ON Semiconductor Reports Fourth Quarter and 2016 Annual Results

For the fourth quarter of 2016, highlights include:
• Total revenues of $1,261.0 million
• GAAP earnings per diluted share of $0.26
• GAAP gross margin of 30.5 percent, non-GAAP gross margin of 35.2 percent
• GAAP operating margin of 4.4 percent, non-GAAP operating margin of 12.9 percent

For 2016, highlights include:
• Total revenues of $3,906.9 million
• GAAP earnings per diluted share of $0.43
• GAAP gross margin of 33.2 percent, non-GAAP gross margin of 35.0 percent
• GAAP operating margin of 6.0 percent, non-GAAP operating margin of 12.3 percent
• Closed acquisition of Fairchild Semiconductor

PHOENIX, Ariz. – Feb. 12, 2017 – ON Semiconductor Corporation (Nasdaq: ON) today announced that total revenues in the fourth quarter of 2016 were $1,261.0 million, up approximately 33 percent compared to the third quarter of 2016. Fourth quarter revenue includes contribution of approximately $358 million from our acquisition of Fairchild, which closed on Sept. 19, 2016.

During the fourth quarter of 2016, the company reported GAAP net income of $110.9 million, or $0.26 per diluted share. Fourth quarter GAAP income before income taxes was $18.2 million as compared to $87.3 million in the third quarter. The fourth quarter 2016 GAAP income before income taxes was negatively impacted by approximately $113.8 million of special items, the majority of which were related to Fairchild. Fourth quarter 2016 non-GAAP income before income taxes was $132.0 million, compared to $107.3 million for the third quarter of 2016. Cash paid for taxes for the fourth quarter was approximately $8.2 million, as compared to $6.5 million in the third quarter.

Fourth quarter GAAP gross margin was 30.5 percent, and non-GAAP gross margin in the fourth quarter was 35.2 percent. For the fourth quarter of 2016, GAAP operating margin was 4.4 percent, and non-GAAP operating margin was 12.9 percent.

Adjusted EBITDA for the fourth quarter of 2016 was $252.0 million. Adjusted EBITDA for the third quarter of 2016 was $180.2 million.

Total revenues for 2016 were $3,906.9 million, an increase of approximately 12 percent from $3,495.8 million in 2015. Total revenue for 2016 included a contribution of approximately $411 million from Fairchild. During 2016, the company reported GAAP net income of $182.1 million, or $0.43 per diluted share. The 2016 GAAP income before income taxes included charges of $231.5 million from special items, including $104.8 million of amortization of acquisition related intangible assets. The remaining charges and special items detail can be found in the attached schedules. During 2015, the company reported GAAP net income of $206.2 million, or $0.48 per diluted share. The 2015 GAAP income before income taxes included net charges of $159.8 million from special items.

The company’s GAAP gross margin in 2016 was 33.2 percent. GAAP gross margin in 2016 included a net charge of approximately $70.7 million from special items. Non-GAAP gross margin in 2016 was 35.0 percent. The company’s GAAP gross margin in 2015 was 34.1 percent. GAAP gross margin in 2015 included a net benefit of approximately $(0.8) million from special items. Non-GAAP gross margin in 2015 was 34.1 percent.

"Our results in the fourth quarter provide clear evidence of our strong execution on the integration of Fairchild, and the results also validate our strategic and financial rationale for the acquisition," said Keith Jackson, president and CEO of ON Semiconductor. "We continue to make rapid progress in the integration, and we are currently tracking significantly ahead of schedule in realizing synergies from the combination of Fairchild and ON Semiconductor."

"I am very optimistic about our prospects in 2017 as our momentum in our strategic markets, which include automotive, industrial and communications, continues to grow and our design win pipeline continues to expand driven by our innovative products. With synergies from Fairchild and strong execution and cost control, we are well positioned to drive meaningful growth in our free cash flow in the current year and in following years."

FINANCIALS

FIRST QUARTER 2017 OUTLOOK

"Based upon product booking trends, backlog levels, and estimated turns levels, we anticipate that total ON Semiconductor revenue will be approximately $1,215 million to $1,265 million in the first quarter of 2017," Jackson said. "Backlog levels for the first quarter of 2017 represent approximately 80 to 85 percent of our anticipated first quarter 2017 revenue. The outlook for the first quarter of 2017 includes stock-based compensation expense of approximately $15 million to $17 million. Net cash paid for income taxes is expected to be $16 million to $20 million."

The following table outlines ON Semiconductor's projected first quarter of 2017 GAAP and non-GAAP outlook.

ON SEMICONDUCTOR Q1 2017 BUSINESS OUTLOOK

Q4 2016 Guidance

* Convertible Notes, Non-cash Interest Expense is calculated pursuant to FASB's Accounting Standards Codification (“ASC”) Topic 470: Debt.

** Diluted share count can vary for, among other things, the actual exercise of options or vesting of restricted stock units, the incremental dilutive shares from the company’s convertible senior subordinated notes, and the repurchase or the issuance of stock or convertible notes or the sale of treasury shares. In periods when the quarterly average stock price per share exceeds $18.50, the non-GAAP diluted share count and non-GAAP net income per share includes the anti-dilutive impact of the company’s hedge transactions, issued concurrently with the 1.00% Notes. At an average stock price per share between $18.50 and $25.96, the hedging activity offsets the potentially dilutive effect of the 1.00% Notes and warrants.

*** Special items may include: amortization of acquisition-related intangibles; expensing of appraised inventory fair market value step-up; purchased in-process research and development expenses; restructuring, asset impairments and other, net; goodwill impairment charges; gains and losses on debt prepayment; non-cash interest expense; actuarial (gains) losses on pension plans and other pension benefits; and certain other special items, as necessary. These special items could change significantly and are subject to swings from period to period. As a result, we are not able to reasonably estimate and separately present the individual impact of these special items. For this reason, we use a projected range of the aggregate amount of special items in order to calculate our projected non-GAAP operating expense outlook.

**** Regulation G and other provisions of the securities laws regulate the use of financial measures that are not prepared in accordance with GAAP. We believe these non-GAAP measures provide important supplemental information to investors. We use these measures, together with GAAP measures, for internal managerial purposes and as a means to evaluate period-to-period comparisons. However, we do not, and you should not, rely on non-GAAP financial measures alone as measures of our performance. We believe that non-GAAP financial measures reflect an additional way of viewing aspects of our operations that – when taken together with GAAP results and the reconciliations to corresponding GAAP financial measures that we also provide in our releases – provide a more complete understanding of factors and trends affecting our business. Because non-GAAP financial measures are not standardized, it may not be possible to compare these financial measures with other companies’ non-GAAP financial measures, even if they have similar names.

The company has provided the following forward-looking non-GAAP financial measures: Operating Expenses and Other Income and Expense (including interest expense), net. The company does not provide reconciliations of these forward-looking non-GAAP financial measures, including the special items detailed above, to the most directly comparable GAAP financial measures because, due to variability and difficulty in making accurate forecasts and projections and/or certain information not being ascertainable or accessible, not all of the information necessary for quantitative reconciliations of these forward-looking non-GAAP financial measures to the most directly comparable GAAP financial measures are available to the company without unreasonable efforts. Consequently, any attempt to disclose such reconciliations would imply a degree of precision that could be confusing or misleading to investors. It is probable that the forward-looking non-GAAP financial measures may be materially different from the corresponding GAAP financial measures.

TELECONFERENCE

ON Semiconductor will host a conference call for the financial community at 9 a.m. Eastern Time (EST) on Feb. 13, 2017, to discuss this announcement and ON Semiconductor’s results for the fourth quarter of 2016. The company will also provide a real-time audio webcast of the teleconference on the Investors page of its website at http://www.onsemi.com. The webcast replay will be available at this site approximately one hour following the live broadcast and will continue to be available for approximately 30 days following the conference call. Investors and interested parties can also access the conference call through a telephone call by dialing (877) 356-3762 (U.S./Canada) or (262) 558-6155 (International). In order to join this conference call, you will be required to provide the Conference ID Number - which is 25291906.

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This document contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements, other than statements of historical facts, included or incorporated in this document could be deemed forward-looking statements, particularly statements about the future financial performance of ON Semiconductor. These forward-looking statements are often characterized by the use of words such as "believes," "estimates," "expects," "projects," "may," "will," "intends," "plans," "should," or "anticipates," or by discussions of strategy, plans or intentions. All forward-looking statements in this document are made based on our current expectations, forecasts, estimates and assumptions, and involve risks, uncertainties and other factors that could cause results or events to differ materially from those expressed in the forward-looking statements. Among these factors are our revenues and operating performance, economic conditions and markets (including current financial conditions), effects of exchange rate fluctuations, the cyclical nature of the semiconductor industry, changes in demand for our products, changes in inventories at our customers and distributors, technological and product development risks, enforcement and protection of our intellectual property rights and related risks, risks related to the security of our information systems and secured network, availability of raw materials, electricity, gas, water and other supply chain uncertainties, our ability to effectively shift production to other facilities when required in order to maintain supply continuity for our customers, variable demand and the aggressive pricing environment for semiconductor products, our ability to successfully manufacture in increasing volumes on a cost-effective basis and with acceptable quality for our current products, competitor actions including the adverse impact of competitor product announcements, pricing and gross profit pressures, loss of key customers, order cancellations or reduced bookings, changes in manufacturing yields, control of costs and expenses and realization of cost savings and synergies from restructuring activities, significant litigation, risks associated with decisions to expend cash reserves for various uses in accordance with our capital allocation policy such as debt prepayment, stock repurchases or acquisitions rather than to retain such cash for future needs, risks associated with acquisitions and dispositions (including from integrating and consolidating and timely filing financial information with the Securities and Exchange Commission ("SEC") for acquired businesses and difficulties encountered in accurately predicting the future financial performance of acquired businesses), risks associated with our substantial leverage and restrictive covenants in our debt agreements that may be in place from time to time, risks associated with our worldwide operations, including foreign employment and labor matters associated with unions and collective bargaining arrangements, as well as man-made and/or natural disasters affecting our operations and finances/financials, the threat or occurrence of international armed conflict and terrorist activities both in the United States and internationally, risks and costs associated with increased and new regulation of corporate governance and disclosure standards, risks related to new legal requirements and risks involving environmental or other governmental regulation. Additional factors that could cause results to differ materially from those projected in the forward-looking statements are contained in ON Semiconductor's 2015 Annual Report on Form 10-K filed with the SEC on February 24, 2016 ("2015 Form 10-K"), Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and other of our filings with the SEC. You should carefully consider the trends, risks and uncertainties described in this document, the 2015 Form 10-K and other reports filed with or furnished to the SEC before making any investment decision with respect to our securities. If any of these trends, risks or uncertainties actually occurs or continues, our business, financial condition or operating results could be materially adversely affected, the trading prices of our securities could decline, and you could lose all or part of your investment. The company will report final results for the fourth quarter 2016 and the fiscal year ended December 31, 2016 in its annual report on Form 10-K to be filed with the SEC. The company's fourth quarter 2016 results could change during the time between this announcement and the filing of its annual report on Form 10-K with SEC. Readers are cautioned not to place undue reliance on forward-looking statements. We assume no obligation to update such information, except as may be required by law. All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by this cautionary statement.

The Company’s purchase price allocation related to the Fairchild acquisition is preliminary, as such the related amortization of intangibles and the expensing of inventory-step-up are subject to change as the company finalizes this allocation.

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