ON Semiconductor Corporation (ON) Q4 2012 Earnings Report, Transcript and Summary

Good morning. 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. [Operator Instructions] 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 Call. I am joined today by Keith Jackson, our President and CEO; and Bernard Gutmann, our CFO. This call is being webcast on the Investor Relations section of our website at www.onsemi.com, and a replay will be available for approximately 30 days following this conference call, along with our earnings release for the fourth quarter and year ended 2012. The script for today’s call is 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 and posted separately on our website in the investor relations section. In the upcoming quarter, we will be attending the Morgan Stanley Technology, Media & Telecom Conference on February 26, the Susquehanna Semiconductor Summit on March 5 and the Wedbush 2013 Technology, Media & 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 3 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 semiconductors -- of our SANYO Semiconductor's IT infrastructure and systems. In the fourth quarter, we completed the integration of ON Semiconductor inventory tracking for SANYO Semiconductor back-end facilities. We expect to continue this process with the rest of the organization over the next 2 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 offices 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 headcounts reductions that will continue over the next 3 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 2 to 3 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 3 business units to 2. The legacy ON Semiconductor business is now made up of the Standard Product Group and an Application 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 the 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 position, 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 by $175 million or $0.39 per share of special items, including $150.4 million of estimated noncash asset impairment charges, which are largely attributed to the SANYO Semiconductor Products Group. The remaining noncash charges and special items detailed 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 equivalent 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 expenditure for the fourth quarter of 2012 were approximately $58 million, bringing the total 2012 capital expenditure 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 5 product OEM customers during the fourth quarter were Continental Automotive Systems, Delta, 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 through 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 Applications Product 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'd 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 3 factories in Japan. All 2012 milestones to integrate our SANYO Semiconductor's Product 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 top-selling smartphone models. Production ramps by smartphone manufacturers also drove demand for our RF tuning and autofocus 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 a desirable ultra-small SOD-923 packaging. Significant communication 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 in reference design 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 force 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 the declining vehicle sales in Europe and an inventory correction as the global 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 this segment should exceed the fourth quarter. Automotive design wins in the fourth quarter continue 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 1 customer. Additionally, a top automotive customer awarded us the development for their next-generation advanced park assist system. With production ramps of new model year vehicles, strong demand 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 VCore 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 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; Supplier Quality Excellence Award from General Motors; a contract supplier award from VTEC; and a Leading Supplier Award from Midea's Air Conditioning Sector Group. Also to 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 from the National Academy of Television Arts & Sciences for improvements in large format CMOS image sensors used in capturing high definition. We are honored to be named as one of ARRI's key product and development partners in the project. Now I'd like to turn it back over to Bernard for other comments and our other forward-looking guidance. Bernard?

Thanks, Keith. First quarter 2013 outlook. Based upon product booking trends, backlog levels and estimated turns 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 of 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 margin 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 would be approximately $13 million for the first quarter of 2013, which includes noncash 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 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 price. Further details on share count and EPS calculations are provided regularly in our quarterly and annual reports on Form 10-Q and Form 10-K. With that, I would like to start the Q&A session. Thank you. And Tiffany, please open up the line for questions.

[Operator Instructions] Your first question comes from the line of Craig Berger with FBR Capital Markets. Craig Berger - FBR Capital Markets & Co., Research Division: 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'll 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 utilization rates, also a 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 helps us with our Japan-based costs.

Also, one point to add to that is the fact that we are continuing to reduce costs 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 the SANYO business, approximately 60%. So those will be the big drivers for margin improvement. Craig Berger - FBR Capital Markets & Co., Research Division: Great. And then, when does that yen improvement kick in? But 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?

Okay. The wireless side, we've been working for some time, and 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 tunings portions of the circuits. The balance of our portfolio there improved with new products, but they are in relatively the same category. So the big change, new products in those 2 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, and now, that number is approaching $6. And so that's a very significant opportunity for us. We're not going to be forecasting the year, but we do expect those segments to be the fastest growth for the company, and we do expect to be outgrowing those markets.

Your next question comes from the line of Chris Danely with JPMorgan. Shaon Baqui - JP Morgan Chase & Co, Research Division: This is Shaon Baqui calling in for Chris. I just wanted some color real quick on the SANYO business. I think you guided the breakeven point 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. And we believe that we have now confidence that we can achieve a breakeven point that's about $10 million lower than what we have originally anticipated. Shaon Baqui - JP Morgan Chase & Co, Research Division: Okay, great. And then on the computing end market, can you talk a little bit about your dollar content with the Haswell platform relative to the Ivy Bridge?

Yes. The opportunity there is approaching $12 per notebook computer.

Your next question comes from the line of Jim Schneider with Goldman Sachs.

Keith, I was wondering if you can maybe address the bookings trends you saw in Q4, the linearity of the quarter, what you've seen so far in the first quarter? And then maybe discuss any signs of increased backlog that's longer dated, maybe into the months 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. And specifically, a lot of the orders were filling in into a quarter plus 1, 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 1 here for this quarter so far. And again, I guess everything is pointing towards increasing from a low point here in Q1.

That's very helpful. And then maybe you can discuss what you're seeing in terms of ASP trends. I know that 2% per quarter is what you're 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 competitors are in terms of relatively low utilization?

Again, I would say it has become more benign than it was in Q3, and 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 become a little less pressure on us than in the past.

Your next question comes from the line of Ross Seymore with Deutsche Bank.

Keith, 1 year ago, you were talking about business improving. If I recall right, you thought the third quarter was the time when we'd see a better-than-seasonal snapback after a number of less-than-seasonal quarters. If we fast forward 1 year, a lot of things seem very similar to 1 year ago. Can you just talk about how you view this year's start as being either similar or different, and what we should expect from that snapback quarter potential?

Yes. I obviously ask 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 difference is we are getting long bookings onto our system, which is different than the year before, and of course, a quite strong book-to-bill at this point. So the net of those 2 things, I guess the difference is now, we're actually seeing the orders; last year, we were told to expect the orders.

Got you. And then I guess as my follow-up, one for Bernard on the FX rate, specifically with the yen, of course. It doesn't look like we're seeing quite a fall-through in the first quarter guidance than 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 fell through, please?

Yes. So what 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 what we'd 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, and 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. And then, we should see an increased 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 than 1Q, assuming that it stays the same?

I think it will be, yes.

Your next question comes from the line of Chris Caso with Susquehanna Financial Group.

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

Okay. We're expecting a very slight increase in our automotive segment. We're expecting flat to slightly up in our communications segment. And then the rest of the segment should be slightly down.

Okay, great. And then, with regard to the SANYO cost reductions that you guys are implementing now, can you just talk a little bit about the timing of those and when we should expect to start seeing a greater impact on the margin line? And then on that, with regard to the revenue improvement that you guys have hoped for SANYO, some more color about where you hope that those improvements are likely to come from?

Okay. So let me address the cost side of it. The cost reductions are -- 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 3 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 were seeing that as, again, evidence of increases. And also, in the handset arena, the new design wins we have are ramping with backlog now as well. So those 2 should be the first to move. And then the balance will come, particularly on the consumer side, as the devalued yen makes their customers a little more competitive.

Your next question comes from the line of Kevin Cassidy with Stifel, Nicolaus. Kevin E. Cassidy - Stifel, Nicolaus & Co., Inc., Research Division: Part of the strategy for acquiring SANYO was to sell more product -- more ON product into Japan. With the weakening yen, is this slowing that strategy? Or can you just 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?

Yes, 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. Kevin E. Cassidy - Stifel, Nicolaus & Co., Inc., Research Division: And 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're hopeful now that they can see some improved sales for the year. None of them have actually reported any change in sales patterns yet.

Your next question comes from the line of Steve Smigie with Raymond James. Jonathan Steven Smigie - Raymond James & Associates, Inc., Research Division: I was hoping you guys could talk a little bit about what drivers we could look for at SANYO that would suggest you're getting a good turnaround. So for example, if we were to watch data points and saw that 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 that, if you had your way, could really move revenue with SANYO?

I guess I'd point you to a few things. High resolution cameras in smartphones is a very good thing for SANYO business. Increased televisions and white good sales, particularly in Asia, is a second kind of really good thing for that business. And just in general, any of the consumer goods sectors or pickup that would have a Japan-based consumer product would be strong for SANYO. Jonathan Steven Smigie - Raymond James & Associates, Inc., Research Division: 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 bit more detail on the MOSFET market in particular. If possible, could you give a little bit of color on how 2012 looked and what potentially it might look like as we go into 2013 in terms of pricing?

I don't -- I won't have the specifics just for 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 Q3. I think '13 will be better, particularly kind of 2 fronts: one, if there's any type of pickup in the overall market as we're 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.

Your next question comes from the line of John Pitzer with Credit Suisse. John W. Pitzer - Crédit Suisse AG, Research Division: A quick question here. You guys did a good job on the inventory in the December quarter. Sorry if I missed it, but what are your expectations for both the ON inventory and distribution inventory into March? And then, help me understand, inventories are starting to come down, but inventories coming down is not necessarily the only reason why we start to see a restock, and typically, it's lead time stretching out. What's kind of your forecast for your lead times and industry lead times, especially given the excess capacity out there? Do you think lead times stay shorter or longer and that changes the restocking trajectory?

I'll address the last part of your question first here. We've actually seen, in some of our 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 overcapacity, 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 the -- on the channel first, with the sub-10 weeks right now across the board, we don't believe we're going to see a significant amount of further reductions. I think we are at the bottom, and we will start potentially seeing some restocking. But right now, probably flattish. Internal inventories, we 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. John W. Pitzer - Crédit Suisse AG, Research Division: And then Keith, you talked about, I think, $6 of potential content for you guys from the handset market. Who are you taking share from? Why are you taking share? Did you think about the profile of your handset customer? Are these mainly high-end smartphones? And I guess, how do you play into sort of the advent of the lower-end smartphone growth in China? Is that a market where the margin profile is attractive 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. But what I can tell you, again, the big growth drivers for us are products where we did not use to play, in the RF tuning areas, and I believe there's a multitude of solutions that have been used there, so it's a little difficult for me to tell which one's winning and losing; and in the camera module arena, again, where we did not use to play. So I am not sure I can answer the who we're taking it from. John W. Pitzer - Crédit Suisse AG, Research Division: And, Keith, lastly, just as a follow-up question. That content in the smartphone, how does it compare to overall corporate margin?

It is higher than overall corporate margins.

[Operator Instructions] Your next question comes from the line of Ian Ing with Lazard Capital.

So a question for the automotive markets. Trying to understand the growth of these very long product cycle. Is it existing platform wins moving to more car models, or is it some new wins you have? Perhaps you can talk about your ASIC [indiscernible] pipeline.

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 are 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. And 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's some new trends there that should drive some really good growth.

Great. And my follow-up, because I noticed there's a step down in the number of inventory days that you're holding, is there a comfortable range that you are targeting in order to serve a potential recovery going forward?

So in -- we are still thinking our inventory days at the SANYO Product Group 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.

Okay. 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.