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ON Semiconductor aims to lead in energy efficiency solutions

September 9, 2010

ON Semiconductor is a premier supplier of high performance, energy efficient silicon solutions. It is enabling energy efficient electronics for a greener world and providing a broad array of products and solutions. It registered revenue worth $583 milllion in 2Q10.

Providing a company overview earlier this week, M. K. Mak, regional vice president of sales for Korea and South Asia, highlighted ON Semi’s leadership in energy efficiency solutions.

Especially, it has no. 1 market share in AC-DC controllers for adapters used in printers, notebooks, game consoles. The  company also expanded its SAM (served available market) as a result of acquisitions.

It also offers 19 GreenPoint reference designs, for LED backlight LCD TVs, all-in-one desktop systems and LED Lighting. ON Semi also increased the fuel efficiency in automotive with infotainment, lighting, powertrain (engine control), and in-vehicle networking products.

This is not all. The company has expanded into emerging applications. It has been witnessing growth in lighting and smart grid, reinforced by synergies with efficient power supplies.

In LED lighting, there is likely to be $2.6 billion LED lighting driver market in 2012, growing at 17 percent CAGR. The growth drivers include LED backlighting in large LCD panels; LCD-TV and notebooks, general lighting and illumination, and automotive lighting.

Smart grid is the other key growth area. As of now, there are 1.3 billion electric meters worldwide with only ~10 percent automated — automatic meter reading AMR and advanced metering infrastructure (AMI).

Within this segment, the SAM is likely to expand, with ~$1.5 average content now projected to grow to $6 in 2012. Some other areas include ASSP (PLC networking modems), power discretes in distributed power generation (wind, solar), EEPROM, SRAM and power line drivers.

ON Semiconductor acquires Sanyo Semiconductor
In the middle of July 2010, ON Semiconductor announced the signing of a definitive purchase agreement providing for the acquisition of SANYO Semiconductor Co. Ltd, a subsidiary of SANYO Electric, and other assets related to SANYO Electric’s semiconductor business. The acquisition is expected to be completed before the end of 2010.

The reasons cited for this acquisition include:

Complementary products, customers and end-markets:
SANYO Semiconductor adds microcontrollers, motor controllers, inverters and other products. ON Semiconductor is strong in N. America and Europe; SANYO is strong in Japan and Asia. Also, it significantly enhances ON Semiconductor’s position in the automotive and consumer markets.

Strengthens market position in Japan and Asia:
The acquisition provides ON Semiconductor with significant market presence in Japan, the world’s second largest semiconductor market. ON Semiconductor will become the third largest US semiconductor company operating in Japan. It also strengthens ON Semiconductor’s position in Korea and other key Asian markets.

Leverages operational excellence to drive cost savings:
The acquisition leverages ON Semiconductor’s successful track record of executing operational restructurings; seven acquisitions, eight fab and two back-end facilities consolidations. ON Semiconductor will drive the manufacturing integration. Also, it has owned and operated a factory in Japan since 1982.

Increased scale and cash flow generation potential:
Pro forma annualized MRQ revenues of $3.5 billion. There is a near term goal to deliver in excess of $30 million in pre-tax income on a quarterly basis from SANYO Semiconductor in approximately six quarters after closing the transaction.

Significant shareholder value creation opportunity:
Acquiring approximately $1.2 billion revenue (based on 2Q’10 annualized) at ~0.5x multiple. This is significantly below recent similar transactions.

The aim is to build a $3 billion+ global market leader, with an:

* Extensive portfolio of high performance, energy efficient silicon solutions.
* Enhanced manufacturing scale, operational and capital efficiencies.
* Expanded addressable markets and world-class customers.

Time permitting, I will add a separate post on ON Semiconductor’s recent extension of its PureEdge clock and timing portfolio.

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