Onsemi CEO ‘Confident’ Carmakers Not Hoarding Chips
Automotive demand for On Semiconductor’s power modules and image-sensing devices “continues to outpace our current supply capabilities,” said CEO Hassane El-Khoury on a Monday call for Q3. The company rebranded itself Onsemi in early August.
“Secular trends” are driving the demand growth, said El-Khoury. “We expect demand to remain robust and outpace supply through most of 2022.” The company is selectively investing in its operations to “relieve capacity bottlenecks,” while working with wafer suppliers “to obtain a higher allocation of capacity,” he said.
In addition to expanding supply, "we are working collaboratively with our customers to ensure uninterrupted supply of our products, and we have entered long-term supply agreements with many of them,” said El-Khoury. The average agreement runs about three years, he said: “These LTSAs commit a multi-year revenue stream at stable and sustainable margins.”
Onsemi Q3 automotive revenue grew 37% year over year to $575.6 million, and was up 4% sequentially. The CEO is confident automakers are actually putting the higher volume of Onsemi chips they buy into finished cars and not hoarding them in inventory as a hedge against the scarcity of components, he said. “We’re still getting intense levels of escalation from our customers in order to ensure that parts go into cars and cars go out of the lot,” he said. “If we don’t ship, the cars don’t ship. That’s a one-to-one correlation I can personally validate, given all my conversations with my peers at our customers.”
The chip shortage created a strategic “shift” among major automakers to choose “credible suppliers of scale,” said El-Khoury. “Supplier resilience is a hot button” among automotive OEMs, he said. Proving supplier resilience to customers “supports their business continuity,” he said. They get the comfort of knowing they need not “hoard inventory,” he said: “They can depend on us. That matters in the selection process today.”
Of the estimated $200 billion in sales that global automakers will leave on the table for 2021 because they can't find enough chips, "nobody wants to be in that spot anymore," said El-Khoury. "There are customers that, unfortunately, are still in denial" about the gravity of the chip shortage and the critical role of semiconductors in the vehicle, he said. "We're doubling down on customers who get it, who do understand the importance of the semiconductor ... to the future of mobility."
Onsemi’s Q3 revenue of $1.74 billion was a quarterly record, and just shy of the high end of its Aug. 2 guidance. Revenue was up 4.3% sequentially and 32.2% higher than the year-earlier quarter. The stock closed 14.3% higher Monday at $54.96.
Chief Financial Officer Thad Trent credited the sequential Q3 revenue growth to "our ability to increase supply, both internally and externally," by shipping 3% more unit volume than in Q2. Onsemi's Q3 factory utilization rate was 80%, down slightly from Q2's 83% rate, "due primarily to COVID-related slowdowns affecting our back-end facilities in Southeast Asia," said Trent. Operations there since have "stabilized," recovering to "the low 80% range consistent with previous quarters," he said.