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ON Semiconductor Corporation (NASDAQ:ON) Deutsche Bank 2022 Technology Conference August 31, 2022 6:45 PM ET

Company Participants

Hassane El-Khoury - President and CEO

Thad Trent - CFO

Conference Call Participants

Ross Seymore - Deutsche Bank

Ross Seymore

Good afternoon, everybody. Why don't we get started with the next presentation. We're very pleased to have ON Semiconductor management up here on stage with me of Hassane El-Khoury, who's the President and CEO; and Thad Trent, who's the CFO. So guys, thank you very much for coming.

Question-and-Answer Session

Q - Ross Seymore

Before we get into some of the EV, silicon carbide stuff that I think we might spend a little bit in talking about, why don't we just talk a little bit about what you're seeing in the broader market and some of the transformation that the company has undergone. So I guess for either of you, but probably Hassane, what are you guys seeing on the demand front right now? Consumer weakness earlier this year, you guys have been moving away from that anyway, but that weakness seems to be spreading into other markets. So any sort of update on what you guys are seeing would be helpful.

Hassane El-Khoury

Yes. Look, we - from the weakness side and the consumer market and some of the client compute, we see what everybody else sees. The interesting part though is we don't see it in the backlog, meaning backlog is still there, but we've always said we're not really building to backlog, we're building to our LTSA, and I'll talk a little bit about that why that gives us confidence in the other markets.

So what we've done proactively is we've taken wafer starts down is the worst thing you can do in nonstrategic market, which those are not for us, is you end up with the demand going down, orders canceled or pushed out or whatever, and you have a whip coming in that turns into inventory, it's like the double whammy. So we've been very, very proactive about that. And Pat talked about in the last call, reducing wafer starts, taking that, managing inventory down because we see what everybody sees.

Now what I don't see is that spreading into the auto and in industrial. Obviously, we're very close to auto industrial customers. And I'm talking directly to the OEMs that really set the pace of demand. So not just the Tier 1 or through the supply chain, but directly at the OEMs. They don't see that. They're still way behind on their plans because of the supply. I mean, many of us here, you can go to a dealer and you're not getting a car for another two years. Lead time on a car is two years. That's pent-up demand, right?

I saw one earlier today, you start thinking about signs when you start seeing big posters on the side of the highway saying $5,000 lower than MSRP. Today, you're lucky if you get MSRP. So until that happens, there's no balancing and demand remains strong. And demand remaining strong in automotive, that directly impacts the industrial demand that we still see very, very strong basis.

So, so far, it's just contained with the compute or client compute and consumer. We don't see it spreading. And when I say we don't see it, not just anecdotally, I mean, even cancellations or rebooking, we don't see any of that.

Ross Seymore

I know some of the product types can be very different with sort of the resiliency and all of the other metrics that you have to pass through with qualification for automotive and industrial. But does the weakening in the consumer side add some fungibility that the supply can be catching up demand a little bit faster in the automotive and industrial side?

Hassane El-Khoury

Not. So it is technology-driven in some areas where let's talk about the advanced nodes. When you have a 40-nanometer or 22-nanometer wafer that comes online because the consumer market or the mobile market is seeing softness, that capacity can go to automotive because it's a technology driven.

But when you talk about power electronics or mixed-signal analog, a lot of it is fit for a purpose, which makes it - of course, it makes it proprietary or sticky from our side when you're designed in, but also, to a first order, the fungibility is not there.

Now if you look at even the last 12 months, I think we started talking about we're fully sold out back in Q4 of '21, yet we have managed to increase revenue, and we've done that by walking away from that $210 million in those nonstrategic markets and redirecting that capacity, which translates to more than $210 million in the different markets. So we have been able to do that even within our own footprint in order to maximize the revenue in our strategic market. Now auto and industrial is 66% of revenue, so it's been increasing at the expense of others, but it's not all fungible.

Ross Seymore

You mentioned about that swapping process. That's a perfect segue into some of the transformation that you guys have ongoing. Talk a little bit about how rapidly this transformation has happened. From your analyst meeting a little more than a year ago where you had a 45% gross margin, you guys have already beaten that and raised the target. How much of that is structural change versus cyclical goodness? And how sustainable is it going to be going forward?

Hassane El-Khoury

Yes. Look, from a timing perspective, some things went faster, some things went slower. From a margin and a product mix perspective, again, within that, there are - I see two components. One is that went much faster, and that's the mix shift to what we were talking about. The strength in automotive, the strength in industrial allowed us to accelerate a lot of that transition.

Now on the slow side, we thought by now, we would have walked away from that 10% to 15% of revenue on the nonstrategic noncore business, that dilutive tail of revenue. But here we are walking away, losing $210 million already, and majority of it is still going to be second half of this year or even next year. Back in Analyst Day, we thought, we'll be out of it already. So that's market-driven where customers can't get that supply somewhere else. So with us, that's actually dilutive to our transformation. So when we actually lose that business, it's accretive to our margin will go higher because that business is still dilutive even in a good pricing environment.

Now from the sustainability side, of course, there's a pricing component to the transformation. And that's what I talk about price to value discrepancy where, historically, in the company, we didn't have really good diligence in pricing. And what I found when I walked in the door is, we had some high-volume customers buying a part for $1. That exact same part was being sold at $0.50 for like a broad market customer. That's because when you want to fill a fab, you're going to sell it at whatever cost at that point in time.

So when you leverage everything and you put it at the volume-weighted ASP, you're going to get with that ASP much higher. That's the value, price-to-value discrepancy, that's sustainable because those customers have been buying it for $1, have been buying it for $1 for 10 years, that's the value. Because if they could find it for $0.50, they would have designed that stuff a long time ago. So that price to value discrepancy that we closed, that's sustainable.

Now on top of that, to maintain and have that confidence longer-term sustainability, most of these products are now under LTSA, long-term supply agreements. And just to clarify for everybody, long-term supply agreements are both volume and price. So it's not just the volume and then the price will fluctuate with the market. It's a take-or-pay agreement that we have with our customers that show up that document, the volume predicted over some of the five-year period with the pricing on a per product basis. And some of these LTSAs, I talked about last night, I have about 300 line items.

So the customers not only are taking the products that are the most constrained, but they're coming in and saying, hey, if we're doing the LTSA, I want all my products. I don't want to think about it anymore. So put all of them on LTSA, I'll commit to you now for 200 parts, just make sure I don't get shorted.

Ross Seymore

So you've seen some up cycles and down cycles in this industry over years. How enforceable are the LTSAs? Or is it more the spirit that you enforce? If somebody doesn't need it today, you don't jam them with inventory, but you get them to agree to - like in your five-year deal, they'll take more of it at the back end, less of it at the front end. Is it more the spirit or the object enforceability?

Hassane El-Khoury

That's up to the customer.

Ross Seymore

Wasn't it really up to you, isn't that kind of the?

Hassane El-Khoury

Well, let me explain what I mean. So you're right, we've gone through multiple cycles. And I'll - let's take the latest one, not the one we're in today. 2019, when - the inventory correction year, right, where we thought that was the worst and it was followed by the COVID year. What happened? Backlog disappeared. I didn't get a call. I just woke up, check my backlog, and it was like - disappeared. You'd think it was a glitch, right? So what does the LTSA do? The LTSA gets me a phone call, guaranteed, because these are legal binding agreements with take-or-pay for volume and price.

So as soon as the customer sees the demand saying, oh, in six months, we're going to have that softness or 10% down, they're going to pick up the bad phone, and they're going to call me and go, hey, we see this 10%. We'll take the parts obviously, because of the LTSA. But is there something we can do? And there are a lot of things we can do. Because one, if I didn't build the wafers, that's fine because I'm not stuck with inventory that I have to write off and then that is bad for margin P&L and all the subsequent problems that comes with it. So okay, now you stopped wafers. But how do you make me hold because that's capacity, right?

Then you say, okay, take that 10%, either give me different share. If there's something where we're dual source on some other product that I can use those same wafers at the same capacity, no problem. Or take that and less extend the LTSA for two years. So I get two more years of visibility for a 10% fluctuation. If we're that accurate, I'll take it because it's the visibility to manage the uncertainty in the outer years.

That's what the LTSAs do. What they will not do and won't allow, that's why I said it's up to the conversation, is where you say, I can get that part for now 10% less somewhere else. So I'm just going to move the share. The answer is that's not a market demand driven, that is a choice.

And that is not a choice that I'm going to support because it's not - that's why it's volume and price. So it depends on the scenario, but the LTSA gives that engagement on both scenarios.

Ross Seymore

So after this period of shortage across the industry, you've heard some of the customers, Tier 1s, OEMs, industrial folks, distributors, talk about - they kind of had to take - they were a price taker at that point. They couldn't dictate it after decades of being able to dictate prices to semiconductor companies. The shoe's on the other foot. How sustainable do you think that is? And then for - on a specific question, people have talked about you guys being most - the most aggressive on raising prices, and therefore, potentially burning some bridges with customers.

What's your response to that assertion?

Hassane El-Khoury

Look, it's easy to make assertion. So let me give you the data. We are where we are in the supply because it was always seen as leverage where - I mean, we used to talk about 5% to 10% every year. It's like January 1, ding dong, Happy New Year, 5% reduction. Like what changed in the value of the product from 1 year to the next on the anniversary of the new year? Nothing. It was that expectation, and partly, it's the industry that trained that expectation.

When you have that and you know a product is going to keep going down 5% a year, you're not going to put capacity in that product. You're just going to milk whatever capacity you got. And then fast forward five years, you have this megatrend of EVs and nobody has capacity, and you're four years too late. OEMs have learned that and the awareness is beyond what it has been in any prior dislocation. Because when you have $1 part at negative margin holding up $100,000 vehicle, who cares about a 5% reduction every year, right?

So let's put the - it's not about leverage. It's about, hey, we want to invest. The semiconductor industry wants to invest, but it has to be financially viable. When I walked into onsemi, I had business at minus 15% margin. Who cares? Like I used to tell customers. I can ship you a suitcase full of money and my margin gets better. I won't ship you parts. Like in what world am I going to put capacity for that model.

Now let's talk about the LTSA. When we started in '21, I will be very, very open that some engagements looked like it's leverage. You have leverage over, but we don't have a choice, we have to sign the LTSA. And my commitment was, I guarantee you, you're never going to call me again because I'm not going to be your problem. You go escalate with all of my peers. When I give you an LTSA, I will ship you every product you want on time, every time, and we did that.

So fast forward in '22, we're doing what we call Phase 2 LTSAs now. What does that mean? The same customers that I have in '21, and we have them until '23, '24. They don't need to come here, to come to us if they believe that it was leverage. They approached us and said, here's 20, 30 more parts we would like to add to the LTSA we have, and we want to extend to '25, '26, '27 because that's when our biggest ramp in EVs is going to happen, and we are not going to be empty handed.

So when they come to you, and they ask for that service, and they ask for that commitment, and in return, I say I will invest my CapEx in order to be ready for your ramp, that is a win-win. That is sustainable because it was driven by now the shoe on the other foot, not by me. Maybe it started with us, but it didn't end with us. It ended with the value - acknowledging the value that the LTSA brings and expanding beyond what I even asked for at the beginning, both volume and ASP. So that gives me the sustainability. So the noise that you hear well, onsemi was very aggressive. You know what, take the story I just told you, $1.50. That's a 100% price increase.

But it's not above market. So you have to look at where we are reference to market, not as a percent of price increase because I can argue, for the last five years, you've been getting it half off. Not - I didn't double, you've been getting it half off, and now I'm just adjusting. So from 1%, I acknowledge, some - I'm sure some of the numbers were very surprising to people, and they look at it as, I burn some bridges, but I still have those customers. And the business that we talk about we price ourselves out of the market, I still have most of it. What does that tell you? They either can't get it somewhere else, or they can't get it cheaper somewhere else. So why involve somebody else? That's the key. that's the difference. That's the sustainability of it.

Ross Seymore

It was the area you were most aggressive on the price increases, the part you were happy to price yourself out of the market because they're not core anyway?

Hassane El-Khoury

That's right. That's exactly it. And look, for that part, I mean, we acknowledge we've been very open about it. We price ourselves out of the market. That's how we talk about it. Yet we haven't lost. Well, we lost - by the way, $210 million, average of 24% gross margin. That's in a good pricing environment. That's been very aggressive.

So - and we didn't lose. So that tells you that if we are 2x the market, don't you think somebody would have been like, I'll take that business versus my other low margin. Somebody would have taken it. So we're not that far off.

Ross Seymore

And maybe somebody will in the future.

Hassane El-Khoury

Somebody will.

Ross Seymore

But that's okay. They'll do it 15% gross margin.

Hassane El-Khoury

Exactly. And I was very, very clear, we are not chasing that business down, which means the sustainability of the margin we have today is not at risk for us running after dilutive products or dilutive revenue in order to sustain a fab or a top line. We've been very clear to discount that out of our revenue.

Ross Seymore

But I would think the fact that it's taken longer to exit those businesses, which is the dilutive part, actually makes the handoff when that dilutive part starts exiting that, whatever next year is, I think, $450 million, something like that, you guys talked about. When that happens, the ability to backfill it is greater in the next couple of years than it would have been if it happened quicker.

Hassane El-Khoury

That's right.

Ross Seymore

Six months ago, nine months ago.

Hassane El-Khoury

That's right because we'll have the runway to convert that to usable capacity in the markets we want. That's absolutely, yes.

Ross Seymore

Right, right. So let's talk a little bit about the silicon carbide side. I think we've officially gone 20 minutes without saying that we're still -

Hassane El-Khoury

I am surprised.

Ross Seymore

So you guys held an event up in New Hampshire a couple of weeks ago. And then even prior to that, raised your target from exiting next year at $1 billion run rate to now next year being, I believe, over $1 billion in and of itself. And I think the last data point you gave was a $4 billion, three -year pipeline or backlog however you described it.

Hassane El-Khoury

Committed revenue, not pipeline.

Ross Seymore

Committed revenue. Whatever is better than pipeline.

Hassane El-Khoury

That's right. So it's the same LTSA commitment that I've been describing. It's volume and price.

Ross Seymore

Got you. So what was the core purpose of bringing everybody up to New Hampshire, right? It's great that you have all this business. It's great that you can - was it a show and tell because people doubted your ability to have the capacity?

Hassane El-Khoury

Yes, that's exactly it. It was - I got sick of the fud. Let's just call it for what it is. And I first started with, yes, okay, yields or well, GTAT is this asset or that asset. And we've proven - every quarter, we've proven everybody wrong, right? Then it got to, okay, yes, you're right on everything else, but there's no way you can scale that fast, and I said, yes, we can. We're going to quadruple. That was - at the beginning of the year, we said we're going to quadruple the capacity of GTAT exiting '22. No way, nobody is going to do it. So that's where we started getting a lot of questions about how can you do it?

You can't do it. We decided that, Thad, Parag and I, all right, let's have a field trip to New Hampshire. And where we were, call it, midyear, a little bit over. We're already 3x. You can see the furnaces running. We are in building two where we had - where we held the event, we had the ribbon cutting that morning with the Secretary of Commerce. And Building two is already outputting. So it's a new building in four months prior to the event, it was a call center with carpets and cubes.

So to give you the scale, we were able to convert the building, run it. It was about 60% kind of populated. We're already at 3x the output from when we acquired GTAT, and we said we're not only going to do 4x by the end of this year, we're going to be 5x. So it is the proof point, tangible proof point with walls being manufactured on site that is going to drive our growth over the next few years. That's the proof point that I was looking for, and that's the proof point that everybody attending or everybody who read about it got.

Ross Seymore

Going from exiting next year at $1 billion run rate to over $1 billion or increasing capacity as fast as you are, et cetera, is that the size of the market getting bigger or the size of your slice of the pie or both?

Hassane El-Khoury

Look, I think it's both. I think it's a big market. That - what people are underestimating is the size of the pie. And the pie is a big pie because; one, there's acceleration of road map. We were talking about IGBT and silicon carbide can coexisting with crossover being three, four years from now, to right now, most of - all of the RFQs coming in are silicon carbide. Most EVs are just going to start with silicon carbide. They're still going to be IGBT and we provide both. So for me, it's - I got two horses in that race. But silicon carbide is getting a lot more traction. Everybody is pushing for fast charging.

Level 3 charging has to be silicon carbide. That's how you do it. So the market is getting bigger and not just bigger in size, it's relative to when we would have reached that. So it accelerated a few years. So the market that we thought was going to be two years from now is actually happening much earlier. So that's where the market is bigger. And within that market, we believe our share is also getting bigger because we have been winning incremental revenue under the committed revenue umbrella that I talked about under the LTSA. Not only in automotive, although automotive is the biggest opportunity. But we talked about having LTSAs with 7 of the top 10 renewable energy companies. You can think about it as solar, wind or energy storage systems.

And that, by the way, is booming because the conflict in Europe has accelerated that renewable to get independence of energy continuity. So those customers have come back to us and said, we need 10%, 20%, 30% more in 2023 based on their demand. When you look at blackouts, left and right, we're talking about in California, even here. So a lot of people are going and heavily investing in domestic renewable energy solutions, and we benefit from that. A lot of that is IGBT, but moving into silicon carbide.

Ross Seymore

So when you go to these customers and get them signed up for your silicon carbide parts sticking on that side, what is the capability that ON is bringing that's differentiating you versus some of the competition?

Hassane El-Khoury

Yes. Look, at a high level view in because of technology. Let's start with that. People talk about substrates, no substrate. You win because of technology. And for me, technology is device technology and packaging technology. So the two are necessary. If I get a little bit on the technical side, you can have the best silicon carbide device. If you can get the heat and performance out of the package, you might as well use silicon. You're not going to get the benefit of the technology if you don't have good packaging for power.

So having the two is what is necessary. We have both. We have the devices, and we have a pedigree that goes two decades on high-power modules that we've been doing because we're in the IGBT business. So those are the two that are necessary to win. We have both. We have a very aggressive road map, and we're winning because of our road map.

Now what is very important for scaling within those wins? So you can win a platform with a customer, and the customer says, no, I have three more platforms. They would rather go with us than have to get one or two more suppliers. So the supply assurance that we can provide with the vertical integration from substrates all the way to module gets that fan out within a customer.

So that's the supply chain because, look, everybody got burned in the last two years. How many billions of dollars of revenue did customer - our customers lose because they couldn't get silicon? They can't afford to do that on an EV. You can't have a car because, look, there may be a solution to park the car outside in the parking lot until you get that golden screw. You can't do that with EVs with the batteries sitting there just waiting for a golden screw idled. It will ruin the car.

So they have to make sure they have everything they need in order to build that car when they need it. That's the supply assurance we're able to give. That is what's expanding. I have customers that - after our event in New Hampshire that have come and visit us in New Hampshire to take a look at, hey, this is - again, this is real. How many of these can I get for my LTSA. And we're able to do - to have those conversations with the customers. That's where some of it - they co-invest with us because they don't want to leave anything to chance. Think about what they're doing on the batteries, right? Why wouldn't they do that on the motor driver that drives the car, not just the battery. And that's what - that's the mindset they're doing.

Ross Seymore

So if we sum up the silicon carbide side of things and that if we bring numbers into this. You talked about $1 billion or more next year. And if I remember right, from '23, '24, '25, I think were the three years that you had a $4 billion number. Those are much bigger than you promised before. But if you're doing over $1 billion in the first year, it doesn't seem like it's that hard to get to an aggregate of $4 billion in total. Is that kind of just conservatism as you grow leaving no good deed on fun?

Thad Trent

Look, our LTSAs go farther that as well. As Hassane said, you have to go five, seven, sometimes even more years than that, which gives us that comfort. The other thing is we've got - Hassane mentioned, we've got customers co-investing because we're essentially sold up rated capacity.

So any new capacity that we're bringing on with an LTSA require some type of customer commitment. We're not building this capacity on hope. We're building it based on customer commitments, pricing, volume. And that mitigates the risk as well as we bring on that capacity.

Ross Seymore

And then how do we think about the margins of all of this when you put it together? And you could even pull in some of the transformation stuff with East Fishkill coming early next year. With East Fishkill coming in some of the silicon carbide, which initially will be dilutive to gross margins, how are you thinking about that progression?

Thad Trent

Yes. Look, we've said that the silicon carbide margins at scale are at or above the corporate average, right? In the short term, we have headwinds. We've got about 100 to 200 basis points of headwinds. We think that will peak at about next year. We think by the end of next year, we'll be at parity and back to kind of the corporate average. Now the other thing that we've got hitting us next year is the headwind of EFK, right? So we're providing foundry services to global foundries that's about a 40 to 70 basis point headwind as well. But we've said we'll be able to maintain our margins in this 48% to 50% range.

So you can see we've got other things that we're working on to give us margin improvement that in that range even though we've got these headwinds. That's our fab lighter strategy, that's new products ramping. There's a number of things that we're working on that allow us to feel comfortable that we can stay in that range and then the long term, we'll talk about where we're going to go.

Ross Seymore

And what's the - if you have said that the $450 million that you end up walking away from next year, that's margin accretive from a mix perspective, but the fixed cost coverage aspects would obviously be a little bit of a headwind. Do you see assumption that you backfill that with products that are accretive as well so you kind of get the absence of a low gross margin part and the inclusion of a higher gross margin part converging the fixed cost?

Hassane El-Khoury

Yes, in a perfect world - now it's not all fungible. But in a perfect world, that's what happened. I think that's probably going to be market dependent on what happens, right? What happens in the market next year. But yes, we think we can mitigate those two by offsetting each other.

Ross Seymore

Got you. And the CapEx to build out all this capacity, especially on the silicon carbide side of things, does the CHIPS Act play into that with any beneficial - like you said, you had Gina Raimondo there doing the ribbon cutting a few weeks ago. So clearly, there's some benefits, and we were joking before we actually saw you in a suit at the White House, which is like seeing a unicorn.

Hassane El-Khoury

That's true.

Ross Seymore

Yes. So anyway, I would assume there's a play here CHIPS Act for ON. And if you could talk a little bit about whether it's on you or more of the straight financial side that? What - how does that play on that?

Hassane El-Khoury

Yes. Look, well, first, I didn't own the suit. It wasn't rented and it got FedEx to me because I got the invite to the White House. While I was already on the road. So somebody FedEx my suit to me, which was kind of new. But look, of course, there's a benefit. We are and have been in North America-based manufacturing. We have - we're bringing online a 12-inch fab in East Fishkill. We have an [indiscernible]. We have, obviously, our New Hampshire, the substrate. So we are big presence in North American manufacturing.

So when you look at the CHIPS Act, both sides of it, you have the, call it, the tax side of it for tax investment credit, and then you have the cash investment side of it. And my view is, we are able and plan on being very aggressive to participate in both. Because, look, we have been bringing online capacity.

Now people say, yes, but the CHIPS Act is not retro - is not going to be backfilling the stuff you already spent. And my point is, that's fine. We still have CapEx to spend given our growth. So we'll just catch it at whatever point in time the CHIPS Act is ready to be deployed because although it is signed, there's still some things to hammer out as far as how does it get distributed within states and projects and so on.

So we'll intercept it at whatever point in order to cover forward-looking investment that we still have to make. But one thing I want to be very clear is, it has to fit the corporate strategy. We're not going to do anything following a trailer money that I otherwise wouldn't do without the government trail of money. So that - because I have to live with the operations of it, good or bad, for way beyond kind of the government CHIPS Act.

I believe the two converge, our strategy and the CHIPS Act because we have all the same interest in mind. It fits our strategy. We're already here. So it's not a greenfield. So I think we will be a good recipient, and we'll put it to good use in order to execute what the CHIPS Act was intended for.

Ross Seymore

You had any of the financial implications from that?

Thad Trent

No, I think Hassane nailed it, right? I mean we're putting 12%, 13% of capital. If we do get something, and we plan on getting something, obviously, it offsets that. That's positive. It helps with cash flow. So we'll see how this plays out.

Ross Seymore

And no puts and takes with the 15% minimum tax and whatever that might mean? On one hand, the government is giving and the other one seemingly taking?

Thad Trent

Yes, and it's kind of a rounding enforcing of -

Ross Seymore

Got you. So it does not really matter. What about - and silicon carbide obviously gets a lot of attention. But ADAS is a big thing for you guys with your image sensor business as well just as far as a future growth driver within the automotive realm. Talk a little bit about the image sensor business, the margins on that seem to have improved nicely. It seems like some of your transformative efforts had to be applied there as well.

Hassane El-Khoury

That's right. Look, the transformation of the company, although we talk about silicon carbide and some of the low margin and the mix shift, there's a lot of operational excellence that we have been injecting into the organization, and you've seen some results that are really transformative where you've had whole groups and you look at their margin, which translates also to operating income have been very, very transparent. Now what is that stemming from? One is, again, it all starts with technology. We have the best technology for automotive ADAS built into our image or our cameras. But also, we are in the middle of a mega trend where the number of cameras per car have gone - doubled in the last five years.

So last five years to now, we've doubled the number of cameras. We expect that number to double again in the next five years. So when people talk about, yes, okay, about ADAS, is it tied back to SAAR? That's the other thing we didn't talk SAAR, everybody talks about SAARs, like silicon carbide.

The thing where we disconnect from the SAAR is also on our imagers, where the content, one per car, if you're doubling the number of cameras over the next five years, you can double revenue even if the number of cars are flat, just bright penetration, which we don't expect the number of cars to be flat. So you're getting that double multiplier. You're getting the SAAR increase, plus the doubling through a penetration of Level 2+, that's going to drive the growth, and that's a multiyear growth because we're still in the early innings of ADAS. If you think about it holistically about where the market should be versus where we are today, and that's a multiyear healthy growth given our position in that market and the leadership today.

End of Q&A

Ross Seymore

Got you. Well, unfortunately, we could keep going for a long time, but we are officially out of time. So, Hassane and Thad, thank you so much, and congratulations on the transformation. We're looking forward to seeing the next steps and the years ahead.

Hassane El-Khoury

Great. Thank you.

Thad Trent

Thanks, Ross. Thanks, everybody.

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