| (06/01/2010 7:42 H EDT) LESHAN, China -- On Semiconductor Inc.’s joint IC-assembly and test venture in China outlined its roadmap and expansion plans amid growing but choppy demand for the U.S. chip maker. The Chinese venture, Leshan-Phoenix Semiconductor Co. Ltd., is expanding its efforts in miniature surface mount packages for smartphones and other products. This reportedly includes a new line of small packages for Apple Inc.’s iPhone, sources said. The venture is also looking to move upstream and plans to produce more complex quad flat no-lead plastic packages (QFN). And amid strong demand, the venture is also in the process of expanding its Plant 3 facility. The venture’s other two plants here are running at or near capacity, prompting the need for a new $30 million expansion effort in Plant 3, said B.S. Lee, general manager of Leshan-Phoenix Semiconductor, based in Leshan, China. Leshan is a prefecture-level city in the southern part of the Sichuan Province. Leshan is about 120 kilometers from Chengdu, the capital of Sichuan. Leshan also claims to be the site of the world's largest stone statue of Buddha, dubbed the Great Buddha at Leshan. The huge seated figure measures 71 meters from top to bottom, according to a travel site. Formed in 1995, Leshan-Phoenix was originally a joint venture between Motorola Inc.’s former semiconductor unit and Leshan Radio Co., one of China’s largest discrete IC suppliers. The venture began production in 1996. In 1999, Motorola spun off its discrete IC unit into an independent company called On Semiconductor. At that time, On Semi took control of the joint venture in China. Today, On Semi owns 70 percent of Leshan-Phoenix, while Leshan has a 30 percent stake. The venture provides backend services for On Semi and Leshan. On Semi controls 70 percent of the output from the venture, while Leshan owns the remaining production. Until 2002, Leshan-Phoenix was said to be the largest foreign investor in the Sichuan Province. Then, at about that time, Intel announced plans to build a huge backend facility in Chengdu. Intel, which opened the plant in 2005, is expanding and hiring within the plant. Meanwhile, On Semi (Phoenix, Ariz.) also has backend facilities in Malaysia, the Philippines and other locations. But as time goes along, the Chinese venture has become one of the more successful plants in On Semi’s backend network. On is expanding China also appears to be playing a more critical role for On Semi. For years, Malaysia has suffered from severe labor shortages. Many electronics concerns in Malaysia must import foreign workers. Labor costs have been soaring in both Malaysia and the Philippines. In China, there is an abundance of highly-skilled workers. But labor rates are skyrocketing in Shanghai, prompting Intel and others to move their facilities to Chengdu. Leshan has proven to be a good location for On Semi. In Leshan, ''the labor rates are cheaper than Chengdu,’’ Lee told EE Times in a recent interview at the company’s headquarters here. Lee, who hails from Malaysia, has been with the Chinese venture for 10 years. Previously, he worked for Motorola in Malaysia. Today, the venture, which has some 2,267 employees, has three plants. The facility assembles and tests miniature surface-mount transistors and diodes in the SOT, SOD and SC series packages at this 200,000-square-foot production facility. The first two plants are running at or near capacity. In 2008, the venture began production in Plant 3, which is only at 10 percent capacity now. The company has implemented a $30 million expansion plan to boost the capacity to 30 percent. The first part of the expansion plan will start in July. At present, the venture is producing various devices, which are housed in small outline transistor plastic packages (SOT). SOTs are mature package types, but they are still critical in handhelds and other products. Even SOTs must become ''thinner and thinner’’ for a new class of handhelds emerging in the market, Lee said. At present, the venture is producing SOT953 (without lead) and SOT963 packages. It is ramping up a SOT1123 package. By 2013, the venture will move into the QFN arena. As the venture ramps up, On Semi itself has recently regained its profitable status. And now, On Semi is gaining ground in analog, facing product shortages and is on an aggressive acquisition spree. Following its spin-off, On Semi acquired Cherry Semiconductor Corp. for $253.2 million. Then, starting in 2006, On Semi accelerated its efforts to reshape the company from a commodity discrete supplier into a higher-value analog/mixed-signal vendor. Several years ago, it raised eyebrows by buying LSI Corp.'s 8-inch fab in Gresham, Oregon for $106.5 million. In 2007, On Semi acquired AMI Semiconductor for $894.1 million. The move enabled On Semi to enter the ASIC, custom chip, foundry and other markets. At the time, On Semi also purchased Analog Devices Inc.'s voltage regulation and thermal monitoring products for $148 million Then, in 2008, On Semi purchased Catalyst Semiconductor Inc., a supplier of EEPROMs and related nonvolatile memories, for $121.7 million. Continuing on its buying spree, On Semi recently completed the acquisition of EMI chip specialist PulseCore Holdings (Cayman) Inc. for $17 million. Late last year, On Semiconductor acquired California Micro Devices for $108 million in cash under the terms of a definitive agreement signed by the two companies. That deal is still pending. Choppy demand? Besides Leshan-Phoenix, On Semi is expanding on other fronts in China. It recently announced the expansion of its worldwide network of Solutions Engineering Centers (SEC) with the opening of a new SEC facility in China. Located within the company’s existing Shanghai campus, the new SEC will drive new automotive product initiatives and expand the company's local service capabilities by providing on-site technical expertise. The China SEC will focus on the development of advanced energy efficient solutions for a variety of automotive applications including body, HVAC, powertrain, safety, infotainment and LED lighting. "We expect automotive electronics industry growth in China to easily exceed 20 percent annually for the next five years,” said Andy Williams, ON Semi’s senior vice president and general manager of the company’s worldwide Automotive and Power Group (APG), in a recent statement. In the same statement, David Chow, On Semi’s vice president of Sales for Asia Pacific, said: "China is the world’s largest car market, which has stimulated rapid development of its automotive electronics industry. As indigenous manufacturers have a strong demand for world-leading expertise and localized products and service, our SEC in China is well positioned to ride on this wave to expand our automotive solutions coverage in Asia Pacific.’’ Amid its expansion plans, On Semi is seeing strong demand, but there are concerns. ''Recent distributor and PC checks point to increasing ‘choppiness’ due to European credit issues, which are now morphing into global demand concerns. It seems the notebook ODMs, desktop motherboard makers, and Korean handset players are cutting back on near-term production in an effort to reduce component and finished goods inventory from lean levels back toward hand-to-mouth levels,’’ said Craig Berger, an analyst with FBR, in a report. ''Despite increasing choppiness seen in the PC and handset supply chains, we think On Semi's 2Q revenues are tracking to guidance of $565-$580 million (plus 2–5 percent sequentially),’’ Berger said. ‘’While On is likely seeing some weakening of ASPs due to the devaluation of the Euro, we believe cost savings associated with production in Europe (AMIS acquisition and automotive exposure) positively offset any decline in sales.’’ The company also has cut costs in recent times, which has helped its margins. ''On Semi has pursued many operational improvements in past quarters. On the fab consolidation front, On Semi has consolidated four fabs (one in Phoenix, two in Piestany, and one in Pocatello), and plans to shut down its remaining fab in Phoenix sometime in 2010. These actions are driving higher factory utilization across its fab network and at its flagship Gresham, Ore. fab, a positive,’’ he said. Last month, On Semi announced that total revenues in the first quarter of 2010 were $550.2 million, an increase of approximately 11 percent from the fourth quarter of 2009. During the first quarter of 2010, the company reported GAAP net income of $63.0 million, or $0.14 per fully diluted share. The first quarter 2010 GAAP net income included net charges of $22.3 million, or $0.05 per fully diluted share, from special items. During the fourth quarter of 2009, the company reported a GAAP net income of $68.0 million, or $0.15 per fully diluted share. |
