Friday, May 22, 2009
(Cont'd from above)...

Jim (cont'd):   


Jim:       Mr. Jackson, welcome to Mad Money...

Keith:     Thanks Jim, great to be here.

Jim:       Alright, I was going over your conference call from the last time, and I was thinking you know what... a lot of our viewers, they say, oh it's a semiconductor company... well, they make chips... but they don't understand that there are millions of different kinds. And one of the things that I thought would really help people understand you is that, in the conference call, you mention that you make the chips for game boxes. A lot of our audience understands the game box... If we broke open a game box (e.g., XBOX, Playstation), what would fall out that's made by ON Semi?...

Keith:     Actually, quite a bit. You'd find all of the power components which make up both the traditional charger that you know about, and also inside the box... everything that's powering the CPU and graphics processors, and driving the video, etc. All of those chips you're going to find from ON Semiconductor.

Jim:       Really? So that's a tremendous amount fo semiconductor share within a game box, isn't it?

Keith:     Absolutely. Yes.

Jim:       Now, they also will say, Jim, okay, that's a sexy business but, when we looked it up online, we saw that they have an automotive business, and there's no way that you want to sell any chips into automobiles. What do you say about that?

Keith:     Well, you know, the automobile business is going to be slow, and it's going to be slow for a while until the credit crunch is over, but the electronic content in an automobile continues to go up pretty dramatically. We've got well over $15 per automobile, and that's growing at a rate of over 7-8% a year, so even though there's going to be some slowness in the end units, we do believe the electronics content is still a place to be.

Jim:       There is a tremendous, tremendous move going on... and we talk about this almost nightly... with Chinese demand... I think many people feel like, well, it's ON Semiconductor... it's an American company... there might be some China exposure but what really matters is America... That is not the case for your business, is it? It's really got big China exposure...

Keith:     It's got a very big China exposure, into greater China, over 40% of our sales, at this point, go there. So it's a very big presense.

Jim:       And we know that the Chinese have committed a $40 billion stimulus to handsets and to cellphones. That is a market that you are very strong in, isn't it?

Keith:     Yes it is. We've seen a very strong pick up for both the indigenous suppliers there, and also the big names that sell into China.

Jim:       Alright now, on May 7th, Citigroup came out and said, "Orders could accelerate through June. Potential for a healthy 3Q-4Q quarter-over-quarter growth. Well here we are... I mean look, we're in this semiconductor business... this matters... we're a couple of weeks later... Does the Citigroup report make sense?

Keith:     It still makes sense. We've seen backlogs building, and the rate of backlog build increasing over previous quarters, so... So far, at least, it still looks like the demand pick up in Asia is continuing.

Jim:       Okay... May 6th... Webush says, "Management is cautiously optimistic that the current cycle troughed in first quarter." Now, there is a lot of talk, today and yesterday, that maybe we're going to have a double dip... that things are going to get worse... they're going to go back to where they were in the first quarter... That does not look like to be the case from your order book does it?

Keith:     No it doesn't, and I'm not sure I believe in that premise, because the semiconductor market actually corrected more than the end markets pretty dramatically... Q1 being the worst... so, even if there is a demand slowdown in the second half, it's not going to go back to where it was.

Jim:       Alright, in the conference call, you talk about... "During the first quarter of our billing basis, our top five product original customers"... The first one, candidly, I don't know them... "Continental Automotive Systems"... Who is that?

Keith:     They're a European-based automotive conglomerate that actually has been buying a lot of properties over the last few years... and they're a very large supplier of components to the automotive industry.

Jim:       Well, I'll tell you... I learned a lot. Look, one of the things I'm trying to do for everybody... look, they know INTC... everybody's just a second banana to Intel... That's not true. You make very different stuff...

Now, I thought this was interesting, because I care very passionately about balance sheets... MOT stuck you with a lot of debt when they spun you off... It looks like you guys are taking your cash flow and paying down that debt... Tell me about your balance sheet...

Keith:     Absolutely. It continues to improve. I think there's a couple of things I'd let you know... One is... the actual cash interest we are paying is less than 3% on that balance sheet, so...

Jim:       Really?...

Keith:     Yes.

Jim:       Wow... is it that convert, right?

Keith:     Through the converts (i.e., convertible bonds)... correct. But we're looking for opportunities, frankly, where our cash is earning less than 1%, where we can get some discounted buybacks, and we've been doing that... with over $200 million worth of debt buyback going on in the last couple of quarters.

Jim:       Boy, I've got to tell you Mr. Jackson... if you hadn't reported on the worst day for technology since the year began, I think people would have sat up and taken notice of this. This is a great story. Mr. Jackson, thank you so much for coming on Mad Money.

Keith:     Thank you very much.

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