, Keith, you had talked about industrial just starting to bounce back in the fourth quarter, continuing here in the first half.

  • Do you believe you're currently shipping below true consumption rates in the industrial market and there's a bit of an end of inventory purge catchup to be played there, or are you matched currently?

  • - CEO, President

  • I think we're matched fairly well at the moment.

  • I don't get an abundance of calls from customers saying we're not able to keep their lines running, but I know I'm not building inventory.

  • So I think we're fairly well matched.

  • - Analyst

  • Thank you.

  • Operator

  • Your next question comes from the line of Craig Ellis with Caris & Company.

  • - Analyst

  • Hey guys.

  • This is Brett for Craig.

  • Thanks for taking my question.

  • Could you just discuss the ambient light and proximity sensor ramp in 2010 a little bit?

  • - CEO, President

  • Well, I don't know what discussion you're after.

  • We haven't and won't give you specific numbers, but we do expect that that business for us will move meaningfully during the year on a percentage basis, potentially even doubling over last year.

  • I don't know if that's what you were looking for.

  • - Analyst

  • Yes, yes, that's very helpful.

  • And then just maybe a little housekeeping.

  • Could you talk about your tax thoughts for 2010, still think around that $4 million cash level?

  • - CFO

  • I think -- Donald here.

  • As you can expect on a tax, I think we're looking at the taxes starting the year a bit high, about $4 million, but we 'd expect that to drain down to the $2 million or $3 million run rate for the other quarters, similar to the numbers we've previously given.

  • I think that's how we see this year panning out.

  • - Analyst

  • Thank you.

  • Operator

  • Your next question comes from the line of Chris Danely with JPMorgan.

  • - Analyst

  • Thanks guys.

  • Can you just talk about what your lead times did during the quarter> Did they go out or come back in?

  • Also, can you maybe comment on your competitors?

  • Are your lead times shorter than your competitors', and is that an opportunity to gain some market share?

  • - CEO, President

  • So our lead times actually have held steady through most of the fourth quarter.

  • We got into mid December and they started to move out a bit.

  • So right now in through January, we're running slightly more than 12 weeks versus the 11 weeks we were going into December.

  • So they've actually gone out a bit more.

  • As I've mentioned, backlogs continue to grow in the -- inside the 13-week windows.

  • So I guess simple answer is, I think that reflects the industry.

  • I believe that those pressures are pretty much everywhere.

  • And if I had lots more capacity, I'd try to take advantage of that, Chris, but frankly, we're going to ship everything we can make in the timeframes that we have, and of course, those numbers continue to accelerate as we get back to full staffing and put the equipment in our factories.

  • - Analyst

  • And when do you think you'll be able to bring those down?

  • And do you think that your lead times are shorter than your competitors'?

  • - CEO, President

  • I think we're very comparable to the competition, and I don't anticipate being able to meaningfully bring them down before the end of the quarter.

  • But most likely in the second quarter, we should be able to.

  • - Analyst

  • Got it, thanks a lot.

  • Operator

  • Your next question comes from the line of Ross Seymore with Deutsche Bank.

  • - Analyst

  • Hi, this is Bob Gujavarty for Ross.

  • Thanks for taking my question.

  • Just curious, on the OEM side, are you pretty -- do you have pretty good visibility?

  • Are you kind of on a hub system in regards to inventory there?

  • And can you talk about relative visibility between distribution and OEM?

  • - CEO, President

  • We have good visibility in both channels, because with our distributors we're on a sell-through basis, and we actually get information on a quite realtime basis that lets us know what's going on there.

  • And of course, on the OEM side, we do have a lot of service programs which include hubs and jet programs and on-site warehouses, et cetera.

  • And again we get daily feeds from that.

  • So we've got pretty good visibility.

  • And in all cases, we've got building demands.

  • - Analyst

  • Great.

  • Thank you.

  • Operator

  • Your next question comes from the line of a Ramesh Misra with Brigantine Advisors.

  • - Analyst

  • Thanks, guys, good afternoon.

  • In regards to your industrial and automotive business, obviously seeing decent strength.

  • Can you talk a little bit how your AMI acquisition is playing out in that business?

  • Are trends particularly stronger at AMI, can you provide an update in terms of the transfer of the production processes from Idaho to your Oregon fab?

  • - CEO, President

  • Okay.

  • So take those as two separate ones.

  • We're seeing the similar strengths across our entire automotive business, so it's not just the acquired business, but it's also our legacy business, and they're up about the same amount.

  • So again, we believe we're shipping to end demand and end consumption, and so really, we're seeing the strength of the end market.

  • And so -- I don't know what else to say on that one.

  • The movement from Idaho to Gresham, actually the 5-inch line in Idaho is now closed, and those things have been transferred, some of them into Gresham and some of them into other factories, so it wasn't all into Gresham.

  • But we do find ourselves in Gresham now filling up quite nicely.

  • Utilization rates above 80% and again, all of those transfers have been effected at this point.

  • Okay.

  • And if I may just have a quick followup.

  • Your Q4 CapEx, Donald, why was that particularly lower than you had previously anticipated?

  • - CFO

  • It's very simple Ramesh, it's just that we didn't rush to pay the invoices.

  • We could meet the target by paying faster and having less cash.

  • So as you can imagine, that's not an action that I would take with any enthusiasm.

  • So we obviously try to manage our working capital as lightly as possible, and that means paying within reason, but as late as possible, and not accelerating payments.

  • So that's one of the things we have.

  • It's always difficult to determine when payments have to be effected.

  • So it was just, I would say, good, prudent balance sheet working capital management.

  • - Analyst

  • Okay.

  • That always works.

  • Thanks.

  • Operator

  • Your next question comes from the line of Terence Whalen with Citi.

  • - Analyst

  • Hi, thanks for taking my question.

  • This one relates to the cash flow statement.

  • Do you expect operating cash flow to increase sequentially along with revenue next quarter?

  • - CEO, President

  • Yes.

  • - Analyst

  • Okay.

  • And then pertaining to cash use, can you just remind us what your expectation is in terms of upcoming debt paydown and how you think about cash use throughout 2010 from a capital allocation perspective?

  • Thanks.

  • - CFO

  • Well, I think we have a zero coupon next year in April, so that's $100 million or so that we expect to be put to as it's underwater, So we're keeping cash available for that.

  • And then as we continue to generate cash, we will see how we can apply it in the shareholder friendly manner.

  • In the past we have paid down debt in advance, particularly convert.

  • Right now we will continue to monitor to see if there's any arbitrage on the market, but clearly, our intention is to manage the balance sheet for shareholder value, and when we see opportunities to improve that, we will action them.

  • I can't go into anymore specifics but I'm in the happy position of having a good, improving cash generation.

  • - Analyst

  • And then my followup is for Keith.

  • Keith, you had mentioned that you think lead times actually may start coming in a little bit in the second quarter as some capacity comes online.

  • What's your expectation for how that might affect the behavior of your customers' ordering patterns?

  • Thanks, that does it.

  • - CEO, President

  • So customers are actually fairly predictable.

  • When they perceive there's a shortage, they give you more orders and longer lead time.

  • In other words, they make sure they're getting in line well in advance.

  • When the lead times come in, then they stop giving you those longer term orders.

  • To the extent we continue shipping to end demand and not building significant inventories, really, the only change will be the horizon that we're seeing in booking, and that horizon right now is greater than normal and is out at six months.

  • - Analyst

  • Thanks again.

  • - CEO, President

  • Yes.

  • Operator

  • Your next question comes from the line of Steve Smigie with Raymond James.

  • - Analyst

  • Great, thank you.

  • I was hoping you guys could talk a little bit about the OpEx guidance here.

  • Split between SG&A, R&D, if it's up a little bit here, which areas would I be expecting to increase more than others?

  • - CFO

  • I think the split has always been about 50/50 between SG&A and R&D, Steve, and I think that's going to remain the case.

  • So if you move forward, that's as probably good -- I gave a complete number, so I think that's as good as I would take it, is just split 50/50 between R&D and SG&A.

  • - Analyst

  • Okay.

  • And as we go forward, are there any other step-ups that we have left, or is that pretty much it at this point?

  • - CFO

  • I had stated that when you analyze the restitution of salaries and bonus, apart from that, we don't see any big fundamental increases in any of the areas.

  • We don't have any big R&D projects we're about to launch, we don't have any big expensive programs in SG&A that we're about to undertake.

  • - Analyst

  • Okay.

  • And then just the last question, you guys obviously have been doing very well here in computing, getting strong orders.

  • Can you talk a little bit about when you've had big ramp-ups in, say, computing or another type of business in the past where it's led to a position where it's been -- it's looked really good and then it's fallen off all of a sudden and why it's different this time, why it seems like demand could potentially continue more steadily throughout the year versus say, all of a sudden, people being (inaudible) order?

  • What it might look like, what's different here versus where you've seen things drop off in the past?

  • - CEO, President

  • Yes, so very difficult question in that figuring out what normality is sometimes is difficult.

  • The global economic impact that we saw clearly caught us by surprise, and we thought it was going to be strong markets not just computing, but across the board.

  • And of course it turned out to be extremely weak with the credit crisis, et cetera.

  • So frankly, we don't have a good way of predicting those.

  • But if you take that kind of event out, typically, we are not surprised in the six-month window that we normally comment on.

  • Very, very few surprises where we think it's going to be really strong and it turns out to be not.

  • So, again, I would say just in general, the difference, if you want to go back to 2000 -- '99 and 2000, was not -- was something that did surprise us, but then we didn't have the tools we had -- that we have today looking at the channel inventories, the end uses, et cetera.

  • So frankly, in the last seven, eight years, there haven't been a lot of surprises that were not macroeconomic.

  • - Analyst

  • Great, thank you.

  • Operator

  • Your next question comes from the line of Kevin Cassidy with Thomas Weisel Partners.

  • - Analyst

  • Thanks for taking my question.

  • Keith, you had mentioned the Gresham fab was running at 80 utilization.

  • Is there nor room in that fab that you can bring in new equipment or turn on more equipment?

  • - CEO, President

  • We could actually about double the factory size from -- by bringing in more equipment.

  • So we've got substantially more room for that.

  • Frankly, the current programs we're looking at now is moving out some of the MOSFETs we had used to build in that factory into other factories and making more room for ICs, mixed signal ICs which have a higher value outform the lithography in that factory.

  • So I think we're going to get some more gains from a gross margin perspective just by shifting the mix in the factory first and then by adding capacity as a the second step.

  • And we do intend on adding capacity in that factory this year.

  • - Analyst

  • And is that -- the equipment you buy for that, can you buy that used in the market or --

  • - CEO, President

  • Absolutely.

  • It's all used.

  • - Analyst

  • Okay, so --

  • - CFO

  • We have a history of doing this.

  • Even before we bought the Gresham facility, we bought a whole tool set from Sony, going back about six years ago.

  • So this is a kind of action that we would undertake.

  • It's usually $0.10 on the dollar compared to new price.

  • - Analyst

  • Okay, and I guess that leads to my next question about CapEx going forward.

  • On an annual basis, what are you thinking for CapEx as a percentage of revenue?

  • - CFO

  • This year we stated $135 million, so I'm not going to change that, that's the best feel I have now.

  • But I must remind you that within this, there's about $30 million of buildings, and buildings are quite effective cost reduction actions, especially when you can get financing for them, like in the Philippines.

  • So that's included in there.

  • So equipment's just over $100 million.

  • We've said in the past that something like a 6% to 7% rate makes sense.

  • So the other thing is our depreciation is now running at just approximately the same as our capital expenditures, so we're not really increasing the capital intensity.

  • But something in the 6% or 7% on an ongoing basis would be something normal.

  • And we try to manage that so that we don't have a lot of excess capacity and that we have a very good near-term cash full return on all new investments.

  • - Analyst

  • Okay, great.

  • Thank you.

  • Operator

  • Your next question comes from the line of Patrick Wang with Wedbush Securities.

  • - Analyst

  • Great, thanks for the question.

  • Keith, I was wondering if you could give -- maybe you talked about your view of if you think OEMs actually building inventory out there right now?

  • - CEO, President

  • Yes, I've stated before, that's the most difficult thing for us to determine.

  • We have to use kind of third party information to get at that or triangulate around it, which is kind of what do we believe or what do other people believe they're actually shipping out the door and then comparing that to the products we ship into the build of materials.

  • So that is the least accurate feel that we've got.

  • But within that, again, at least right now, I believe that the amount of that being built is relatively minor.

  • - Analyst

  • Okay.

  • So you still feel pretty comfortable with the build out there, it seems like.

  • - CEO, President

  • We still feel very comfortable, yes.

  • - Analyst

  • Okay, got you.

  • And then also, I was wondering, I know you went into end markets a little bit here, but can you rank order for us the magnitude in terms of which ones you think are going to grow the most and the least?

  • - CEO, President

  • On a absolute dollar basis, I do think computing will probably be the strongest growth in 2010.

  • On a year-on-year percentage wise, it's probably going to be automotive as number one.

  • So depending on however you want to look at those market sizes.

  • And then followed probably by your consumer communications, industrial, and then I think medical and mineral will be pretty similar.

  • - Analyst

  • Got you, that's helpful.

  • And then just last question here, in terms of your channel inventory, you said that eight weeks is unsustainable.

  • Is it fair to imply that you would -- you think they can build that back to a ten week level sometime in the second quarter?

  • - CEO, President

  • We are hopeful.

  • - Analyst

  • Okay, great.

  • Thanks so much and good luck.

  • Operator

  • Your next question comes from the line of Gus Richard with Piper Jaffray.

  • - Analyst

  • Yes, thanks for taking my questions.

  • It seems like your obviously capacity constrains back end.

  • Do you need nor testers or wire bonders or something else?

  • - CEO, President

  • Yes.

  • - Analyst

  • And are the lead times for those items stretched out right now?

  • - CEO, President

  • They are.

  • They're not absurd, but they're all out at the 12, 13, 14-week range.

  • And fortunately for us, we've been ordering for longer than that, so we're seeing equipment come in and started seeing it in Q4.

  • - Analyst

  • Okay.

  • And then I get that the PCs is going to be up probably in Q1, and I'm suspecting that you're benefiting from the platform transition at Intel and your increased market share.

  • Can you grow that business 10% sequentially in the first quarter, is that possible?

  • - CEO, President

  • I don't know the answer to that one.

  • I'll have to punt, maybe we can get back to you, but I actually don't know, I'd have to look at not just the orders, but also our ability to fill those orders.

  • - Analyst

  • Got it, got it.

  • And then on the automotive side, it seems a bit stronger than I would have expected, and you suggest it's going to be strong all year.

  • You're not selling gas pedals to Toyota in the first quarter or something like that?

  • - CEO, President

  • No, we're not.

  • No, basically there there was -- I do think the credit crunch hit that market segment harder than any others.

  • There's a lot of suppliers that do electronic subassemblies.

  • They all became too lean.

  • And now the automotive build rate are up, and so that combination certainly led to what both you and I believe were a little stronger than expected demand for semiconductor components.

  • But even with that, just the pure math will tell you they're going to build more cars this year than last, and so it's still going to be a very good market.

  • - Analyst

  • Okay.

  • And I would imagine it will accelerate and then pause sometime probably second, third quarter?

  • - CEO, President

  • Generally third quarter is when that pause comes.

  • They idle our factory for model changes, and so I would say that we're not looking for any breaks before the third quarter.

  • Operator

  • Thank you.

  • There are no further questions at this time.

  • This is concludes today's conference call.

  • You may now disconnect.