Ladies and gentlemen, thank you for standing by, and welcome to the ON Semiconductor Third Quarter 2019 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. [Operator Instructions] I would now like to hand the conference over to your speaker today, Parag Agarwal, VP, Corporate Development and Investor Relations. Please go ahead, sir.

Thank you, Sydney. Good morning, and thank you for joining ON Semiconductor Corporation’s third quarter 2019 quarter results conference call. I am 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 2019 third quarter earnings release, 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 includes certain non-GAAP financial measures. Reconciliation 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’ll 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 the third quarter of 2019. Our estimates, 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 fourth quarter, we will attend NASDAQ Technology Conference in London on December 3 and Deutsche Bank AutoTech Conference in San Francisco on December 10. Now let me turn it over to Bernard Gutmann, who will provide an overview of our third quarter 2019 results. Bernard?

Thank you, Parag, and thank you, everyone, for joining us today. We saw stabilization in business trends in the third quarter. We believe that much of the stabilization was driven by normalization of inventories in the supply chain as both distributors and OEMs have realigned their inventory in line with lower end market demand. While we have seen normalization in supply chain inventories, end market demand signals remain weak. Geopolitical and macroeconomic factors still weigh on demand, and visibility into demand remains poor. Despite a lukewarm business environment, key secular mega trends driving our business remain intact, and we are making long-term investments to improve our competitive position in our strategic end markets and to improve our industry-leading manufacturing cost structure. We expect that the current downturn will not detract us from our long-term goals, and we will continue to invest to position the company for long-term success. Current bookings are trending along historical seasonal patterns, but as I indicated earlier, we are not seeing any strong evidence of recovery in end market demand. Macroeconomic data from major economies point towards tepid industrial activity. Global automotive market continues to be soft, but we are continuing to see strong content growth for our products in automotive market. We believe the primary driver of stabilization in our business has been the normalization of channel inventories with our distributors and OEMs. Based on anecdotal data, it appears that the supply chain inventories have normalized largely, and we don’t expect any more inventory digestion in the near term. While stabilization in business trends and normalization of supply chain inventory are encouraging, risks from unforeseen geopolitical and macroeconomic events continues to be an overhang. We are managing our business in line with prevailing risks and business conditions. We are tightly controlling our operating expenses, and…

Thanks, Bernard. While business conditions remain challenging, we continue to execute on our strategy of focusing on our key strategic markets and investing in our operations to enhance our industry leading cost structure. The current slowdown in demand, which is largely driven by macroeconomic and geopolitical factors, does not change our view on our long-term growth potential. With ongoing investments in product development and in our 300 millimeter East Fishkill fab, we intend to emerge even stronger out of the current downturn. Key secular trends driving our business remain intact, and our momentum in our key strategic markets continues to accelerate. Despite the current slowdown in end-market demand, we continue to see meaningful increase in our content in automotive, industrial, and cloud-power applications. We believe that automotive, industrial and cloud-power end markets will be among the fastest growing semiconductor end markets for a long time. In the automotive market, we believe that accelerating adoption of electric vehicles and active safety should drive strong growth in our power semiconductor and sensor businesses. In the industrial market, we are seeing strong traction for our power semiconductor products, driven by higher power efficiency requirements for industrial systems. In the cloud power market, we are seeing robust growth for our analog power management products for servers and power semiconductors for 5G infrastructure markets. In the near-term, we continue to navigate through an improving, although still challenging business environment. Although revenue has stabilized, end market demand visibility is low as macroeconomic and geopolitical factors continue to weigh on outlook. Customers continue to be cautious. Based on commentary from our distribution partners, it appears that inventory correction in the distribution channel is largely complete. With normalization of supply chain inventories, we are seeing some degree of normal seasonality in our business. In the third quarter, we…

Thank you, Keith. Based on product booking trends, backlog levels, and estimated turn levels, we anticipate that total ON Semiconductor revenue is expected to be in range of $1,350 million to $1,400 million in fourth quarter of 2019. For fourth quarter of 2019, we expect GAAP and non-GAAP gross margin between 35.7% to 36.7%. We expect total GAAP operating expenses of $344 million to $ 364 million. Our GAAP operating expenses include amortization of intangibles, restructuring, asset impairments, and other charges, which are expected to be $32 million to $36 million. We expect total non-GAAP operating expenses of $312 million to $328 million in the fourth quarter. The anticipated quarter-over-quarter increase in operating expenses for the fourth quarter over those of the third quarter is driven primarily by four extra days in the fourth quarter as compared to those in the third quarter. We anticipate fourth 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 fourth quarter of 2019 is expected to be $14 million to $18 million. We expect total capital expenditures of $105 million to $115 million in fourth quarter of 2019. We also expect share based compensation of $17 million to $19 million in fourth 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 GAAP diluted share count for fourth quarter of 2019 is expected to be 414 million shares, and our non-GAAP diluted share count is expected to be 412 million shares, based on our 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, respectively. With that, I would like to start the Q&A session. Thank you and Sydney, please open up the line for questions.

[Operator Instructions] And our first question comes from Ross Seymore with Deutsche Bank. Please proceed with your question,

Good morning, guys. First question is on the revenue side of the equation. It’s good to see you guys were in line and then are guiding seasonal. But I wonder about the seasonal guide given what we’ve heard from other broad-based players were largely subseasonal and for some of the players significantly so still persists. So what do you think that gives you the comfort to be seasonal in the fourth quarter?

Ross, I think it’s mostly the content gains we continue to have. And as we mentioned, the automotive piece of our business should be up. We’re seeing some recovery in Asia there. And with our exposure in content, we think that may give us a little better lift. And then, quite frankly, we’ve done a very good job in getting inventories in the supply chain in place to enable a more normal environment.

Okay. Thanks for the color. Then switching one for you, Bernard, over on the gross margin side of things. It was a little bit less than what you guided to. I know you gave three reasons for that. Could you give us a little bit of color on those three reasons, the onetime or the ASPs and the utilization? And as we go into the fourth quarter, it looks like it’s up a little bit. I assume that’s just the onetime reversing itself. But any color on what’s happening there? If you view all these moving parts to be temporary? And do any of these things change your longer-term trend towards the four handle?

Thank you, Ross. So I’ll start from the latter part. We don’t believe this affects us in the long term. The secular drivers and the reasons for growth are the same. There is no structural changes that prevent us from doing that. Addressing the specifics, we did enumerate 3. The first one is really a vendor cost, product specification issue that impacted one customer. Can’t give you more detail than that. It is one of the reasons why the fourth quarter is showing some lift. The second piece is we did see more pressure on ASPs, on – primarily on multisource products in the last quarter, and that’s obviously a reflection of the weaker end demand in the market. And the third reason is we did purposefully control our disties and internal inventories. And as a result, our utilization was in the middle 60s. It was one of the lowest we have had in a long time and obviously, that has also ramifications on gross margin. We expect to – not to have a lot more inventory reduction in the disti channel, but still a little bit more internally, so our gross margin will still have – or our utilization will still be in the lower portion of our normal range. And – but if I look at the long run, our 300-millimeter fab Fishkill acquisition, we believe, is really something that will be transformative and will allow us to show significant improvement in gross margin, and we’re very happy with what we’re seeing so far in terms of process, plant flows and qualification

Thank you.

Thank you. And our next question comes from Chris Danely with Citigroup. Please proceed with your question.

Hey, thanks guys. Just a couple of questions to dig into the gross margins a little bit. So on the onetime customer adjustment, if, like, business conditions stay in this sort of sluggish overall environment, is it possible that other customers could come back and ask for something like that? And then on the ASPs being lower for multisource products, how much of your product portfolio – I guess is that risk from that? And then when can we expect this to reverse? Or could this get worse if business conditions remain kind of sluggish like this?

So the – let me answer you in reverse. The products that are mostly affected by that are those that are in our computing end consumer, which is about 20% of our business. That’s kind of – give or take. Obviously, weak end demands are making this a factor. So this – it will be a function of how long the weakening demand continues in terms of pricing pressure. The second one, we believe the adjustment is related to one single customer, and we don’t – there is no risk that it will affect other customers.

Okay. Great. And for my follow-up, Keith, can you just kind of run us through your major end markets? It sounds like auto is getting a little better. How would you sort of rank them from, I guess, least to most impacted?

Yes. So automotive, we’re seeing a recovery in Asia. We’re seeing recovery in the server portion of computing. Relatively continued benign conditions in industrial. And then you have a seasonal weakening in consumer, as you would expect, so I’m not sure that, that is abnormal from a seasonal perspective. And in the handset market, same story.

Okay. Great. Thanks guys.

Thank you. And our next question comes from Vivek Arya with Bank of America Merrill Lynch. Please proceed with your question.

Thanks for taking my question. I wanted to also talk about gross margins first. Since you completed the acquisition of Fairchild, gross margins have – they kind of peaked around 39%. Right now, they are 36%. And I think, Bernard, you mentioned that utilization is in the low 60s-or-so range. So as you move forward, is the 50% incremental gross margin still a useful construct as we go forward? Do you think that as you get more production onto 300-millimeter, it could be better than that at some point?

Yes. In the short term, the 50% should still be a valid thing. Obviously, as you said, they’re still doing some transformative changes, and that can affect that – the fall through. And also, as we continue with our secular drivers in the areas that are growing faster, those command also better gross margin, so that should also help in terms of the fall through.

Got it. And for my follow-up, Keith, there’s some discussion amongst investors that perhaps some Chinese hardware makers might be deliberately or under some pressure being asked to move away from U.S. chip makers, so not ON specific, but applies to all of your diversified peers. Have you seen any evidence of this from your customer discussions and of any share shift, right, being in place, whether to your European or Japanese competitors? Have you seen any evidence of that so far?

So far there’s been some share shift where we’re unable to ship products to the European or Japan-based competitors. Those are small amounts for us. But otherwise, nothing detected in their current business patterns. There have been discussions with many of the customers in China about having alternate sources for shared supply, but no dialogue at this stage about losing specific share.

Thank you.

Thank you. And our next question comes from Raji Gill with Needham & Company. Please proceed with your question.

Thank you. A question on the inventory digestion because I think that’s important. That’s something that at least you can control. The end demand is harder to figure out. But in terms of the inventory digestion, I was wondering if you could kind of characterize where we are in the inventory correction cycle. This started about a year ago, so are we interpreting this to be a – we’re at the bottom of that correction? And then along those lines, if demand were to snap back from a trade resolution or for whatever factor, how quickly do you think you’ll be able to respond to meet that demand in your supply chain as well as at your own internal levels? Thank you.

Okay. So inventory-wise, as I mentioned last quarter, we felt we were nearing the end of the correction process. We still believe that. We think we’re in a stable and reasonable place with the supply chain area. One of the key things, if you look at recovery, those recoveries do generally happen quickly and can change things. But with our inventory levels, where they are in distribution and internally, we think we’re in good shape for a response.

Okay, great. And for my follow-up question related to 5G, you had basically said in the past you had zero 4G revenue, but because of the increased power requirements for these base stations at the radio access head as well the auxilliary supplies, that there’s going to be a significant increase in MOSFET content. Wondering if you could kind of characterize the 5G base station infrastructure cycle. There’s been some reports that there might have been a little bit of a pause. How do we think about 5G relative to your position as we go into next year?

Okay. So we are, I think, well positioned with all of the players in 5G, and that deployment will continue to expand. I think we had some pretty rapid early test trials that went on. A little bit of a pause, but we expect next year to be a very significant ramp in China.

Okay, thank you.

Thank you. And our next question comes from Christopher Rolland with Susquehanna. Please proceed with your question.

Great. Thanks, guys. So given a slower macro – and this is probably maybe for Keith, I’m not sure. But given a slower macro and your new plans to lower existing utilizations, given that macro, does this change the speed at which you’re going to equip new projects like, for example, the Fishkill fab? Maybe you can talk about how you would equip that and what utilizations might look like for the next three years or so? And then also, I think you have some wafer capacity coming on as well. Does that slower macro affect equipment there as well?

The simple answer there is a slower macro is not going to deter us enabling our 300-millimeter expansion. That is a key part of getting our margin profile where we’d like it and being able to satisfy the growth in demand for automotive and industrial power. So that will continue. Other types of things have been curtailed significantly to balance that total capital needs, but those will continue to move forward. We don’t see any situation in which that would make sense to slow. And as we mentioned earlier, that ramp will enable us to balance our network out better to accelerate gross margin.

Great. And then there have been some moves this last quarter, one company and competitor in particular, as they move more towards a direct sales force versus distribution perhaps controlling that process and capturing more margin. Just wanted to know your thoughts on distribution versus perhaps a move – moving more internal for you guys. Or do you view kind of these competitive changes here as an opportunity for you guys even?

Yes. We are strongly believers in the distribution network. They can reach a range of customers around the world for the design win commitments that we need. And they are also quite efficient at reaching all those small customers. So we continue to support them strongly, see share gains in that distribution network on an annual basis. And we’ll be looking for opportunities to grow even faster in distribution.

Thanks, Keith.

Thank you. And our next question comes from Craig Ellis with B. Riley FBR. Please proceed with your question.

Yes. Thanks for taking the question. And congratulations, guys, on navigating the trough well. Bernard, I wanted to follow-up first just with a clarification on operating expense. Clearly, there’s a lot going on to shield operating income from some of the pressures that were on gross margin. But can you clarify, for the things that were done in the third quarter, how much of those moves are tactical versus more structural changes that would flow through to next year?

In general terms, most of the actions were tactical. There is some that we took earlier in the year that were more structural, but what we did in the third quarter was more tactical.

Got it. And then on the COGS side, there was mention made of a 6-inch fab shutdown in Rochester, New York. Can you just summarize for us what some of the cost reduction levers are as you look out into 2020? And with utilization at 65%, is there anything else that might be contemplated if the demand environment that we have now persists into next year? Thank you.

Yes. So we – the levers that we have continue being the same. Definitely, the East Fishkill as well as the Aizu fab give us more degrees of freedom in terms of managing our network and more opportunities for optimization. And at the same time, we will continue working on the regular fall through as we increase our utilization back up to the more normal levels as well as mix.

Thank you. And our next question comes from Ambrish Srivastava with BMO. Please proceed with your question.

Hi, thank you. Good morning, guys. I had a question on China auto. This is the first time in a long while we have heard anybody say China and growth in the same breath. Is this due to some design wins that you have that are ramping? Or is it reflective of maybe production bottoming out and seeing a pickup from very low levels? So is it specific to you? Or is it more macro? And then my follow-up. Bernard, you talked about – you mentioned share buyback and the lack thereof in the quarter that just ended. What does it mean for buyback going forward? I’m assuming you brought it up because it means you’re going to be back buying stock this quarter onwards. Thank you.

Okay. On the China auto business, those are new wins we’ve got primarily in electric vehicles. And new models are starting to ramp, so there’s a content piece there. But our sense also is that generally, there’s going to be more units made now than there has been in the earlier part of the year, so a combination of both content and a few more units.

And on the share buyback question, Ambrish, in the long run, we are committed to our share buyback program. We have a $1.5 billion program and intend to continue working on that one. In the short run, we do have the – as we mentioned several times during the call, we do have the settlement of the litigation issue we had with Power, and that implies a significant cash outlay in the short term, and that will have to be taken into account as we go through that.

So that goes through this quarter as well, Bernard?

Yes, it should.

Thank you.

Thank you. And our next question comes from Matt Ramsay with Cowen. Please proceed with your question.

Yes. Thank you very much. Keith, I have, I guess, two questions on the automotive business, and I’ll just, I guess, go ahead and ask them both at the same time for expediency. The first one is on the image sensor business. I think you mentioned in the…

We lost you, Matt.

Sydney, can we go on to the next caller please?

Yes. Our next question comes from Mark Delaney with Goldman Sachs. Please proceed with your question.

Yes. Good morning. Thanks for taking the questions. First is a follow-up on the gross margin topic and underutilization. I was hoping you could clarify if ON took a period charge in the quarter related to the underutilization because I think there’s only so much FX cost you can capitalize into inventory. So did you take a charge? And if so, can you quantify that?

So in terms of utilization, we mentioned we were in the 65%, which used our normal capitalization rules, whereby a portion of the unit cost, if it’s below our standard, gets written off. If it’s above our standard, it gets capitalized. So there was no unusual activity, no period charge.

Okay. That’s helpful. And then a follow-up question around the bookings trends. I was hoping you could comment a little bit more on the linearity of bookings that the company saw. Did the quarter start off weak, and then bookings more recently have been largely seasonal? Or was it pretty consistent throughout the quarter? Thanks.

We believe it has been pretty consistent and based – and seasonal.

Thank you. And our next question comes from Chris Caso with Raymond James. Please proceed with your question.

Yes. Thank you. First question is on ASPs. And you talked about some pricing pressure that was starting. If you could help to quantify a little bit of that. And I know that this is the time of year where you start to negotiate some of the annual pricing. Can you give some indication of how that’s looking for next year? I know the past several years, ASPs have been performing better than they normally have. Is it kind of getting back to where we were a couple of years ago now?

Yes. So Chris, we don’t quantify ASPs in – like we did in the past. But I can say that in general terms, it is less than historical, less than in previous cycles. It is still more than what we saw in the first couple of quarters of the year, but less than historical.

All right. Thank you. As a follow-up on automotive, maybe can you give some indication of where you think your auto growth falls relative to units? And I say it looks like your auto is going to come in somewhere down 4% or so this year on a similar reduction in units this year. How do you look going forward? What would be the spread between ON Semi’s auto revenue and units? Obviously, your content is growing. By how much more do you expect to grow versus the market going forward?

Yes. We’re – if you look at kind of performance this year, you think – we believe there was a contraction in the supply chain. So in essence, it wasn’t just a reflection of the end units but actual inventory coming down throughout the whole chain. So we still believe you get a significant benefit from the content gain even in a down market. Going forward, we’re looking for 7% and 9% kind of growth in the auto market for us. On unit basis, which I think is forecasted, roughly flat to up 1%.

It’s helpful. Thank you.

Thank you. And our next question comes from Vijay Rakesh with Mizuho. Please proceed with your question.

Just going back on the comm handset side. I saw your September quarter grew 11% sequentially. Just wondering, if you were to look at 5G and handsets, what trends you saw versus that growth. And if you look at the December quarter, I know you guided it down. Just wondering which segment was weaker going into December. Thanks.

So we don’t think 5G handsets were a big play in the third quarter. There was certainly content there and some phones out, but it was not a substantial portion of the total. And then as we look into the fourth quarter for handsets, it’s a normal seasonal down, so nothing significant there other than normality.

Got it. And then last question, Quantenna. Any thoughts there? How that’s progressing? What you guys are seeing there? Thanks.

So that business continues to be soft like the rest of the markets, but we’re not seeing continued decline there. So it looks like it’s stabilized, and we are expecting more normality as we get into 2020.

And we have also – we are also completing the integration work this quarter, and that should result also in some of the synergy delivery.

Thanks.

Thank you. And our next question comes from David Williams with Loop Capital. Please proceed with your question.

Thank you. Would – just want to ask on the industrial side. Are you seeing anything in terms of the subsegments that stands out or maybe gives you a bit of optimism for return to growth there?

Right now, pretty much all segments are showing the same type of weakness. Nothing looks like it’s breaking out yet. I am expecting the medical piece of that business to break out pretty quickly as a lot of our design wins in the personal medical electronics arena start ramping in 2020.

And then can you talk a little bit about the content growth you see between the standard 4G handset and maybe going to a 5G handset? What is the opportunity there for content growth? Thank you.

It’s going to be somewhere around a $1 difference in content.

Thank you. And our next question comes from Harlan Sur with JPMorgan. Please proceed with your question.

Good morning. Thanks for taking my question. On the consumer, specifically white goods, this is a segment that continues to show appreciable year-over-year deceleration into Q3. But it looks like year-over-year compares are starting to actually get better in Q4 and showing signs of normal seasonality on a sequential basis. I know it’s off of a low base, and it’s one of the more trade and macro-sensitive segments. But looking beyond Q4, do you guys expect that end demand trends are now looking to be more seasonal going forward for this segment?

Yes. I would expect more normal seasonality as you enter the first quarter next year. There was buying that was anticipation of tariffs that had some significant skewing of purchase patterns there. We think that’s behind us. And there was also some inventory corrections, which we think are largely behind us. So it should be looking more like a normal seasonal business going into next year.

Great. Good to hear that. And then on the new product front, you gave us some metrics on your design win traction on auto image sensors for 2 and 8-megapixel sensors. But on the high-performance 8-megapixel front for ADAS, I think Sony might have a 7.5-megapixel solution. But do you guys have any competition at the 8-megapixel level?

No. We have superior performance there and nothing that I would consider competition. We have been winning the platforms at 8-megapixel and not losing any ground or traction.

Thank you.

Thank you. And our next question comes from David O’Connor with Exane BNP Paribas. Please proceed with your question. David O’Connor: Great. Good morning, thanks for taking my questions. A question on my side on the design wins on the silicon carbide. You mentioned EVs. You mentioned seven inverter wins in the transcript. Can you give some more detail on them, when exactly these are ramping? What kind of geographies? And are these silicon – are these actually silicon carbide? Are they more silicon-based? And I have a follow-up.

Okay. They’re a mixture of IGBT and silicon carbide, and those wins ramp anywhere from late next year to the following year. So I don’t have the specific schedules in front of me, but it will be over the next two years. David O’Connor: Great. And then maybe one follow-up for Bernard. So just to clarify, so will Q4 be the peak underutilization charges?

We believe that Q4 is probably going to be the lowest utilization. Just like Q3, we believe we’re at the bottom in terms of utilization right now. David O’Connor: Great, helpful. Thank you.

Thank you. And our next question comes from Tristan Gerra with Baird. Please proceed with your question.

Hi, good morning. As a follow-up to the prior question, what percentage of manufacturing are you currently outsourcing? And is there any leverage there to bring capacity back internally to help your utilization rates?

We have been doing that as a regular ongoing process. The total outsourced amount is about 30%, including everything at about 20% when you exclude our most recent acquisition.

Okay. And is that a process that can continue? Or how low can you go in terms of outsourcing as a percentage?

We continue to balance where we can. We’ve got obligations to some of our suppliers there. But in general, we think we can get that down a few percentage points over the next year.

Great. Thank you.

Thank you. And our next question comes from Harsh Kumar with Piper Jaffray. Please proceed with your question.

Yes, hey guys. Solid execution. I had a couple of questions. First, on the auto, I think, Keith, you mentioned that second half, you’re expecting to see more units in China. I was curious if this is normal or you think this is just sort of we contracted so much that we’re kind of whipping around and trying to make up a little bit? And then how do you see – when you talk to your kind of customers over in China, how do you see the demand trends for next year?

Okay. So on the first part, kind of current conditions, there was some changing regulations and changes in government policies on how they subsidize that marketplace, created some bad situations in the middle part of the year. We see some recovery from that. Not a significant in-demand jump is the way I would describe current conditions. Then next year, though, we do think there will be continued expansion. Their economy is going to continue to grow. We think they will have digested the efficiency requirement changes that they’re going through right now, and we should see some continued growth there in 2020.

Understood. And my follow-up, I know semis have been like all over the place and businesses have been all over the place, the trade war. But could you maybe remind us how we might even try to think about seasonality here for your business and maybe even the industry as such or particularly for your business?

Sure. So normal seasonality, if there is such a thing, is 0% to 2% negative for the fourth quarter, so a small negative. The first quarter is also a negative, in the 2% to 3% range. Q3 – Q2 and Q3 are on the positive, something like 4%, 5% for both Q2 and Q3.

Understood. Thanks, guys.

Thank you. And our next question comes from Shawn Harrison with Longbow Research. Please proceed with your question.

Hi, good morning. First question, just on product lead times. Is there any product right now where you’re still seeing extended lead times? Or is everything pretty much normalized for you?

No. We have a few specific more custom-based products that still have extended lead times, but those are where there’s unique flows or unique requirements. Most of our general products are in the normal range.

In the end markets, those products are – is it more auto sensor recurrent?

It tends to be industrial and automotive more than any other segment.

Okay. And then as a brief follow-up, Bernard, I think there’s a convert coming due next year. Do you have any thoughts on refinance that, pay that off et cetera?

We – at this stage, we intend to pay it down. We do have – but we could also explore possibilities of refinancing. We did refinance our debt recently and have about $1.2 billion of undrawn revolver in case we want to tap into that.

Thank you. And our next question comes from Craig Hettenbach with Morgan Stanley. Please proceed with your question.

Yes. Thank you. Just going back to Quantenna. Any update on just product development in the areas of autos, industrial and then how you’re thinking about that?

Yes. We continue to invest. We took some ON teams and added them to the Quantenna team to continue to drive derivations of the high-performance WiFi that they’ve got into those marketplaces. That development looks like it’s going to be in good shape to deliver what we set as expectations for the 18 months to two years from now.

Got it, thanks. And then just a follow-up for Bernard. You mentioned the inventory in the channel came down sequentially. Can you talk about just kind of framing that versus the typical target of 11 to 13 weeks and then where you guys are today?

Sure. We are comfortably within that 11 to 13 week range.

Okay. Thanks.

Thank you. And this concludes our Q&A session. I would now like to turn it back to Parag Agarwal with any further remarks.

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

Ladies and gentlemen, this concludes today’s conference. Thank you for participating. You may now disconnect.