Receive industry and products news from the market categories that matter to you most.
Stay up to date on industry news and trends, product announcements and the latest innovations.
Original Press Release
ON Semiconductor Signs Definitive Agreement to Purchase LSI Logic Corporation's Gresham, Ore., Wafer Fabrication Facility and Reiterates First Quarter 2006 Guidance
Press release date: Apr 06, 2006
Pursuant to the agreement, ON Semiconductor will offer employment to substantially all of the LSI Logic manufacturing employees currently working at the Gresham facility. The skilled process development and operational expertise of Gresham's employee base are a critical aspect of the transaction and will help enable ON Semiconductor to produce its own high volume, low cost, high performance analog and digital power products down to 0.18 micron levels - with toolset capabilities down to the 0.13 micron level in the future. ON Semiconductor is truly excited to welcome this very capable team. Longer term, ON Semiconductor believes that the access gained to submicron cell libraries, skilled process development engineers, operational expertise and process development know-how through this transaction will enable ON Semiconductor to expand its portfolio of high performance analog and power products.
In connection with this transaction, ON Semiconductor and LSI Logic will enter into several related agreements, including a Wafer Supply and Test Agreement, Intellectual Property License Agreement, Transition Services Agreement and Facilities Use Agreement. LSI Logic will continue to retain ownership after the closing of its product designs, in-process inventory and external customer receivables and will provide for assembly and final test services, sales, marketing and distribution functions related to its products. Under the Wafer Supply and Test Agreement, LSI Logic will commit to purchase approximately $200 million of wafer supply and certain test services over an initial period of 2 years. ON Semiconductor will also provide LSI Logic with access to certain wafer supply and certain test services for up to 4 years, under additional terms that will be negotiated after the 2 year commitment period. It is expected that the Wafer Supply and Test Agreement will enable ON Semiconductor to offset much of the fixed costs associated with operating the Gresham facility in the transition period when ON Semiconductor is ramping the production of its own wafers in Gresham. The agreement will also enable LSI Logic to ensure quality and supply to its customer base. Through a non-recurring engineering arrangement with LSI Logic, ON Semiconductor has already begun to run wafers in Gresham and has received its first test wafers from production.
The transaction is expected to be neutral to ON Semiconductor's earnings per share (EPS) in 2006, and be EPS positive in 2007 as the Company ramps production of its own products in the facility. The transaction is also expected to result in a slight reduction (approximately 100 basis points) in the Company's 2006 gross margin. Over the long term, the Company believes the purchase of the Gresham wafer facility will have a positive effect on gross margins for the Company as it develops a higher mix of high performance analog and digital power products. The transaction is subject to certain closing conditions, including regulatory approval. Closing of the transaction currently is expected to occur in approximately 45 days. The Company's payment obligations in connection with the transaction are expected to be satisfied with existing cash balances, cash flow from operations, proceeds from sales of existing assets and/or the proceeds of potential future financings.
While the Company still has approximately one more week before closing its books on first quarter 2006 results, the Company reiterates its previous guidance for the first quarter of 2006, provided in the Company's February 2, 2006 earnings release and conference call. The Company continues to believe that revenues for the first quarter of 2006 will be approximately $330 million, gross margins will be approximately 35 percent and average selling prices will be down sequentially by approximately 1 percent. Bookings continue to be strong and backlog levels at the beginning of the second quarter of 2006 were up from backlog levels at the beginning of the first quarter of 2006. At this time, and not including any impact associated with the Gresham purchase, the Company anticipates that second quarter 2006 revenues will be approximately $340 to $345 million, gross margins will be up approximately 50 basis points sequentially and average selling prices will be flat to slightly up sequentially; further details on first quarter 2006 results and second quarter 2006 guidance will be provided by the Company in its earnings release and during its conference call scheduled for April 27, 2006.
"The purchase of the Gresham 8-inch wafer facility will accelerate our technology roadmap - enabling ON Semiconductor to develop a larger mix of high-performance submicron analog and digital power products," said Keith Jackson, ON Semiconductor's president and CEO. "We currently own and operate 4-inch and 6-inch wafer fabrication facilities throughout the world and the capabilities of the Gresham 8-inch facility are consistent with our commitment to our customers to supply state-of-the-art technology in high volumes and at a low cost. We expect demand for our submicron high performance products to continue to increase. Securing advance manufacturing capabilities, process development know-how and operational expertise in deep submicron technologies will support our long term strategic roadmap. The Gresham facility purchase provides us with cost-effective advanced manufacturing capabilities in a much shorter time frame and on more favorable terms than expanding our existing fabrication infrastructure."
"These capital expenditures to expand fab capacity were already part of our current 5-year plan, and the asset purchase of the Gresham facility is just an acceleration of what we had already planned to spend," said Donald Colvin, ON Semiconductor's senior vice president and CFO. "This purchase enables us to introduce new products faster and accelerates our internal capability roadmap, while the supply agreement allows us to offset projected fixed costs."
TELECONFERENCE ON Semiconductor will hold a conference call for the financial community at 8:30 a.m. Eastern Time (ET) today to discuss the purchase of LSI Logic's Gresham facility. The call-in number will be 703-639-1171. There will also be a replay available for approximately 30 days following the conference call with a call-in number of 703-925-2533 and an access code of 886598. The Company will also provide a replay on the Investor Relations page of its website at www.onsemi.com. The webcast will be available for approximately 30 days following the conference call.
About ON Semiconductor With its global logistics network and strong portfolio of power semiconductor devices, ON Semiconductor (Nasdaq: ONNN) is a preferred supplier of power solutions to engineers, purchasing professionals, distributors and contract manufacturers in the computer, cell phone, portable devices, automotive and industrial markets. For more information, please visit ON Semiconductor's website at www.onsemi.com.
Don't miss the latest news!