ON Semiconductor Corporation (onsemi) — FY2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. This filing reports full-year results; it does not provide a clear standalone Q4 income statement or cash-flow summary. Amounts are in U.S. dollars.
Business context
onsemi supplies semiconductor products and related services through three reportable segments: Power Solutions Group (PSG), Advanced Solutions Group (ASG), and Intelligent Sensing Group (ISG). Its strategic focus is automotive, industrial, and communications infrastructure, with emphasis on intelligent power and sensing products, higher-margin offerings, and a lighter internal-manufacturing model. FY2021 end-market revenue was approximately 34% automotive, 27% industrial, and 39% other.
Financial performance
| Metric | FY2021 | FY2020 |
|---|---|---|
| Revenue | $6,739.8 million | $5,255.0 million |
| Gross profit / margin | $2,714.3 million / 40.3% | $1,715.8 million / 32.7% |
| Operating income | $1,287.6 million | $348.7 million |
| Net income attributable to onsemi | $1,009.6 million | $234.2 million |
| Diluted EPS | $2.27 | $0.56 |
| Cash provided by operating activities | $1,782.0 million | $884.3 million |
| Capital expenditures paid | $444.6 million | $383.6 million |
Revenue increased 28.3% year over year. Growth was broad-based: PSG revenue rose 32.0% to $3,439.1 million, ASG rose 25.6% to $2,399.9 million, and ISG rose 22.0% to $900.8 million. Segment gross margins were 38.3% for PSG, 44.0% for ASG, and 37.8% for ISG.
Management attributed stronger profitability to higher sales volume, improved factory utilization, favorable product mix, higher average selling prices, and restructuring savings. The company said it passed through most supplier cost increases to customers. Research and development expense was $655.0 million; selling and marketing was $293.6 million; and general and administrative expense was $304.8 million.
Cash, liquidity, and debt
Cash and cash equivalents were $1,352.6 million at year-end, compared with $1,080.7 million a year earlier. Working capital including cash and current debt was $2,238.2 million; excluding cash and the current portion of long-term debt, it was $1,046.3 million. The company stated that cash from operations, existing cash, and credit facilities should fund operations, debt repayment, and capital needs for at least the next 12 months.
Gross debt principal was $3,258.3 million, versus $3,589.5 million at year-end 2020. It included $1,598.2 million under the Term Loan B facility, $805.0 million of 0% convertible notes due 2027, $700.0 million of 3.875% notes due 2028, and $155.1 million of 1.625% convertible notes due 2023. The $1.625% notes were classified as current because holders had a conversion right for the quarter ending March 31, 2022. Approximately $1.97 billion remained available under the revolving credit facility, which had no balance outstanding at year-end. The company reported compliance with applicable debt covenants.
Material changes, outlook, and notable items
- Operating cash flow more than doubled from 2020, principally reflecting higher demand and pricing, better mix, restructuring savings, and working-capital management.
- Management expected 2022 capital expenditures of 11%–12% of revenue, compared with historical levels of approximately 6%–7%, to expand capacity and improve manufacturing cost structure. The filing does not provide formal revenue or earnings guidance.
- onsemi acquired GT Advanced Technologies, a silicon-carbide producer, on October 28, 2021, for $434.9 million, including $424.6 million cash consideration. The preliminary purchase-price allocation included $274.8 million of goodwill and $130.0 million of developed technology.
- The company recorded $71.4 million of restructuring, asset impairment, and other charges, including $65.3 million for an involuntary severance program affecting approximately 960 employees. Further restructuring charges remain possible.
- A business and related intellectual property were divested for approximately $13.6 million, producing a $10.2 million gain. The company was also pursuing the planned acquisition of GlobalFoundries’ East Fishkill site and facilities for $400 million, expected on or around December 31, 2022; $170 million had been deposited, with $230 million remaining payable subject to agreement terms.
- Management continued to pursue product and manufacturing rationalization, including exploring sales of selected facilities. It cautioned that execution could involve future charges and operational disruption. The company’s net-zero emissions commitment targets 2040; related investment timing and amounts are uncertain.
- COVID-19 effects remained uncertain. The company reported operating manufacturing sites at year-end but warned that outbreaks, government restrictions, labor constraints, or logistics disruptions could affect production and supply. It also cited industry-wide supply constraints and elevated costs.
- FY2021 included a $29.0 million debt refinancing and prepayment loss, a $10.2 million divestiture gain, and a 12.7% effective tax rate. The FY2020 tax benefit and rate were affected by discrete tax items, so reported net income comparisons include tax-related variability.
- The company expects to adopt a convertible-debt accounting standard in 2022, estimating a $66 million increase to opening retained earnings and approximately $27 million lower FY2022 interest expense; diluted shares are also expected to increase under the new method.
Key risks and contingencies
Principal risks include semiconductor supply and manufacturing disruptions, dependence on specialized suppliers and contract manufacturers, customer and distributor concentration, automotive cyclicality, pricing and competitive pressure, and the execution of manufacturing rationalization and acquisition integration. One distributor represented approximately 13% of FY2021 revenue; distributors collectively represented 64% of revenue.
Debt creates interest-rate, refinancing, covenant, conversion, and liquidity risks. Convertible-note settlements may require cash or dilute shareholders; the 1.625% notes’ conversion feature was active at year-end. Other risks include COVID-19, foreign exchange exposure, trade restrictions, cybersecurity, intellectual property claims, environmental obligations, and tax audits. Management reported no pending or threatened legal matter, other than matters disclosed, that it believed would reasonably be expected to have a material adverse effect; outcomes remain inherently uncertain.
Investor verification points
- Review the audited statements and notes for the drivers and sustainability of the sharp gross-margin and operating-cash-flow improvement.
- Verify FY2022 capital spending, capacity additions, and progress toward the lighter-fabrication strategy, including any associated charges or facility sales.
- Track the East Fishkill transaction’s completion, remaining payment, and related manufacturing commitments.
- Assess debt service and dilution exposure, particularly the 1.625% notes’ conversion status, the 0% notes, and the impact of the 2022 accounting-standard adoption.
- Monitor customer and distributor concentration, supply availability, inventory valuation, and the $163.8 million distributor ship-and-credit reserve, which the auditor identified as a critical audit matter.
- Evaluate whether growth and pricing persist as supply constraints, costs, automotive demand, and broader economic conditions change; the filing gives no formal earnings or revenue forecast.