安森美 (ON) 2012 Q3 法說會逐字稿

At this time I would like to welcome everyone to ON Semiconductor Corporation's third quarter 2012 financial earnings conference call.

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

After the speakers remarks, there will be a question and answer session.

(Operator Instructions)

I would now like to turn today's conference over to Ken Rizvi.

Good afternoon and thank you for joining ON Semiconductor Corporation's third quarter 2012 conference call.

I am joined today by Keith Jackson, our President and CEO, and Bernard Gutmann, our CFO.

This call is being webcast on the investor relations section of our website at www.onsemi.com and a replay will be available for approximately 30 days following this conference call, along with our earnings release for the third quarter of 2012.

The script for today's call is posted on our website.

On our earnings release and 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 be attending the Credit Suisse technology conference on November 27.

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 believe, estimate, anticipate, intend, expect, plan, should 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, form10-Q and other filings with the SEC.

Additional factors are described in our earnings release for the third quarter of 2012.

Our estimates may change and the Company assumes no obligation to update forward-looking statements to reflect actual results, change assumptions or other factors.

We realize that many people on the East Coast are still working through the recovery from Hurricane Sandy.

Our thoughts and concerns are with the families, investors and analysts that have been impacted.

We are hopeful that everyone is safe and wish for a quick recovery.

Now, let me turn it over to Bernard Gutmann.

Bernard?

Thanks, Ken, and thanks to everyone joining us today.

Before I go through our financial results for the quarter, let me provide a quick overview of my background and my thoughts of the financial strategy for the Company.

I'm excited about the opportunity for ON Semiconductor and the ability to lead a strong finance team as our new CFO.

I understand the requirements to be successful in a cyclical industry, having over 30 years of semiconductor experience.

Most recently, I served as the group CFO for Sanyo Semiconductor as well as the head of our corporate financial planning and analysis team.

In these and other roles during my career, I have been directly involved in all aspects of the Company's business planning, operations and strategy.

In addition, I have been heavily involved in the financial integration of our nine acquisitions, including leading our efforts to drive operational synergies and, as needed, driving restructuring on a corporate level to ensure strong cash flow generation from the business.

From a financial strategy standpoint, moving forward, we plan to focus our efforts on three major areas.

One, reduce the revenue breakeven level for Sanyo Semiconductor.

Two, optimize the legacy ON Semiconductor business, and three, return capital to our shareholders.

Now, let me expand into each of these three areas.

First, we intend to focus on reducing the revenue breakeven levels for Sanyo Semiconductor from approximately $230 million in quarterly revenues today to approximately $200 million.

In 2011, the Sanyo Semiconductor business was impacted by three major externalities.

The March 2011 earthquake and tsunami in Japan, the strong yen, which negatively impacted our customers competitiveness, and the October 2011 Thailand flood.

ON Semiconductor was profitable on a non-GAAP basis through the first three quarters of 2011, but was severely impacted by the Thai flood which destroyed Sanyo Semiconductor's largest backend assembly and test site.

While we have recovered the majority of the manufacturing capacity lost as a result of the flood, revenues continue to be negatively impacted.

The Company is focused on improving our sales levels through a new design wins and cross-selling efforts, but is also looking to substantially reduce the breakeven level for the Sanyo Semiconductor product group.

As part of original restructuring plan, we have already consolidated two major fabrication facilities and have reduced head count at Sanyo Semiconductor by approximately 4,000 people, which includes head counts seconded from Sanyo Electric.

We feel, however, given the current business environment, there are additional actions we need to take to reduce our overall ongoing costs.

Over the next three to four quarters, the three largest drivers of cost reductions are expected to come from one, the harmonization of Sanyo's IT infrastructure and systems to drive more efficiency in the supply chain and manufacturing.

Two, the reduction of fringes and payroll-related expenses.

And three, further head count reductions.

The second pillar of our financial strategy is to continue to optimize the ON legacy semiconductor business.

In the fourth quarter, we have consolidated the legacy ON Semiconductor product groups from three to two, into the applications product group and the standard products group.

By consolidating into a higher ASP, higher gross margin applications product group, we can optimize our R&D resources to our higher growth opportunities.

Additionally, by streamlining resources into a consolidated standard products group, we further optimize our cash flow generation capabilities of that business.

We plan to continue to report Sanyo Semiconductor as our third product group.

The third pillar of our financial strategy is to focus on returning more capital back to our shareholders.

In August, we announced a share repurchase program of up to $300 million over a three-year period.

We were able to repurchase approximately 4.1 million shares in the third quarter, and have continued our share repurchase activities in the fourth quarter.

In addition, as we get closer to net debt neutral, we plan to once again review the possibility of issuing a dividend to our shareholders.

Now, for an update of our third quarter 2012 results.

ON Semiconductor Corporation today announced that total revenues in the third quarter of 2012 were $725.5 million, down approximately 3% compared to the second quarter of 2012.

During the third quarter of 2012, the Company reported GAAP net income of $12.5 million, or $0.03 per fully diluted share.

The third quarter of 2012 GAAP net income included net charges of $41 million from special items, which are detailed in schedules included in our earnings press release.

GAAP gross margin in the third quarter was 32.8%, and non-GAAP gross margin was 33.2%.

Gross margin in the third quarter benefited from approximately $5 million of insurance proceeds received during the quarter.

Third quarter 2012 non-GAAP net income was $53.5 million, or $0.12 per fully -- per share on a fully diluted basis.

During the third quarter, gross margin came in lower than we had originally anticipated, primarily due to lower-than-expected revenues as well as lower utilization of our factories in the latter part of the quarter as we proactively reduced overall inventories.

We were, however, able to partially offset the lower gross margin both better operating expense controls through both temporary and permanent actions during the quarter.

We exited the third quarter of 2012 with cash, cash equivalents, and short-term investments of approximately $643 million.

As stated earlier during the quarter, we committed approximately $27 million to repurchase about 4.1 million shares at an average price of $6.51.

In addition, we used approximately $69 million of cash in restructuring-related expenses, including the payout of certain pension obligations related to our Sanyo Semiconductor restructuring plan.

At the end of the third quarter, total days sales outstanding were approximately 52 days, down approximately two days compared with the second quarter of 2012.

ON Semiconductor's internal inventories were at approximately 121 days, and down approximately $15 million quarter-on-quarter.

And, as a result of our proactive actions to reduce factory run rates in the latter part of the quarter.

Also, included in our total in total inventory is approximately $70 million of bridge inventory, or approximately 13 days, primarily related to the consolidation of certain factories.

Distribution inventories were down slightly on a dollar basis, and was just below 11 weeks exiting the quarter.

Cash capital expenditures during the third quarter of 2012 were approximately $84 million.

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

Now for an overview of our end markets.

During the third quarter of 2012, our end market splits were as follows.

The automotive end market represented approximately 25% of sales.

The consumer electronics end market represented approximately 24% of the sales.

The computing end market represented approximately 20% of sales.

The industrial, military, aerospace and medical end markets represented approximately 18% of sales, and the communications end market, which includes both wireless and networking, represented approximately 13% of sales.

On a direct billing basis, no individual ON Semiconductor product OEM customer represented more than 5% of third-quarter sales.

Our top five product OEM customers during the third quarter were Continental Automotive Systems, Delta, Hella, Panasonic and Samsung.

On a geographic basis, our contribution from sales in Asia excluding Japan represented approximately 59% of revenue.

Our sales in the Americas represented approximately 16% of revenue, sales in Japan represented approximately 12% of revenue, and sales in Europe represented approximately 13% of revenue during the quarter.

Looking across the channels, direct sales to OEM's represented approximately 60% of third quarter 2012 revenue.

Sales through the distribution channel were approximately 33% of third-quarter revenue, and the EMS channel represented approximately 7% of revenue.

Now I would like to provide you with the details of other progress we have made.

In the consumer end market, third-quarter revenues were approximately $174 million, up approximately 6% quarter-on-quarter, driven primarily by sales into TV's and game consoles.

During the quarter, we had a number of new design wins in Japan for our efficient power solutions, ESD protection devices, and flash memory for TV's and game consoles.

We also have a number of new protection and high-speed serial interface designs into a leading e-reader.

These design wins are expected to ramp in 2013.

While there is still excess finished goods inventory at our customers in the Whites Good appliance market, we are very excited about our variable speed motor technology for this end market.

The increased focus by various regulatory agencies to reduce energy consumption and standby power is a great opportunity for ON Semiconductor.

We are the number two player for integrated power modules today, and believe this to be a fast growing end market over the next three to five years.

In addition, this technology, which came from our Sanyo Semiconductor acquisition, can be applied to a number of other end markets such as industrial and automotive., where energy efficiency is becoming a crucial requirement of our customers.

Our computing end market was down approximately 1% sequentially in the third quarter.

Within the overall computing end market, however, we continue to gain share in our core power management solutions for desktops and notebooks.

In particular, we saw approximate 5% growth in our overall Vcore-related power management products in the third quarter, compared to the second quarter of 2012.

In addition, we continue to offer a broad range of products for our key computing customers, including AC/DC controllers, MOSFET, bus switches, and ESD protection devices for high-speed bus interfaces such as USB 3.0, Thunderbolt and HDMI.

While the overall computing market is seeing a slower growth environment in 2012, our large OEM customers are excited about their new Ultrabook product launches, as well as a potential for Windows 8 to drive growth as we move through 2013.

Our communications end market revenue for the third quarter was $93 million, down approximately 3% quarter-on-quarter.

We're beginning to see new design traction in this market.

In particular, we have new design wins for the Sanyo divisions, mobile camera solutions for our leading Korean handset manufacturer's latest smartphone.

This solution enables fast, accurate auto focus while consuming less power and generating less noise interference than competing solutions.

This Korean handset OEM is also designed in our industry-leading, common mode filtering solution to protect data integrity in their latest smartphone models.

In addition, we are seeing early traction with approximately $1.50 of power management, ESD protection, and EMI filter-related content at a leading enterprise software company launching their first tablet in the fourth quarter of this year.

Our strength in ultra-small packaging capabilities, and a variety of packages, products ranging from ESD production to Schottky diodes are also getting traction with a leading North American smartphone customer for products expected to ramp in 2013.

In the automotive end market, we expected to see sales down in the third quarter for the seasonal model year shifts in production.

Revenue for our automotive end market was down approximately 7% quarter-on-quarter.

In addition to the normal seasonal trends for the third quarter, revenue was negatively impacted by the European financial woes, as well as slower demand environment in China.

We remain confident, however, that the automotive market will continue to be a strong contributor to our long-term growth.

Overall electronic content in new vehicles continues to grow by more than 5% above unit growth rates, and we continue to gain share with our solutions for power management, powertrain, ASICs, LED lighting, park assist and start-stop alternator applications.

During the third quarter, a leading North American worldwide automotive supplier had designed in our new BelaSigna speech enhancement DSP solution for hands-free microphone used by a leading premium car manufacturer.

With our expanded presence in Japan from our Sanyo division, we were able to expand our content in two key Japanese automotive suppliers with our new oxygen sensor and our engine control sensors.

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

Bernard?

Thanks, Keith.

Fourth quarter 2012 outlook.

Over the last several quarters, our business has been negatively impacted by the overall slower global economy, and in particular the slowdown of growth in China.

The slower growth environment has impacted a number of our key end customer markets for ON Semiconductor, including consumer electronics, computing, automotive and industrial.

The slower growth environment has rippled through the supply chain, and we are seeing the lowest levels of distribution inventory in the Asia-Pacific region since the 2008 and 2009 financial crisis.

We are optimistic that, as the demand environment improves, especially in China, we will see a replenishment of the supply chain and increased demand for our products.

Based upon product booking trends, backlog levels and estimated turns levels, we anticipate that total ON Semiconductor revenues will be approximately $650 million to $690 million in the fourth quarter of 2012.

Backlog levels for the fourth quarter of 2012 represent approximately 80% to 85% of our anticipated fourth quarter 2012 revenues.

We anticipate that average selling prices for the fourth quarter of 2012 will be down approximately 2% compared to the third quarter of 2012.

We expect total cash capital expenditures of approximately $50 million in the fourth quarter of 2012.

Our capital expenditures for 2013 are expected to come down significantly, to approximately $150 million.

For the fourth quarter of 2012, we expect both GAAP and non-GAAP gross margin to be approximately 30% to 32%.

We also expect GAAP operating expenses of approximately $175 million to $185 million.

Our GAAP operating expenses include the amortization of intangibles, restructuring, asset impairment and other charges, which are expected to total approximately $15 million.

We expect total non-GAAP operating expenses of approximately $160 million to $170 million.

We anticipate GAAP net interest expense and other expenses to be approximately $15 million for the fourth quarter of 2012, which includes non-cash interest expense of approximately $5 million.

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

GAAP taxes are expected to be approximately $3 million to $5 million and cash taxes are expected to be approximately $2 million to $4 million.

We also expect stock-based compensation expense of approximately $6 million in the fourth quarter of 2012, of which approximately $1 million is expected to be in cost of goods sold, with the remainder in operating expenses.

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

Our current fully diluted share count is approximately 450 million shares based on the current 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.

(Operator Instructions)

Chris Danely, JPMorgan.

The annual revenue is now and how long you think it will take to get the break-even down to $200 million?

Chris, can you repeat that question?

We only got the first part of it -- the last part of it, yes.

Sure.

Can you hear me okay now?

Now we got you.

Okay, great.

Can you just go through approximately what the Sanyo revenue levels are right now?

And then, how long you think it will take you to get the break-even down to $200 million?

The revenue, as you will see in our segment reporting in the third quarter, was $193 million, down from $205 million in the third -- in the second quarter of 2012.

The actions we are putting in place are going to take us to probably the second half -- more towards the third quarter of 2012 to get to that break-even.

Sure.

I assume you mean third quarter of 2013.

Correct, sorry.

As for my follow-up, assuming the Sanyo revs are going to be down this quarter along with everything else, what's the plan, or how to get the revenue back to $200 million?

The revenue programs have been in place, Chris, for some time.

The real issue here is current impact with the Japan-based customers, specifically here in Q4, we are seeing the drop-off due to the conflict over the islands with China.

And the subsequent impact of the boycott.

So we really think that, relative to the revenue base, our underlying base, it's still there, and our cross-selling programs and design win registrations are up substantially.

So we are expecting growth in 2013.

The wild card there is return to normalcy in the China-Japan relationship, but certainly even with or without that you should see increases next year.

John Pitzer, Credit Suisse.

Keith, if you just look at the December quarter outlook, can you just walk through, from an end market perspective, how you expect the trends to vary relative to the midpoint of the overall guidance?

Yes.

From a down perspective, we'll use the normal ones that have a little amplifier on them.

Consumer, certainly, is normally down.

We see the gaming console builds taper off, and a lot of the TV builds, et cetera.

Normally, on top of that is the issue I mentioned a moment ago, with some of the tensions between China and Japan, causing the Japanese consumer companies, which are over half of our Sanyo business revenues, to be much softer in China.

So the consumer one, I would say, is the number one hit from a sequential negative.

And from the midpoint to the downside will be, just how much longer or how big the impact really is on these boycotts.

(multiple speakers)

Helpful, Keith.

And as my follow-up -- maybe as a follow-on to Chris's question about Sanyo.

When do you think you get back to where the peak revenues were?

Maybe a better way to ask the question.

Relative to where revenues peaked in the September timeframe for Sanyo, how much of that revenue is still available to come back versus stuff that you guys have chosen not to participate any more?

Yes.

We still believe that exiting next year, you have the opportunity to get back into that $250 million range.

Our peaks were up closer to $290 million, and of that $290 million about $25 million or so we obsoleted, and do not ever expect to get back.

And then that other $25 million is really -- it's a matter of when, not if.

But certainly, looking from where we are at, and as I mentioned to Chris, the design win activity, we can see getting back in that range by the end of next year.

Terence Whalen, Citi.

Also wanted to welcome Bernard, and best of luck in your role, Bernard.

First -- the first one is specifically regarding China demand.

If we put aside the issue of China-Japan tension for Sanyo just for a second, maybe talking about the core ON business.

Can you give us any insight into how near-term demand trends in China have proceeded through the third quarter into the fourth quarter?

What you're looking for in terms of any signs of improvement?

Yes, they definitely softened in September.

And we saw even further signs of inventory contraction at all of our customer base there in China.

So, definitely saw more of a contraction as we went through September, and that has continued into October.

Relative to how long that will go, as Bernard mentioned in his part of the earlier dialogue, we are now at all-time lows in the distribution channel there.

It can't go much lower than this, and so unless there is something that takes the demand - end demands down dramatically, you should expect to see that start to recover as we exit Chinese New Year next year.

Okay.

Terrific.

And then the follow-up question is, if you could briefly remind us what the target profitability model is, now that we have a small adjustment to the structural profitability of Sanyo?

That would be helpful to understand what your near-term and intermediate-term target profitability models are at specific revenue levels?

We are working now on a longer-term model to be discussed at the analyst day in February, or as we mentioned for the short-term, we expect to bring down the break-even point to achieve break-even levels in the second half of 2013 for the Sanyo levels.

And the -- on the ON legacy side, it's a function, really, of how fast the recovery will occur to get back to normal levels.

Based on what we can see right now, looks like the possibilities, and based on looking at how the historical patterns have gone, we should be seeing a second half that is showing a nice recovery.

James Schneider, Goldman Sachs.

Welcome, Bernard.

Could you maybe talk a little bit about the pricing trends that you're seeing across the different product lines right now?

Are there any particular product lines where you are seeing more aggressive pricing?

And do you see any change in the pricing behavior going forward?

Yes.

Third quarter did see an acceleration, or an increase in some of the pricing pressure.

Predominately, the spot markets through distribution for turns as the markets weaken through September.

And again the feedback looked weaker, certainly there was more aggressive behaviors in the marketplace.

So most of that is with the high-volume standard products businesses, but it was certainly a little bit stronger in three than it was in two.

We're not seeing that intense pressure continue.

It does seem to be returning to more normal levels as we get into Q4, and I think the marketplace understands the real demand picture, and stops chasing phantom business.

That's helpful.

And then the follow-up.

On the utilizations, can you talk about where those came out in Q3?

Where you expect them to go in Q4?

And then separately, any contemplation of capacity reductions beyond the Aizu shutdown you already talked about?

Our front end utilization is kind of running in the 70%s with the back ends near 90%.

You get a blended average for the Company about 80% or so in Q3.

They should be approximately the same in Q4, not a significant difference.

As we look at the factory network beyond Aizu, there are some opportunities as we go through 2013.

We're not prepared to announce those at this stage, but we do think there is at least one more opportunity in the assembly network.

But our wafer fab network is pretty robust, and as the markets recover should be appropriate for our growth.

That's helpful.

Chris Caso, Susquehanna Financial.

Wonder if you could address some of the comments, as you talked about the release and some of the stabilization of orders you referred to in the release.

I assume that is along the lines of what you just said on pricing, where I guess we took a step down and now we're sitting along these levels.

Could you give us more color on that?

Yes, I can give you a little more color that.

We have traced bookings, billings patterns for a while more than a decade now, and clearly the bookings trends precede the billings trends.

We have been seeing a declining backlogs and declining bookings trends through September, but then as we entered October, those actually started picking up again.

So, what we are seeing now is people starting to place backlog in for Q1, Q2.

And those levels are at higher rates than we were seeing as we entered Q3.

So we are starting to see that stabilize, and start to turn up.

And generally, again, from a billings perspective, a quarter or so after that, you typically see the sales go up as well.

And as a follow-up to that, I assume you guys don't want to provide guidance on Q1, but does that give you any confidence that Q1, we could see some better than seasonal trends, or at least stabilization as we exit the calendar year?

I think it's too early to call that one.

Again, I mentioned some of the geopolitical pressures going on that are really difficult for us to call.

But when we see that -- when we see those bookings rates start to come up, and people starting to place longer-term backlog again, certainly if you haven't found the bottom, you are within one quarter of the bottom.

All right.

That's fair.

Kevin Cassidy, Stifel Nicolaus.

You had mentioned the Vcore business being up 5% from -- in the third quarter over the second quarter.

Right.

In a down PC market, that's impressive.

Is it related to Ivy bridge transition, or is it something else?

It is.

It's increased share on Ivy Bridge.

Okay.

And do think you'll increase share again as we go to Haswell with Intel's processors?

Yes, we do believe that we will increase share on the Vcore side again in Haswell.

And what is that in particular that you've done differently with your product?

You know, it's really just continuing to make more efficient controllers at good price points in the marketplace.

And of course, having established a reputation for quality and reliability as a supplier.

So good product, good performance and good pricing.

Maybe if I could ask one other about the tablet.

You said $1.50 of content.

What's been your content in other tablets?

The only tablet that is selling in huge volumes, the number is less than $0.50.

(laughter)

Okay.

But in general, about $1.50 to $2.00 is our content in most tablets.

Okay.

Steve Smigie, Raymond James.

This is actually Elizabeth Howell calling in for Steve.

Just going back to the strength in Vcore with Intel.

Just wondering, in terms of ARM trying to move up the chain to get into more PC's and servers and capturing more market share there.

How does this affect your business, and how are you positioned to capture this growing segment, do you think?

The ARM processors tend to be much lower power points, and they tend to be put into applications that have far fewer peripherals.

And so the total power requirements are less.

It's left about architecture and more about application.

So what you have is the tablets look more like cell phones than they do PC's, and so there is less power content, less power needed.

And so you drive down to that point of $1 to $3 range of opportunity, versus something like an Ultrabook that still has all of the bells and whistles being north of $10.

Okay, great.

And then just one more.

In terms of your expectations for end market, you went through consumer being a little bit weaker than normal seasonality, but what are you expecting for communications, industrial, auto?

I think the industrial will continue to be soft.

I -- again, not significantly different, but certainly softer than Q3.

The auto, there will be some strengthening from an ON Semiconductor perspective in automobiles.

And the -- see what else, what other markets -- computing should continue to be soft as well.

And communications?

Communications, the handsets side -- it's kind of a sideways market.

Handsets up a bit and some of the infrastructure down a bit.

Okay, great.

Nick Clare, Robert Baird.

I am calling in for Tristan Gerra.

First, could you touch a little bit on how Sanyo's gross margin was in 3Q, and what you are expecting from it in 4Q?

The gross margin for Sanyo was about in the neighborhood of 20% for the third quarter.

And we expect it to be a tad bit -- a little bit lower in the fourth quarter.

Okay.

And when you look at the inventory situation, I think you touched on this briefly in your comments but, what's the current inventory situation like specifically at Sanyo?

And what type of reduction is built-in specifically for them in the 4Q guidance?

The inventory [released] at Sanyo are in a much higher position than we have for the average ON, north of 150 days.

And that's because their business model was more predicated on building to forecast and having the inventory available to satisfy the customer demands on a very, very short lead time.

As we integrate our planning system in there, it will allow us to start working on reducing substantially those levels.

In the meantime, we are trying to do it with more manual processes, and that is taking us longer.

So we are expecting a small reduction in the fourth quarter, but nothing out of the ordinary.

Maybe a couple of days as we manually go -- work through this.

Okay.

Great.

Chris Danely, JPMorgan.

I just had of a couple of quick follow-ups.

Keith, on the pricing side, you said that it got a little bit worse during the quarter, but you are seeing it stabilize now?

Yes.

Okay.

Going into next year, would you expect to see any real change in that?

Not really.

Again, competitive behavior is always interesting, but when people see the market softening and they think there might be something there, they are certainly more aggressive than when they understand the end demands.

And so, as we saw in 2008, 2009, we didn't see any really abnormal behaviors for very long at all, because people figured out what was there and wasn't.

I guess what I am saying is, I think that's happening again.

People were a little surprised, I think, by the softness in Q4.

It was not generally expected, and so there was certainly some September flurry of activity.

But I think were getting back now to normal competitive behaviors.

One additional clarification is that, we do have annual contracts that go into effect in Q1, so normally, that's a normal pattern of [AST].

We do have a stronger decline in the first quarter followed by less.

Okay.

And a follow-up for Bernie.

So the OpEx cuts you guys are announcing this quarter, those are in addition to the restructuring activities you announced last quarter, correct?

Yes.

We are implementing additional cuts that will improve OpEx beyond what we said last quarter.

Great.

And then just my last one.

So you said the Sanyo gross margin is around 20% now.

What's the goal there?

If you get back above $200 million in revs considering the OpEx cuts?

Well, I would say that, at those levels, it's in the middle 20%s.

However, that -- intrinsically, that business should be getting us higher, so if we get -- our long-term model should be higher than that.

But by reaching a break-even it will be in the mid-20%s.

Okay.

At this time there are no further questions in queue.

We would like to thank everyone for participating in today's ON Semiconductor Corporation's third quarter 2012 financial earnings conference call.

You may now disconnect.