ON Semiconductor Updates Impact of Thailand Flood

October 18, 2011 by Jeff Shepard

ON Semiconductor Corp. provided an update of the impact to its business due to continued flooding in Thailand. The company has confirmed that there remain no on-site injuries to ON Semiconductor employees in Thailand as a result of the flooding.

The company believes that its SANYO Semiconductor division’s Thailand operations, including buildings and equipment, located at the Rojana Industrial Park in Ayutthaya, Thailand have been severely damaged by the flood. Operations at this location remain suspended. The company has not yet been able to enter its site and buildings and is uncertain as to when it will be able to gain access, due to the extensive flooding. Based on currently available information and given the extent of the potential damage, the company believes it will be unable to re-start probe, assembly and test operations at the Rojana Industrial Park for an indefinite period. The future of this site will be evaluated once the company is able to gain access to its facility.

The company occupies approximately 160,000 square feet of production space and employs approximately 2,000 people, which includes approximately 350 contractors, at its SANYO Semiconductor Rojana Industrial Park, Thailand, operations.

The company is working on options to meet its customers’ production needs by shifting production to other facilities within and outside its global ON Semiconductor manufacturing network. Certain products will be sourced from alternative assembly and test locations beginning in the fourth quarter of 2011, while more complex production transfers may take multiple quarters to be restored to full production capacity.

The company’s latest estimate is that operations located in the Rojana Industrial Park produced approximately 10 to 12 percent of ON Semiconductor’s total worldwide output as measured by revenues of $905.8 million for the second quarter of 2011.

Based on the company’s current assessment of the situation, it believes the flood will negatively impact revenues and earnings for a minimum of three to four quarters beginning in the fourth quarter of 2011. We currently estimate the negative impact to revenues directly related to the flooding of our Thailand manufacturing facilities, including the Bang Pa In facility referenced below, is estimated to be approximately $40 million to $60 million per quarter of lost revenue over this same three to four quarter period. While the company has insurance related to its operations at the Rojana Industrial Park, it currently believes the damage from the flood will exceed the $50 million of potential proceeds it could receive from insurance claims related to its operations at the Rojana Industrial Park.

The company currently anticipates an impairment charge in the fourth quarter of 2011 of approximately $50 million to $65 million associated with the assets located at its Rojana Industrial Park facility including inventory, fixed assets and other assets.

ON Semiconductor also has operations located in an industrial park in Bang Pa In, Thailand, which were previously unaffected by the flood. This facility has recently been flooded. As a result, we have now suspended operations and the Thai government has ordered an evacuation of this industrial park. While the company’s equipment is located on the second floor and third floors, it has been unable to assess the potential damage to its equipment, inventory and production at this site. The preceding is included in the estimated negative impact to revenues directly related to the flooding of our Thailand manufacturing facilities.

The company occupies approximately 8,000 square feet of production space at its Bang Pa In operations and employs approximately 150 people at this site.

In addition to the impacts described above, the company also expects to incur incremental expenses associated with the flood and restoration of production capabilities. ON Semiconductor plans to describe the financial impact of the flood in further detail during its third quarter 2011 earnings call in the first week of November.