ON Semiconductor (ON) investor relations material

Demand and supply management

• Temporarily prioritized data center demand over automotive and industrials, expecting normalization in the next few quarters as utilization impacts material output.

• Product-level capacity is not fungible, but fab and technology-level capacity is, allowing short-term allocation flexibility up to two weeks before finished goods.

• Utilization increased to 83%, with full capacity at 92-93%; no additional CapEx required as current capacity is sufficient.

• Margin expansion is expected as utilization rises, with visible improvements starting in Q3 and continuing through the year.

Gross margin drivers and outlook

• Utilization is the primary short-term driver of gross margin, with each point of utilization adding 25-30 basis points two quarters later.

• Price increases are being implemented in phases, providing a tailwind as they layer into results over several quarters.

• FabRight initiatives and manufacturing site divestitures are expected to add 200 basis points to gross margin, with most benefits realized by 2028.

• Favorable product mix and transition to in-house manufacturing are expected to contribute additional margin improvements.

Automotive and inventory trends

• Automotive backlog replenishment remains weak, with no significant demand uptick observed; OEMs are increasingly bypassing Tier 1s to buy directly.

• Direct OEM purchasing is more common among disruptors and North American EVs, but not yet a broad trend among traditional OEMs.

• Inventory constraints could worsen if automotive demand picks up without prior replenishment.