CEO interview: Hassane El-Khoury on the ‘greening’ of Onsemi
ON Semiconductor Corp. was created in 1999 as a spin-off of the broad-based “More-than-Moore” part of Motorola Semiconductors while Motorola’s digital semiconductors became Freescale, a company that was subsequently sold to NXP Semiconductors NV.
As a result Onsemi’s broad portfolio of products includes power devices, signal management, simple logic, discrete, and custom devices for automotive, communications, computing, consumer, industrial, LED lighting, medical, military/aerospace and power applications. It also has as many as ten wafer fabs. By 2025 that number will be a lot lower.
El-Khoury has determined that the company needs to focus down in terms of products, the manufacturing sites it owns and the market sectors it serves. And the compass that will drive the detail of those decisions will be the business opportunity of moving towards net-zero carbon emissions sustainability. The company is now seeing its future as intelligent power and intelligent sensors with a focus on supporting the industrial and automotive sectors.
He summed it up in an analyst conference by saying that sustainability is what governments are asking for, employees are demanding, companies are investing in and shareholders are requiring. “But more importantly, it’s just the right thing to do,” he told the analysts.
But surely there is a tension there. The more successful Onsemi, or any other chip company is, the more chips are sold and the more power is consumed.
El-Khoury doesn’t see it like that. “Complexity is going up; electrification is nothing new. Now we must target energy efficiency.” In other words, Onsemi wins by selling its efficient chips to displace its competitors’ less efficient chips. And then the planet can win too. El-Khoury was speaking on the day when the United Nations published its most damning report yet on climate change. It is clear the planet needs to start winning and quickly.
Next: Growing markets versus sustainability
However, despite the good sense of more efficient semiconductors there is the risk that increasing functionality and bigger available market sizes could still produce an absolute rise in carbon emissions and energy consumption, notwithstanding the improvements on a per function and per unit basis.
EL-Khoury points out that as each individual entity moves towards sustainability – be that household or company – the planet benefits. “We intend to help customers achieve sustainability; by moving to electric vehicles; by reducing CO2 emission, by reducing power.”
When challenged that something more radical is required El-Khoury responded: “Not more radical but more comprehensive.”
And that idea of comprehensiveness also applies to taking a holistic view of markets. “Don’t just focus on the [electric] car. You need renewable energy generation and renewable energy infrastructure. If there’s not enough charging points, nobody will buy the cars. That’s why we are focussed on automotive and industrial.”
And El-Khoury is determined that Onsemi acts on sustainability as well supporting it. To that end the company has signed up to the United Nations Global Compact and has committed to adapting its own operations to achieve net-zero emissions by 2040.
That 2040 date is ten years ahead of the UN’s benchmark for global net-zero emissions and a long way off. The UN is calling for a halving of carbon emissions by 2030. Is that something Onsemi can achieve?
El-Khoury acknowledged that near-term goals are more compelling that long-term ones. This is why Onsemi has already started to audit and publish sustainability benchmark numbers. “We started making environmental disclosures ahead of the [rebranding] statement,” El-Khoury said.
On its social responsibility web pages Onsemi does report Scope 1 and Scope 2 CO2 emissions (see https://www.onsemi.com/company/people-planet/social-responsibility).
This shows a considerable drop in 2020 to 2.95 million tonnes from 3.75 million tonnes in 2019. But we know what happened in 2020; the Covid-19 pandemic.
Next: Where’s Scope 3?
Unfortunately, the listing does not include Scope 3 consumption.
Scope 3 is much harder to measure and is usually covered by estimates. It would cover upstream activities such as employees’ commuter journeys, business travel, capital goods purchased. On the downstream side Scope 3 would cover transportation and distribution of products, use of products and end-of-life treatment of products. And Scope 3 emissions can be up to 99 percent of a company’s carbon footprint, according to the Green House Gas Protocol, which drew up the schema.
It remains to be seen whether Onsemi’s Scope 1 and Scope 2 emissions can be halved over the next decade. On the basis of the available numbers the target is 1.5 million tonnes of Scope 1 and Scope 2 CO2 emissions in 2030.
And it does seem that most of the activities that business engages in are inherently CO2 emissive, so what must the company do to offset its emissions and achieve overall carbon neutrality? It can plant trees.
“There are organizations out there that can do that for you. That’s part of our plan,” said El-Khoury. “But that can just be covering up poor activity. So we are measuring what we do at every manufacturing site to support our overall plan.”
And that means that some manufacturing sites are up for sale so that Onsemi can embrace more efficient manufacturing on 300mm wafers at East Fishkill, New York. Onsemi won’t formally own the fab until the end of 2022 Over time Globalfoundries will be moving its manufacturing processes out and Onsemi can ramp its own production up.
Two of the fabs known to be up for sale are a 6-inch wafer fab in Oudenaarde, Belgium and a 200mm wafer fab in Niigata, Japan. El-Khoury said that Onsemi is in discussions about the sale of both. “We need to be highly selective about who gets the fabs. We need an operating entity because we will have legacy production,” he said.
But there are numerous other fabs owned and operated by Onsemi around the world and the company intends to divest many of these over the next five years as part of a more flexible manufacturing strategy.
Next: First movers, M&A
But is this focus on intelligent power and sensors for industrial and automotive applications that new? Is it not a crowded market occupied by the likes of Infineon, NXP and many others?
“Many of those companies may have made changes five or seven years ago, but we’re still here and we’re growing faster. In the last three quarters, we have expanded our product margin much greater than those other players. Maybe they were first movers, but we are out-growing them,” said El-Khoury.
Divestment, Mergers & Acquisitions
Will divestment or company purchases play a part in the new Onsemi? It is notable that NXP split off its discretes components and simple logic business as Nexperia and then sold it to Chinese buyers (see NXP downsizes by 25% with sale of business unit to China).
“We’ve identified what’s non-core and then there are a few ways to deal with that,” said El-Khoury. The non-core activity represents about 15 percent of Onsemi revenue in 2021, according to the recent analyst presentation and the company expects to have exited that business over the next couple of years. “You can let it wind down naturally without investing in R&D. But if you are able to carve it out neatly you may be able to divest it. That’s the work we need to do,” he said.
And on the other side, will acquisition form a necessary part of Onsemi’s strategy? Onsemi had annual sales of $5.25 billion in 2020 down from $5.52 billion in 2019 and with an additional loss of revenue over the next couple of years as it exits non-core business it might be at risk of being acquired.
“We want the balance sheet flexibility and we have a war chest,” said El-Khoury. “But we also have good execution based on organic growth. So M&A would come as a complementary activity, not to get scale. But there might be strategic acquisitions to move us forward in certain markets,” El-Khoury concluded.
Divestments, mergers and acquisitions would immediately reset the sustainability metrics making comparisons difficult. So, perhaps that sustainability should be benchmarked per employee. In which case Onsemi’s target would be 42.7 metric tonnes of Scope 1 and Scope 2 emissions per employee in 2030. That, and much more, are the right things to do.
Related links and articles:
On Semi buying ex-IBM fab from Globalfoundries
NXP downsizes by 25% with sale of business unit to China
On Semiconductor names ex-Cypress boss as CEO
CEO interview: Focus will make Cypress win and grow