Moving up the food chain

Somo commented: “The Fairchild acquisition has moved us from a company trading at $3.5bn to around $5bn, and has also changed the sector revenues for the company. We are actually more balanced now, so around 70-75% of the company revenue will be split between automotive, communications and industrial sectors, which is where we think the greatest growth potential resides.”

ON Semiconductor saw the acquisition as an opportunity to restructure its four main product groups into three – power solutions, analog solutions and image sensors. The fourth product group (the system solutions group) has been distributed across the three other groups. The Fairchild business has also been integrated into these three groups with the vast majority going into the power solutions business.

Somo continued: “The acquisition has moved us into the top 20 semiconductor suppliers and it provides us with a platform to aggressively expand our profitability in a highly fragmented industry. With an expanded revenue base and addition of Fairchild’s manufacturing network, our industry leading cost structure has improved further, and this should help accelerate our margin expansion towards our target margins. We expect that the combination of the two companies should generate significant market value for our employees, customers and shareholders.”

Somo added that the outcome of the acquisition has surprised some in the company in terms of lack of product overlap, resulting in the company now being able to serve similar customers with complementary product sets – offer a full spectrum of high, medium and low voltage offerings.

“When we first looked at the acquisition it seemed like there would be a bigger overlap between the two product sets. However, when you dig down you realise that ON Semiconductor is more focused on the low voltage side whereas Fairchild, while having some presence in this area, was much stronger in the high voltage side. So in bringing the two together we’re now in the technology areas where we as ON Semiconductor were investing to develop. So it was a very good fit and revenue de-synergies have been very low.”

ON Semiconductor has a vision for its future as an evolution from semiconductors to complete solutions, as Somo concluded: “Growing our product portfolio has moved us up the food chain from a standard product company with discrete devices to a more complete solutions company for our customers. So in the past it was ok to go to a company and sell them a MOSFET for example, now we’re selling components and modules. And what we’ve found is now that we’re getting into embedded control capabilities, image sensing etc, customers want smart connected, energy efficient products. So we’re doing more evaluation kits and reference designs, to help our customers accelerate product development and time to market.”