安森美 (ON) 2012 Q4 法說會逐字稿

My name is Tiffany and I will be your conference operator today.

At this time, I would like to welcome everyone to the fourth-quarter and 2012 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)

Thank you.

Sloan Boss, Investor Relations, you may begin your conference.

Thank you Tiffany.

Good morning and thank you for joining ON Semiconductor Corporation's fourth-quarter and 2012 annual results conference c all.

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 fourth quarter and year ended 2012.

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

Our earnings release and this presentation includes 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 Morgan Stanley Technology, Media, and Telecom conference on February 26, the Susquehanna Semiconductor Summit on March 5, and the Wedbush 2013 Technology, Media, and Telecommunications conference on March 6. In addition, we will be hosting our analyst day in Scottsdale, Arizona on Friday, February, 15.

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, Form 10-Qs, and other filings with the Securities and Exchange commission.

Additional factors are described in our earnings release for the fourth quarter and year ended 2012.

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

Now, let me turn it over to Bernard Gutmann, who will provide an overview of the fourth-quarter and 2012 annual results.

Bernard?

Thanks Sloan and thanks to everyone joining us today.

In our last earnings call, I laid out three major areas that I would be focusing on as the new CFO in order to drive stronger performance and earnings accretion.

I would like to take a few moments to provide an update on the progress we have made to this point.

The first focus was reducing the revenue breakeven level for SANYO Semiconductor from $230 million per quarter to $200 million per quarter.

We have made great strides in the integration and harmonization of our SANYO Semiconductor's IT infrastructure and systems.

In the fourth quarter, we completed the integration of ON Semiconductor's inventory tracking for SANYO Semiconductor backend facilities.

We expect to continue this process with the rest of the organization over the next few quarters.

Once completed, it should allow us to more accurately assess the inventory at SANYO Semiconductor.

This progress will continue in the coming quarters and should create a more efficient supply chain and manufacturing process, with better inventory management and more accurate forecasting.

In addition to the inventory tracking system, we also completed the consolidation of SANYO Semiconductor's non-Japan sales office into existing ON Semiconductor sales offices.

Furthermore, we took actions to reduce payroll related expenses with the elimination of certain bonuses and fringe benefits, and we implemented headcount reductions that will continue over the net three quarters.

We are expecting restructuring charges of approximately $40 million to $50 million due to these actions.

Finally, with the actions already completed and those in process over the next two to three quarters, we now believe we can achieve a breakeven level of $190 million per quarter for SANYO Semiconductor.

This breakeven level does not account for the impact of the recent yen devaluation.

The second area of focus was to optimize the legacy ON Semiconductor business.

In the fourth quarter, we completed the change from three business units to two.

The legacy ON Semiconductor business is now made up of the Standard Products group and an Applications Product group.

Progress is already being made as we focus our R&D efforts on new product and technology offerings with stronger margins.

Benefits from these efforts are evident as we exited 2012 with significant design win activity and expect to continue that trend into 2013.

The third area of focus was to return capital back to shareholders; we have continued with our share repurchase program and purchased approximately 4.7 million shares in the fourth quarter.

This brings the total numbers of shares repurchased to approximately 8.8 million since inception of the program in the third quarter of 2012.

In conjunction with our share repurchase program, we are also working towards the goal of becoming net debt neutral.

In the fourth quarter, we redeemed approximately $21.6 million, or 23% of our 1.875% convertible notes.

Subsequent to the end of the fourth quarter, we settled the conversion of the outstanding 1.875% notes by delivering approximately $77.5 million in cash to holders of these notes.

As we continue to generate strong cash flow and move towards a net debt neutral positions, we will review the possibility of utilizing additional methods to return capital to our shareholders.

Now, for an update of our fourth-quarter 2012 results.

ON Semiconductor Corporation, today announced that total revenues in the fourth quarter of 2012 were approximately $680.2 million, a decrease of approximately 6% from the third quarter of 2012.

During the fourth quarter of 2012, the Company reported a GAAP net loss of $138.2 million or $0.31 per share.

The fourth-quarter 2012 GAAP net loss was impacted $175 million or $0.39 per share of special items, including $150.4 million of estimated non-cash asset impairment charges, which are largely attributed the SANYO Semiconductor products group.

The remaining non-cash charges and special items detail can be found in the schedules included in our earnings press release.

We will report our final results for the fourth quarter and full year upon completion of the impairment analysis and the filing of our Form 10-K with the SEC for the fiscal year ended December 31, 2012.

GAAP gross margin in the fourth quarter was 30.9%.

Non-GAAP gross margin in the fourth quarter of 2012 was 31%.

Fourth-quarter 2012 non-GAAP net income was $37 million, or $0.08 per diluted share.

We exited the fourth quarter with cash, cash equivalents, and short-term investments of approximately $631.7 million.

At the end of the fourth quarter, total days sales outstanding were approximately 48 days, down approximately 4 days compared with the third quarter of 2012.

ON Semiconductor's internal inventories were approximately 113 days, down approximately 8 days compared with the third quarter of 2012.

Included in our total inventory is approximately $56 million, or approximately 11 days of bridge inventory, primarily related to the consolidation of certain factories.

Distribution inventories were down approximately 6% on a dollar basis and were approximately 10 weeks exiting the fourth quarter.

Cash capital expenditures for the fourth quarter of 2012 were approximately $58 million, bringing total 2012 capital expenditures to approximately $256 million.

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

Keith?

Thanks, Bernard.

Now for an overview of our end markets.

During the fourth quarter of 2012, our end market splits were as follows, the automotive end market represented approximately 26% of sales.

The consumer electronics end market represented approximately 22% of sales.

The computing end market represented approximately 19% of sales.

The industrial, military, aerospace and medical end markets represented approximately 18% of sales, and the communications end market, which includes wireless and networking, represented approximately 15% of sales.

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

Our top five product OEM customers during the fourth quarter were-- Continental Automotive Systems, Elta, Hella, Panasonic, and Samsung.

On a geographic basis, our contribution from sales in Asia excluding Japan represented approximately 58% of revenue.

Our sales in the Americas represented approximately 16% of revenue.

Sales in Japan represented approximately 13% of revenue and sales in Europe represented approximately 13% of revenue during the quarter.

Looking across the channels, direct sales to OEM represented approximately 56% of fourth-quarter 2012 revenue.

Sales to the distribution channel were approximately 37% of fourth quarter revenue and the EMS channel represented approximately 7% of revenue.

During the fourth quarter, ON Semiconductor revenues broken out by our new product groups were as follows.

The Standard Products group represented approximately 39% of sales, the Application Products group represented approximately 36% of sales, and the SANYO Semiconductor products group represented approximately 25% of sales.

We will publish our yearly revenue, gross profit, and operating income breakout of these segments in our Form 10-K.

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

During 2012, we successfully increased design wins at focus customers in automotive and smartphone applications, accelerated new product sales, and completed the planned closures of our three factories in Japan.

All 2012 milestones to integrate our SANYO Semiconductors products group were completed on time, and we are aggressively managing the remaining integration milestones for completion by the end of 2013.

Our communications end market revenue for the fourth quarter was up approximately 3% quarter on quarter, while annual revenues were down by approximately 19% year on year with 2012 annual sales of $394.8 million.

We continue to see increased design traction in this market for our industry-leading optical imaging, analog power management, protection, and MOSFET solutions into several topselling smartphone models.

Production ramps by smartphone manufacturers also drove demand for our RF tuning and auto focus drivers.

The adoption of our industry-leading common mode filter was part of an overall increase of our Standard Products content for smartphones, including many of our ESD protection, logic, and MOSFET products, as well as our latest small signal schottky diodes in the desirable ultrasmall SOD-923 packaging.

Significant communications design wins during the fourth quarter included the adoption of our RF tuning, ESD, and EMI protection, signal integrity, analog, logic, and power solutions at key smartphone customers.

Our DC-DC power management devices for smartphones have been adopted and reference designed by market-leading baseband chipset suppliers, which are expected to be used by more than 20 OEMs worldwide and ramp in the first part of 2013.

Additionally, our audio amplifier solution for smartphones was designed in by a leading smartphone customer in the Asia-Pacific region.

Looking across our markets, we expect the handset segment to be the highest growth for us on a percentage basis for the Company, in 2013, followed by Automotive.

Within this end market, we anticipate key growth drivers to include high resolution cameras, RF tuning, analog power, battery protection, ESD protection, EMI filters, and backlighting solutions for high resolution, low power displays.

In the Automotive end market sales were down slightly from the third quarter and down approximately 2% year on year with annual sales of $752 million.

This end market was negatively impacted by declining vehicle sales in Europe and an inventory correction as mobile vehicle demand slowed in the second half of the year.

Additionally, the trade dispute between China and Japan negatively affected the sale of Japanese vehicles in China, which in turn reduced demand for SANYO Semiconductor's Automotive solutions.

An increase in the current Automotive backlog indicates that first quarter sales in the segment should exceed fourth quarter.

Automotive design wins in the fourth quarter continued to sustain our leading positions in powertrain, body, infotainment, power supplies, and in-vehicle networking.

We had a significant fourth-quarter design win in powertrain with an oxygen sensor interface ASIC at a key tier one customer.

Additionally, a top Automotive customer awarded us the development for their next generation advanced park assist system.

With production ramps of our new model year vehicles, strong demand for continued for our LED driver solutions, and for advanced front lighting systems, rear combination lamps, and in-ceiling lighting.

The fourth quarter also saw continued demand for our Standard Products with ongoing MOSFET revenue growth within various new braking applications.

We remain well positioned with a broad portfolio of Automotive solutions to address the continued growth of overall electronic in-vehicle content.

Fuel economy, safety, and convenience features are expected to drive high-single digit semiconductor market growth on the low-single digit vehicle production growth.

Key growth drivers in 2013 for ON Semiconductor's Automotive segment will include start-stop alternator applications, LED lighting solutions throughout the vehicle, door modules, park assist, and pump and fan system solutions.

Our computing end market was down approximately 7% sequentially from the third quarter of 2012, and down approximately 16% year on year with 2012 annual sales of $541.8 million.

For 2012, we retained our leading positions in CPU and graphics, voltage regulation, and power adapters.

Our V core business for desktops performed in line with the market for 2012.

We gained market share in Ivy Bridge notebook platforms.

Our MOSFET computing market share was up both sequentially in the fourth quarter and year on year, with our new as SO-8 Flat Lead MOSFETs being broadly adopted for desktops and notebooks.

Unit growth within our MOSFET business was, however, offset by higher than normal ASP erosion.

SANYO Semiconductor's computing sales were down significantly as a result of business impacted by the Thailand flood and a decline in HDD and PC unit sales.

During the fourth quarter, demand continued for our broad range of products at key customers including our AC-DC controllers, MOSFETs, bus switches, and ESD protection devices for high-speed bus interfaces, such as USB 3.0, Thunderbolt, and HDMI.

We secured significant wins with a leading North American computing customer for Windows 8 tablets.

Success with our Thermal Products and switching battery charger for Android-based tablets was another achievement for the quarter.

We expanded our position in DDR memory power and ESD protection and began shipping our new Trench 6 MOSFETs for computing.

Looking forward, we anticipate growth drivers for ON Semiconductor to include the launch of the Haswell-based Ultrabooks and convertibles at volume prices, adoption of Windows 8 with touch support, increased power density and efficiency requirements throughout the portable computing, and continued adoption of high-speed USB, Thunderbolt, and HDMI interfaces.

We were honored with several awards during the latter part of 2012, including Best Practices Supplier and Best Business Partner Asia from Flextronics Corporation, a Supplier Quality Excellence Award from General Motors, a Contract Supplier Award from VTech, and a Leading Supplier Award from Midea's air conditioning sector group.

Also of note was the Technology and Engineering Emmy awarded to our customer ARRI, a manufacturer of professional motion picture equipment.

ON Semiconductor joined ARRI on stage when they accepted the Emmy for the National Academy of Television Arts and Sciences for improvements in large format CMOS image sensors used in capturing high definition.

We're honored to be named as one of ARRI's key product and development partners in the project.

Now, I would like to turn back over to Bernard for other comments and our forward-looking guidance.

Bernard?

Thanks, Keith.

First quarter 2013 outlook based upon product booking trends, backlog levels, and estimated turn levels, we anticipate that total ON Semiconductor revenues will be approximately $645 million to $685 million in the first quarter of 2013.

Backlog levels for the first quarter of 2013 represented approximately 80% to 85% of our anticipated first-quarter 2013 revenues.

We expect average selling prices in the first quarter 2013 will be down approximately 2% compared to the fourth quarter of 2012, and expect inventory at distributors to remain flattish on a dollar basis.

We expect total capital expenditures of approximately $45 million to $55 million in the first quarter of 2013 and total capital expenditures of approximately $160 million to $170 million for 2013.

For the first quarter of 2013, we expect GAAP and non-GAAP gross margins of approximately 30.5% to 32.5%.

We also expect total GAAP operating expenses of approximately $212 million to $222 million.

Our GAAP operating expenses include the amortization of intangibles, restructuring, asset impairments, and other charges, which are expected to be approximately $55 million.

We expect total non-GAAP operating expenses of approximately $157 million to $167 million.

We anticipate GAAP net interest expense and other expenses will be approximately $13 million for the first quarter of 2013, which includes non-cash interest expense of approximately $3 million.

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

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

We also expect stock-based compensation expense of approximately $6 million to $8 million in the first quarter of 2013, of which approximately $1 million is expected to be in the cost of goods sold and the remaining in operating expenses.

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

Our current diluted share count is approximately 450 million shares on the current stock rates.

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.

Thank you, and Tiffany please open up the line for questions.

(Operator Instructions)

Craig Berger, FBR Capital Markets.

As you look forward to the balance of the year, can you help us understand some of the gross margin drivers and where you think gross margins can recover?

And at what revenue levels?

I will start a little bit with some of the drivers and let Bernard finish with some of the numbers.

Our mix should be improving as we go through the year.

I mentioned earlier that our highest growth markets will be Automotive and our Wireless solutions, both of which have higher than corporate average margins.

So, we should get an improvement in mix.

Secondly, we are expecting, based on current order trends, to be running our factories at higher utilizations rates, also, very significant driver of margins.

And, of course, just the fall-through on the additional revenues.

Those should all be very positive for the gross margins.

And also, I guess, the last thing would be our yen depreciation, which helped us with the Japan-based costs.

Also one point to add to that is the fact that we are continuing to reduce cost in Japan, which should also drive improved gross margins.

As we have said, in the past, the fall-through on incremental revenue is approximately 50% for the ON legacy business and slightly higher for [SAM] business, approximately 60%.

Those will be the big drivers for margin improvements.

Great.

And then, when does that yen improvement kick in?

Really, that was my next question is just on the Wireless stuff.

How long have you guys been working on the Wireless products?

How big is it now and what kind of growth could we see in 2013?

Thank you so much.

Okay.

The Wireless side, we've been working for some time.

The real significant developments in 2012 is expanding our SAM through products that we did not previously have, specifically, in the camera systems, and in the RF tuning portions of the circuits.

The balance of our portfolio there improved with new products, but they are relatively the same category.

So, the big change -- new products in those two areas, each of which give us substantial more opportunity for phone.

We think the opportunities that we had in early 2012 for sales into a given smartphone were a little over $3.

Now that number is approaching $6.

So, that's a very significant opportunity for us.

We are not going to be forecasting the year, that we do expect those segments to be the fastest growth for the Company and we do expect to be out growing those markets.

Thank you.

Chris Danely, JPMorgan.

This is [Sean Bucky] calling in for Chris.

I just wanted some color real quick on the SANYO business.

I think you guided the breakeven down about $10 million.

Could you give a little bit of color on that, please?

Yes.

So, what we have -- we have actively been working on reducing expenses in that area, primarily driven by payroll and payroll related expenses.

We believe that we have now confidence that we can achieve a breakeven point that's about $10 million lower than what we had originally anticipated.

Okay.

Great.

And on the computing end market, can you talk a little bit about your dollar content with the Haswell platform, relative to the Ivy Bridge?

The opportunity there is approaching $12 per notebook computer.

Okay.

Great.

Thanks.

Jim Schneider, Goldman Sachs.

Keith, I was wondering if you could maybe address the bookings trends you saw in Q4, the linearity of the quarter.

What you have seen so far in the first quarter, and then maybe discuss any signs of increased backlog that's longer dated, maybe into the month of March and April, so far.

Okay.

We started seeing an uptick in our bookings rates in October as we reported on our last call.

Specifically, a lot of the orders were filling into a quarter plus one, which meant already into the second quarter back in Q4.

Those trends continue.

We have very strong bookings trends for the next quarter and even now into the third quarter.

Our book to bill is greater than one.

For this quarter, so far, and again, I guess everything is pointing toward increasing from a low point here in Q1.

That's very helpful.

Thanks.

Then, maybe you could discuss what you are seeing in terms of ASP trends.

I know that 2% per quarter is what you are forecasting for the next quarter.

That seems to be pretty consistent with some significant pricing pressure you've seen over the past few quarters.

Do you see any clear signs of that abating yet?

Or is it kind of too soon to see that, given where your competitors are in terms of relatively low utilization?

Again, I would say it is become more benign than it was in Q3.

I expect that will continue.

Our first quarter includes all of the annual customers that do annual price negotiations, which tend to make Q1 the toughest quarter each year.

Those are in place and those are inside of our 2% guidance.

So, really, it's nothing extraordinary, and like I said, if anything, it's becoming a little less pressure on us, than in the past.

Thanks so much.

Ross Seymore, Deutsche Bank.

Keith, a year ago you were talking about business improving, if I recall right, you thought the third quarter was the time when we would see better than seasonal snapback after a number of less than seasonal quarters.

If we fast forward a year, a lot of things seem very similar to a year ago.

Could you just talk about how you view this year 's start as being either similar or different?

Different in what we should expect from that snapback quarter potential.

Thank you.

Yes.

Obviously, I asked myself that, too.

The question that we had, is really last year, if you go back to it, we were anticipating those improvements based on comments from our customers.

We actually had not had the order patterns that indicated they were happening.

In other words, we didn't have those Q3 fill rates coming in early, et cetera.

So, this year, the biggest differences, we are getting long bookings onto our system, which is different than the year before.

And, of course, quite strong book to bill at this point.

So, the net of those two things, I guess, the difference is now we are actually seeing the orders.

Last year we were told to expect the orders.

Got you.

And I guess as my follow-up, one for Bernard on the FX rates, specifically with the yen, of course.

It doesn't look like we are seeing quite the fall-through in the first-quarter guidance that I had expected.

Can you just talk about when that appreciation or depreciation of the yen is going to work its way through your income statement and remind us the magnitude of how that falls through please?

Yes.

So, we communicated in the past few occasions, is that for each yen that the yen moves, it's about an $800,000 per quarter improvement on our EBIT, that is based on the current or should we say Q3, Q4 cost structure.

As we lean out our cost in Japan, that amount will be decreasing slightly, to probably $600,000 to $700,000.

In the first quarter, we should see some benefit.

That's because of the average exchange rate for the quarter will be blended by month in our system.

So, we should already see some benefits.

Then, we should see an increase benefit in the second quarter, assuming that the rate continues being at the level it is today.

So, the benefit will be larger in 2Q then 1Q, assuming that it stays the same?

I think it will be, yes.

Perfect.

Thank you.

Chris Caso, Susquehanna.

I wonder if you could go through, perhaps by market segment, what you are expecting for Q1 in order to get to your guidance?

Okay.

We are expecting very slight increase in our Automotive segment.

We are expecting flat to slightly up in our communication segment.

Then, the rest of the segments should be slightly down.

Okay.

Great.

Then, with regard to the SANYO cost reductions that you guys are implementing now.

Can you talk a little bit about the timing of those and when we should expect to start seeing a greater impact on the margin line?

Then on that with regard to the revenue improvement that you guys had hoped for SANYO, some more color about where you hope that those improvements are likely to come from?

Let me address the cost side.

The cost reductions or some of them -- the fringe benefits have already been implemented starting in Q1.

So those will be starting right now and will be the same throughout the rest of the year.

The headcount reductions will be over the next three quarters with a bigger effect starting in Q2.

And, on the revenue side, we are already seeing, now, that the over inventory situation on white goods in China is improving.

Our order patterns for our power modules have improved, and so we are seeing that as, again, evidence of increases.

Also in the handset arena, the new design wins we have are ramping with backlog now as well.

Those two should be the first to move.

The balance will come, particularly on the consumer side, as the devalued yen makes their customers a little more competitive.

All right.

Okay.

Great.

Thank you.

Kevin Cassidy, Stifel Nicholas.

Part of the strategy for acquiring SANYO was to sell more product, more on product into Japan.

With a weakening yen, is this slowing of that strategy?

Or can you give us an update on how that strategy is, and also the strategy for selling SANYO products with ON products in Asia and -- or, we'll just say outside Japan?

Obviously the yen change will impact revenues and growth rates in those programs that you just mentioned.

Right now, we have more momentum with the SANYO products outside of Japan in our key ON customers.

But we also have a very strong design win base inside of Japan for the ON products.

So both of them are continuing.

Clearly, the slowing economy in Japan has dampened the growth we expected inside of Japan.

But outside, I do expect in 2013 to see an acceleration of the SANYO sales outside of Japan.

Are your Japanese customers turning more optimistic, now that their products are getting more cost competitive worldwide?

I would say the attitude is more hopeful.

They certainly are telling us that they are hopeful now that they can see some improved sales for the year.

None of them have actually reported any change in sales patterns, yet.

Okay.

Thank you.

Steve Smigie, Raymond James.

I was hoping you guys could talk a little bit about what drivers we could look for at SANYO that would suggest you are getting a good turnaround.

So, for example, if we were to watch data points that's on a TV were getting a lot stronger, would that be the biggest potential driver for getting SANYO revenue to move forward?

So the question is, what are the biggest couple of drivers, if you had your way, that could really move revenue with SANYO?

I guess I would point you to a few things.

High resolution cameras and smartphones is a very good thing for our SANYO business.

Increased televisions and white good sales, particularly in Asia is a second really good thing for that business.

Just in general, any of the consumer goods sectors or pickup that would have a Japan-based consumer product would be strong for SANYO.

Okay.

And my follow-up question was on pricing.

I know you already talked about ASP in general.

I was hoping you could, if you have it, give a little more detail on the MOSFET market in particular.

if possible, could you give a little bit of color on how 2012 looked and what that potentially might look like as we go into 2013 in terms of pricing?

I don't -- I won't have the specifics just from MOSFETs, although, I will say it was a stronger than normal year on pressures in MOSFET pricing.

I mentioned that in the script.

The average that we had is kind of 1% to 2% a quarter.

I believe the MOSFETs were something in excess of that, particularly in Q2 and 3. I think '13 will be better, particularly on two fronts.

One, if there is any type of pickup in the overalls market as we are expecting, pressures usually ease.

And then secondly, just the patterns that we have in the computing platforms are stabilizing a bit.

So the net of that I think would be a little better story for us this year.

Okay.

Thanks a lot.

John Pitzer, Credit Suisse.

Congratulations.

Quick question.

You guys did a good job on inventory in the December quarter.

Sorry if I missed it, but what are your expectations for both your inventory and distribution inventory into March?

And then, help me understand, inventories are starting to come down, but inventory coming down is not necessarily the only reason why we start to see a restock, typically it's lead times stretching out.

What is kind of your forecast for your lead times and industry lead times, especially given the excess capacity after?

Do you think lead times stay shorter or longer and that changes the restocking stretching?

I will address the last part of your question first.

We have actually seen in some of our a specific products, lead times starting to stretch a bit.

We are seeing certain packages and the pickup in our content starting to stress particular packages, on a broad basis, that is not yet happening.

I expect that it will occur.

There is some over capacity as you mentioned, but it's not that substantial.

Most of the industry, I believe, particularly in the packaging side is running in the 80s plus.

So, it won't take much to see a little bit of stretching of the lead times from their current very low levels.

And, regarding the overall inventory levels, with on the channel first with the sub 10 weeks right now across the board, we don't believe we are going to see a significant amount of further reductions.

I think we are at the bottom.

We will start potentially seeing some restocking, but right now, fairly flattish.

Internal inventories will continue burning some of the bridge inventory that we built last year.

But at the same time, we in anticipation of a stronger second quarter, we will probably start building inventory also.

So net net I don't expect a significant reduction in inventory internally, either.

And then, Keith, you talked about I think $6 of potential content to you guys in the handset markets.

Who are you taking share from?

Why are you taking share?

If you think about the profile of your handset customers, are these mainly high-end smartphones?

I guess, how do you play into the advent of the lower end smartphone growth in China?

Is that a market where the margin profile is attracted to you or not?

So the margin profile is attractive to us in China.

The products that we have there are, again, a key focus and we believe we actually have a little better content in China on a dollar basis than we do outside of China at many places.

The difference in the piece relative to market share, I obviously don't have enough data on a part-by-part basis, because there's no way to get that.

What I can tell you, again, the big growth drivers for us are products where we did not used to play in the RF tuning areas.

I believe there is a multitude of solutions that have been used there.

So it's a little difficult for me to tell which one is winning or losing.

In the camera module arena, again, where we did not used to play.

I'm not sure I can answer the who we are taking it from.

This is a follow question.

The content on smartphone, how does it compare to overall corporate margin?

It is higher than overall corporate margins.

Great.

Thanks a lot guys.

Congratulations.

(Operator Instructions)

Ian Ing, Lazard Capital.

Question on the Automotive markets, trying to understand the growth of the very long product cycle.

Is it existing platform wins moving to more car models, or is it from some new wins you have -- (inaudible)

A combination of all the above.

I mentioned a few of the new wins we talked about.

Trends that we see, basically increasing in adoption over the next year or so or the start-stop alternator approach, significant savings on fuel economy, and we do see that as something that is both an adoption of the techniques in the cars that will be increasing, but also an increase in our design rates there.

The lighting systems.

We expect to see more and more cars with LED front, rear, and interior lighting systems.

Again, our content has been increasing there.

So that combination, we think, is a very strong story.

Many of the other things are features that we believe will go from the high-end cars to the lower-end cars.

Things like parking assist and other types of driver assistance types of -- and convenience types of things.

So it's a combination of both.

But we think there are some new trends there that should drive some good growth.

Great, my follow-up is I noticed there was a step down in the number of inventory days that you are holding.

Is there a comfortable range that you are targeting (inaudible) going forward?

So we are still thinking our inventory days at the SANYO product groups are still higher in driving the average for ON to be at 113.

We like to be under 100 days in total.

There are no further questions in queue at this time.

I turn the conference back over to our presenters.

Thank you Tiffany.

I guess, with that, we will go ahead and end the call.

Thank you very much everyone for participating.

This concludes today's conference call.

You may now disconnect.