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ON Semiconductor (NASDAQ:ONNN)

Q3 2010 Earnings Call

November 03, 2010 5:00 pm ET

Executives

Ken Rizvi - Director of Treasury, Investor Relations & Corporate Development

Keith Jackson - Chief Executive Officer, President, Director, Member of Executive Committee, Chief Executive Officer of Semiconductor Components Industries LLC and President of Semiconductor Components Industries LLC

Donald Colvin - Chief Financial Officer, Principal Accounting Officer, Executive Vice President, Treasurer, Chief Financial Officer of SCI LLC, Executive Vice President of SCI LLC and Treasurer of SCI LLC

Analysts

Terence Whalen - Citigroup Inc

Andrew Banish

Tristan Gerra - Robert W. Baird & Co. Incorporated

James Schneider - Goldman Sachs Group Inc.

Christopher Danely - JP Morgan Chase & Co

Parag Agarwal - UBS Investment Bank

Ramesh Misra - C.E. Unterberg, Towbin

Kevin Cassidy - Stifel, Nicolaus & Co., Inc.

John Vinh - Collins Stewart LLC

Craig Ellis - Caris & Company

John Pitzer - Crédit Suisse AG

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the ON Semiconductor Third Quarter Earnings Call. [Operator Instructions] I would now like to turn the conference over to Mr. Ken Rizvi to begin.

Ken Rizvi

Thank you, Tamika. Good afternoon, and thank you for joining ON Semiconductor Corporation's Third Quarter 2010 Conference Call. I'm joined today by Keith Jackson, our President and CEO; and Donald Colvin, our CFO.

This call is being webcast on the Investor Relations section of our website at onsemi.com, and a replay will be available for approximately 30 days following this conference call, along with our earnings release for the third quarter of 2010. The script for today's call is posted on our website and will be furnished via a Form 8-K filing.

Our earnings release and this presentation includes certain non-GAAP financial measures. Reconciliations of these non-GAAP financial measures to the most directly comparable measures under GAAP are in our earnings release and posted separately on our website in the Investor Relations section. In the upcoming quarter, we will be presenting at the Credit Suisse Technology Conference on November 30 and the Barclays Technology Conference on December 9.

During the course of this conference call, we will make projections or other forward-looking statements regarding future events or the future financial performance of the company. The words believe, estimate, anticipate, intend, expect, plan, or similar expressions are intended to identify forward-looking statements. We wish to caution that such statements are subject to risks and uncertainties that could cause actual events or results to differ materially. Important factors relating to our business, including factors that could cause actual results to differ from our forward-looking statements, are described in our Form 10-K, Form 10-Qs and other filings with the SEC. The company assumes no obligation to update forward-looking statements to reflect actual results, change assumptions or other factors.

Now let's hear from Donald Colvin, who will provide an overview of the third quarter results. Donald?

Donald Colvin

Thanks, Ken, and thanks to everyone joining us today. ON Semiconductor Corporation today announced that total revenue in the third quarter of 2010 were approximately $600.7 million, an increase of 3% from the second quarter of 2010.

During the third quarter of 2010, the company reported GAAP net income of $87.8 million or $0.20 per fully diluted share. The third quarter 2010 GAAP net income included net charges of $20 million or $0.05 per fully diluted share from special items, which are detailed in schedules included in our earnings press release.

GAAP gross margin in the third quarter was 41%. Non-GAAP gross margin in the third quarter was 41.3%. During the third quarter, external factors such as currencies and commodity prices negatively impacted GAAP and non-GAAP gross margin by approximately $7 million to $8 million or 130 basis points.

Third quarter 2010 non-GAAP net income was $107.8 million or $0.25 per share on a fully diluted basis, including stock-based compensation expense. During the third quarter of 2010, our GAAP and non-GAAP operating expenses included approximately $5 million of acquisition expenses related to our M&A activities.

We exited the third quarter of 2010 with cash and cash equivalents of approximately $562.9 million, an increase of approximately $96 million from the previous quarter. We also exited the quarter with the lowest net debt position in the company's history at approximately $223 million. At the end of the third quarter, total sales outstanding were approximately 48 days, down by two days compared with the second quarter of 2010.

ON Semiconductor's internal inventory increased slightly from second quarter levels on a days basis to approximately 90 days. Included in our internal inventory is approximately $13 million of inventory related to our acquisitions and bridge inventory related to our announced closures of front-end manufacturing lines. Net of the bridge inventory and inventory from acquisitions, our inventory days would have been approximately 87 days at the end of the third quarter. Distribution inventories remained low at approximately eight weeks exiting the quarter.

Cash capital expenditures during the third quarter were approximately $52 million, bringing year-to-date capital expenditures to approximately $146 million. We currently anticipate total capital expenditures for 2010 of approximately $200 million, of which approximately $35 million will be for buildings.

Now I would like to turn it over to Keith Jackson for additional comments on the business environment.

Keith Jackson

Thanks, Don. And now for an overview of our end markets. During the third quarter of 2010, our end-market splits were as follows: The computing end market represented approximately 25% of our third quarter 2010 sales; the automotive end market represented approximately 19% of third quarter sales; the industrial, military and aerospace end market represented approximately 18% of sales; the consumer electronics end market represented approximately 18% of sales; the communications end market, which includes wireless and networking, represented approximately 17% of sales; and the medical end market represented approximately 3% of sales.

On a direct billing basis, no individual ON Semiconductor product OEM customer represented more than 5% of third quarter sales. Our top-five product OEM customers during the third quarter were Continental Automotive Systems, Delta, Hella, Motorola and Samsung.

On a geographic basis, our contribution from sales in Asia represented approximately 62% of revenue. Our sales in the Americas represented approximately 23% of revenue, and Europe represented approximately 15% of revenue during the quarter. Looking across the channels, direct sales to OEMs represented approximately 44% in the third quarter 2010 revenue. Sales through the distribution channel were approximately 46% of third quarter revenue and the EMS channel represented approximately 10% of revenue.

During the third quarter, ON Semiconductor revenues broken out by our product groups were as follows: Standard Products Group represented approximately 34% of sales, the Automotive and Power Group represented approximately 24% of sales, computing and Consumer Group represented approximately 23% of sales and the Digital and Mixed-Signal Product Group represented approximately 19% of sales. We will publish the quarterly revenue, gross margin and operating margin breakout of these segments in our Form 10-Q for the period.

Now turning to our end market and product line results. The communications end-market revenues, which comprise both wireless and networking, grew sequentially in the third quarter by approximately 12%. In the Wireless segment, revenue growth was driven primarily by strong ramps in smartphones. ON Semiconductor has secured content in multiple industry-leading smartphone vendors. Our success in this breakout product category is a result of the ongoing market acceptance of our expanding suite of products, including our protection and filtering devices, audio amplifiers, LED drivers, DC-DC converters, USB switches, MOSFETs and medium-scale subsystem IC integration.

In the Networking segment, quarterly revenue growth was positively impacted by the continued penetration of our custom ASICs and array of precision clock and timing products, as well as the buildup of our network infrastructure in China and India. The consumer end market experienced revenue growth of approximately 12% sequentially. Growth in this segment was driven primarily by strong ramps of customer gaming consoles. While the LCD TV end market softened during the third quarter, ON Semiconductor has continued to expand our product portfolio. We have started to ramp a custom LED driver for backlighting large LCD TVs in addition to our circuit protection devices and content enabling efficient power supplies.

In the computing end market, as expected, we saw a muted seasonality, with revenues up sequentially by approximately 1%. Power management revenue in the computing end market was up sequentially by approximately 9%. This growth was driven by continued penetration into the notebook segment.

Looking forward, we continue to anticipate strong design and momentum for our Vcore controllers in next-generation desktops and notebooks. At the Intel Developer Forum in September, we introduced the first platform solution for CPU power management and high-speed switching optimized to support the upcoming second-generation Intel Core processor family, otherwise known as Sandy Bridge.

Additionally, we made headway into the high-growth tablet market securing both MOSFET and filtering devices with a leading tablet supplier. We also see opportunity for additional market penetration in the tablet market with our efficient power supply solutions. Overall, we believe we remain well positioned for ongoing holiday production ramps.

In the automotive end market, sales were down less than 1% sequentially in the third quarter, which was better-than-normal seasonality. We continue to see strong demand from customers for our body, powertrain and safety solutions. Our custom ASIC designs with leading vehicle manufacturers in Europe and Asia have continued to gain momentum. We recently won our first custom ASIC design in a park assist system for a key Asian automotive customer. We also continued to make inroads into infotainment for vehicles, as well as into LED lighting for rear and front lighting systems.

Exiting the third quarter, ON Semiconductor believes it is well positioned to capitalize on a number of end market growth factors, including ongoing network infrastructure upgrades, green initiatives in Asia for energy efficient power supplies and white goods and continued growth in market areas such as LED lighting, medical and energy efficient power solutions that enable the smart grid.

LED lighting in all market segments remain the targeted focus area for ON Semiconductor. In September, we launched four new LED lighting devices that address LED landscape and solar lighting, general illumination, automotive applications and portable medical devices. To help support our LED lighting customers, we have also developed and introduced our GreenPoint Design Simulation Tool, an interactive design and verification tool to assist our customers in accelerating their design of solid-state lighting solutions.

Now I'd like to turn it back over to Donald for other comments and our other forward-looking guidance. Donald?

Donald Colvin

Thank you, Keith. Fourth quarter 2010 outlook. Based upon current product booking trend, backlog levels and estimated tons levels, we anticipate that total revenues will be approximately $565 million to $585 million in the fourth quarter of 2010. Backlog levels at the beginning of the fourth quarter went down slightly from backlog levels at the beginning of the third quarter and represent over 90% of our anticipated fourth quarter 2010 revenues.

We expect that average selling prices for the fourth quarter will be approximately flat compared to the third quarter. We expect cash capital expenditures of approximately $55 million in the fourth quarter of 2010.

For the fourth quarter, we expect GAAP and non-GAAP gross margin of approximately 40% to 41%. For the fourth quarter of 2010, we also expect total GAAP operating expenses of approximately $137 million to $141 million. Our GAAP operating expenses include the amortization of intangibles, restructuring, asset impairments and other charges which totaled approximately $10 million. We also expect total non-GAAP operating expenses of approximately $127 million to $131 million.

Also included in operating expense guidance is approximately $6 million of SANYO-related transaction costs. We anticipate GAAP net interest expense and other expenses will be approximately $18 million for the fourth quarter of 2010, which includes non-cash interest expense of approximately $9 million. We anticipate our non-GAAP net interest expense and other expenses will be approximately $9 million.

GAAP taxes are expected to be approximately $4 million and cash taxes are expected to be approximately $3 million. We also expect stock-based compensation expense of approximately $12 million to $13 million in the fourth quarter of 2010, which approximately $4 million is expected to be in cost of goods sold and the remaining in operating expenses. This expense is included in our non-GAAP financial measures.

Our current fully diluted share count is approximately 445 million shares based on the current stock price. Further details on share count and EPS calculations are provided regularly in our quarterly and annual reports on Form 10-Q and Form 10-K.

With that, I would like to start the Q&A session.

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes from the line of John Pitzer of Credit Suisse.

John Pitzer - Crédit Suisse AG

Donald, quickly on the September quarter gross margin hit of about 130 basis points, you talked about currency and commodity prices. What percentage came from each one of those buckets? And I guess, is that an isolated incident? Or can we expect more headwinds going forward? And I guess if you could just give us a little bit color of what exactly happened in the quarter.

Donald Colvin

Sure. About those two questions, I think basically about 80% of the hit came from currencies. The issue is that we have cost in places like the Czech Republic, Malaysia, the Philippines where we don't have any revenue, so there's no revenue offset. And then the remaining 20% came from commodities. We saw an increase in price of copper and gold. We're heavy users of the both of these. So that gives you essentially the delta in the gross margin. And looking forward, there is still a little bit more to come because unfortunately, the dollar continued to depreciate against most currencies in the third quarter. But that is fully baked into our guidance, John.

John Pitzer - Crédit Suisse AG

And then as my follow-up, I guess, Keith, the PC market is clearly going through some sort of inventory correction in the back half of the year. You talked about your socket win of Sandy Bridge. I'm kind of curious, as we look out to the first half of next year, with that new product launch, is that a content market share story for you that could help to offset some of the normal seasonality we usually see in the calendar first quarter?

Keith Jackson

Yes. We do believe our equivalent market share by the content change will continue to boost us into next year at rates greater than the market will be for PCs overall. So again, I think it's very positive for us.

Operator

Your next question comes from the line of Parag Agarwal of UBS.

Parag Agarwal - UBS Investment Bank

Just a question about your guidance. Could you please break down your guidance in terms of end market and how do you see the fourth quarter playing out? And also, you talked about your backlog until the end of the previous quarter. Any update on order trends would be really helpful.

Keith Jackson

So I think I would describe the fourth quarter, our view, as seasonal. You're going to start seeing some softening in the consumer segments. We see continued strength in automotive, and the communications sectors and a bit of the industrial sector as well will continue to hold up. So really, it's a consumer softening as we head out of the fourth quarter. And I think color-wise, it's going to break along with what we've called traditionally season-wise.

Parag Agarwal - UBS Investment Bank

And the second question is about the SANYO acquisition. Any update on the integration process? Are you still trying to close it by the end of the year? And also, have your idea about potential synergies of $30 million per quarter heading into 18 months have changed? Or any update will be very helpful.

Donald Colvin

I think the current plan is we called early in the first quarter. And we are confident that the basic level financial case that we presented in July remains intact. And that was to generate, from my memory, something like $30 million of operating income after six quarters. I would say that management is comfortable that, that remains a very valid hypothesis.

Operator

Your next question comes from the line of James Schneider with Goldman Sachs.

James Schneider - Goldman Sachs Group Inc.

Can you maybe give us an update on where lead times are for the ones where you do have standard lead times quoted? How much you're able to improve them on at all and what you expect heading into Q4 in terms of further improvements?

Keith Jackson

So lead times did not improve noticeably at all in Q3. They remain extended, with very little change during the third quarter. As we get into the fourth quarter, we're starting to see some of the standard products easing a small amount. But again, I would not expect dramatic contractions in Q4 as well. So we continue to fill the pipeline up about as fast as we can fill it and things have stayed quite stable for the last three quarters.

James Schneider - Goldman Sachs Group Inc.

And then just as a follow-up, on the SANYO acquisition, is there any reason for the push out into Q1? I think you previously expected it to close pretty much by now. What are the reasons for that? Is it just getting the cost and reductions in line and the terms in line? Or is this there something else to that? And then I believe in the press release, you talked about not needing that access to capital markets and not needing to raise debt or issue stock. Does that mean that you're going to deal with cash on hand? Or is there something else there?

Donald Colvin

Well, two parts to the question as usual. As far as the date is concerned, I think the original contract anticipated five days I believe and the official date we announced was the earliest date. But those of you who follow public disclosures and things, you would have to be on a kamikaze mission to want to quote something at the end of the year if you close it at the beginning of next year simply because of the onerous reporting and auditing issues that you would embrace. So the seller was very cognizant of that and we agreed that it was better to do this. A natural break, which is our year end, just after our year end, their quarter end and the beginning of a new fiscal year for us. So I think it makes sense. Early in January is our target date. That's not liable to move from what we can see now. So I think it's for good reasons and makes it a lot more straightforward, the integration process. As far as the financing is concerned, it is clear that we have made progress. We listen to shareholders' feedback and that we worked with the seller. So I think it's fair to say now that at this period in time, we do not anticipate that we will have to issue any public debt or we will have to issue any stock. And at the consummation of the transaction, there will be a minimum amount of cash required as in the original transaction. So that's about all that we are able to reveal as of today. We are working on making these contractual amendments with the seller, and we should complete that over the next few weeks. But it is management's belief that the evolution of the financial conditions are favorable to the deal.

Operator

Your next question comes from the line of Craig Ellis with JPMorgan (sic) [Chris Danely of JPMorgan].

Christopher Danely - JP Morgan Chase & Co

I think that might be Chris Danely. Actually, just a quick question or a quick follow-up on the lead time comment. Do you expect lead times to come in Q1? Or do you think that they'll remain extended?

Keith Jackson

I do believe we'll start making headway in Q1 just from enough capacity coming online. We're actually not seeing significant changes in the demand picture. So the extra capacity should start to see some shortening as we get into Q1, maybe not completely back to normal, but certainly lower than where we're running.

Christopher Danely - JP Morgan Chase & Co

And then it sounds like going from a period of replenishment back to normal seasonality, assuming normal seasonality in Q1 and Q2, what would your gross and operating margin trend look like?

Donald Colvin

Well, as I've said many times, Chris, we only give guidance one quarter at a time for good reasons. I think it's fair to say that you could see that we don't see a huge amount of seasonality. Modest seasonality, it would be the normal pattern in the first quarter with the recovery stronger second and third, that's the pattern, and a flattish fourth quarter next year. That's the normal pattern. We have seen a little bit of pressure on the margins from the currency and commodity movements that we referred to, that's baked into our guidance. So basically, we see return, as you suggested, a modest seasonal first quarter, which historically because of exposure to the consumer and the wireless end markets has been a bit weaker, offset by what we still believe will be strength in industrial and automotive, as Keith mentioned, that business remains resilient. So that's all we see, and I have never seen any good reason to give more detail than that.

Operator

Your next question comes from the line of Ramesh Misra with Brigantine Advisors.

Ramesh Misra - C.E. Unterberg, Towbin

You didn't talk much about the Industrial segment, but sounds like that segment is down for you. And we've been getting some mixed kind of data points about the Industrial segment. Some companies are talking about pretty strong trends over there. I mean, do you think you're losing share, or maintaining it? Or what's going on from your perspective?

Keith Jackson

We think we're maintaining share, and it was really kind of flattish more than anything else, and we see that pattern kind of continuing through the end of the year and then in the beginning. Clearly, there is a difference between which part or which segment that you're in. Industrial is extremely wide for us. We include things like capital equipment purchases, as well as building-related expenses as well. So there's some shift quarter-to-quarter in that, but in general, remaining relatively robust. But I'd call it more flattish than significant growth.

Ramesh Misra - C.E. Unterberg, Towbin

And this probably is for you, Donald. I wanted to clarify, did you say that you don't anticipate and needing to use any stock for your SANYO acquisitions? And then just as the first part, what should we be thinking of how gross margins over there are? And I think based on public statements, they've been kind of running cash neutral. So basically, I mean, until the 18 months and so post acquisition, do we expect kind of a minimal impact on your P&L?

Donald Colvin

Well, we did say that we do not believe we need to use any stock for SANYO. So I will repeat that, and I think that's certainly a clarification to the initial deal. So that I think is a positive. As far as the gross margin from SANYO, we did state in the past that the business, on the margins, the business was running approximately breakeven. We have no reason to believe that's not the case. We did say that we intend to improve it, and we believe that, that is totally possible. As far as the gross margin, what we have stated in the past for us is we believe we were getting some very good products that potentially would be a gross margin close to the quarter average, maybe not quite as much, but close to it, not a major delta away from and again we still believe that's the case. So we remain excited about the opportunity of adding new customers and new products that are very complimentary to products we make in our factories.

Operator

Your next question comes from the line of Tristan Gerra with Robert Baird.

Tristan Gerra - Robert W. Baird & Co. Incorporated

What is your expectation for utilization rates for Q4? And also, what's the growth in capacity sequentially that you're adding in Q4?

Keith Jackson

So utilization rates should be still in the 90s, maybe more toward the middle 90s overall. They are coming down a bit. We are getting some more capacities in place as you've mentioned. But they might have no more impact than one or two points of utilization overall.

Tristan Gerra - Robert W. Baird & Co. Incorporated

And then any initial visibility on the pricing outlook for 2011 based on your pricing contract discussions?

Keith Jackson

They've been generally muted, so not significant breaks at this stage. So I'd say the longer term agreements are fairly stable for next year, slightly down a few percent, which bodes generally very well. The spot market, of course, we'll have to wait to see how that unfolds next year.

Operator

Your next question comes from the line of Terence Whalen with Citi.

Terence Whalen - Citigroup Inc

I guess the first question I have is, regarding looking across your business, are there any areas where you've seen orders contract and declined to low levels, but then stabilized and bounced back more recently in the past four to six weeks?

Keith Jackson

I don't know that I've got anything significant. We did see a decline, as we mentioned there, in television-related purchases. I think they dropped and they're stable at this point, but we haven't seen big bounce backs.

Terence Whalen - Citigroup Inc

And then second question is for Don. Don, you referenced the $6 million expense related to SANYO acquisition costs. Can you explain whether that expense then goes away into the first quarter to alleviate OpEx?

Donald Colvin

Thank you for asking me that great question, Terence. I spelled that out because that's approximately $0.015 of cost related to SANYO that will not be there forever. We may have additional deal costs expensed in the first quarter, but you can see that it's not part of our ongoing P&L. And we had that similar penalty in the third quarter to the order of about $5 million. So we will have, with all certainty, some additional deal costs in the first quarter because we are planning to close the deal then. After that, it will go away forever. So this is a kind of exceptional cost, but the accounting rules changed previously, these were capitalized deal costs and amortized over time. Now they are expensed as incurred. So it does penalize the P&L when you're incurring substantial cost ahead of completing the deal.

Operator

[Operator Instructions] Your next question comes from the line of Craig Ellis of Caris & Company.

Craig Ellis - Caris & Company

Keith, you mentioned that you're happy with the design win traction you've got on Sandy Bridge. Can you talk a little bit about where you are with Vcore market share now, and what you think could happen as we move into Sandy Bridge next year?

Keith Jackson

Part of the difficulty to have giving you precise numbers there is knowing what those ramps will be. Generally, the platform change ramps are a little bit tough to call. What we can say is that on each successive generation that we've done through the last three years, we picked up market share on each of those platforms and that number has been somewhere around 10%, 10,000 basis points, if I get that right, or more on each one.

Craig Ellis - Caris & Company

And then switching gears, Don, utilization sounds like it'll drop a little bit, but because there's increased capacity, how should we think about inventories exiting the fourth quarter? Would you like to take them up a little bit on hand and in the channel? Or are they going to be flattish? How should we look at that?

Donald Colvin

I think that we're taking actions to slow down the dollar growth of inventory, that's what we're planning to do. So only a modest increase in inventories anywhere in the fourth quarter. And as we have a soft winding of manufacturing run rates in line with demand, so I wouldn't expect any big increase in inventories from the current levels on a dollar basis terms.

Craig Ellis - Caris & Company

And what are the weeks of inventory in the channel at present?

Donald Colvin

We had the channel coming in just over eight weeks at the end of September.

Keith Jackson

The channel is something we'd like to take up a bit, if possible. So as we get between Q4 and Q1, moving that up another week would be desirable.

Operator

Your next question comes from the line of John Vinh with Collins Stewart.

John Vinh - Collins Stewart LLC

Just a question on comp, I was wondering if you could talk about what your mix is between smartphones and feature phones there?

Keith Jackson

On a dollar basis, do we have some data?

Donald Colvin

Can we come back to you on that afterwards?

Keith Jackson

We may have to come back with you on a dollar basis there. If the smartphone content does go up, it's significantly a more per phone, but then the total phones are less. So we probably have to calculate that and get back to you.

John Vinh - Collins Stewart LLC

And then some of the strong performance that you're seeing in that segment, is some of that share gain that you're seeing right now?

Keith Jackson

Yes, actually, it's proliferation of new platforms and the smartphones, as I mentioned, have better content. So to the extent that they outgrow the low-end and medium-end phones, we get a better pump for that.

John Vinh - Collins Stewart LLC

And then just one more follow-up for me related to that. Obviously, a lot of interest in tablets, can you maybe just talk a little bit about where you're positioned on tablet platforms going forward at this point?

Keith Jackson

We've got, as we mentioned there, some significant design wins in tablets. We're working with the plethora of new ones that are coming out. I expect that we'll have content in all of them to differing degrees. But frankly, there's one that overwhelms the others, and that content remains our focus.

Operator

Your next question comes from the line of Kevin Cassidy with Stifel, Nicolaus.

Kevin Cassidy - Stifel, Nicolaus & Co., Inc.

Just a follow-up on that, what would you say your content is dollar-wise in the tablet versus netbook versus notebook?

Keith Jackson

So it's going to be a more similar to a netbook than a notebook. So you're talking something that's kind of sub-dollar for the tablets today.

Christopher Danely - JP Morgan Chase & Co

And also, on the Sandy Bridge design, do you have a similar design in the works with AMD's Fusion product?

Keith Jackson

We generally do what I call adaption of our core process, core controllers to handle the AMD design. So the answer is yes, there's a quick spend that comes shortly after.

Operator

Your last question comes from the line of Steve Smigie with Raymond James.

Andrew Banish

This is Andrew for Steve. Can you touch on the degree to which capacity streams may have limited some of your growth in 3Q and in 4Q?

Keith Jackson

We have a couple of wafer fabs that remained extremely constrained, 100% capacity with demand exceeding that. They are products traditionally for the automotive and industrial sectors, the two sectors that continue to have the best growth. And I expect to start seeing easing there as you get into next year. But right now, clearly, those two markets have been constrained.

Operator

This concludes the question-and-answer portion of the conference call. You may now disconnect.

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