ON Semiconductor Corp has announced it will cut another 350 jobs as it bumps the number of fabs it plans to close up from three to four by the end of Q1 2010 as part of its ongoing cost-reduction effort.

The announcement came as part of the Phoenix-based company's Q4 and full-year 2008 financial statement, which reflected the harsh economic environment.

"The end of 2008 and the beginning of 2009 have been a challenging time for the semiconductor industry," Keith Jackson, ON's CEO, said on the company's earnings call with analysts Wednesday afternoon. "Sales came down dramatically in the fourth quarter of 2008 and we are expecting further declines in the first quarter of 2009. We are uncertain as to the depth or duration of the current recession."

ON reported total revenues in the December quarter of $488.7 million, a 16% sequential decline. Q4 net loss of $519.6 million, compared to Q3 net income of $61.2 million. Full-year 2008 revenues came in at $2.05 billion, an increase of 31% from $1.56 billion in 2007. 2008's $393 million net loss compared to 2007 net income of $242 million.

Specifically, ON will close its last Phoenix fab by the end of Q1 2010 and transfer production from the 6-inch facility to another site within its manufacturing infrastructure. The closure is expected to result in total cash charges of approximately $8 million to $10 million beginning in the current quarter. A savings of approximately $9 million per quarter compared to Q3 is also expected, with the full benefits seen in Q2 2010. ON said approximately 350 jobs at the fab will be eliminated between now and early 2010.

Analysts encouraged by continued cost cutting

The move comes after ON in early January announced the reduction of 2009 planned capital expenditures to $50 million to $60 million from normalized yearly levels of approximately $130 million to $140 million, temporary site shutdowns during the now closed Q4, a hiring freeze, the elimination of second half 2008 bonus payments, and strict controls over all discretionary spending.

ON also announced at the time that its three factory closures planned for the end of 2009 (two fabs in Slovakia, and one in Pocatello, Idaho) would be closed in the middle of 2009. The company further announced factory shutdowns for four to six weeks in Q1 and Q2; three weeks of unpaid time off for senior executives in both the quarters, equating to an approximate 23% decrease in base salary; two weeks of unpaid time off or a four day work week for other employees in both the quarters, equating to an approximate 15% decrease in base salary; no annual merit increases or bonus payments in 2009; and a 1500 employee headcount reduction, which equates to a reduction of approximately 10% of total payroll expenses.

All in all, the January announced cost-cutting actions are expected to reduce total fixed costs by $40 million to $50 million a quarter, of which approximately $10 million to $15 million will be from temporary actions. The actions are expected to reduce operating expenses by $20 million, compared to Q3 run-rates. To execute the cost-reduction actions, the company said it anticipates the use of $20 million to $30 million of cash over the next five quarters.

The January actions, combined with ON's actions announced Wednesday, are expected to take revenues required for cash breakeven down to approximately $340 million, Jackson said. The company's actions have been praised by financial analysts.

"These actions should lower cash breakeven to around $340 million per quarter, meaning that ON Semi should generate free cash flow even in Q1, likely the trough quarter of this economic downturn for chip suppliers, in our view," Craig Berger and Robert Pikover, semiconductor market analysts at FBR Capital Markets, said in a research note this morning. "Additionally, we think these are some of the most aggressive cost-reduction measures we have seen from any chip firm so far in this downturn, and we commend ON Semi's senior management for making these difficult decisions."

The company's stock, ONNN, was up more than 11.35% in this morning's trading, climbing to $4.75 at 10:54 am eastern time from its Wednesday close of $4.27.

Looking to Q1, ON guided for a decline in total revenues to between $340 million and $380 million.

"Backlog levels at the beginning of the first quarter of 2009 were down from backlog levels at the beginning of the fourth quarter of 2008 and represent approximately 80% to 90% of our anticipated first quarter 2009 revenues," Jackson said. "We currently expect our distribution partners to reduce their inventories during the first quarter of 2009. With our sell-thru revenue recognition policy for this channel, this reduction is expected to result in incremental revenue above our beginning backlog levels. We expect that average selling prices for the first quarter of 2009 will be down approximately 2% sequentially.”

By: DocMemory
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