ON Semiconductor Corporation (NASDAQ:ON) Deutsche Bank 2023 Technology Conference August 30, 2023 5:00 PM ET

Company Participants

Hassane El-Khoury - CEO

Thad Trent - CFO

Conference Call Participants

Ross Seymore - Deutsche Bank

Ross Seymore

All right, everybody. Let's get started with the next meeting. We are very lucky to have ON Semi here with us, the CEO, Hassane El-Khoury as well as the CFO, Thad Trent. So again, if you have any questions during this process, just raise your hand. I'll look up and call on you. Wait till the mic gets to you because this is all webcast, and just wave harder if I don't see you immediately. So Hassane and Thad, thank you again for coming. And so we've been starting most of these with kind of just a snapshot and update on what you're seeing in the market as a whole right now. And we'll get into specific parts of your end markets and things. But just from a macro perspective, you guys have taken a relatively conservative approach on kind of your core cyclical business, silicon carbide aside. So what are you guys seeing, whether it's geographically, demand side, inventory, those sorts of metrics?

Hassane El-Khoury

Yes. I mean, I'll give you some color and Thad may have a few points to make. But look, it's no different than what we thought going into the year. We had a very different part, you called it cautious, I call it cautiously optimistic. Technical term is puckered up. When we walked into the year, we didn't plan for this huge recovery in the second half of '23. And because of that, we made plans and we ran our business with that in mind. So here, we are now in the second half of the year and it is as we expected, that's why you've seen our performance be very predictable. And we started making this preparation actually when we start seeing signs of kind of the market not being as hot as it was in '21 and '22 back in the second half of '22. So we designed our own soft landing. So if you think what does that mean? Well, you don't want to be faced with a softness in the market with elevated levels of inventory in the channel, for example. So we've been very, very active in managing channel inventory, right? You don't want to be caught blindside -- be blindsided while your manufacturing is maximum utilization because it's going to impact inventory when the material comes out at a lower revenue base, so your inventory days will balloon. So you've seen us reduce starts or utilization down to the 70% already, you've seen us manage distribution inventory, you've seen us manage the business. And that put us back performance so far and really outlook for the year in a very, very predictable arena.

Thad Trent

Yes. I think the only thing I would add there is that, look, our auto and industrial steady, strong, that's because of our EV penetration there, alternative energy on the industrial side. I think if you exclude those areas -- and those grew nicely for us last quarter, and we think they're going to grow again this quarter. But I think if you exclude those and you look at the other pieces of our business, they got soft last year. They got soft in Q2 of last year and that's when we started taking the utilization down. And I think it's kind of gone sideways for really a year here after it went through a couple of quarters of being soft. So that remains that way. I think China outside of EVs is soft as well and I don't think there's any surprises of what we're seeing.

Ross Seymore

So a couple of different follow-ups to that. I agree the noncore businesses, that might not be the fairest way to say it, but the nonauto and industrial businesses, like you said that they started weakening quite some time ago. Investors' main concern right now is that the next shoe to drop is going to be those core industrial and automotive side of things. What are you seeing there, do you agree that, that is the next part of this rolling correction or is there a reason why that wouldn't apply either in general or to ON specifically?

Hassane El-Khoury

Yes, I will talk about it from both sides. For the industry in general, you have to believe, which we do, that the content is the reason a lot of the growth has been. And it actually applies to what we see. I know a lot of people talk about, well, content growth, content growth, content growth. But in reality, take, for example, our content. We have $50 worth of content in an internal combustion engine, $750 in EV. This is on the drivetrain side. So mathematically, you can have 10 less cars in internal combustion and one car of EV and for us to be flat, grow slightly. Just mathematically, that's the content growth story for us specifically and that applies to some of our peers. So that puts us on a very different trajectory, number one. The other thing about -- the talk about, well, that's the next shoe to drop because there's inventory. You hear all of these anecdotes in the market. I can't comment on other people's business. But for us, even in last year, while everything was constrained, we do have LTSAs. Our LTSAs were not for what our customers needed. What that means is customers needed 100%, whatever the volume is. We didn't have the capacity to give everybody what they need, so everybody got from 70% to 80%. So when you talk about 70%, 80% from what the demand would have been last year and demand dropped, let's say, 10% volume, we're still where we have been shipping run rate.

So that's why we're not seeing it because we took, again, a very cautious approach in the last few years of where the demand is going to be. So there wasn't that elevated inventory. And in fact, we signed over $4 billion of LTSAs since the beginning of the year, last quarter. So if you think about the -- in a softer market, why would a customer commit to another five years or another two years on top of that? Because some customers came and wanted more because we haven't been shipping 100. Now they want it. And then we have other companies that saw the benefit. We have companies who didn't have an LTSA and now with the volume back to where it needs to be they came back and said now I want to sign an LTSA if you have the capacity. So net-net, we're actually in a much better position with the visibility of our business than a lot of our peers, I think, based on their commentary.

Ross Seymore

So if I was to summarize that, would you agree that you basically didn't overship and so therefore, even if things do weaken in those core areas, you're not really seeing it.

Hassane El-Khoury

Yes, that's what I would say yes.

Ross Seymore

Got you. Right. Another example, I see you when I go through the model is if you take your automotive business and you exclude the silicon carbide, whatever is left doesn't seem to be growing, it might have even shrunk sequentially the last couple of quarters. Same general framework in your industrial business, if you take out the energy infrastructure. Just conceptually, is that a fair way to look at what the nongrowth areas within those segments would be doing?

Hassane El-Khoury

Yes, that's right. But in fact, if you take out silicon carbide, automotive grew slightly, actually, year-on-year grew and quarter-on-quarter. So there is growth, it's just not the growth that we've been looking at over the last few years. And again, even slight growth tells you that we weren't over shipping, right? And we will talk about the LTSAs. We have engagements with customers. If they have a softness in their market and they have an LTSA, we're going to get the call six months in advance. And that call basically goes along, hey, our run rate is not where we thought it would be in this certain area. We're going to have potentially some inventory. What are the options? If I can ship that to somebody else that I've been under shipping to, we're going to redirect it. So somebody gets more supply to meet their demand and somebody is not going to get oversupply that's going to sit in inventory. So that LTSA and the conversations we're having with the customer to have a win-win, although we may take some down and amend it, saying, yes, no problem, net-net, it's a win-win. And that's exactly what the LTSAs have provided us. And the structure we put in, given that it's a legally binding agreement, have forced that conversations for us to have -- to land in a much better spot than we would have otherwise been.

Ross Seymore

And when you talk about the LTSAs, how exclusive are those to the silicon carbide side versus LTSAs in a more general sense?

Hassane El-Khoury

So when we started the LTSA journey, a lot of it was silicon carbide and image sensing, one of the highest constrained technologies. And what customers quickly realize is, hey, when we have an LTSA, we actually can sleep better at night. We're getting what we need, when we need it from ON Semi, and we don't have to worry about managing allocation. So as we went year in, customers came back and said, yes, we're now a year in, there's three more years or four more years. I want to pile on another year. So kind of we have a five year or 10-year rolling. But I want to add all of these things that we buy from ON Semi that we didn't added before. Although they're not constrained, they just want the whole bump. Like they don't want a golden screw phenomenon, so we added a lot. That's why in our commentary, we talked about some of the LTSAs, we have over 200 parts on them. And that is the value. It's not like the product was constrained, it's just the value of the LTSA. And that's why even in a -- I mentioned, even in a softer market, customers came back and wanting to add or extend their LTSAs when, really, they didn't have to. So for you…

Thad Trent

Ross, let me help give you some numbers to answer that question, too. So we have $20 billion of lifetime LTSAs across the entire portfolio. Of that, $11 billion is silicon carbide. So that gives you kind of that breakdown between the two. And Hassane on is exactly right, we've just been expanding on both of those, but we've seen customers coming in. Now they started with silicon carbide, they're expanding that across the portfolio because they buy more than just one product from us. Of that, $6.4 billion we’ll ship in the next 12 months. So that kind of gives you an indication of the coverage that we have.

Ross Seymore

Got you. And so in general, it sounds like your belief and the evidence so far, at least for ON is that -- ON Semi, I'm referring to -- the rebranding thing still gets to me. For ON Semi is that the LTSAs are not a reflection of cyclical shortages from a couple of years ago, supply chain disruption, it's a structural change in how you go to market.

Hassane El-Khoury

That's right. And because, look, the focus for customers now is supply assurance and supply resilience. So when customers have seen that we're able to showcase resilience and assurance based on the LTSAs and the fab right model that we have where we are able to come to the customer and say, hey, you're buying from this manufacturing supply from us. We have another one that is independent. Customer go, great, now I can double down with you and have confidence in that longevity of the business, we want to add that product or that technology to the LTSA.

Ross Seymore

Last LTSA question. Have you seen -- well, what do you do if you've seen customers not want as much? I know you said you weren't going to give them 100% of what they wanted anyway because you just couldn't. But to the extent demand weakens, how concrete are those enforced because you have a longer term partnership with these companies? Gemini with inventory today doesn't seem like, even though legally it sounds like you could, doesn't seem like it's necessarily the right thing to do.

Hassane El-Khoury

That's right. Like I said, it starts with the phone call and okay, to answer it at a high level, it really depends on the attitude on the other side of that phone call. We're here to solve the problem, right? Just like in prior soft market without the LTSA, just look at the performance of ON Semi, margins were, I guess, dropped heavily. Gross margin, profit margin, utilization had to be hard stop -- all of that stuff that makes the model unpredictable, that's not what we want. So we're aiming and we're striving for a very predictable business. So what does that mean? Before backlog used to disappear and you're left with a product that was going to ship tomorrow, now you can't ship because backlog disappeared. Well, that harms ON Semi and we're the only ones accountable. Basically, we're left holding the bank. So how do we deal with that? Because the customer is legally liable like you said, they're going to place the call at the first sign of softness they have because they have a small bag to carry also, not just ON Semi. And that makes the partnership a win-win as far as trying to find a solution.

If we don't have a solution, at least I can stop the new wafers until I flush the inventory because I'd rather stop wafers, and you saw that in the utilization in certain cases, use the whip I have to ship to them versus keep the wafers, and now there is over inventory in the market, and that doesn't help anyone. That's a win-win, for example, and the customer will say, and I will add two years on top of the LTSA because that's the run rate. That's a win-win I'll take any time. Now if I don't have another customer to give that capacity to then we have to talk about, is it a different cost structure now because lower volume, different impact. So all of these are -- every customer has different constraints. And we are going to sit down and work with the customer -- because all these customers, like you said, are strategic. That's why we have an LTSA with them to begin with. So we're going to sit with the customer and we're going to find a win-win.

Ross Seymore

The last macro question for you. You talked about -- I think I said cautious and you said cautiously optimistic at the beginning of the year, but you weren't baking in a big snapback. And at least in my opinion, that ended up being a very wise bet. To the extent your crystalball was correct then and you were cautiously optimistic, what is your crystalball saying now for the next 12 months?

Hassane El-Khoury

Crystalball is cloudy. So what I will tell you is what I said on the call is we're just planning on going sideways for a while. And from that perspective, it'll tell you, okay, if we're wrong and the market picks up, Hassane's going to get a few more escalation calls. I'll deal with it rather than plan for it and have inventory -- all the stuff that you end up paying for in the long term. So that's our posture moving forward, is we're going to look -- we're looking for signs if that's not the case. But if things go sideways, great. If things actually are better than what we think, look at it this way, we'll take up utilization that's tailwinds for our margin, that's tailwind for revenue. Everything that we have been cautious about turns into a net favorable. So I'd rather have that than planned for it getting better then everything you do is actually a headwind. I'd rather take the tailwind with the plan rather than have to drive through headwind, because, again, you have to think about where we are. Predictability of our financial model is really what we're striving for, we set a new floor for our margin here, we talked about it many times. All of that is what ON Semi is about today and we're managing the company with that in mind.

Ross Seymore

Great. So why don't we pivot over to the silicon carbide side of things, the topic you guys may have been asked about once or twice. This last quarter, you guys had an incredibly impressive milestone in my mind at least, with the gross margin, I think you said for the operating margins in the high teens and the gross margin doubling quarter-over-quarter. What was the key point in execution to deliver those, and were you surprised at how quickly that happened?

Hassane El-Khoury

The biggest thing is operational efficiencies. We knew where the revenue is going to be, we knew the ramp was going to be there. We had talked about that the business is operating well, but we never stopped working on operational efficiencies, whether it's yield or output or throughput or cost and so on. The team, our worldwide team -- and I say worldwide is not one group, you can think about it's business unit, manufacturing, back end. They've done a tremendous job just putting a ton of focus on operational excellence. We have a plan, we measure ourselves against our own plan, which is an aggressive plan, and they beat that plan. We indicated it a little bit in the first quarter that we're kind of trending ahead of our plan. And then in Q2, it really continued, which makes it structural. It wasn't like a one quarter fluke thing. So structurally, that business is operating much better and that's across the board from substrate growth and substrate output from our Hudson facility all the way to wafering, EPI device manufacturing in Buchan and then out to our customers. So that whole supply chain, whether it's yields, whether it's output, whether it's throughput, whether it's cost, has really lifted that business. We knew we were going to get there, we got there a few quarters early.

Ross Seymore

And is the future expansion running according to plans? I know we talked about the brownfield aspect of it. So I think, Thad, you and I talked about it about being able to just kind of leverage up quicker and more efficiently on an ROI basis. How is that progressing?

Thad Trent

Yes. Look, we've been bringing capacity on. I think we're really happy where we are right now. As we think forward into '24 and even '25, we're bringing capacity on to support the growth for those years as well because there's long lead times on some of these things. But to your point, on the brownfield, the brownfield investments is 40% more capital efficient than a greenfield, right, breaking ground, building a site from the ground up. So because we had a long history of having manufacturing and being able to leverage that, that's what really got us time to market, and when we think about these brownfields as being two years faster time to market. So if you think about us and as we're planning the silicon carbide ramp, our risk really was on the substrate side. That was the GTAT acquisition, we had to get that one ramp. The rest of it is -- once we got the substrates going, the rest of it is, I'll call it, business as usual. I mean there's a lot of engineering that has to happen in there, but it's something that we've been doing for years, for decades, and we're able to leverage that. So now as we think about the expansion that we need for '24 and '25, it's just supplemental tools, right? It's more of the same. It's not like we're having to start from scratch again. So it's just further expansion.

Ross Seymore

So it's mainly about executing to the plan, not proving that you can actually…

Thad Trent

That's right. I mean we've done it. Now it's just multiplying.

Ross Seymore

If I go back to the margin question, there's a secondary part of that, getting to the high teens operating margin. And I believe you've talked about having corporate average gross margins if it exiting this year…

Thad Trent

That's right.

Ross Seymore

What's the operating margin that can be delivered in this business?

Thad Trent

Yes. Look, there's a lot of leverage in this business. If you think about these wins with these customers, they're $1 billion, multibillion-dollar wins, right? So if you think about your R&D spend, your SG&A spend, you're not spending dollar for dollar to get that, right? So there's a lot of leverage. So when we think about longer term, our long term model is 53% gross margin. We've said silicon carbide at scale will be at or above that level. Operating margin target for the corporation is 40%. We believe for silicon carbide, it will be north of that as well just because of the scale of the business. Again, you're not adding dollar for dollar for every dollar revenue.

Hassane El-Khoury

Yes. One thing I would say just for the audience here, when we talk about high teens operating margin, this is a fully loaded business, it's not just what the business, meaning it's got G&A, stock based comp, our time, part -- portion of that. So it's a fully loaded P&L with all of the start-up costs that are in it, that's what makes the performance. So if this were to be a stand-alone company, well, you put the multiple on it.

Ross Seymore

So I think I know the answer to this, but when the bearish people talk about some sort of eventual commoditization of the silicon carbide side of things, obviously, that's not your view given the margin targets that you just talked about, Thad. But what's your pushback on that? Is it the kind of end-to-end approach that ON takes or is there something different at each node of that supply chain that you -- or product chain that you bring?

Hassane El-Khoury

Yes, look, what makes some technology, commodity or not is the value that it provides and the value that a technology provides lies in the road map. If -- it doesn't matter what technology it is, the sexiest technology, forget about silicon carbide for a second. The best technology, if you stay stagnant, you will be a commodity because the number two and three and four will catch up to you. There is no different than silicon carbide. So where is -- why do I have a different view of this commoditization of it is because I look at it from a technology perspective, most people look at it from a supply perspective. When you're talking about silicon carbide, if you're not able with the technology to provide 5%, 10% efficiency, which translates to range or translates to battery, it doesn't matter how much supply you have. You can have all the supply in the world, nobody is going to buy your product. And let's take internal combustion engine today. I can make all three cylinder -- engines that I want for very cheap, but if the world is moving to four cylinder, it doesn't matter.

So it is upon us to keep investing in the right technologies. And when I say technology, I don't mean the device, the silicon carbide side. I mean device and packaging, that's why we're winning today, that's why we will continue to win and we will keep pushing that technology. At our Analyst Day, Simon talked about the road map on both packaging and devices, that's what we have to keep doing. And I think the misconception even in the chatter today, people talk about substrates being available, that's not a competitive threat for our business. We don't ship substrates in the market. If substrates become available, good quality and cost that maybe is cheaper than I can do it inside over time because today, it's not. Okay, great, that's an opportunity for us, not a threat. So these are kind of the things. So you have to -- it's easy to make statements of -- or assert a same effect, but you have to break it down into what is the driver for each of these. So every single one is either our execution or an opportunity. So I feel very comfortable with where we are with the business. And look, customers are voting with their awards and we have the awards.

Ross Seymore

And part of it that running faster in your customer base, one of those steps would be, I assume, going to the larger wafer size, the 200-millimeter size. Talk about the importance of that, the timing of that and in general, where you believe you guys are positioned in that transition?

Hassane El-Khoury

Yes. So we're already making 8-inch wafers on silicon carbide. So the transition is going from 6 to 8. Obviously, we talked about our 6-inch performing much better than we thought. And really, our 6-inch is performing much better than anybody out in the market at 6-inch today financially. So the transition to 8 is purely for capacity. We're not solving a yield problem in 6 that we're hoping to solve it in 8, for example. So we have a solid business on 6, we are running 8 to build a baseline, so we are able to ramp very quickly when the time comes. So what is the time? We have said we're qualifying 8-inch in '24, and we will start to ramp in '25. And if you look at our CapEx model, it's about at the same time our CapEx will start tapering down, because we look at 8-inch as a capacity enhancement not to solve a specific problem because, otherwise, like I said, financially, why would you, given that the performance is so good in 6. But we need the capacity cheaper than putting CapEx. So Thad in Analyst Day said, the next few years, we'll have a high teens CapEx, high teens percent of revenue, and it's going to then go down and land about 11. And it's about the same time where we start doing a conversion, which is a much cheaper CapEx from 6 to 8. So we get the capacity increase with lower CapEx. So that has always been our plan, that's our strategy, and we're executing to that.

Ross Seymore

So I think that's enough on the silicon carbide side for now. I know it's the popular topic of the day. Why don't we talk about the image sensor side of things? Silicon carbide is a nice read, obviously, to the EV side and some of the energy infrastructure. But for the ADAS side of things, image sensors are important. Talk about your commitment to that. There was a conspiracy theory that when you guys came in and you would be looking to enter things and exit things that, that one stood out as being different and something you could carve off. Obviously, you haven't done anything yet and you're probably not going to tell me now if you would. But just talk about where you believe you're positioned in the image sensor side of things today.

Hassane El-Khoury

Let me first, I guess deal with the [fed] that was out there or the conspiracy theories. Where we are different doesn't bother me, but I need high-performing businesses. And think about where that business is now from where it was two years ago, that business is a high performing business. From a margin, from operating income, from growth, it's a high performing business. And I like high performing businesses, especially when you have leadership position in the markets. So that -- back then, it was something that has to get fixed because we're not going to have a business that is really dilutive to the value of the company. Every business we have in the company has to create shareholder value for it to be part of the company. So we are now here with a high performing business, very good market share, very good market positioning. Now it's about investing in that business. And the investment happens along the technology domain, higher pixels with the 8 megapixel, more on solutions specifically for automotive. And when I say specifically for automotive and industrial, over the last two years, we have exited a lot of the nonauto, nonindustrial image sensor by default because we didn't have enough capacity. So we prioritize auto industrial. And right now, over 90% of that business is auto and industrial. So it fits perfectly with our go to market. So that's where that business is. We're very happy with the business. Right now, we are in execute, execute, execute on the road map.

Ross Seymore

How is the supply side of that equation? Obviously, it has to be fixed for it to be growing now as fast as it is. But are you diversifying the supply base for that?

Hassane El-Khoury

So we are. But first, on the growth side of it, the shift going from the nonauto, industrial to auto, industrial, of course, released capacity that we can now grow into auto and industrial. That's one which is typically a higher ASP because of the product types. So that creates the growth. But also the conversion from two 8-megapixel camera comes with a higher ASP. So you're going to see a top line growth even if the units are not, because there's conversions of higher resolution. But as far as diversification, back to the customers wanting supply assurance and supply resilience, I'm very proud of the team for having taped out our new image sensor out of our own fab in here in North America, in East Fishkill, which puts actually that fab as being the only imaging fab in North America, that exists in North America. That's a very big milestone. We've already sampled it to our key partners, the platform makers. So that's a product that's already in the hand. So that fits with our diversification of supply.

Ross Seymore

Again, if anybody has any questions, just raise your hand. But since you mentioned East Fishkill, I'll ask a couple of questions that obviously you can answer but might be a little bit more targeted towards Thad. The silicon carbide side of things, the margins have upside surprise in the last couple of quarters. East Fishkill has been the other side of the equation. What went wrong in the East Fishkill side and what are you guys doing to fix it?

Thad Trent

Yes. So look, we closed that transaction and we bought East Fishkill from GLOBALFOUNDRIES, closed it on December 31st, took operational control and found out real quick that the cost structure was not what we expected it to be locking in there. We have a large manufacturing network and a fab network, and we know exactly what cost should be. So when you quantify this, it's about 250 basis points dilutive to the corporate margin right now. So if you look at what we did last quarter, we absorbed that because silicon carbide performed so well. But the fact is it's going to be dilutive. We believe by the end of 2024, we'll get that under control and it will be back to where we need it to get to. It's a lot of blocking and tackling. It's cycle times, it's material cost, it's things that we know how to do. It's just a matter of it takes time. Now that fab is fully loaded today. So you got to be really careful as you go in and start tweaking and turning knobs in a fab that's fully running. You can't break it at the same time. So that's why it's just going to take time for us to go restructure those contracts, change it around, get the flows right, get the cycle time moving at the right pace. And then as we move more and more products in there and GLOBALFOUNDRIES exits, it helps with our margins overall. So it's just a matter of time. It's going to take a little bit longer than we expected.

Ross Seymore

So it's not just that the market's been weak, and it's therefore an underutilized asset?

Thad Trent

No, it has nothing to do with the market. It's actually just the cost structure in the fab.

Ross Seymore

And is there a transition where the GLOBALFOUNDRIES, whatever portion of that capacity they're using, contractually falls off, and I assume that would be accretive to the margin as well?

Thad Trent

Yes. So today, we've got about 40% of the capacity, they've got 60%. So we're doing foundry services for them. Just as before, when they owned it, they were doing foundry services for us. Contractually, they stepped down over three years, we step up over three years. So by the end of 2025, they're out, we've got full capacity and full capability in there. So we've been qualifying products in there already for two plus years, getting us ready for this transition. As Hassane said, we've already qualified the first sensing product in there. So it's a matter of as they wind down, it's nice and orderly. They wind down, we wind up. Right now, there's nothing market driven is causing us, it's purely just a cost structure inside the four walls of the fab that we've just got to go fix.

Ross Seymore

But as you ramp up and they ramp down, that in and of itself would be accretive, correct?

Thad Trent

Yes. No, it depends where those products come from. If we're moving something from the outside, inside, it's accretive margins, right? It depends where it's coming from inside our network. If it is in a fab that's fully depreciated, it may be neutral in cost. But what it does for us is it gives us capacity. So in Korea, we've been moving our IGBTs out of there into East Fishkill to create capacity for silicon carbide. So the best thing about this is it's giving us the flexibility to start what we call the fab right, moving the products around to get the right cost structure and have the right capacity. That's the number one benefit of this fab for us longer term.

Hassane El-Khoury

But to your point, in the short term, the foundry business is kind of low single digit margin. So that revenue, when it winds down, from a mix perspective, it's favorable to our margin…

Thad Trent

You remove the negative…

Hassane El-Khoury

Yes, exactly. Right, exactly.

Ross Seymore

So we only have a couple of minutes left. So why don't we just wrap up with kind of a higher level topic. It's been an incredible transformation of ON since you guys took over. Where do you think we are in that transformation? I know there are some exits that are left, and if you don't exit by the end of this year, maybe we don't even talk about that phrase anymore. But where are we in the transformation, are you almost done with the exits? And after that's done and you're clean, what's the next step for investors to look forward to?

Thad Trent

Well, look, I'll start with the exits. We've got about another $250 million that we think we'll exit this year. To date, since we started on this journey of exits, it's been about $400 million that we've exited. So with the market such that it is with some softness and supply coming online, we think we're going to -- we think this business will go away. Now we've overcalled this for two years consistently, thinking that we were going to lose this faster than we did. And we've always said, the faster we lost it, the better off we'd be. The fact is we've raised pricing and customers are staying with us. Today, what's left of that $250 million is, call it, margins in the mid-40%. It's not bad business any longer. So if at the end of the year that all hasn't gone away that's just going to be business as usual for us, we'll just manage it. If we don't need that capacity for something else, we'll just keep it and run it. It's fine at that level. And that's how we run all of our businesses. Do you want to comment about where we are?

Hassane El-Khoury

Yes. At a high level, after the last Analyst Day, we kind of put the heart -- when you talk about the transformation, work never stops. We're always going to do better and higher and more efficient. But if you think about the structural where we lifted ON and put it on ON Semi, that lift has been done. The benefit of it has not been all captured. So when we talk about transformation from a shareholder, investor or potential investor perspective, the conversation is, well, where do we go from here, how much value there is? And if you just look at the next five years from just an operating income perspective, as we scale the silicon carbide as we grow the new analog revenue, as we get the benefit of the fab lighter strategy that we've had with $160 million, there's margin expansion, there's a top line at more favorable margin and there's a fall through in the model. So all of these are yet to come but the heavy lift has done and we've proven the structural improvement in the company as we're navigating through that downturn better than we've ever done in the history of the company. So all of that is what's yet to look forward to. And again, the beauty of it is all in our execution. We've proven that we're resilient to the extent we can with the market or more resilient than we have ever been. So what leaves is now execute to that strategy so we can deliver to it. And that I'm more comfortable and confident in our execution because we've proven it in good and hard times.

Ross Seymore

Well, I think that's a perfect way to wrap it up. We're out of time. So Hassane and Thad, thank you very much.

Hassane El-Khoury

Thank you.

Question-and-Answer Session

End of Q&A