ON Semiconductor Announces Changes to Distributor Revenue Recognition

Revenue recognition will occur at the time the company ships products to distributors starting with the first quarter of 2017

PHOENIX--()--ON Semiconductor Corporation (Nasdaq: ON) (the “Company”) announced today a change in its existing accounting estimates related to distributor revenue and allowances. Effective January 1, 2017, the Company will recognize revenue at the time the Company ships products to distributors with appropriate provisions for future price adjustments and returns (the “sell-in” method).

For the first quarter of 2017, the Company will provide the quantitative impact to its financial results associated with the transition to the “sell-in” method. As a result of the transition to the “sell-in” method, the Company expects to recognize significant one-time adjustments to various line items in its consolidated statement of operations for the quarter ended March 31, 2017, including the reported amounts of revenue, gross margin, operating margin, income before income taxes, net income and net income per share. Except for these one-time adjustments, the Company does not expect the transition to the “sell-in” method to have any material impact to the Company’s results for the quarter ended March 31, 2017.

Prior to transitioning to the “sell-in” method, the Company utilized the “sell-through” method pursuant to which the Company deferred the recognition of revenue until distributors reported that they had sold the Company’s products to end customers. The Company historically has utilized the “sell-through” method due to its inability to reasonably estimate the provisions for future price adjustments and returns necessary for “sell-in” revenue recognition. As a result of improvements in the Company’s systems and processes for sales into the distribution channel implemented during the first quarter of 2017, the Company concluded that it is now able to reasonably estimate returns and pricing concessions such as ship and credit rights. Therefore, commencing with first quarter of 2017 and for all periods thereafter, the Company will recognize revenue at the time the Company ships products to distributors with appropriate provisions for future price adjustments and returns. This change in estimate does not affect sales which originate through the systems and processes of Fairchild Semiconductor International, Inc. (“Fairchild”), which the Company acquired in September 2016. The systems and processes of Fairchild enable the Company to estimate up front the effects of returns and allowances provided to the distributors and thereby record the net revenue at the time of sale to distributors related to a legacy Fairchild system and process. The impact of this change will be that revenue from both legacy ON Semiconductor and Fairchild will be recognized upon shipment to the distributor in accordance with the “sell-in” method.

About ON Semiconductor

ON Semiconductor (Nasdaq: ON) is driving energy efficient innovations, empowering customers to reduce global energy use. The company is a leading supplier of semiconductor-based solutions, offering a comprehensive portfolio of energy efficient power management, analog, sensors, logic, timing, connectivity, discrete, SoC and custom devices. The company’s products help engineers solve their unique design challenges in automotive, communications, computing, consumer, industrial, medical, aerospace and defense applications. ON Semiconductor operates a responsive, reliable, world-class supply chain and quality program, a robust compliance and ethics program, and a network of manufacturing facilities, sales offices and design centers in key markets throughout North America, Europe and the Asia Pacific regions. For more information, visit http://www.onsemi.com.

ON Semiconductor and the ON Semiconductor logo are registered trademarks of Semiconductor Components Industries, LLC. All other brand and product names appearing in this document are registered trademarks or trademarks of their respective holders. Although the company references its website in this news release, information on the website is not to be incorporated herein.

Cautionary Note Regarding Forward-Looking Statements

This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements, other than statements of historical facts, included or incorporated in this document could be deemed forward-looking statements, particularly statements about the future financial performance of ON Semiconductor. Forward-looking statements are often characterized by the use of words such as “believes,” “estimates,” “expects,” “projects,” “may,” “will,” “intends,” “plans,” or “anticipates,” or by discussions of strategy, plans or intentions. All forward-looking statements in this document are made based on our current expectations, forecasts, estimates and assumptions, and involve risks, uncertainties and other factors that could cause results or events to differ materially from those expressed in the forward-looking statements. Among these factors are our revenues and operating performance; economic conditions and markets (including current financial conditions); effects of exchange rate fluctuations; the cyclical nature of the semiconductor industry; changes in demand for our products, changes in inventories at our customers and distributors, technological and product development risks; enforcement and protection of our IP rights and related risks; risks related to the security of our information systems and secured network; availability of raw materials, electricity, gas, water and other supply chain uncertainties; our ability to effectively shift production to other facilities when required in order to maintain supply continuity for our customers; variable demand and the aggressive pricing environment for semiconductor products; our ability to successfully manufacture in increasing volumes on a cost-effective basis and with acceptable quality for our current products; legislative, regulatory and economic developments; competitor actions, including the adverse impact of competitor product announcements; pricing and gross profit pressures; loss of key customers; order cancellations or reduced bookings; changes in manufacturing yields; control of costs and expenses and realization of cost savings and synergies from restructurings; significant litigation; risks associated with decisions to expend cash reserves for various uses in accordance with our capital allocation policy such as debt prepayment, stock repurchases, or acquisitions rather than to retain such cash for future needs; risks associated with acquisitions and dispositions (including from integrating and consolidating and timely filing financial information with the SEC for acquired businesses and difficulties encountered in accurately predicting the future financial performance of acquired businesses); risks associated with our substantial leverage and restrictive covenants in our debt agreements that may be in place from time to time; risks associated with our worldwide operations, including foreign employment and labor matters associated with unions and collective bargaining arrangements, as well as man-made and/or natural disasters affecting our operations and finances/financials; the threat or occurrence of international armed conflict and terrorist activities both in the United States and internationally; risks and costs associated with increased and new regulation of corporate governance and disclosure standards; risks related to new legal requirements, including laws, rules and regulations related to taxes; risks involving environmental or other governmental regulation; and risks associated with our recent acquisition of Fairchild, including: (1) IP litigation matters relating to Fairchild and litigation challenging the transaction; (2) our ability to retain key personnel; (3) competitive responses to the transaction; (4) unexpected costs, charges or expenses resulting from the transaction; (5) adverse reactions or changes to business relationships resulting from the transaction; (6) our ability to realize the benefits of the acquisition of Fairchild; (7) delays, challenges and expenses associated with integrating the businesses; and (8) our ability to comply with the terms of the indebtedness incurred in connection with the transaction. Additional factors that could affect our future results or events are described under Part I, Item 1A “Risk Factors” in our 2016 Annual Report on Form 10-K filed with the SEC on February 28, 2017 (“2016 Form 10-K”), Quarterly Reports on Form 10-Q, and Current Reports on Form 8-K. You should carefully consider the trends, risks and uncertainties described in this document, the 2016 Form 10-K and other reports filed with or furnished to the SEC before making any investment decision with respect to our securities. If any of these trends, risks or uncertainties actually occurs or continues, our business, financial condition or operating results could be materially adversely affected, the trading prices of our securities could decline, and you could lose all or part of your investment. Readers are cautioned not to place undue reliance on forward-looking statements. We assume no obligation to update such information, except as may be required by law. All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by this cautionary statement.

Contacts

ON Semiconductor
Kris Pugsley, 312-909-0661
Corporate Communications / Media Relations
kris.pugsley@onsemi.com
or
Parag Agarwal, 602-244-3437
Vice President Investor Relations and Corporate Development
investor@onsemi.com

Contacts

ON Semiconductor
Kris Pugsley, 312-909-0661
Corporate Communications / Media Relations
kris.pugsley@onsemi.com
or
Parag Agarwal, 602-244-3437
Vice President Investor Relations and Corporate Development
investor@onsemi.com