安森美 (ON) 2013 Q4 法說會逐字稿

Good afternoon.

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

At this time, I would like to welcome everyone to the fourth-quarter 2013 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)

Mr. Parag Agarwal, Senior Director of Investor Relations for ON Semiconductor, you may begin your conference.

Thank you, Sharon.

Good afternoon and thank you for joining ON Semiconductor Corporation's fourth-quarter 2013 quarterly results conference call.

I'm 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.

A replay will be available at our website approximately one hour following this live broadcast.

And will continue to be available for approximately 30 days following this conference call, along with our earnings release for the fourth quarter of 2013.

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

Additional information related to our end markets, business segments, geographic, and general space is also posted on our website.

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, which is posted separately on our website in the Investor Relations section.

During the course of this conference call, we may make projections of other forward-looking statements regarding future events or the future financial performance of the Company.

The words believe, estimate, project, anticipate, intend, may, expect, will, 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 which can affect our business, including factors that could cause actual results to differ from our forward-looking statements are described in 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 of 2013.

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

Moving forward, our business segment formerly known as SANYO Semiconductor Products Group will be referred to as System Solutions Group, or SSG.

This name change has been necessitated by the expiration of our license to use SANYO name.

Later this quarter, we will be attending Goldman Sachs technology conference in San Francisco on February 13, and Susquehanna Financial Group conference in New York on March 4. Now, let me turn it over to Bernard Gutmann, who will provide an overview of the fourth-quarter 2013 results.

Bernard?

Thank you, Parag, and thank you everyone for joining us today.

Let me start by providing an update on overall business results.

Our business is gaining momentum, as our design wins in our targeted areas of automobile, smartphones, and select areas of industrial end markets begin to translate into revenue.

At the same time, improving global macro environment, especially in developed markets, and favorable supply/demand dynamics are contributing to improving trends in our business.

Most importantly, we have achieved much awaited success in stabilizing System Solutions Group, formerly known as SANYO Semiconductor Product Group.

Our cash-flow performance has improved significantly, and we have returned substantial portion of this cash to the shareholders in form of stock repurchases.

Let me provide you a brief update on System Solutions Group.

For the first time since the 2011 Thailand floods, which drastically hampered SSG's back-end manufacturing operations, we have achieved breakeven on non-GAAP operating income basis for SSG.

We define non-GAAP operating income as non-GAAP gross profit, less non-GAAP operating expenses.

SSG's contribution to consolidated adjusted EBITDA was approximately $5 million in the fourth quarter.

We remain confident that SSG will be accretive to our net income in 2014.

We are making progress in completing restructuring measures announced in October of last year.

We expect that the ultimate headcount reductions associated with such restructuring to be lower, as compared to our targeted range.

We are retaining a sizable part of SSG's manufacturing workforce to support manufacturing of products for our legacy business in the Niigata fab, which until recently, had manufactured products only for SSG.

We are currently running trial wafers on products for our legacy business in the Niigata fab, and we expect commercial shipments of these products in the second quarter of 2014.

Despite the lower-than-targeted headcount reductions, we expect to achieve cost savings within the range previously disclosed.

With improving results in outlook, we also continued to focus on returning cash to stockholders.

During the fourth quarter, we took advantage of attractive valuation of our stock and used approximately $59 million to repurchase approximately 8.3 million shares of our common stock at an average share price of $7.11.

During 2013, we deployed approximately 60% of our free cash flow towards stock repurchases.

At the end of the fourth quarter, approximately $143 million remained of the total authorized amount under the current stock repurchase program.

We will continue to take advantage of undervaluation in our stock price and our improving cash flow to return cash to our shareholders.

Let me now provide you with an update of the fourth-quarter 2013 results.

ON Semiconductor today announced that total revenue for the fourth quarter of 2013 was approximately $718 million, an increase of approximately $3 million over the third quarter.

GAAP net income for the fourth quarter was $0.09 per diluted share.

Excluding the impact of amortization of intangibles, and restructuring and other special items, non-GAAP net income for the quarter was $0.17 per diluted share.

Non-GAAP gross margin for the quarter was 34.8%, flat as compared to the third quarter.

Average selling prices for the fourth quarter decreased by less than 1%, as compared to the third quarter.

Non-GAAP operating expenses for the fourth quarter were approximately $165 million, up by approximately $2 million as compared to the third quarter of 2013.

This sequential increase in operating expense was due to higher stock compensation and bonus accruals driven by our improved results.

We exited the fourth quarter of 2013 with cash and equivalents and short-term investments of approximately $626 million, an increase of approximately $72 million from the third quarter.

Net cash provided by operating activities for fourth quarter was approximately $127 million, as compared to $60 million in the third quarter.

We spent approximately $20 million on the purchase of capital equipment.

We used approximately $98 million for the repayment of long-term debt and capital leases, and for the redemption of convertible notes.

We received approximately $128 million from the issuance of debt, including $120 million drawn from our line of credit.

As noted earlier, we used approximately $59 million for the repurchase of our stock.

At the end of the fourth quarter, ON Semiconductor days of inventory, or inventory on hand were 119 days, up approximately four days from the prior quarter.

We believe that the current distribution inventory levels are low to support customer demand; therefore, in order to adequately service our customers, we have raised our inventory levels.

Included in our total inventory is about $32 million, or six days of bridge inventory.

Most of this bridge inventory is related to the consolidation of System Solutions Group's manufacturing operations.

In the fourth quarter, distribution inventory was down by approximately $5 million quarter-over-quarter, while distribution resales were approximately flat quarter-over-quarter.

In terms of days, distributor inventory declined to slightly below nine weeks from approximately nine weeks in the third quarter.

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

Keith?

Thank you, Bernard.

Let me start with laying out priorities for ON Semiconductor for 2014, and then I will address the overall business environment and various end markets.

For 2014, there are three main objectives for us.

First, we have to realize our full cash flow generation potential; second, we should accelerate our momentum in targeted growth segments of automobile, smartphones, and select areas of industrial; and third, complete the transition of SSG to be accretive to our consolidated results on a sustained basis.

Now, let me expand on each of these objectives, starting with our capacity to generate substantial free cash flow.

We believe that in a normal growth environment for the semiconductor industry, ON Semiconductor can generate annual free cash flow of approximately $300 million to $400 million in the year to midterm.

We define free cash flow as the net cash provided by operating activities, less capital expenditure.

We characterize year-over-year growth of low to mid-single-digit percentage points as normal growth for the industry in the current macro environment -- economic environment.

This growth, coupled with margin expansion, substantial progress in restructuring activities related to our SSG, and lower working capital requirements are the key contributors to our improved free cash flow outlook.

Moving on, in 2014, we are aiming for mid- to high-single-digit growth in our targeted segments of automobiles, smartphones, and select areas of the industrial end markets.

We have made substantial investments in these markets over the last few years, and our design wins have now started to convert to revenue.

Specific product lines that should drive growth in 2014 include intelligent power modules, auto-focus and image stabilization, and motor drivers from the System Solutions Group, ESD protection, common mode filters, automotive-related products and power conversion products for the standard products group, and in-vehicle networking, LED lighting, power management for mobile devices, and applications for smart homes from our applications products group.

Lastly, in 2014, System Solutions Group should achieve a cost structure to deliver sustained profitability, and we expect this group to be accretive to our earnings in 2014.

Now, let me address current business trends.

The overall business environment continues to improve steadily as evident in our improved order rates.

Macroeconomic environment, especially in developed economies, continues to improve.

We have not yet seen any negative impact on our business from recent trepidations in the global financial markets, but we remain cautious.

For the fourth quarter, our lead times declined by less than a week, as we eliminated supply constraints in a few areas.

We expect lead times to remain at the current levels.

In the fourth quarter, our global factory utilization was in the mid-80% range, as compared to the high 80% range for the third quarter.

Utilization declined in the fourth quarter due to holidays' related shutdowns of our manufacturing facilities.

Now, I will provide some details of the progress on our various end markets.

The automotive end market represented approximately 27% of revenue in the fourth quarter, and was up by approximately 4% quarter-over-quarter.

Revenue in the fourth quarter was driven by robust increases in every region, with the exception of Japan.

The strength was broad-based across product lines, but was most notable in protection, power MOSFET, drivers, ignition IGBTs, and switch-mode power-supply solutions.

We continue to experience solid growth within our focused customer base, especially in front-lighting applications, in which our LED driver and motor-control solutions are supporting new vehicle releases in Europe.

In the Americas, our rear-lighting solutions continue to be adopted by several key OEMs across a broad range of vehicle offerings.

Key design wins for the quarter included a significant power driver win for our seat control with a key industry leader.

Also, our integrated power module solutions have been selected by leading Japanese motor manufacturers for use in drive fans and pumps in European and Japanese vehicles.

As a testimonial to our strength in the automotive market, I'm pleased to announce that ON Semiconductor received the Supplier Quality Excellence Award for 2013 from General Motors.

Revenue for the first quarter for our automotive segment is expected to be up quarter-over-quarter.

The communications end market, which includes both networking and wireless, represented approximately 18% of revenue in the fourth quarter, down approximately 4% quarter-over-quarter.

The sequential decline was driven by a broad-based inventory correction in the smartphone market.

During 2013, our wireless-related revenue grew approximately 10% year-over-year.

We continue to gain market share with our battery protection, battery chargers, protection devices, filtering and power management ICs.

Traction remains strong for our auto-focus and image stabilization products.

Also, we saw strong demand in smartphones and base-station applications for many of our standard components, such as protection devices, EEPROMs, and chip-scale packages, high-precision OBOS, logic, operational amplifiers, and discrete devices.

Revenue for the first quarter for our communications segment is expected to be down quarter over quarter, due to normal seasonality.

The consumer end market represented approximately 20% of revenue in the fourth quarter, and was up approximately 2% as compared to the third quarter.

During the quarter, we saw strong demand for our intelligent power modules in the consumer white goods.

We also had strong orders for our standard products and power management devices driven, by volume production ramps of next-generation gaming systems, wear-able electronics, portable video cameras, digital media players, LCD televisions, and white goods.

Also, we captured a significant growth opportunity in white goods, with two key design wins, including our first design win with a key European customer.

Revenue for the first quarter in our consumer segment is expected to be down quarter-over-quarter due to seasonality.

Our industrial end market, which includes military, aerospace, and medical, represented approximately 20% of revenue in the fourth quarter and was down approximately 2% quarter-over-quarter.

Timing of shipments in our medical business and softness in certain areas of our military and aerospace business contributed to the quarter-over-quarter decline.

During the fourth quarter, we saw ramps for our newest ASICs for both medical and mil/aero applications, ranging from ultrasound equipment and diagnostic monitors, to aerospace engine control and military guidance applications.

Products for mobile point-of-sale equipment also remained strong during the fourth quarter.

We secured our first motor control design win in North America for one of our intelligent power module solutions.

During the fourth quarter, we secured multiple design wins from medical industry leaders for custom products, which integrate medical-grade discretes and miniature system package solutions.

Also, our new image sensor was selected by a leading manufacturer of high-speed digital imaging systems.

Revenue for the first quarter for our industrial segment is expected to be up quarter-over-quarter.

The computing end market represented approximately 15% of revenue in the fourth quarter, and was up approximately 1% compared to the third quarter.

The core power management share gains on Haswell notebook platforms contributed to above-market performance in computing segment during the fourth quarter, as this new platform ramped into volume production.

We experienced strong growth in MOSFET revenue from several motherboard and hard-disk drive manufacturers.

Revenue for the first quarter for our computing segment is expected to be down quarter-over-quarter due to seasonality.

In other news, I am pleased to announce our NCP6338 processor power converter for smartphones and tablets won the Leading Power Devices and Module Award from EDN China.

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

Bernard?

Thank you, Keith.

Now, for first quarter of 2014 outlook.

While booking trends and end-market demand outlook remained healthy thus far in the quarter, we are being cognizant of a rather mixed macroeconomic outlook in our first-quarter guidance.

Based upon product booking trends, backlog levels, and estimated turns levels, we anticipate that total ON Semiconductor revenues will be approximately $695 million to $725 million in the first quarter of 2014.

Backlog levels for the first quarter of 2014 represented approximately 80% to 85% of our anticipated first-quarter 2014 revenues.

We expect that average selling prices in the first quarter of 2014 will be down approximately 2%, compared to the fourth quarter of 2013.

We expect inventory at distributors to rise on a dollar basis.

We expect total capital expenditure of approximately $45 million to $55 million in the first quarter of 2014.

For the first quarter of 2014, we expect both GAAP and non-GAAP gross margins of approximately 33% to 35%.

The quarter-over-quarter decline in gross margin is primarily due to temporary closure of a few of our manufacturing facilities for infrastructure upgrades and preventive maintenance, lower utilization at Asia-based manufacturing facilities due to Chinese New Year holidays, and fewer days in the first quarter of 2014, as compared to the fourth quarter of 2013.

The first quarter of 2014 comprises of 87 days, making it the shortest first quarter we have had in the last 13 years.

The fourth quarter of 2013 comprised of 95 days.

We expect total GAAP operating expenses of approximately $171 million to $184 million.

Our GAAP operating expenses include the amortization of intangibles, restructuring, asset impairments, and other charges, which are expected to be approximately $13 million to $16 million.

We expect total non-GAAP operating expenses of approximately $158 million to $168 million.

We anticipate GAAP net interest expense and other expenses will be approximately $9 million to $11 million for the first quarter of 2014, which includes non-cash interest expense of approximately $2 million.

We anticipate our non-GAAP net interest expense and other expenses will be approximately $7 million to $9 million.

GAAP taxes are expected to be approximately $5 million to $7 million, and cash taxes are expected to be approximately $3 million to $5 million.

We also expect share-based compensation of approximately $7 million to $9 million in the first quarter of 2014, of which approximately $1 million is expected to be in cost of goods sold and the remaining is expected to be in operating expenses.

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

Our diluted share count for the first quarter of 2014 is expected to be approximately 445 million shares, based on the current stock price.

Further details on share count and earnings-per-share 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 Sharon, please open up the line for questions.

(Operator Instructions)

Ross Seymore from Deutsche Bank.

Can you hear me okay?

Yes, we can.

We do.

First of all, congratulations on the strong report and guide.

Keith, one question about the targeted areas of the Company that you expect to grow in I think you said the mid- to upper-single-digit this year.

Can you help us determine what percentage of your total business that represents?

And then what growth rate, roughly, you expect for the remaining portion of your business?

Yes.

That represents a little over 60% of the total.

Again, we think the rest of the business will grow fairly similar to the overall market; rates would be in the low single digits.

Great.

As my follow-up, Bernard, in your commentary, you talked about this quarter being the shortest quarter in 13 years.

What implications does that have for any semblance of seasonality for 2Q?

Well, in that sense, it should help a little bit -- It should help our seasonality.

Q2 should be the normal 91 days.

Q2s are always 91 days.

Great.

Thank you.

John Pitzer of Credit Suisse.

Harrison dialing in for John.

Thank you for taking my questions, and congratulations on the quarter.

Probably being a little too critical here, but relative to your December quarter gross margin, I would have probably expected a little bit of a better beat considering the revenue upside.

Can you help us understand the puts and takes of that December quarter gross margin?

We are talking about the first quarter or the December?

December quarter, so what you guys just reported.

So, pretty much what we have is with flat revenues; we have also retained flat gross margins, so it's pretty much I would consider in line.

Okay.

And you guided the end markets mid to high single-digits year-over-year growth.

Specifically within the SSG segment, how are you guys viewing revenue growth in that segment in CY14?

We have stated that we think for SSG, their growth in CY14 will be lower than the corporate average.

They are doing some rebuilding, and while we are growing very quickly outside of Japan, there's not as much growth inside Japan.

So as a division, that should grow slower.

Got it, and then I know you guys put this inside your 10-Q, but what was gross margin within that segment for the December quarter?

The SSG gross margin was approximately 23%.

Do you guys view that as being a littler progression to your low to mid-30%s target?

Or will that be something that you'll see a lot of quite a bit of pickup mid-year 2014?

There is some lumpiness in that.

There is obviously the seasonality on the top line, and also some of the savings, including the closure of the KSS factories come later in the year.

Got it.

Thank you, guys.

Steve Smigie with Raymond James.

Congratulations, as well.

Keith, I was curious, on the pricing in the quarter, you said it's less than 1%.

I think that's a lot better than I would typically expect to see.

Was there anything unusual going on there?

No, actually, we have seen the environment steadily improve as we went through the quarter.

We actually had the opportunity in a few areas to increase prices.

The net of that was one of the most favorable environments we've had in several years.

Great.

Through overall report and guidance, you seem to have, certainly in the guidance, you seem to have performed somewhat better than comparables here, since certain other people seem to have been caught by Chinese New Year or other impacts and guided below expectations.

I was curious, is there anything specific you see here that might differentiate you from other guys, in terms of the environment?

Or do you think that some of it might be revenue recognition, where for many other folks, they're selling your sell-through?

Well, certainly the sell-through piece of it I think gives you a closer look to what the markets are actually doing, rather than sell in.

So, we think we are a good proxy for that.

But, frankly, I think it is the focus that we've had in the markets that we've been going after, frankly, are a little bit stronger.

So, people that have a different mix of markets may not fare as well.

Thank you.

Chris Caso from Susquehanna.

Thank you.

Following on with respect to the comments on order activity, the strengthening of order activity in Q4, seasonally seems a little unusual and very encouraging.

Could you talk about how much of this you think is unique to ON, how much of this you'd attribute to the markets, what your customers are telling you about the environment as we go into 2014?

Yes, I would say without question on the computing side, it is specific to ON.

We outgrew the market significantly in Q4, and I expect that Q1 will be similar, although lower than Q4.

That is the [v core] story; I think we've talked about that quite a bit.

Basically, Haswell continues to ramp; it will continue to ramp in Q1.

So, you should see ON-specific share gains going on in that market.

You also, probably, have some share gains going on in automotive and industrial, where we've had those focused for the last couple of years, which may be Company-specific.

The way we would look at it, those markets are healthier than normal, going into the first quarter.

We are doing a little better than normal in those areas.

Okay.

Thank you.

As a follow-up to that, I think last quarter you trimmed the inventory levels in distribution at dangerously low levels.

Do you still feel that at this point?

It's been one of the hallmarks of the last year, where the distribution channel has been reluctant to restock.

Do think that's likely to happen?

As a follow-on to that, what visibility you might have into end-customer inventories?

I suppose some of the OEM customers that you serve, do think that they're following similar patterns?

I do think that.

I think the supply chain is quite lean, and significant growth will cause some consternation.

That's one of the reasons we've been carrying a little bit more inventory internally.

I expect that we should start to at least level out in the distribution channel going forward.

Hopefully, be able to restock a little, but at this stage, none of that is played in to revenue forecast.

Thank you.

Craig Ellis from B Riley.

Bernard, I think in your prepared comments you talked about using SSG as a vehicle for manufacturing, that it started at legacy on fabs.

Can you talk about what's possible intermediate to longer-term as you port more of the legacy on ports -- parts over to that fab?

And what are the implications for longer-term gross margins?

It definitely is something that we are focusing on.

It's not only for Niigata, we also are doing the same thing on some of our back-end system facilities like Vietnam.

We are basically moving away from having SANYO-specific factories now, or SSG-specific factories now.

We are basically have one single manufacturing network.

The usage of the SSG factories for ON, obviously is healthy in terms of capital avoidance.

And also allows to improve the gross margin on the SSG front by (multiple speakers) overhead costs.

Okay.

As a follow-up to that, what is the export percent of that SSG business in the fourth quarter and as you flex that manufacturing capability, or should investors expect it would go, say exiting 2014?

When you say export, you are talking about revenues outside of Japan?

That's right.

It's now about 65% of the total footprint of SSG, is outside of Japan and on a growing pattern.

Okay.

Any stab for where it would be exiting this year?

Should be less than 50%-- excuse me, less than 30% inside Japan.

Thank you, Keith.

A follow-up on CapEx, Bernard.

What should we think about with respect to CapEx this year?

I'm sorry if you mentioned that on the call, I missed it.

No, we haven't made a prediction on that.

We're still using the same model of 67% of revenue in 2013.

We did actually under-spend some; we spent $155 million, or 5.7%.

But the long-term model keeps being the same, approximately 7% when you look at it over a medium period of time.

Thank you, and congratulations on the nice results.

Thank you.

Ashish Rao from Bank of Conductor.

Thank you.

Bernard, could you talk about OpEx expectations over the course of the year?

Specifically, timing of the voluntary retirement program savings and the magnitude of that, and any other puts and takes as we look ahead?

So, for the first quarter, our midpoint of our guidance is $2 million less than the current actual.

What we are seeing there is the benefit of the SSG restructuring coming to fruition, or partially coming to fruition, offset by small increase in variable comp.

We expect that to continue throughout the year.

In general, we will see a reduction in SSG expenses, offset by variable stock comp and some other minor expenses.

In general, to have a year that is fairly flat, maybe a smidge increase in the back half is also very good.

Okay.

Got it.

Then, Keith, you highlighted the expected free cash flow improvement in 2014, hitting the $300 million to $400 million or so.

Do you still intend to pay down the maturing debt?

Or do you think it's a better use of the cash to do more buybacks, given where the stock is, where it is.

We certainly will be looking, as we did in the fourth quarter, for good times to buy back more stock.

But, in general, we will be paying off debt as it's due.

Okay.

Thank you.

James Schneider from Goldman Sachs.

Congratulations on the strong results.

I was wondering, with respect to SANYO or SSG, could you state whether you still expect to take the breakeven level for SANYO to $150 million?

Do you still expect that to happen in Q3 this year?

Yes.

Correct

Great, thank you.

Then, Keith, an end-market question for you.

Specifically, on the consumer white goods, washing machines, air-conditioners, things like that, relative to normal seasonality you see at this point in time, do you think that's a little bit stronger or a little bit weaker than normal for Q1?

A little bit stronger than normal, but again, it will be down from Q4, but it's stronger than normal.

What we are seeing there again, is the push to the higher efficiency models, gaining share within the total sales of white goods.

Great, very helpful.

Thank you.

Ian Ing from MKM Partners.

Thank you for taking my questions and congratulations.

ASP is expected down 2% in March.

Does that reflect year-end price adjustments or more of a prevailing pricing environment going forward?

It seems the gross margin guidance is pretty reasonable, given you've got a 1-point plus headwind in March here.

Yes, that is basically implementing all of our annual contracts.

They all go into effect January 1. So, we get the biggest impact for the year in January on a regular basis.

Okay.

So, it's reasonable to think it could be not as aggressive going forward?

Actually that, again, that is actually good results because, normally, those annual contracts have bigger impacts in the first quarter than 2%.

So, we are still seeing a continuation of a more favorable pricing environment.

So it's good news.

And then those comments about raising inventory levels because of customer inventory, is this based on any specific feedback or signals that customers are going to replenish?

Or is this just anticipating GDP is going to look good?

Also, could you update the China distribution business, entering Chinese new year?

Was it in a burn or replenish mode?

Distribution remains in a burn mode.

There's no replenishment at this stage in sight.

In general, customers have not yet -- I think, started ordering more than they need out of fear.

But, there is certainly heightened concerns being given to us by the customers, as they are looking at their 2014, and looking at growth and their levels and becoming a bit cautious.

Okay.

Thank you.

I am all set.

Christopher Rolland from FBR Capital Markets.

Let me echo my congratulations on the results and execution.

So, can you guys talk about your optical image stabilization products?

How should we think about revenues currently?

What kind of margins are we talking about there?

How do you view uptake this year?

Would it be linear, or are we, perhaps, talking about an inflection point at some point during the year?

Margins are higher than corporate average, and we would expect to see growth in 2014 stronger in the second half.

Basically, we've gotten a significant number of big wins in China mobile handset vendors.

Those are for new models that will start ramping here at the end of Q1 and Q2 and be in full production by Q3.

Total revenues there, I don't know that I have just the [oleas] piece of that.

I don't.

So we can follow-up with that at another time.

Okay, great.

A follow-up on that, I was wondering if there are any developing, -- developed, excuse me, world handsets?

And my second question is, you guys talked a bit about the compute market.

How do you view your share there now?

How many points do think you could take in 2014?

Then, given the competitive dynamics in the market, do you like your prospects to pick up more share in 2014 or in 2015?

On the computing front, we like our prospects both years.

We think we will continue to increase.

We've got some great products at great prices there, and great positioning with the processor platforms.

I think we still have another 10 points of market share to go in the notebooks; we are in the low to mid 30s right now.

I think that number can get up into the 40s over the next 12 months to 18 months, I think is a reasonable expectation.

On the camera side, yes, there is developed country phones with that in there.

Several of the Windows phones that are made by the big European company use those.

And, several other phones made by North-American suppliers use them.

Great.

Thank you.

Vijay Rakesh from Sterne, Agee.

I was wondering on the automotive side, if you could give some color on your design wins and how you see that picking up through the year?

Also, on your SANYO business, how that looks in terms of design wins for the year?

Thank you.

Okay.

So, design wins in automotive, we had record design wins, 2013.

Those were after a very good year in 2012.

So, from a production perspective, you see most of those gains happen in the fourth quarter of the year with the new model ramps.

So, we are feeling pretty good about continued automotive increases, as we get to the end of 2014 and then even stronger, based on the 2013 wins we had in 2015.

SSG, we mentioned several times, we are getting great traction outside of Japan with our key focus areas there.

No major changes in Q4; from a momentum perspective, we continued to strengthen that and see that as an opportunity for us to really return to at or above market in 2015.

Got it.

Last question here.

I joined late, but any thoughts on how you look at your operating OpEx going out?

What lowered the levels there?

OpEx, they should be fairly flat with minor increases in the back half of the year associated with variable comps.

Thank you.

Patrick Wang from Evercore.

It's Mike for Patrick.

Thank you for taking the question and very nice quarter.

In the prepared comments, you talk about increasing channel inventory.

How much of a bump are you baking into your guide from that?

Okay.

So, we are on a sell-through, so the answer is none.

All right, easy answer.

Sell-throughs are perfect.

For SANYO, where is the upside coming from last quarter?

How should we model it in the first quarter?

Last quarter, as we mentioned, we saw stronger-than-expected pickup in our power module business for the consumer white goods.

Again, it was unseasonally stronger than we expected.

As you go into first quarter, there was normal seasonal patterns that will bring both consumer business in general, and then the white business also down a bit.

But, in general, that continues to exceed expectations.

Sounds good.

Thank you, guys.

Craig Hettenbach from Morgan Stanley.

Following up on SSG and the comments for slight growth.

Can you talk about what end applications you do expect to drive that growth?

Then, what applications are still lagging a bit at SSG?

So, the mobile handset business should lead the growth, with the intelligent power module business right behind it.

Those should be the strongest two.

What continues to be not grow as quickly is the balance of their consumer entertainment businesses.

Okay.

As my follow-up, you talked about improving free cash flow.

Can you just talk about your increase in the buyback a bit?

What your thoughts about dividends are longer term, and then if M&A could come back into the mix at some point?

Okay.

In terms of share buybacks, as I said, we still have $143 million available under the approved program.

We think it is still a good way to return cash to shareholders; it's our primary way to do are right now.

We intend, as Keith mentioned, to continue paying down the debt as it matures.

It's about $100 million or so for this year.

That will get us closer to a net debt neutral, at which point of time we could look at other means, including a dividend.

For right now, pretty much, it's share buybacks and pay the debt as it matures.

On M&A, our first priority was to fix SSG.

We have mentioned in previous occasions, that small tuck-in M&A for areas where we could increase our value to our customers are things that we would consider.

Okay.

Thank you.

(Operator Instructions)

Steve Smigie from Raymond James.

Thank you for the opportunity for the follow-up.

Keith in the renaming of the SANYO business, it's called the systems -- you have the word systems in the name there.

Why did you choose to put systems?

Are they more system-oriented than standard semi-conductor business is?

It's -- these are internal nomenclatures.

We don't market those externally.

The team spent a lot of time on it.

There's lots of advantage to keeping the same initials.

I wouldn't read much into it.

Okay.

Great.

On the discussion of the fab, I was just trying to -- the SANYO facility -- you are basically putting -- you are using those facilities for other ON products.

It's not necessarily that you are changing anything relative to what you are seeing on the -- so the core SANYO, in terms of ultimately taking cost out.

Or is there some change, because it seems like maybe there is some change?

Yes, let me explain.

As part of the reductions, when the guys first looked at the program, they looked at all the capital spend for that group.

The wafer fab in Japan was a big piece of the cost, and they had targeted taking out a lot more cost.

Well, since our business activity across the board has been going up dramatically, we re-looked at that and said, it's a much less -- or a much better cost-effectiveness for our growth to put ON products into that factory to absorb the cost with the other growing businesses.

So, the net impact to SSG will be the same.

And for the Corporation, we should save capital and be able to grow faster in an easy fashion, because we had underutilized space.

Okay.

Great.

Then a quick one on the auto business.

10 years ago, it seemed like for the auto business you'd have to get a design win many years in advance, and then, ultimately, you'd finally hit the payoff.

Have we seen that time to payoff for your investment shrink?

It seems like you talked about some wins here recently.

That's only a year or so from when you got the design win to when it's showing up in models.

Yes.

It really depends where that application win is; in things like engine and power train, it is still a three-year cycle.

There's not much that's changed there.

But, in more of the customer convenience or consumer-experience pieces of the automobile, that can go quicker.

That can be a one-year or 18-month cycle, as opposed to traditional three.

Okay.

Great.

Thank you.

Betsy Van Hees.

I will put in my congratulations as well on the strong quarter and great guidance.

I had a follow-up question on the gross margins.

Bernard, you talked about the puts and the takes, and I just wanted to make sure that as we are looking forward, we are going to get back to more of a gross margin expansion, especially given the strong performance you guys have with the new SANYO operations.

Then my follow-up question would be in regard to the ASP came down 2%.

How does that track in line with typical seasonality for you guys?

Let me address first the second one.

The ASP decline of 2% is low, as Keith mentioned earlier, compared to our normal first-quarter decline where we have the annual contracts coming.

It's normally 3% to 4%, and now it's 2%.

So it's a more benign environment.

On the gross margin, yes, our plans are to continue expanding gross margin.

The focus on the higher-than -- on the areas of automotive and smart phones and industrial areas where we have higher-than-average gross margin.

The first quarter, indeed, has some peculiar items, including the shortness of the quarter and the fact that we have some shutdowns associated with Chinese new year, as well as some preventative maintenance that are making the absorption of overhead of the factory activities a little bit less than normal.

But in general, we should be seeing improved gross margin as we go throughout the year.

Okay.

Can you remind us, Keith, what your long-term gross margin model is?

Our long-term gross margin model is 41%, at above (multiple speakers) revenue.

Great.

Thank you so much.

(Operator Instructions)

Ross Seymore from Deutsche Bank.

A quick follow-up.

Bernard, you mentioned earlier that you thought OpEx would be pretty flattish through the year, but ramp a bit in the second half with variable comp.

How do we reconcile that with the timing of some of the cost cuts that you put in, I think the $40 million savings that were supposed be fully realized in the back half?

I would think that would be an offset against an otherwise rising OpEx.

It is a big upset; otherwise we would see a bigger increase.

The back half growth is based on our assumption of a substantial improvement in the top line.

If that doesn't materialize, then you will not see that increase I mentioned.

Great.

Thank you.

(Operator Instructions)

We have no further questions at this time.

Mr. Agarwal, I will turn the call back over to you.

Thank you everyone for joining the call today.

Feel free to call us with any questions.

This concludes today's conference call.

You may now disconnect.