Good day, ladies and gentlemen. Welcome to the ON Semiconductor Second Quarter 2019 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions]. As a reminder, this call maybe recorded. I would now like to introduce your host for today’s conference, Parag Agarwal, Vice President of Corporate Development and Investor Relations. Please go ahead.

Thank you, Chris. Good morning and thank you for joining ON Semiconductor Corporation second quarter 2019 quarterly results conference call. I'm joined today by Keith Jackson, our President and CEO; and Bernard Gutmann, our CFO. This call is being webcast on the Investor Relations section of our website at www.onsemi.com. A replay of this broadcast, along with our earnings release for second quarter of 2019, will be available on our website approximately one hour following this conference call, and the recorded broadcast will be available for approximately 30 days following this conference call. The script for today's call and additional information related to our end markets, business segments, geographies, channels and share count are also posted on our website. Our earnings release and this presentation include certain non-GAAP financial measures. Reconciliations of these non-GAAP financial measures to most directly comparable measures under GAAP are in our earnings release, which is posted separately on our website in the Investor Relations section. During the course of this conference call, we will make projections or other forward-looking statements regarding future events or the future financial performance of the company. The words believe, estimate, project, anticipate, intend, may, expect, will, plan, should or similar expressions are intended to identify forward-looking statements. We wish to caution that such statements are subject to risks and uncertainties that could cause actual events or results to differ materially from projections. Important factors which can affect our business, including factors that could cause actual results to differ from our forward-looking statements, are described in our Form 10-Ks, Form 10-Qs and other filings with Securities and Exchange Commission. Additional factors are described in our earnings release for second quarter of 2019. Our estimates, or other forward-looking statements may change, and the company assumes no obligation to update forward-looking statements to reflect actual results, changed assumptions, or other factors, except as required by law. During the third quarter, we will attend Jefferies 2019 Semiconductor, Hardware and Communications Infrastructure Summit in Chicago on August 27th, Citi Global Technology Conference in New York on September 5th, and Deutsche Bank Technology Conference in Las Vegas on September 10th. Now, let me turn it over to Bernard Gutmann, who will provide an overview of our second quarter 2019 results. Bernard?

Thank you Parag, and thank you everyone for joining us today. Geopolitical and macroeconomic factors impacted our second quarter revenue. Sharper than expected broad-based inventory correction, especially in the automotive market, was the driver of lower than expected revenue in the second quarter. Furthermore, we saw weakness in our communications revenue as we temporarily halted shipments to a major customer to comply with U.S. federal law. Despite headwinds to our top-line during current cyclical downturn in the semiconductor industry, our execution continues to be solid, and we continue to post strong margin and earnings performance. So far, in the current downturn, cyclicality in our revenue and margins has been lower than that of our peer group. Our performance thus far speaks to the transformed nature of our business, and our focus on highly differentiated power, analog, sensor and connectivity products for automotive, industrial, and cloud-power end markets. Key secular trends in automotive, industrial, and cloud-power end markets remain intact, and we continue to make prudent investments to strengthen our competitive position in our strategic end markets, and to further improve our industry leading cost structure. Our design win pipeline in key growth areas continues to expand at a rapid pace. Though the second quarter was challenging from a revenue perspective, current booking trends point towards stabilization in business conditions. Demand trends from automotive customers have stabilized, and bookings from communications customers have improved. We believe that distribution inventory correction should be nearly complete by the end of the third quarter or early Q4 of 2019. Although, we are seeing stabilization in demand at lower level of revenue, we are not seeing much evidence of any meaningful recovery in demand. While we are encouraged by the stabilization in business conditions, we are cognizant of risks arising from unforeseen geopolitical and macroeconomic…

Thanks, Bernard. Our execution remains strong, despite demand weakness in the overall semiconductor market. In the second quarter, we delivered strong margin and earning performance despite strong headwinds from geopolitical and macroeconomic factors. While the near-term business conditions are tepid, the foundation of our business, with exposure to secular megatrends in automotive, industrial and cloud-power end markets remains solid. With strong execution discipline, we are well positioned to navigate through current soft patch in demand. Much anticipated recovery in demand conditions has not materialized yet, but current booking trends point towards stabilization of demand trends. Based on commentary from our distribution partners, it appears that ongoing inventory correction in the distribution channel should be nearly complete by the end of the third quarter or early fourth quarter. While we have a strong visibility into the distribution channel, geopolitical and macroeconomic factors are difficult to forecast. No matter what direction business conditions take, we are well prepared to respond in an expeditious manner. Despite the current slowdown in demand, we continue to make prudent investments to strengthen our competitive position and to further improve our industry leading cost structure. During the second quarter, we announced the completion of our acquisition of Quantenna Communications, a provider of market leading connectivity semiconductor solutions for Wi-Fi. We believe that connectivity capability is a primary requirement for success in the industrial IoT market. As we have announced earlier, we intend to leverage Quantenna’s market leading connectivity capabilities to gain technological leadership in the connectivity market for industrial IoT. At the same time, we will continue to invest in Quantenna to grow its carrier business. Current customer feedback has been very positive and customers are excited about the benefits of the combined of technical, financial, and market resources of Quantenna and ON Semiconductor will bring to…

Thank you, Keith. Based on product booking trends, backlog levels, and estimated turns levels, we anticipate that total ON Semiconductor revenue is expected to be in the range of $1.355 billion to $1.405 billion in the third quarter of 2019. For the third quarter of 2019, we expect GAAP gross margin to be in the range of 35.2% to 36.2%, and non-GAAP gross margin to be in the range of 36.7% to 37.7%. We expect total GAAP operating expenses of $349 million to $369 million. Our GAAP operating expenses include the amortization of intangibles, restructuring, asset impairments, and other charges, which are expected to be $34 million to $38 million. We expect total non-GAAP operating expenses of $315 million to $331 million in the third quarter. The quarter-over-quarter increase in operating expenses for the third quarter over those of the second quarter is driven primarily by the inclusion of Quantenna’s results for the full quarter, process transfer costs related to the 300 millimeter fab at East Fishkill, annual merit increase, and the absence of bonus reversal, which significantly lowered second quarter operating expenses. We expect to see meaningful decrease in Quantenna related operating expenses as we realize targeted synergies, and reduce costs. Offsetting increase in the third quarter operating expenses are savings resulting from tight operating expense control. We anticipate third quarter of 2019 GAAP net other income and expense, including interest expense, will be $38 million to $41 million, which includes non-cash interest expense of $9 million to $10 million. We anticipate our non-GAAP net other income and expense, including interest expense, will be $29 million to $31 million. Net cash paid for income taxes in the third quarter of 2019 is expected to be $11 million to $15 million. We expect total capital expenditure of $125 million to $135 million in the third quarter of 2019. We also expect share-based compensation of $21 million to $23 million in third quarter of 2019, of which approximately $2 million is expected to be in cost of goods sold, and the remaining amount is expected to be in operating expenses. This expense is included in our non-GAAP financial measures. Our diluted share count for the third quarter of 2019 is expected to be 414 million shares, based on the current stock price. Further details on share count and earnings per share calculations are provided regularly in our quarterly and annual reports on Form 10-Q and Form 10-K. With that, I would like to start the Q&A session. Thank you. And Chris, please open up the lines for questions.

[Operator Instructions]. And our first question comes from the line of Ross Seymore with Deutsche Bank. Your line is now open.

As my first, one for Keith. I know you guys are guiding to the basically the same sort of sub-seasonality by about 5 points as everybody else. But last quarter, you talked about an improvement in bookings that gave you confidence in the back half. Now you're talking more about a stabilization and you think the inventory corrections can be done at the end of this quarter and next. I guess what changed quarter-over-quarter, is it just the obvious trade war tensions rising? And what gives you the confidence that the projection this time is something that you're willing to make after last time proving too optimistic?

Yes, I think without question two things happened during the second quarter. The geopolitical piece was much more pronounced than anticipated. And as the quarter went on, as you are aware, those impacts got more significant. The second piece is, we did see more inventory correction going on than we had anticipated based on backlog trends going into the quarter at some of the OEM sides as well. So the combination weakened during the quarter. And I think that's what led to the results we had. As we look forward in dialogue with the customers and looking at what's going on geopolitically, things have been stabilizing more. Certainly the biggest impact from U.S. sanctions, we believe we comprehend at this stage which we did not have going into the second quarter. And so, we've got more confidence in what I will call stabilization at this point.

That's great. And as my follow up question, one for Bernard, on gross margin and inventory. I know you talked about bringing inventory down in the third quarter. Can you talk a little bit about what that's doing to your gross margin in the near term? And now that we have the GLOBALFOUNDRIES acquisition of 300 millimeter fab as well as the Quantenna acquisition, talk about the pass to the low-40s gross margin target? Does that good expedited? Any sort of updates on the steps we should follow over the next year or so towards that 43% target you laid out at your analyst meeting?

Sure, Ross, thank you. So inventory corrections in the third quarter -- internal inventory correction is expected to occur but on a mild basis. We don't expect that, that will have a significant impact on our gross margin and as you can see our guidance for overall gross margin is slightly better sequentially than Q2. Definitely the -- both the acquisitions that we announced this quarter of Quantenna and of the phased approach for East Fishkill should be tailwinds that will help us achieve our gross margin target for 2023. So we feel pretty good about those. And we’ll continue with our normal 50% follow through on incremental revenue in the short-term. It’s been a little bit of a headwind. But we expect that to act as the inventory correction in the secular drivers to take course. So we expect that, that will continue also being a significant help.

And our next question comes from line of Chris Danley with Citigroup. Your line is now open.

I guess one more question on macro. At least according to Twitter we’ve got another 300 billion in tariffs coming down the pike here in the next month. How do you think that impacts you guys and did your guidance change after the date came or do you think that there could be a little bit of downside out there?

We saw the tweets as well and the reactions to it. I think our belief is that this is comprehended in the guidance that we’ve given. They are tariffs and the tariffs themselves have not been the issue for our revenues so far. What we expect to see is potentially some market share changes from our customers as a result of this. But the overall end markets, I would not expect significant destabilization.

And then for my follow-up just to drill down on a couple of Ross' questions. So on inventory what's I guess the goal for your internal inventories and when do you think you would get there? And then on OpEx, can we think OpEx to drift down on the dollars basis for the next couple of quarters as you guys start to squeeze some synergies?

I mean actually in reverse the -- the OpEx, we expect those to stabilize, and in 2020 come down as we get the benefits of the synergies that we talked about for Quantenna, which we talked about being $26 million, about $16 million of those being in OpEx and about $10 million in COGS. The inventory goal in the mid-term I expect those to come down to about 120 days and right now we are at 132 when you per forma that for Quantenna for the full quarter.

Thank you. And our next question comes from the line of Vijay Rakesh with Mizuho. Your line is now open.

Just a couple of questions. When you look at the China, so I was just wondering what your content is on orders in general in China now and how do you see the EV market going into next year?

On EV we expect continued growth despite the macroeconomic conditions and number of cars sold globally. We expect that percentage to continue to rise and it will be led in China. So we would be expecting some recovery there in China for automotives on that basis. Globally, though, we're not looking for a large pickup in total units of cars sold.

And in terms of content in China?

From a content perspective, for the electric vehicles, it’s up to about $400 per battery car. And then if you move to a Level 2 ADAS systems, you get another $150 per car from a year-on-year basis. So pretty significant content changes.

Got it. And you’ve talked about Quantenna’s contribution in the September quarter and I assume that’s again well above your corporate today, right? Thanks.

So Quantenna, we are not disclosing the details, we normally don't disclose customers or individual sub-end markets. It will be integrated within our ASG Group. And we believe we're on track with the synergy and the integration plans. And as we mentioned in the call, the market for Wi-Fi has also suffered the same weaknesses on the macroeconomic and inventory corrections. And therefore, we talked about being a mildly dilutive in the third quarter, but on plan with the long-term plans.

Thank you. And our next question comes from Vivek Arya with Bank of America Merrill Lynch. Your line is now open.

Thanks for taking my question. I'm curious how you're managing utilization in Q3? And now what will help gross margins recover from here? Will it be an improvement in mix? Are there any other operational things that you are putting in place? It was good to see gross margins kind of hold in there in Q2. But I'm just wondering what are the drivers from hereon to your longer term goals?

The same ones that we have elaborated in the Analyst Day for the long-term. The mix effect, the follow through on the incremental revenue, manufacturing cost savings, and some divestitures in small scale. And we also talked about the two different -- the two acquisitions we just closed in this quarter. Quantenna should be accretive to gross margin and so should the East Fishkill acquisition. In the short-term, we also take the normal practical cost reductions more in-sourcing and tighten the belt just on discretionary spend even at the COGS level. And that should also help us shore up the numbers in the short-term.

And then on the computing business for Q3, I believe Keith you mentioned that it could be down. I'm trying to reconcile that with stabilization in the PC market and just the growth, because a new CPU is coming out in Q3. Could you give us a sense of where you're seeing the headwind, is it more on the unit side, is it more on the content side in your computing business? Thank you.

Yes, it is definitely related to units and definitely has some of the macroeconomic impacts. One of the things we do believe is that the Q2 numbers had some significant amounts of ship aheads over the concern with tariffs being imposed and increased.

Thank you. And our next question comes from the line of Anthony Stoss with Craig-Hallum. Your line is now open.

Most of questions were asked, but maybe you can provide more color on the size or expected size of the silicon carbide business in '19 and where do you see it go for 2020? And also just to be clear, your comments related to Huawei that you have more visibility, does that include your ability to ship to the comm side? Thanks.

Taking the last one first, I think we do have more visibility and our ability to ship into the comms pieces of that. Clearly there is still impact on the 5G portion but the handset business seems to be an area that can be shipped. So more clarity on Huawei at the stage and of course we are applying for further exemptions as you would expect. From a silicon carbide perspective, we do see that continuing to grow at an extremely rapid pace. We're not expecting ‘19 to be in the hundreds of millions of dollars, but certainly towards a triple-digit millions.

Our next question comes from the line of Matt Ramsay with Cowen. Please go ahead..

Yourselves and other companies obviously with the automotive challenges in the industry have given a little bit more color specifically on the market in China. I wonder if you guys might sort of remind us what percentage of your automotive business is China consumed today roughly and just how that business might be trending differently than some of the business in automotive outside of China? Thank you.

Well trend-wise actually I mentioned that we’re seeing a stabilization. That market took a pretty steep double-digit drop on a year-over-year basis globally. And so, it's a very significant and most significant action on a worldwide automotive basis. We think that China overall, when you look at the numbers, contributes around 25% or so of total automotive. That is an estimate because clearly we ship things to other parts of the world that are still being imported in China but roughly a quarter.

And as a follow-up from us. You had mentioned Keith in your commentary that the customer feedback around the content and deal was quite strong. And I wonder if you might elaborate on that and what particular verticals or what type of customer engagement there’s been in discussions since you closed the deal that might shed the light on where you're going with that technology stack? Thank you.

Yes. So their existing customer base, as you aware basically, is the ones that we would have been referencing there. They are looking at I guess more assured supply, having a stronger financial backing there, from the span out piece we've been talking to industrial IoT customers about our plans to expand offerings into that portion of the business and they’ve also been quite excited by taking some high-performance solutions and combining it with the rest of our IoT solutions.

Thank you. And our next question comes from the line of Ambrish Srivastava with BMO. Your line is now open.

This is Jameson calling in for Ambrish. So first I was wondering if you guys could comment on your lead times in power, where they are now versus the peak? And also what are they doing compared to normal levels?

Our lead times still continue to be kind of mid-teens. This is down definitely from a year ago levels by four or five weeks, and slightly longer than what we would call normal for the industry, as there's still some constraints in our power business.

Okay, great. Thanks. And then my follow up is regarding your East Fishkill fab. I was wondering with the lower demand that you guys are seeing, does this affect any ramp of any sort there? Do you plan on just point things in or pushing things out given the increased supply that you’ll have from there? Thank you.

No, it doesn't change any of our expectations there. We're still moving full steam ahead. As I mentioned earlier on the EV trends, the automotive trends and the 5G trends, we're expecting significant and continued growth in those power businesses next year. So there is no changes anticipated there.

Thank you. And our next question comes from a line of Mark Delaney with Goldman Sachs. Your line is now open.

Yes, good morning. Thanks very much for taking the questions. First question is related to pricing, in prior calls I think the company commented?

Pricing in general terms, we still are seeing a pretty benign environment as compared to what we've seen previous years. So no change from that.

Yes, I think we lost him.

Chris, can you move on to the next caller, please?

Thank you. And our next question comes from the line of Tristan Gerra with Baird. Your line is now open.

Hi, good morning. In terms of Quantenna being impacted by the macro trend, was there also any company-specific events such as any share loss that would have impacted revenue for Quantenna versus your prior expectation? And also if you could quantify perhaps the EPS dilution that you expect from Quantenna in the quarter?

So as I mentioned, we did visit all of Quantenna's customers since the acquisition. And without exception, they have all cited softness in their business and no share loss of any kind. On the earnings per share, like we said, there’s not meaningful contribution in quarter three.

Okay, great. And then could you comment on your utilization rates that's embedded in your Q3 guidance?

Yes, they're low 70s. It should be very similar to Q2.

Thank you. And our next question comes from a line of Christopher Rolland with SIG. Your line is now open.

Hey, guys. Thanks for the question. In your opinion and in comparison to others, why do you think it took so much longer for your justice to start making these inventory adjustments here? Was it -- do you think it was the long lead times that you guys had or are there some more market specific issues or end product specific issues that do you guys have at others don’t?

I do believe mix is a contributor to sort of behaviors there. Companies with more power content have seen less of the corrections and seen it later.

Understood. And maybe you guys can talk about cycle times and if you expect the lead times to approach cycle times, is that something you are contemplating in this down cycle or not?

On a product basis, you certainly have seen a narrowing of the gap between manufacturing cycle times and lead times; don't normally collapse inside our manufacturing lead times in good markets or bad.

Thank you. And our next question comes from the line of Craig Ellis with B. Riley FBR. Your line is now open.

Yes. Thanks for taking the questions. I wanted to pose a couple of intermediate term questions on a few of the end markets. Keith, as you look at automotive, nice to see it growing in the third quarter. Do you sense the underlying dynamics in that business content gains out-rising EV quotient et cetera, meaning that this is an inflection quarter where we could be back to sustained growth or are there some headwinds coming in the fourth quarter that would mean it's more bouncing along the bottom?

In terms of units sold, we don't see a significant improvement in the fourth quarter globally. We're not looking for that. We do think that the number of models adopting EV and the number of models adopting Level 2 ADAS will be increasing for the 2020 car model years. And so, we should see that offset even flat or slightly down in Q4 total unit numbers. So we are expecting a return to growth as you exit this year.

That’s helpful. And then the follow-up is on cloud-power. So it sounds like the base station business is getting some strong traction. Server isn't helping just because of ship aheads. The first part of the question is, when do you think those will both be working in your favor? And on base stations specifically, as you interact with their customers, what are the unit numbers for base station builds that they are talking about for this year and next year? Thank you.

When we talk to growth, we -- over 60% growth year-over-year in those cloud-power and applications. And so, yes, very, very significant growth. We don't actually have any units I can give you specifically in the forecast however.

And timing on when server can help cloud-power?

I’m expecting that to be certainly as we enter 2020.

Thank you. And our next question comes from Raji Gill with Needham and Company. Your line is now open.

A question on automotive. If we assume auto continues to grow in Q4, it looks like the segment will be down about less than 2%. I think you had indicated that overall light vehicle production is going to decline 3% to 4%. So I just wonder if you could give a sense, is that kind of roughly what you are expecting and how does that gets reconciled with dollar content gains in power and ADAS, if it is the case of your slight improvement over the unit decline, not as great, so just I would like to get some color on that?

So again, I think it really is the on-content story there, not the units. The other piece of what you've seen so far this year is inventory correction at the suppliers to the automobile industry. So the units themselves can be down 2%, 3% or whatever, but the inventory piece, the inventory correction piece contributes to the rest. And as I mentioned before, I do expect as we get into Q4, the additional content story will take over and you'll see continued growth for us.

That's helpful. So my follow up question, you talked about booking trends pointing towards stabilization. Is this mainly based on your distributors, your customers in China who have basically said we’ve finished inventory correction and we're going to at least kind of rebuild slowly. Or just kind of characterize what's driving the stabilization in bookings? And just purely once we're done with inventory correction, we're going to go bounce -- we're going to be bouncing off the bottom from hereon out? Just any insight on that?

Yes, a couple of comments. One, we did mention that we expected continued distribution inventory declines in the third quarter. And we think that will be about the end of it. So it's really not a big just destocking change in attitude. We have seen stabilization actually increases from backlog in China, whereas they were declining pretty rapidly beginning of the year. Those now look to be done with the inventory correction and starting to increase.

Thank you. And our next question comes from the line of Harlan Sur with J.P. Morgan. Your line is now open.

Good morning. Thank you for taking my question. Maybe just a follow-up on that previous question. So on the weaker industrial trends, especially Greater China, you guys starting to see signs of stabilization. Any specific sub-segments where you are starting to see this stabilization, factory automation, building automation, any color here would be great?

It's across the board in China, that kind of starting to see the increases there. So no one market stands out.

Okay. And then on -- the distribution inventory came down nicely in Q2, will be down again in Q3, resales were up sequentially in June. So relative to, let's say, your flattish guide for Q3 ex-Quantenna, how much are you anticipating resales up sequentially in Q2? It looks like autos would be up. Do you expect industrial resales to be up sequentially as well?

We are expecting to see sequential increases in the resales. They will match pretty much the commentary I gave by market. We see normal ramps in communications in the third quarter, we'll see some ramps on the automotive side -- excuse me, but those will be reflecting Q3 extra resales will be reflecting the market commentary.

Thank you. And our next question comes from the line of Harsh Kumar with Piper Jaffray. Your line is now open.

I wanted to revisit the question on OpEx. As you look to integrate Quantenna, I'm assuming you're September guidance Quantenna OpEx bode into it. How should we think about the sort of synergies picking in? And to what extent do you -- is there a goal that you would give us on a percentage basis with how we should think about on an OpEx basis longer term?

So our long-term goal for OpEx is the same 21% as we have elaborated in our Analyst Day. We are on track to do the plans for synergies for Quantenna. When we announced Quantenna we talked about synergies being about $26 million, about $16 million of those in OpEx and $10 million in COGS. And that will be coming in and become meaningful in 2020.

Okay. And then for my follow-up, I was curious if you could size how much business you are not able to do with Huawei as you look to get these licenses. If there is any color you could give us on that front that would be helpful?

We normally don't give any details on specific customers. But as we said in our prepared remarks, we have partially resumed the shipments on to the customers that were affected.

Thank you. And our next question comes from the line of Shawn Harrison with Longbow Research. Your line is now open.

On the commentary about distribution and the inventory corrections, I guess that commentary seem to be a little bit ahead of the more negative tone you had last week. And I was wondering if your inventory corrections maybe ending earlier as a function of the power products you sell being in higher demand or managing inventories a little bit more aggressively than others?

Yes. As I mentioned, certainly mix has an impact on what goes on there, but we've also talked over the quarters about how we have a little better control system and much better visibility. So reacting appropriately and never getting too overstocked is also a piece of that equation.

And then as a follow-up if I may. Bernard, free cash generation this year is probably a little bit light versus typical curve. Maybe you could talk about how you would expect to see free cash flow generation in the second half of the year?

Typically, if you look at seasonality of our free cash flow, it is back-end loaded, typically in the third and even more meaningful in the fourth quarter. So we expect to see some catch-up playing throughout the rest of the year.

Thank you. And our next question comes from the line of Chris Caso with Raymond James. Your line is now open.

Yes. Thank you. Good morning. Just a question, following up on distributor resale. And, obviously, you and everyone else are reporting on a sell-in basis now. Can you help us to quantify how much the distribution inventory reduction has been a headwind in the second quarter and what's contemplated in your third quarter guidance, how significant is that?

So in both quarters there is significant reduction contemplated. And I don't know that we're giving specific numbers there, Chris. But certainly they are meaningful and we expect leaving the third quarter to be toward the lower end of our normal operating guidance for just the inventory.

Right. As a follow-up then, any comments about how we should look about -- look at December. And obviously, there's a lot of moving pieces on the macro. But with what you said on distribution inventory, I suppose that would be a tailwind as sell-in and sell-out converge. Any other things we should be thinking about with respect to December?

We only give guidance one quarter at a time, but I would reiterate that we expect the distribution inventory correction to be largely over in Q3 of this year.

Thank you. And our last question comes from the line of Craig Hettenbach with Morgan Stanley. Your line is now open.

Yes. Thank you. A question for Keith on autos and understanding it's a very challenging backdrop, particularly in China. But it's also unusual in the quarter that's reported to see a big delta. And so, if you can just give some color in terms of this cycle. What you're seeing from kind of Tier 1 suppliers and OEMs and how they may be managing inventory that led to a much bigger drag in Q2?

Yes. Our lot of dialog occurred there, as you might have expected, and I do believe that many of the auto suppliers remained more optimistic longer than I have seen in the past, and then decided to take some fairly decisive inventory corrections as they got through the second quarter. So from my perspective, that's what's different this Q2 versus any of the others we've experienced.

Got it. And then just a quick follow-up, you've commented about distribution inventory and expectations into Q3, any thoughts from an OEM perspective. I know that's been a little bit of a drag as well, but just how you see OEM inventory into Q3?

Again, this is more qualitative than quantitative as we talk to our customer base and particularly, in the auto sector. We think they are largely going to be corrected at around this same time into Q3 to beginning of Q4.

Thank you. And that does conclude today's question-and-answer session. I would now like to turn the call back to Parag Agarwal for any further remarks.

Thank you, everyone for joining the call today. We look forward to seeing you at various conferences during the quarter. Goodbye.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program. You may all disconnect. Everyone have a great day.