Alright, everybody. We'll get started with the next fireside chat. We have both the CEO, Hassane El-Khoury, and Thad Trent from Ons emi, the CFO. Guys, thank you very much for coming down to Dana Point. Why don't we start with just kind of a lay of the land cyclically and where we are. You guys have been, relatively speaking, more cautious on the slope of the recovery, the length of the downturn and the slope of the recovery, and that's proven to be wise because we've had many companies guide for an improvement and then have to backtrack on that over the last nearly 18 months. As we stand today, it sounds like things are getting a little bit better, and maybe the question is on the slope. How are you guys feeling about your business today? Look, I think the answer is I have to give it in relative terms. When I talked about the last few quarters, we're seeing signs of stabilization. I take that as a positive stabilization from where the business used to be, the business was prior to that. Stabilization is a positive. We're still seeing it that way. You know, you can talk about visibility is slightly better. We still have turns into the quarter, but if you think about where we are today from the same time where we were last quarter, we need less turns. On a relative basis, I think you can talk about that being an improvement. We've also said the second half of this year is going to be better than the first half. That gives you also a stabilization. I'm very cautious about not talking about a recovery because it's not really your normal cycle where after X, A, B, and C happens, you get a recovery. You typically will have an inventory burn, and then you have a replenishment cycle, and then you have a demand. We're not in a typical cycle because some of the factors that are changing the demand environment are not really only market-driven. You have a lot of the geopolitical overhang on it. That's how I remain looking at it. Like you said, we've been more right than wrong as far as how we look at it. We're going to focus on the things that we manage and the things that we control, and that's the operational excellence of the company. Whether it's managing inventory, managing customer relations, managing new products, and managing cash flow, those are all things we can manage to in that uncertain environment. When you talk about the turns percentage decreasing, the turns needed to make your guidance and those sorts of things, how does that metric compare to what you would define as a normal period? I know it's been a long time since normal has occurred, but not the time in COVID where you didn't need any turns or the time a year ago where you needed all turns. Are we closer to the normal or still closer to the trough? Look, it's hard to say. Just forget about the normal because of the market kind of cycle that we went through. Even for us as a company, we haven't really gotten to a normal because you can't compare to where we were prior to 2019 if that's kind of your timeframe because we're a very different company, totally different mix. Right. Our mix of products has been different. Our market approach has been different. Right now, over 80% of our business is auto industrial. It used to be, I think, about 60% back then. I can't give you how does it compare to a normal because we haven't landed on a normal as a new company with the new mix and the new exposure to the markets that we have. Right. That's the fairness that I would say. That's why I keep answering in relative terms, because those are, relatively speaking, they're comps. Mm-hmm. From a longer period, that becomes a little muddy. If you had the time when you had zero visibility and everything was turns or the extreme of that to what you would desire, and realistically desire, though, take the historical anchoring out of it. That desire is full visibility to the quarter. Hence, realistic. No, I think we're not where I think we could be. You know, when you have auto and industrial business and so on, you typically have a longer visibility, which is why we like that market. Typically, there's still improvements to be had there, but we're not going to have 100%. You know, those days during the shortages and so on, I wouldn't consider that a realistic normal. Right. You mentioned the geopolitical side is abnormal, and I think we would all agree on that. How are you seeing the tariffs and the geopolitical side affecting your business? Are you seeing more pull-ins, push-outs? People just with paralysis because there's just too much change, and it probably differs across geos and end markets. Whatever color you could give. I can give you from what we see for us as a company. We haven't seen any signs of pull-in. Actually, the growth that we've seen in certain markets or certain submarkets, like, you know, our business in China is doing well. We could tie directly to commentary I mentioned in the first quarter about, for example, we went to the auto show, we saw all the platforms that we're in, and those platforms are going to ramp. Fast forward, the platform ramped, and we delivered the results that we expected. The results that we've posted and our outlook all have been what I would call a natural demand, meaning consumption side at the end markets. What does the tariff overhang kind of do? It's more of the paralysis. What we do about it is offer customers the flexibility. Let me break those two into what I mean. From a customer perspective, if customers are placing orders, the last thing you want is the customer places an order when there's a tariff, and then the tariff goes away, and now their COGS are higher. They're waiting till the last minute when they need their product to say, "Okay, now ship it to me," because the window between order and build and sell is much shorter. It's less likely. That's what we call the paralysis. At the end of the day, you still need the end consumer confidence to increase a little bit to drive that demand. That's from the demand environment, and customer behavior has been a little bit short. You hear some of my peers talk about short lead time orders and so on. That's all within that realm of customers don't want to have the visibility, so they're just doing very short term. From the how we're doing for customers is really the flexibility. Think about it this way. We have a pretty broad manufacturing footprint. We do about 65% of our product internally with a broad global footprint of manufacturing, whether it's Japan, Southeast Asia, North America, Europe. When customers see that, they're more comfortable with our ability to manage as they change supply chain to navigate through their tariffs. We offer that flexibility because of our global footprint, and that's been seen as a favorable competitive advantage for customers because they don't have to make the choices now on us as a supplier. They don't have to worry about us as a supplier, while we can help them figure out how to change their supply chain to have the least amount of impact where we can overlap with them. That has been a very collaborative approach with customers. At the end of the day, we do need stability because customers need the stability. Nobody's going to wake up and move a factory overnight just without the regulation being stable or at least visibility on what it is and it is not. How's inventory? Your customers and the channel, et cetera, not the stuff internally. We can talk about that later. How's inventory playing out as kind of that stabilization dynamic? Is it still a headwind? Is it normalized? Inventory, I would say there are some pockets that are still draining inventory, but to a first order, it's less than it was. It's continuously improving. In certain areas, we are shipping to natural demand. I wouldn't say this is a regional answer or an industry answer, meaning it is a customer-by-customer basis. In the case of automotive, there are some Tier 1s that still have inventory that they're trying to burn, while others are already down to two weeks of inventory, which in my opinion is kind of marginally dangerous. That depends on what OEMs they were exposed to. At the end of the day, it's the demand. The inventory burn is tied to demand. We're still in that. We're monitoring that with our customer. We're monitoring their ordering patterns, but that's definitely improving. Yeah, I would also say that the industrial end market is probably more close to natural demand at this point. It was the first to get soft, the first to stabilize, and I think we're probably shifting closer to natural. I think in auto, you know, there's definitely pockets as Hassane described, but probably by the end of this year, hopefully we're back to natural again, you know, across the board on auto as well. Any sense at all about anybody in kind of restock mode or that volatility you're seeing in the end demand and the geopolitics and all of that precluding anybody from restocking? Yeah, unless there's an imminent ramp, like we've seen in some of our customers that are ramping, like in automotive in China, EVs or some of the medical customers, nobody's stocking. Right. It's more on behavioral, which is, you know, talking about normal, which is normal. You know, if we have a ramp, then we will ship ahead of the ramp to stay ahead of our customers. That's a normal, call it, restocking. The restocking that I think you're referring to, which I called the replenishment cycle, has not been happening. In my opinion, that has not started yet. Do you think there's been a structural change in the amount of inventory that the customers will hold? If I asked you that three, four years ago, the argument would be, will the Tier 1s and everybody in the auto ecosystem hold more because they learned their lesson on shortages? From what you just said, some of the folks are down to two weeks, which is more dangerous than anything else. Doesn't seem like much has changed. Nobody's learning a lesson. Right. Maybe they can't afford to learn the lesson. That's a reality. Look, if you look at the margin profile and just think about balance sheet, a lot of the companies cannot afford to hold because it's very thin margins. From that side, I get it. From the other side, they pay for it on the other side when the market does recover. We talk about shortages and we talk about, at this point, I'll take those days any minute. Yeah. The last cyclical question for you. One of the responses to the shortages during the lockdowns and all those sorts of things in the pandemic was to add a ton of supply across the entire industry, the capital intensity across analog discretes, broad-based semis, everywhere so that we wouldn't have this problem again on the shortages. Now, of course, the argument would be maybe we have too much capacity. Do you think there's any sort of structural excess across the semiconductor space? Does that lead to some of the negative outcomes on pricing pressure and those sorts of things? Yeah, so it depends. I would say it depends where other companies have added capacity. I'm not worried about it in products, for example, for us, like Treo. It's not about the capacity. It's the products that you put into that capacity. From that perspective, I'm very happy with where we are and the capacity, and we're competing very, very well. I talked about that 60%- 70% margin that we're capturing with our Treo platforms. Now, where capacity starts to put pressure on growth or starts to put pressure on margin is in a lot of what we call the dual-source businesses, which we've been exiting over the last three to four years exactly for that reason. Because when you have capacity, it becomes a price elasticity. Typically, in an environment like today, it is a price headwind in order to get the volume, in order to fill the fab. Our approach has been to walk away from that because it will never change. Whether it's good times or bad times, there's always going to be that dilutive aspect of that margin and focus our capacity on the Treo-like products that, regardless of capacity, it's the value of the product that allows you to win. Then what delta between them is take that capacity offline to position the company for margin expansion when the mix shifts to the higher margin. That has been our strategy, and that's what we've been executing to even, I mean, we walked away from four, we divested four fabs when everybody was dying for fabs. Not because of the moment, because of where we are today. Right. We're better off for it today because we divested four fabs when the peak was happening. That's how you can think about our management style, that strategic approach. That's a perfect segue from those cyclical questions I wanted to start with to more structural questions. A question I get from investors a lot was, on your last earnings call, you talked about potentially exiting about 5% of your revenues from now through calendar 2026. A lot of folks hoped you'd be done with that by now. Why are you still exiting products at this point? What makes that choice for those products occur? Yeah, let me break that down. What we said is 5% of our revenue in 2025 won't repeat in 2026. If you break it down, there are three components of it. This isn't new. We've been talking about this for a long time, these exits and the planned transition as we move up the value chain for our customers, moving to more differentiated products. It's everything we've been talking about. If you take the three components, one is the businesses, the dual-source businesses that we've said we're going to exit. We've been exiting those over the last several years. We entered the year thinking we would exit $300 million. Halfway through the year, it's been $100 million. For the year, we think that'll be about $200 million rather than $300 million. That pushes about $100 million into next year for that exit. That's just one, nothing new there. It's just timing. This is business that we've said we would only maintain if the margins were at the corporate average. We believe as the market, back to what you're saying, as the pricing declines, customers will just naturally leave us and we're not going to chase that business. Good business to lose, not a high-quality revenue, right? We want to focus on high-quality revenue. The next piece of this is the repositioning of our image sensing business. We're moving to more machine vision, away from human vision, where we can differentiate, drive higher margins. That's about $50 million- $100 million for next year that won't repeat for next year. The third piece is stuff that we're into lifing over time. It's been ongoing on stuff that we don't want to repeat because as we move to that higher margin, let's call it 50%, greater than 50% gross margin, that's going to be dilutive if we maintain it. There's nothing new here. The reason we put kind of a box around this on our last call is because we didn't think the street was modeling this correctly. Even when we've been telegraphing this for over a year, we wanted to make sure the street understood what was ahead of us, right? I think now the investor base has kind of gotten that. I think it's a good thing that we laid it out there. It's all consistent with what we've talked about. It's just those three components are going to happen. Gotcha. It seems like the new one to me out of that, and maybe it was my mistake that it wasn't really new, was the image sensor side of things. I had thought that the majority of that had already transferred to being a more automotive and industrial mix. It sounds like now there's a subset of the automotive mix that is no longer desirable. What's really changing in that market? What can you do to stop it from creeping into more and more of that business? Yeah, so if you think about it, also that is not new. If you think about our last analyst day, we talked about refocusing that business on machine vision rather than human vision. Let me put it in terms we all live every day. You have the autonomous side of it where the cameras feed into a central compute. There is no human making decisions. The computer will make decisions for the car going left, right, or stopping. That's the focus for us in automotive. The human vision side of it is your reverse camera. The car is not making a decision. You're looking at the screen of how far you are, and you're making that decision. That's the difference between the two. Now, why is one more important than the other for us? I always talk about the value that we provide, and focusing on value, which means the margin side of it, comes from the value of the technology. We have the perfect technology with the perfect pixel in all light environment. If you're driving in a tunnel and the sun is in your face, we're able to see a red light on the other side. Almost a human cannot see you. That provides a ton of value for cars. Take the same camera with the high-performance camera and put it in reverse. When was the last time you put your car in reverse and there was not dirt on your lens for your reverse that you can't even see what's behind you almost? The camera is irrelevant in this case. The quality of the image is irrelevant because the lens is bad or dirty or cheap or whatever it is. The customer, why would the customer pay a ton of value for the best camera out there when it doesn't really matter? That's the difference between machine vision and human vision. Our focus on machine vision has been a strategic focus. Nothing changed, back to your point, but it takes time for that to play out. That's why it's nothing new, but we put a wrap around it saying this is the number so people can model it properly. At one point, when you originally talked about exits of various sizes and doing it at certain time frames, et cetera, you had offsets with some structural growth and even secular growth opportunities. The silicon carbide side into EVs. Now you have the Treo platform, some AI investments. I want to dive into each of those, but at the highest of levels, when do you think those new businesses that'll be tailwinds to your revenue will be large enough to offset the headwinds that you just described? Yeah, for us, we're expecting kind of the 5%, the non-repeating to happen in 2026, which means resuming growth in 2027. The reason for it is if the point why we said the 5% will not repeat is as we look at our business and we look at where we're investing, you know, are you putting the R&D dollars in areas that are growing? Those areas are actually growing. Think about it this way. We've been growing or even in certain areas staying flat while we talk about all these exits that we've done already, $450 million that we've exited already. We didn't talk about those as being headwinds because the company was still growing. We do have elements of growth in the company, and we need to clear the decks on the stuff that we expect to go out so we can start seeing at the top line the net growth of the investments we are making, which you listed most of them. That's where the 2026 non-repeat of 5% occurs so we can get back to growth in 2027. Let's talk about the silicon carbide side first then as a positive. It seems like directionally still good, maybe the slope of the curve because EVs in general, the adoption is a little bit slower, some of the subsidies changing, disappearing in different countries. Talk a little bit about the state of that industry right now and ON 's competitive positioning within it. Yeah, so our competitive positioning in silicon carbide remains exactly part of our core value or the core strategy that we set out to do. You know, you remember I've always said you only win based on the technology. Let me also clear something that people may have in their mind: oh my God, you know, China substrates, it's the price deterioration or there's a lot of capacity. You don't compete based on that. It's irrelevant. It's a material that we get in order to make the best devices we can. Whether it's China or Japan or internally, we're able to do it internally. That is not the reason we win. The reason we win is the device we put. We just introduced our fourth generation trench that we have already sampled to a lot of OEMs and Tier 1s, and that has proven, as it stands today, the best silicon carbide technology that is available for customers in the market today. That's why we win. That's why we win in China. That's why we win in Europe. That's why we've been winning in North America. Not only that, that advancement in technology has also started making its way in plug-in hybrid platforms. We talk about EV not being the slope that we all thought, but there's a new slope, which is the plug-in hybrid that historically has been silicon IGBT, that now they want to extend more and more on the range. We've already announced a leading North America OEM where we've won the plug-in hybrid platform with the Schaeffler Group in this case with silicon carbide. Why we win is the efficiency of t`he device, and we have the best efficiency in the market. That has remained the same, and our roadmap always delivers. That's how we look at it. The penetration of silicon carbide into EVs, you know, if I take out the North America disruptor, it's about 12%- 14%. Of EVs. Even if EVs don't grow, hypothetically, the penetration of silicon carbide into those cars is a growth opportunity for us as well. All of these make silicon carbide still the same opportunity that we've had when we went on this journey. How's the profitability of silicon carbide changed during all of this? Silicon carbide today, from a margin perspective, I have to look at it two different ways. Standard margin, which is kind of the value you provide, is where we want it to be. What silicon carbide is, you said we added capacity for silicon carbide, so it's underloading that really depresses the performance of the P&L. It's a portion of that 900 bps. That's exactly it. It's almost a non-cash, you know, from the loading as the growth of the business. The last time we talked about it, before that capacity came online and when the market was slightly different, when we talked about it, it was in the high teens profitability, which is, in my view, was the best in the industry at the time. Now it's underloading. Operating, not gross. Operating. Don't want to scare people. Yeah, operating. Great. Operating. Gotcha. All right. That's one of the near-term or growth drivers, secular things that you guys have been doing for a number of years. Let's talk about a couple of the things that are a little newer and on the come. Talk a little about Treo. You mentioned things in the 60%- 70% gross margin. That's not something that when people think of Ons emi historically, they don't think of 60%- 70% gross margins at all. What is it and why should we believe you can deliver that? Sure. I'll start with why should we believe because we've already started generating revenue on it. The proof is already there. What is it? We've set out to introduce an analog mixed signal platform. It's based on 65 nm and it's monolithic low voltage all the way to high voltage. Those are important metrics, not to get excited about the technology itself, but needless to say, it's the only platform in the world that offers those voltage ranges and those applications, high temp application in automotive that exists today, whether it's from peers or foundry. The uniqueness of it is the highly competitive nature, which, just like I said, in silicon carbide, you want to win, you start with good technology. On top of that, we've outlined a new platform design process. We basically borrowed a page out of the playbook of SOC design. Block-based, but applied it to analog design, which means we can make an analog product, complex product with high voltage, low voltage, medium voltage, and even compute and digital from concept to sampling a customer in six to nine months. Now, why is that important? The world is moving fast. If you look at automotive, an OEM in China can design and launch a vehicle in a year. To sample in six months, now you're on track with the customer. AI Data Centers, much faster design cycle than three to four years in typical auto and industrial. You can do all that. Time to market with competitive products is as important as just having the competitive product. The platform-based design allows us to do that. The market it's going into allows us to capture a lot of the value. For example, in automotive, you talk about, you know, we talked about it earlier this morning in a meeting. You hear about software-defined vehicles, zonal or 48 volts. It's one of the same. It's an architecture voltage, but it's the same thing that it's an architectural change that customers are doing. It requires two primary things per node: communication and power. We can do both with the products that we have today, including Treo. It puts us in a position that we are able to quickly address high growth opportunities at the right time at an inflection point. If it takes me two years to make a product while there's an inflection point, I'm not the first to market, nor do I become the incumbent. Having a six to nine months where you have first product sampling changes the name of the game as far as incumbency. I'll give you an example. We talked about a competitive advantage where on Treo, where we said part of Treo is to combine it with silicon carbide and make a driver that makes our silicon carbide much better than our silicon carbide with somebody else's driver. We're sampling those. We talked about it six to nine months ago. We're sampling those to customers today. That is why Treo is highly competitive, and that is exactly why we talk about 60%- 70% gross margin. How it's performing? I expected revenue to achieve revenue in the second half of this year. We achieved it in the first half. We expected a ramp to happen. I talked last quarter, we shipped over 5 million units already. Back to your point, why we should believe it is the funnel is there, the customers are there, the revenue started, and mass production started. Those are all the things you need when you are starting from a brand new kind of green shoot. We've proven all of these. What would be the definition of success in that over the next few years? Like $100 million in revenue, $500 million? We haven't, of course, we have revenue milestones throughout, but if you think about it, my approach to highlighting success factors externally are leading indicators, whether it's revenue or partnerships or design wins and so on, between now and when I talk about getting to the billion dollar by 2030. Gotcha. There will be milestones, just like I did in this quarter about the first revenue and the 5 million units. You can expect these confidence milestones across that journey. What about the last of the new products, and maybe there could be some overlap with the Treo side, when you've talked about some of the AI Data Center wins? I think in both the first and second quarters, you said that revenue doubled year over year, even though I don't think you're quite ready to size it. You could do it today if you wanted. Just talk a little bit about how you're positioned there. Yeah, so for AI Data Center, obviously the opportunity that I've talked about, or I've been talking about, is we're coming at it from the high power side, which is our kind of our pedigree of the PSU battery back. That's where we started from and making our way to more on the V-core or getting closer to the GPU. How are we doing on that? You've seen we acquired the silicon carbide JFET business. That is the perfect technology for the PSU side, especially as now we start talking about 800 volt DC in. We've been doing 800 volt DC in automotive for four years, and we're number one in that. To me, that fell right into our lap. When we started talking about PSUs and Data Center, when it was like the 400 volt, now 800 volt makes it even more likely and more of an opportunity for us. That's how we started. Last earnings, I talked about we're in production with a 5x5 SPS and sampling a dual. That puts us more closer to the GPU side of it. Anything in between, there's about three different power conversions. We have products in there. On our IR website, on our IR deck and on our website, we show exactly kind of by product how we target every conversion. Our opportunity is across the whole power tree. We're just coming at it from the high power because that's where we're from. With Treo and other products we have, you get closer to the GPU. Gotcha. Why don't we get to, this might be a record for the longest it takes before we talk about gross margins, but the last three minutes we have. The gross margin, you guys have a 50% 53% target range. Right now, you're more in kind of the upper 30s. I know there's 900 basis points of underutilization in there. Talk about what changed that. At one point, you had hoped to hold the mid-40s, and clearly you did not. What gives you the confidence to go from where you are today to still reach the target in the low 50s? Yeah, like when we were targeting the mid-40s, our utilization was 65%. On an apples-to-apples basis, we're at 60% today. Right now, we took 12% of our capacity offline in Q1, which, when you do the math, it's now 68%. On an apples-to-apples basis, we're at a lower utilization rate because this downturn has taken longer to recover. You're right, the 900 basis points is all non-cash. If you look at our free cash flow margin that we've talked about for the year, it's 25%. We're still creating a lot of free cash flow during this timeframe. The march from here up to 50% and greater is, you know, the utilization in the short term, margins are going to be moved with utilization. As the market stabilizes and starts to recover, we'll start to take utilization up. I think we position the company in a very good spot, better than we ever have been through a downturn historically with the company. Our inventory in the channel, right in our sweet spot, nine to 11 weeks, our inventory, our working inventory on our balance sheet is 121 days. We'd like to have 100- 120. We've got some strategic inventory that we're going to burn through over time, but I don't consider that a part of the working inventory. I think as whatever the recovery in this market looks like, we can match utilization to that recovery. It's not like we have to wait a quarter or two to burn through inventory before you see the impact on utilization. Utilization has a quarter or two forward to the P&L, but we should be able to match that recovery. If you think about that coming up, every point of utilization is 25- 30 basis points of gross margin improvement. You can kind of do the math there. You got the 900 basis points there. We've got about another 200 basis points of the fab divestitures that we did in 2022. As we burn through that inventory and start moving that inside, you start to see that have an impact there. Then another 200 basis points on more fab right activities that we're going to do. Our value per wafer as a company has gone up significantly, but we don't need the same capacity that we needed at a similar revenue level. That's the opportunity for us to take more capacity offline as we make this transition. The last piece that gets you up over 50% is the favorable mix as you start getting Treo and these other products that start to be highly accretive. That's what starts to push up over that target. I think in the last quarter you had, if I remember right, 87 days of that buffer inventory, right, down from 100 the quarter before. What level does that need to get down to before that trigger on utilization starts to occur, the fab, right, the closures, loadings, and all those sorts of things? Does that get all the way down to zero or do you start? No, that's what I'm saying. If the market recovered tomorrow, we don't need to burn through that inventory. Think about that burning out over time. That inventory should peak here in the second quarter and will start to bleed down. We don't need to burn through that before utilization. That was kind of a last-time build that'll burn out over time by design. That doesn't impact, we don't have to get through that before utilization improves. Gotcha. Gotcha. We are actually right on time, actually a little bit over time at this point. We could sit up here for much, much longer, but I think we need to make room for the next folks. Thank you for joining us here in Dana Point. Thanks, Roger.