Gross margin and net income hit record levels

Fourth quarter revenues of US $401.6 million confirm expected decrease of approximately 5% from the third quarter of 2006.

ON Semiconductor Corp has announced that total revenues in the fourth quarter of 2006 were US $401.6 million, an expected decrease of approximately 5% from the third quarter of 2006.

Total revenues during the fourth quarter included approximately $364.5 million of product revenues and approximately $37.1 million of manufacturing services revenues.

During the fourth quarter of 2006, the company reported net income of $87.4 million, or $0.27 per share on a fully diluted basis, which included a $10.2 million benefit, or $0.03 per fully diluted share, in restructuring, asset impairments and other.

The $10.2 million restructuring, asset impairments and other benefit for the fourth quarter of 2006 was primarily related to a favourable insurance settlement and gains on idle real property sales.

Fourth quarter 2006 results include approximately $3.0 million associated with stock based compensation expense due to the company's adoption of FAS 123 Share Based Payment.

During the third quarter of 2006, the company reported net income of $76.8 million, or $0.23 per share on a fully diluted basis.

Third quarter 2006 results included approximately $2.9 million associated with stock based compensation expense.

On a mix-adjusted basis, average selling prices in the fourth quarter of 2006 were down approximately 2% from the third quarter of 2006.

The company's gross margin in the fourth quarter was 39.3%, an increase of approximately 120 basis points as compared with the third quarter of 2006, primarily due to less obsolescence from conversion to lead-free parts, improved product mix and higher than expected capacity utilisation.

Gross margins for product revenue were 42.1% during the fourth quarter of 2006 compared with 40.0% during the third quarter of 2006.

EBITDA for the fourth quarter of 2006 was $114.4 million which included an approximately $10.2 million benefit from restructuring, asset impairments and other.

EBITDA for the third quarter of 2006 was $106.3 million.

Total revenues for 2006 were $1.532 billion, an increase of 22% from $1.261 billion in 2005.

During 2006, the company reported net income of $272.1 million that included a restructuring, asset impairment and other benefit of $6.9 million.

During 2005, the company reported net income of $100.6 million that included $3.3 million in restructuring, asset impairments and other charges.

The company's gross margin increased by approximately 530 basis points to 38.5% in 2006 from 33.2% in 2005.

"2006 was another strong year for the company", said Keith Jackson, ON Semiconductor President and CEO.

"For the year, we achieved the highest gross margin, net income and earnings per fully diluted share in the company's history and enter 2007 in a position to continue our strong financial performance".

"During the last quarter of 2006, we successfully executed a series of financial transactions enabling the company to reduce the overall cost of its debt and repurchase approximately 12% of the company's then outstanding shares of common stock".

"As we enter 2007, we are excited about our financial prospects for the year which should be fueled by our new product pipeline and ongoing design wins in the computing, digital consumer, automotive and power regulation markets".

"While our underlying business activity remains relatively flat in the first quarter of 2007 compared with the fourth quarter of 2006, we have 4 less days during the first quarter as compared with the fourth quarter which is the primary reason for our expected revenue decline".

"Based on product booking trends, backlog levels, anticipated manufacturing services revenue and estimated turns levels, we anticipate that total revenues will be approximately $368 to $378 million in the first quarter of 2007", Jackson said.

"We also anticipate that approximately $25 million of our total revenues will come from manufacturing services revenue".

"While backlog levels at the beginning of the first quarter of 2007 were down slightly from backlog levels at the beginning of the fourth quarter of 2006, they still represent over 90% of our anticipated first quarter 2007 revenues".

"We expect that average selling prices for the first quarter of 2007 will be down approximately 2% sequentially".

"We expect our product gross margin to be approximately 39% and expect our manufacturing services gross margin to be approximately break-even in the first quarter of 2007".

"We currently expect our stock based compensation in accordance with FAS No 123 to be approximately $3 to $4 million in the first quarter of 2007".

"We anticipate our new design wins and continued account penetration will enable us to grow our product business faster than the end-markets we serve".

"While we currently expect to see some mild seasonality in our business in the first quarter of 2007, we anticipate a strong second half of 2007, with second half product revenues growing by at least 10% compared with the first half of 2007".

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