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ON Semiconductor Corp  (NASDAQ:ON)
Q1 2019 Earnings Call
April 29, 2019, 9:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, ladies and gentlemen and welcome to the ON Semiconductor First Quarter 2019 Earnings Conference Call. At this time all participants are in a listen-only mode, later we will conduct a question-and-answer session and instructions will follow at that time.

(Operator Instructions)

I would now like to introduce your host for today's conference, Parag Agarwal, VP of Corporate Development and Investor Relations. Please go ahead.

Parag Agarwal -- Vice President of Investor Relations

Thank you, Chris. Good morning and thank you for joining ON Semiconductor Corporation's first quarter 2019 quarterly results conference call.

I'm 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 earnings release, for the first quarter of 2019, 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 earning 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 will make projection or other forward-looking statements, regarding future events or 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 first quarter of 2019. Our estimates 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 second quarter, we will attend Bank of America Technology Conference in San Francisco, on June 4.

Now let me turn it over to Bernard Gutmann, who will provide an overview of first quarter 2019 results. Bernard?

Bernard Gutmann -- Executive Vice President and Chief Financial Officer

Thank you, Parag. And thank you, everyone, for joining us today. Our first quarter results demonstrate our solid execution on the operations front in face of slowing business conditions. Secular trends, driving our business remain intact, and we are well positioned to capitalize on these secular trends to deliver strong revenue and margin performance. Mid-to-long term outlook for our business remains strong and our design win pipeline in our key strategic markets, which include automotive, industrial and cloud power, continues to grow. Despite near-term headwinds, we remain upbeat about our future.

During the first quarter, we saw sub-seasonal trends, across most geographies and end markets and these trends have continued into the second quarter. However, based on recent data, we expect to see improving business trends in the second half of 2019. Keith will provide further details on current business trends in his prepared remarks.

We are managing our business prudently to adjust to this near-term slowdown. We have taken measures to control our operating expenses in-line with relatively soft business conditions. We believe that a highly diversified customer base, exposure to the fastest-growing semiconductor end-markets and long life cycle of many of our products should help us better navigate the current slowdown in demand, as compared to broader analog and power semiconductor industry.

While we are seeing some softness in business conditions in the near-term, we are continuing to invest to strengthen and build our leadership in key strategic markets and to improve our cost structure. In the first quarter, we entered into a definitive agreement to acquire Quantenna Communications, which we believe will strengthen our presence in connectivity applications for industrial and automotive end-markets.

We also recently announced our plans to add the first 300 millimeter fab, to our manufacturing network, in a phased transaction over the next four years. The addition of this fab, in a staged process, should accelerate our progress toward our 2022 target financial model, enable savings of approximately $1 billion in capital expenditure over the next several years and provide sufficient capacity to support our long-term growth at highly competitive cost structure.

Now let me provide you additional details on our first quarter 2019 results. Total revenue for the first quarter of 2019 was $1.387 billion, an increase of 1%, as compared to revenue of $1.378 billion in the first quarter of 2018. First quarter 2019 revenue included the contribution of $18 million for ON Semiconductor Aizu, also known as OSA. Excluding the impact of OSA, our first quarter revenue declined by 1% year-over-year. As we announced earlier, OSA is a manufacturing joint venture for an 8-inch wafer fab, in Aizuwakamatsu, Japan.

GAAP net income for the first quarter was $0.27 per diluted share, as compared to $0.31 in the first quarter of 2018. Non-GAAP net income for the first quarter was $0.43 per diluted share, as compared to $0.40 in the first quarter of 2018. GAAP and non-GAAP gross margin for the first quarter was 37%.

On a year-over-year basis, our first quarter 2019 GAAP and non-GAAP gross margins declined by 60 basis points, of which 50 points was due to the impact of OSA. Our GAAP operating margin for the first quarter of 2019, was 12.9% as compared to 13.5% in the first quarter of 2018. Our non-GAAP operating margin for the first quarter of 2019 was 15.5%, as compared to 15.7% in the first quarter of 2018.

The year-over-year decline in operating margin was driven largely by the impact of OSA. GAAP operating expenses for the first quarter were $334 million, as compared to $332 million for the first quarter of 2018. Non-GAAP operating expenses for the first quarter were $299 million, as compared to $301 million in the first quarter of 2018.

First quarter free cash flow was negative $19 million and operating cash flow was $138 million. Capital expenditures during the first quarter were $157 million, which equates to a capital intensity of 11%. We expect capital intensity for 2019 to be approximately 9% of revenue. We exited the first quarter of 2019 with cash and cash equivalents of $940 million, as compared to $1.070 billion at the end of the fourth quarter 2018.

We used $75 million of cash to repurchase 4.4 million shares of our stock in the first quarter. As a result of the acquisition activity in the first quarter, we have paused our share repurchase program.

At the end of the first quarter, days of inventory on hand were 128 days, up by 8 days, as compared to 120 days in the first -- fourth quarter of 2018. Distribution inventory levels, in terms of weeks increased quarter-over-quarter in the first quarter and is now slightly higher than our target range of 11 weeks to 13 weeks. We expect to see reductions in our distribution inventories in the second quarter. The increase in weeks of inventory in the first quarter was driven largely by softer than expected demand.

Now let me provide you an update on the performance of our business units, starting with Power Solutions Group, or PSG. Revenue for PSG for the first quarter was $704 million. Revenue for the Analog Solutions Group for the first quarter of 2019 was $494 million and revenue for the Intelligent Sensing Group was $188 million.

Now I would like to turn the call over to Keith Jackson for additional comments on the business environment. Keith?

Keith D. Jackson -- President, Chief Executive Officer and Director

Thanks, Bernard. Our execution momentum remains solid, despite relatively soft market conditions. We delivered strong margin and earnings performance, even in the face of a slowdown in demand from most geographies and end-markets. With our exposure to secular megatrends in automotive, industrial and cloud power end-markets, strong operating expense discipline and solid execution on the operations front, we are well positioned to navigate, through the current slowdown in market conditions.

Furthermore, based on current order trends, distribution sell-through trends and macroeconomic data, we expect business conditions to improve in the second half of the year. And we remain upbeat about our mid-to-long term prospects. With our planned acquisitions of Quantenna Communications and GLOBALFOUNDRIES 300-millimeter fab, in East Fishkill, New York, we are making prudent investments to strengthen our market leadership and significantly improve our marketing cost -- manufacturing cost structure.

Key megatrends driving our business remain intact and our customers are increasingly relying on us, as a strategic partner for key technologies, to enable major disruptive trends in automotive, industrial and cloud power end-markets. In the automotive market, accelerating adoption of electric vehicles and active safety, should drive strong growth in our power semiconductor and sensor business.

In the industrial market, we are seeing strong traction for our power semiconductors, 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.

Let me now comment on the business environment. Business conditions continue to be soft across most end-markets and geographies. However, we are seeing signs, that point toward improving business trends in the second half of the year. Thus far, orders for the second half of the year have shown strong recovery and we have seen meaningful improvement in distribution sell-through in recent weeks.

From a geographical perspective, China, which has been a source of weakness in recent quarters, appears to be improving. Business conditions in other geographies have been sub-seasonal recently, but we believe that -- that softness is temporary. We expect to see improving business conditions in the second half of the year, as customers adjust their inventory levels in-line with demand outlook.

On the supply side, we are seeing broad-based inventory reduction by OEMs, even though inventories at OEMs appear to be at healthy levels. We believe that much of that inventory correction by OEMs, should be complete in the second quarter. On the distribution front, although anecdotal data from the comments from distributors point to elevated semiconductor inventory levels, we believe that our inventory at distributors is at very healthy levels. As Bernard indicated earlier, our distribution inventory was slightly higher than our normal range at the end of the first quarter, but we expect to reduce our distribution inventories in the second quarter.

Now I will provide details of our progress in various end-markets for the first quarter of 2019. Revenue for the automotive market in the first quarter was $465 million and represented 34% of our revenue in the first quarter. First quarter automotive revenue grew by 4% year-over-year.

In the first quarter, we continued to see significant weakness in China market in automotive. We were seeing some softness in the second quarter in automotive demand from other regions, including Americas, Europe and Japan. We believe that the current softness will be short-lived, as global OEMs and Tier 1s, adjust their inventories in line with slowing global automotive market. We expect to see improvement in demand, for our automotive products in the second half of the year.

Despite softness in automotive market conditions, our design win pipeline in automotive market continues to grow at a solid pace. Our content in automotive applications continues to grow, and we are seeing strong adoption of our products in vehicle electrification, active safety, LED lighting, in-vehicle networking and in various analog power management applications.

We are seeing strong momentum for our power products, especially MOSFETs, traction IGBTs, high-power modules and gate drivers in vehicle electrification with OEMs and Tier 1s worldwide. We expect to start our production ramp of our design wins in multiple electric vehicle platforms in 2020.

Customer response to our silicon carbide products has been very strong. We are also seeing strong traction for our power products in 12-volt and 48-volt electrical systems.

In the ADAS applications, our momentum continues to accelerate. We are seeing strong interest from customers in our broad portfolio of automotive image sensor products. Recall that we are the only provider of automotive image sensors with a complete portfolio of 1-megapixel, 2-megapixel and 8-megapixel image sensors.

The breadth of our portfolio has enabled us to secure many design wins, from leading global OEMs and Tier 1s. We continue to make progress in our automotive radar development platform and we expect our first radar related revenue in 2021.

On the analog power management front, we continue to make progress, on our power management programs for automotive processors. We are engaged with all leading processor providers for automotive applications. We are also seeing strong traction for our LED drivers and lighting applications.

Revenue in the second quarter, for the automotive end-market is expected to be slightly down, as opposed to seasonally higher sequential revenue. Weaker than seasonal growth, in our automotive business is driven primarily by softness in the global automotive market.

The industrial end-market, which includes military, aerospace and medical contributed revenue of $359 million in the first quarter. Industrial end-market represented 26% of our revenue in the first quarter. On a year-over-year basis, our first quarter industrial revenue declined by 5%. Greater China region, has been the primary source of weakness in the industrial market. While we are seeing weakness in the industrial market largely due to softness in China, we believe that we are well positioned to capitalize on the secular trends of increased power efficiency requirements for industrial systems. We continue to see strong traction for our power semiconductor products and modules in the industrial end-market and our customer engagements continue to expand.

Within industrial, medical was an area of solid strength in the first quarter. We are seeing strong traction for our products in implantable devices, personal diagnostic and hearing health markets. Revenue in the second quarter for the industrial end-market is expected to be down quarter-over-quarter, as opposed to seasonally higher sequential revenue. Weaker than seasonal growth in our industrial market is driven primarily by softness in the Greater China market.

The communications end-market, which includes both networking and wireless, contributed revenue of $259 million in the first quarter. Communications end market represented 19% of our revenue in the first quarter. First quarter communications revenue increased by 15% year-over-year, much of the year-over-year increase was driven by strength in 5G ramp.

Smartphone-related revenue in the first quarter was also up year-over-year. We are seeing a strong ramp in our power products and 5G infrastructure market. We expect this ramp to accelerate in 2019, with increasing 5G deployments in a few parts of the world. Current indication from our customers points to a better than expected rate of deployment for 5G systems in the nearer term.

As we indicated earlier, our power content in 5G infrastructure systems, is many times that in 4G systems. Furthermore, our participation in 5G systems is expected to be significantly higher than our participation rate in 4G systems. On the smartphone front, we saw a significant decline in revenue quarter-over-quarter, although our revenue grew year-over-year. Revenue in the second quarter for the communications end-market is expected to be up quarter-over-quarter due to continuing ramp in our 5G business.

The computing end-market contributed revenue of $144 million in the first quarter. Computing end-market, represented 10% of our revenue in the first quarter. First quarter computing revenue grew by 1% year-over-year. The year-over-year growth was driven primarily by strength in our server business.

We expect growth in our server business to continue in 2019, although we expect moderation in growth rate, as compared to that in 2018. In future generations of server platforms, we expect meaningful increase in our content. Revenue in the second quarter for the computing end market, is expected to be up quarter-over-quarter, due to normal seasonality and continuing strength in our server business.

The consumer end market contributed revenue of $160 million in the first quarter. The consumer end market represented 12% of our revenue in the first quarter. First quarter consumer revenue declined by 15% year-over-year. The year-over-year decline was due to broad-based weakness in consumer electronics and light goods segments and our selective participation in certain areas of the consumer electronics market. Revenue in the second quarter for the consumer end-market is expected to be flat quarter-over-quarter.

In summary, business conditions continue to be sub-seasonal. Based on macro-economic data from various regions of the world, we don't expect a prolonged slowdown in our business and we expect to see growth in the second half of this (ph) year. Despite current weakness in business trends across the industry, secular megatrends driving our business remain intact and we are upbeat about our medium-to-long term prospects.

We have established leadership in the highly differentiated power, analog and sensor semiconductor solutions. And we believe that customers are increasingly relying on us, as a key provider of enabling technologies for newly emerging and disruptive applications in automotive, industrial and cloud power end-markets. To adjust to slowing macroeconomic environment, we are prudently managing our business with a sharp focus on controlling expenses. Our operational execution remains solid.

Now I would like to turn it back over to Bernard for forward-looking guidance. Bernard?

Bernard Gutmann -- Executive Vice President and Chief Financial Officer

Thank you, Keith. Based on product booking trends, backlog levels and estimated turns levels, we anticipate that total ON Semiconductor revenue, is expected to be in the range of $1.36 billion to $1.41 billion in the second quarter of 2019. Included in our second quarter revenue guidance is approximately $15 million in revenue from the manufacturing services provided by OSA.

For the second quarter of 2019, we expect gross margin to be in the range of 36.5% to 37.5%. Our second quarter gross margin guidance includes the negative impact of approximately 40 basis points from manufacturing services provided by OSA.

We expect total GAAP operating expenses of $322 million to $340 million. Our GAAP operating expenses, include the amortization of intangibles, restructuring, asset impairments and other charges, which are expected to be $27 million to $31 million. We expect total non-GAAP operating expenses of $295 million to $309 million in the second quarter.

We anticipate second quarter of 2019 GAAP net other income and expense, including interest expense, will be $31 million to $34 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 $22 million to $24 million.

Cash paid for income tax in the second quarter of 2019 is expected to be $12 million to $16 million. We expect total capital expenditure of $140 million to $150 million in the second quarter of 2019. We expect capital intensity to subside in the second half of the year and for 2019, we expect capital intensity of 9%.

We also expect share-based compensation of $26 million to $28 million in the second 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 diluted share count for the second quarter of 2019 is expected to be 414 million shares, based on the 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.

With that, I would like to start the Q&A session. Thank you and Chris, please open up the line for questions.

Questions and Answers:

Operator

Thank you. (Operator Instructions) And our first question comes from the line of Chris Danely with Citi. Your line is now open.

Christopher Danely -- Citigroup Inc -- Analyst

Hi. Thanks guys. So business is still a little on the weak side. Would you say business has gotten, I guess -- any worse than it was three months ago? Or has it basically stayed at the same level?

Keith D. Jackson -- President, Chief Executive Officer and Director

No, it's actually improving here in the month of April, noticeably better than it was in the first quarter and so definitely improving trends.

Christopher Danely -- Citigroup Inc -- Analyst

Okay. Thanks, Keith. And then as my follow-up, any commentary on lead time? Is anything changing there?

Keith D. Jackson -- President, Chief Executive Officer and Director

I think lead times will be stable for a while, our power lead times remain extended, but everything else is in normal range.

Christopher Danely -- Citigroup Inc -- Analyst

Great. Thanks, guys.

Operator

Thank you. And our next question comes from the line of Ross Seymore with Deutsche Bank. Your line is now open.

Ross Seymore -- Deutsche Bank -- Analyst

Thanks guys. Keith, I wanted to ask about the cycle side of the equation. If I just compared your -- transcript of your prepared comments from last quarterly call to this quarterly call, both of them expressed confidence about near-term bookings getting better. But yet the second quarter guidance is still weak, I know, you just said April got better. But could you give us a little more color on why you're confident in the second half of the year? And maybe specifically on the automotive and industrial sides, given the importance of those, especially given that those were weaker in -- especially industrial, I guess, in the quarter and the guide is expected to go down again.

Keith D. Jackson -- President, Chief Executive Officer and Director

Yeah, we point to several things. One, resales and distribution have picked-up significantly in April. So that is a much different trend than we had going on in Q1. From the automotive side, specifically the inventory correction is going on in our direct customers. We can tell that because their orders for Q1 and into Q2 were much less than the automotive resales. So we are seeing orders now being placed by that direct channel out into Q3, and picking up nicely. So overall, we are seeing a big pickup in bookings for the second half and more current activity in our distribution channel.

Ross Seymore -- Deutsche Bank -- Analyst

Great. And then for my follow-up, one for you, Bernard. On the OpEx side, you guys did a great job in the quarter coming in low and you are holding it flat, in the second quarter. Is that just cyclical belt-tightening, which would be understandable given where revenues are. Is there something more structural about that? And any sort of color on your full-year outlook of how you're going to handle OpEx?

Bernard Gutmann -- Executive Vice President and Chief Financial Officer

You know, we definitely had been prudent in our deployment of OpEx and have taken some belt-tightening and cost reduction items. We also modulate our variable comp based on business results, so there is also some impact of that. So for the year, we expect to still be prudent in terms of our approach toward that. So I expect a good set of numbers.

Ross Seymore -- Deutsche Bank -- Analyst

Great. Thanks, guys.

Operator

Thank you. And our next question comes from the line of Vivek Arya with Bank of America Merrill Lynch. Your line is now open.

Vivek Arya -- Bank of America Merrill Lynch -- Analyst

Thanks for taking my question. Actually, I had two as well. Keith, you mentioned you were starting to see some distributor resale activity pickup. Can you help us quantify what that rate of growth -- or decline was in Q1? What are you seeing now and importantly, where do you see distribution inventory exiting Q2?

Keith D. Jackson -- President, Chief Executive Officer and Director

So going into Q1 -- or the Q1 data said that, our resales and our sell-in distribution were approximately the same. And as we have entered April, there is a significant increase in the resales above our ship-ins, in double-digit percentage range.

Vivek Arya -- Bank of America Merrill Lynch -- Analyst

Got it. And as my follow-up, maybe, Bernard, one for you on cash generation. Q1 was somewhat low, I imagine because of seasonal and macro trends. But how are you thinking about the recovery from here and any comments on how we should think about the full-year free cash flow outlook? Thank you.

Bernard Gutmann -- Executive Vice President and Chief Financial Officer

So the first quarter is always seasonally low and we have also -- it is driven by some things like the payment of our annual bonus plan always occurs in the first quarter, second half of the year is always our strong seasonal quarter. So we don't expect to see any meaningful change from what we have been previously talking about for our free cash flow generation. And as I -- as we said, we are also keeping good control in our OpEx, which will also help us fuel that free cash flow generation.

Vivek Arya -- Bank of America Merrill Lynch -- Analyst

Okay. Thank you.

Operator

Thank you. And our next question comes from the line of Vijay Rakesh with Mizuho. Your line is now open.

Vijay Rakesh -- Mizuho Securities -- Analyst

Yeah. Hi, just on the disti inventory comment that you made. I know you said inventories were picked up a little bit. How much of that is because of the industrial weakness that you are seeing in Greater China? And how do you see that progress for the June quarter? Thanks.

Keith D. Jackson -- President, Chief Executive Officer and Director

Yeah. So our inventories did not grow in dollars, they just grew in days as you calculate with the lower resales. And yes, certainly, in Q1, the China industrial portion was a contributor.

Vijay Rakesh -- Mizuho Securities -- Analyst

And I know, on the compute side, your March quarter was up 1% year-on-year. Can you talk about some of the trends you are seeing there into the back half between content share gains or units picking up? Thanks.

Keith D. Jackson -- President, Chief Executive Officer and Director

Yeah, we do expect to see more units as we go forward in the server side of the business this year. The rest of it is apparently very stable.

Vijay Rakesh -- Mizuho Securities -- Analyst

Thanks.

Operator

Thank you. Our next question comes from the line of Mark Delaney with Goldman Sachs. Your line is now open.

Mark Delaney -- Goldman Sachs Group -- Analyst

Yes. Good morning, thanks very much for taking the questions. I have two as well. One of your competitors, Infineon, reported about a month ago and at the time, they said they expected September quarter revenue to grow, but to be below seasonal. And I guess you have a good month of bookings in April. But I mean, as you guys look today, are you expecting more seasonal-type trends in the second half of the year? Or just any directional color on 2H, I think, would be helpful.

Keith D. Jackson -- President, Chief Executive Officer and Director

We only provide one quarter at a time. And I think, it's a little too early to be calling the September quarter right now, but certainly encouraged with the data we've had this month.

Mark Delaney -- Goldman Sachs Group -- Analyst

Okay. That's helpful. And Keith, in your prepared remarks, you talked about silicon carbide, seeing good momentum there. Can you just comment a bit more on the breadth of customer engagements and wins and how that may translate into revenue, over what sort of time frame? Thank you.

Keith D. Jackson -- President, Chief Executive Officer and Director

Yeah. We have a broad range of wins in the industrial market and the automotive market. Geographically, that is spread out fairly wide, Europe, North America and Asia, with our strongest automotive wins in Asia.

Operator

Thank you. And our next question comes from the line of Craig Ellis with B. Riley FBR. Your line is now open.

Craig Ellis -- B. Riley FBR -- Analyst

Thanks for taking the question. My first question is regarding the gross margin outlook. It's flat, guys, but segment mix seems like it's actually a bit adverse with auto and industrial down. So it seems like there may be some good things happening either on an intra-segment basis or company-specific activity. What's going on there and how should we think about gross margin potential in the back half of the year?

Bernard Gutmann -- Executive Vice President and Chief Financial Officer

The fundamentals that we talked about at our Analyst Day are still intact. So it is the same drivers basically (inaudible) through on incremental revenue, mix, manufacturing cost savings and some divestiture that will make up the improvement that trends over time. In the short-term, as you mentioned, we are having a slightly adverse mix impact with growth coming from our less stellar gross margin end-markets. But we do have some pretty good control -- cost-control measures that will also help shore-up the gross margin.

Craig Ellis -- B. Riley FBR -- Analyst

Thanks for that. And then Keith, following up on the base station comments and the acceleration you are getting on the infrastructure side. Can you just speak to the breadth of customer activity there? And as you look out through the year, what happens with the progression of that business as we go through 2019? Thank you.

Keith D. Jackson -- President, Chief Executive Officer and Director

Yeah, we have strong wins across all of the players in the telecom infrastructure area and we are expecting that to almost double this year from our content from last year. So very, very significant trends and again, it's broad based and across all customers. Relative to the rest of the year, it is kind of contained in my comment on the growth. We are expecting to see it continue to accelerate.

Craig Ellis -- B. Riley FBR -- Analyst

Thank you.

Operator

Thank you. And our next question comes from the line of Shawn Harrison with Longbow Research. Your line is now open.

Shawn Harrison -- Longbow Research -- Analyst

Yes. Good morning. I guess in the context of ON didn't see a lot of pricing tailwinds when the market got tight last year. I've seen some stuff of some of your competitors, maybe on MOSFETs and discretes begin to lower pricing. Are you seeing that out there as well and does that affect any way the gross margin expectations in the second half of the year, as pricing begins to normalize in some of those products?

Keith D. Jackson -- President, Chief Executive Officer and Director

We're not seeing any pricing declines at all and in fact, it's less than normal right now.

Shawn Harrison -- Longbow Research -- Analyst

Okay. And as a follow-up, the smartphone market, obviously, nice to see it up in the first quarter, given the volume challenges. How do you expect kind of maybe smartphone volumes as you move throughout the year? Is this going to be a down market that maybe ON can grow because of content? Or will you more closely follow kind of the volumes of the market, as the year progresses?

Keith D. Jackson -- President, Chief Executive Officer and Director

We certainly have continued content increases and as you know, that market is very much back-end loaded. So we are expecting to see an increase from the first half. But overall, total smartphone units, we're expecting very flattish year-on-year.

Operator

Thank you. And our next question comes from the line of Christopher Rolland with SIG. Your line is now open.

Christopher Rolland -- Susquehanna Financial Group -- Analyst

Hi, guys. Thanks for the question. So Keith, I know you guys guide one quarter at a time, but last quarter, you guys guided for growth year-on-year top-line in 2019. And then, I think you guys also talked about gross margin expansion. I was wondering if you guys had any updates for 2019 relative to that.

Keith D. Jackson -- President, Chief Executive Officer and Director

Yes. We're still only doing one quarter at a time. Clearly, the growth of the markets in 2019 is going to be very muted. And so we are not expecting significant growth in the markets this year, but we believe, we will be above the industry and our peers.

Christopher Rolland -- Susquehanna Financial Group -- Analyst

And perhaps another follow-up on comms (ph). Can you give us a rough idea of what percent of comms or a dollar amount, you think is coming from 5G at this point and maybe what the contribution was in the quarter?

Keith D. Jackson -- President, Chief Executive Officer and Director

I don't have that number right now. Sorry, Chris.

Christopher Rolland -- Susquehanna Financial Group -- Analyst

Thanks, guys.

Operator

Thank you. And our next question comes from the line of Matt Ramsay with Cowen. Your line is now open.

Matthew Ramsay -- Cowen and Company -- Analyst

Thank you very much. Good morning. Just a quick one on the data center power business. I just wonder how you guys might have factored into your commentary this morning in the data center space, the pretty sharply revised outlook from Intel last Thursday night. And sort of what the design-in lead times might be, if you have data center power portfolio products designed into products that might feature other silicon, whether that's Nvidia, AMD, Xilinx, any of the other folks that are ramping in that space. Any color there would be helpful. Thank you.

Keith D. Jackson -- President, Chief Executive Officer and Director

Yeah. We do have a broad range of power solutions, and we are expecting some growth there from a content perspective in total for the year. So again, I think, it goes beyond just the data center comments you hear from the processor guys, we have content gains and we are spread across all of the suppliers.

Operator

Thank you. And our next question comes from the line of Ari Shusterman with Needham. Your line is now open.

Ari Shusterman -- Needham & Company -- Analyst

Hello, I'm taking the question for Raji Gill. First off, I want to say congratulations on your acquisition of the Fishkill fab. And just like moving forward, what is your strategic vision when it comes to expanding capacity in 300 millimeter, like any further plans there? How should we think about this expansion? Thank you.

Keith D. Jackson -- President, Chief Executive Officer and Director

No. That expansion, we're very excited about. It should fuel our growth for many years. We talked about the opportunity of doing well north of $2 billion of revenue there. So we think that covers us, and that's why we believe we will be able to save CapEx going forward.

Ari Shusterman -- Needham & Company -- Analyst

Okay. And just a quick follow-up. In terms of China, have you seen any changes in the past few months? Some of our competitors have said that there have been some signs of stabilization. Like any update, any color on that? Thank you.

Keith D. Jackson -- President, Chief Executive Officer and Director

Yeah. The booking trends from China definitely picked up at the end of the first quarter, and we are seeing that continue here in the second quarter. So we are encouraged that maybe their inventory correction period is past them.

Operator

Thank you. And our next question comes from the line of Harlan Sur with JPMorgan. Your line is now open.

Harlan Sur -- JP Morgan -- Analyst

Good morning. Thank you for taking my question. First question on consumer. Primarily white goods has been weak since 3Q of last year. It's actually one of the first sectors we actually -- where you guys actually started to see the weakness first. It looks like, it's flattening out, quarter-over-quarter this quarter. Is this one of the areas where you're seeing improving order and forecast trends, as you move into the second half of the year?

Keith D. Jackson -- President, Chief Executive Officer and Director

It is -- and it is really in China. Seasonally, we do normally see a pickup at this time. And so I would say, that market is returning to more normalcy.

Harlan Sur -- JP Morgan -- Analyst

Thanks for the insights there. And then, obviously, industrial continues to be impacted by the weakness in Greater China. What have you seen in the other geographies? I'm curious there and are you seeing the same sort of booking indicators, sell-through trends that also point to a more normalized, second half for the industrial sector?

Keith D. Jackson -- President, Chief Executive Officer and Director

Actually, we've seen what looks to be like a little inventory correction still going on there outside of China. And so our sub-seasonal comments in the prepared remarks apply to the global area.

Harlan Sur -- JP Morgan -- Analyst

Thank you.

Operator

Thank you. And our next question comes from the line of Kevin Cassidy with Stifel. Your line is now open.

Kevin Cassidy -- Stifel, Nicolaus & Company -- Analyst

Thanks for taking my question. I wonder if you could give us a little more detail on what your CapEx spending was -- has been on?

Bernard Gutmann -- Executive Vice President and Chief Financial Officer

Our CapEx spending, which was 11% in the first quarter, but we have said in the prepared remarks the full-year will be 9%, is that mostly for capacity. I would say, it's skewed a little bit more toward front-end capacity this year, but fairly evenly split.

Kevin Cassidy -- Stifel, Nicolaus & Company -- Analyst

Okay. And your expansion for internal wafer manufacturing, is that completed now?

Bernard Gutmann -- Executive Vice President and Chief Financial Officer

It is ramping right now and it is -- from the CapEx spend were mostly completed.

Kevin Cassidy -- Stifel, Nicolaus & Company -- Analyst

Okay. Thank you.

Operator

Thank you. And our next question comes from the line of John Pitzer with Credit Suisse. Your line is now open.

John Pitzer -- Credit Suisse -- Analyst

Yeah. Good morning guys. Thanks for let me ask question. Can you just -- I'm kind of curious, the comment about half-on-half growth in the second half, is that a half-on-half and a year-over-year comment? And an answer to an earlier question, you said that you expect to outgrow an industry that should show a little bit of growth. There are some out there that think the semiconductor industry could actually decline this year. Are you comfortable in full year growth, or is it just too early to tell?

Keith D. Jackson -- President, Chief Executive Officer and Director

Yes. So it's too early to tell, John. My comment is I think, we'll outgrow the industry. And I actually didn't give you an industry number. So we're confident about the numbers we're seeing from the design wins and feedback from our customers that we're going to have continued share gain this year. But it's too early for me to call the full year.

John Pitzer -- Credit Suisse -- Analyst

That's helpful. And then Bernard, as a follow-up, notwithstanding that March is always kind of a seasonally slow quarter for free cash flow, for some seasonal reasons. You did suspend the buyback. Just help us understand use of cash for the year and when you might think, is the earliest you'll be back in the market looking to buy stock.

Bernard Gutmann -- Executive Vice President and Chief Financial Officer

Well, we are committed to our $1.5 billion buyback program and as we said, we did $75 million in the first quarter. So that commitment will continue. We will discuss with our Board at the upcoming Board meeting, the reinitiation date. But in general, we are committed to continuing with that plan.

John Pitzer -- Credit Suisse -- Analyst

Great. Thanks guys.

Operator

Thank you. And our next question comes from the line of Ambrish Srivastava with BMO. Your line is now open.

Ambrish Srivastava -- BMO Capital Markets -- Analyst

Hi. Good morning. Thank you. Keith, I was just trying to reconcile your comment about OEMs and your confidence about the second half. And maybe I'm missing something, but if OEM inventory is at healthy levels, why are they reducing inventory? And does that not mean that they're seeing a slower demand environment for the back-half and then how do you reconcile that with your confidence for the second-half? That was my first and then I have a quick follow-up.

Keith D. Jackson -- President, Chief Executive Officer and Director

Yes. I think on that, we've looked at past trends in particularly, the automotive and industrial segments. When you do go through a softer market, they over-correct. And again, we compare the sell-out rates from our customers and look at their sell-in rates to get that. Certainly, there could be some anticipation of softer numbers, but the dialogue that we have with them does not indicate that. It does indicate they're trying to work on their cash flows and make sure that they continue to perform on a cash basis.

Ambrish Srivastava -- BMO Capital Markets -- Analyst

Okay. And then my follow-up on capacity. I have this concern, and I've heard it, reflected in many investor conversations, is that you are adding capacity and you are doing it in a measured way, but your competitors are adding capacity. Just give us some sense of overall industry capacity for discretes. And what is it going to look like, I know, it has been tight for a while. But the concern is that there could be excess capacity coming online, which could linger on.

Keith D. Jackson -- President, Chief Executive Officer and Director

We certainly are careful and watch that. But we look at the growth rates that we've talked about with electric vehicles, with the industrial and with the power segment out there for solar and wind, et cetera. The capacity that we see coming online over the next few years still looks to me to be a little less than the industry demands. We've commented that with all the activity you've heard about, we continue to have extended lead times in power. So we are actually feeling that we are in pretty good shape.

Ambrish Srivastava -- BMO Capital Markets -- Analyst

Okay. Thank you.

Operator

Thank you. And our next question comes from the line of Tristan Gerra with Baird. Your line is now open.

Tristan Gerra -- Robert W. Baird -- Analyst

Hi. Good morning. On the manufacturing side, how does the time it takes for you guys to get equipment these days compare with the equipment lead times exiting last year?

Keith D. Jackson -- President, Chief Executive Officer and Director

In some spots, it's come in a little, most of the equipment was at a year kind of run rate. Some of it's now down in the 9 month or 10 months range, but it's nothing dramatic yet.

Tristan Gerra -- Robert W. Baird -- Analyst

Okay. Great. And then could you provide color on your utilization rates for the just-reported quarter and your expectation for the June quarter?

Bernard Gutmann -- Executive Vice President and Chief Financial Officer

So, it was down in the first quarter in the middle 70s and we expect that to be about the same in the second quarter.

Tristan Gerra -- Robert W. Baird -- Analyst

Great. Thank you.

Operator

Thank you. And we do have an additional follow-up with the line of Craig Ellis, with B. Riley FBR, excuse me.

Craig Ellis -- B. Riley FBR -- Analyst

Yeah. Thanks for taking the follow-up question. Typically, when I ask about revenues, I focus on the end markets. But Intelligent Sensing did grow quarter-on-quarter, at a business unit level. Guys, what's going on in Intelligent Sensing, that's enabling it to overcome the cyclical pressures that we are seeing out there?

Keith D. Jackson -- President, Chief Executive Officer and Director

Yeah, that continues to be the automotive portion of the business. As you know, we were curtailing the consumer piece due to margin contribution. And the automotive piece continues to grow for us. And so that's been a great growth story, but it's all automotive.

Craig Ellis -- B. Riley FBR -- Analyst

Thanks, Keith. And then the second question is related to the Quantenna acquisition. It's early days, but I imagine your sales people have been able to gather some feedback from customers on their reaction to the deal. Can you share what you've heard thus far with this?

Keith D. Jackson -- President, Chief Executive Officer and Director

Yes -- no, it's been well received. Customers are looking forward to having a large supplier with the great technologies that Quantenna has and so, been very well received so far.

Craig Ellis -- B. Riley FBR -- Analyst

Thanks guys.

Operator

Thank you. And our next question comes from the line of Harsh Kumar with Piper Jaffray. Your line is now open.

Harsh Kumar -- Piper Jaffray -- Analyst

Yeah. Hi guys. Two questions. First, Keith, if I can ask you for modeling purposes, auto and industrial are both down. But if I had to ask you to sort of venture as to which one would be down more on a percentage basis, and then I had a follow-up.

Keith D. Jackson -- President, Chief Executive Officer and Director

We think automotive will be slightly down to flat. So there's not much change there. Automotive might be down a little more.

Bernard Gutmann -- Executive Vice President and Chief Financial Officer

Industrial.

Keith D. Jackson -- President, Chief Executive Officer and Director

Industrial. Excuse me, industrial.

Harsh Kumar -- Piper Jaffray -- Analyst

Okay. Industrial, flattish. Got it, and then --.

Keith D. Jackson -- President, Chief Executive Officer and Director

No. Let me start all over. Automotive is flat to slightly down, industrial is going to be slightly down.

Harsh Kumar -- Piper Jaffray -- Analyst

Understood. Thank you for the clarification. And then, so you are expecting to see reduced inventory in the distri-channel. Is that a function of just demand picking-up? Or are you still, at this point, today, actively reducing your sell-in into the channel?

Keith D. Jackson -- President, Chief Executive Officer and Director

So the answer is we are seeing resales pick up noticeably and we expect our shipments in to be flat to down.

Harsh Kumar -- Piper Jaffray -- Analyst

Got it. Thank you.

Operator

Thank you. And our next question comes from the line of Chris Caso with Raymond James. Your line is now open.

Christopher Caso -- Raymond James -- Analyst

Yes, hi. Just a -- first question on just what would you consider to be seasonality as you look in the back half of the year with different business mix. What do you consider that to be right now?

Keith D. Jackson -- President, Chief Executive Officer and Director

So I'm not sure the exact question there, but we see all of our businesses picking up in Q3. So generally, that is a trend for us across the board.

Bernard Gutmann -- Executive Vice President and Chief Financial Officer

So I would say, for our general company seasonality, with the mix of products we have right now for Q3. It's probably in the 4% to 5% and flat for the fourth quarter.

Christopher Caso -- Raymond James -- Analyst

Okay. That's helpful. Thank you. And just with regards to the GLOBALFOUNDRIES deal, perhaps you could comment a bit on timing and magnitude of the cost and margin benefit you see there. I know, that -- it's a bit of a unique transaction, the way that's structured. Could you be a little more specific on when you see start -- begin to see some benefits from that?

Keith D. Jackson -- President, Chief Executive Officer and Director

We will expect to start seeing benefits from that the middle of next year, as we start shipping volumes of products out of there, and then it will grow and increase as we increase the total amount we run in that factory for the next three years.

Christopher Caso -- Raymond James -- Analyst

Okay. Thank you.

Operator

Thank you. And our last question comes from the line of Craig Hettenbach with Morgan Stanley. Your line is now open.

Craig Hettenbach -- Morgan Stanley -- Analyst

Yes. Just wanted to get back to the commentary about inventory in distribution and the target of 11 weeks to 13 weeks. So just for Q2, kind of where you expect it to shake out and then how you're thinking about managing that into the second half of the year.

Keith D. Jackson -- President, Chief Executive Officer and Director

We would be expecting it to get back to normal range in the second quarter and then we will continue to prudently manage that into the second-half. So normally, we do see it drop a bit in Q3, as demand picks up and then slightly up in Q4.

Craig Hettenbach -- Morgan Stanley -- Analyst

Got it. Thanks.

Operator

Thank you. And that does conclude today's question-and-answer session. I would now like to turn the call back to Parag Agarwal, VP of Corporate Development and Investor Relations for any further remarks. Please go ahead.

Parag Agarwal -- Vice President of Investor Relations

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

Operator

Ladies and gentlemen thank you for participating in today's conference. This does conclude today's program. You may all disconnect. Everyone, have a great day.

Duration: 51 minutes

Call participants:

Parag Agarwal -- Vice President of Investor Relations

Bernard Gutmann -- Executive Vice President and Chief Financial Officer

Keith D. Jackson -- President, Chief Executive Officer and Director

Christopher Danely -- Citigroup Inc -- Analyst

Ross Seymore -- Deutsche Bank -- Analyst

Vivek Arya -- Bank of America Merrill Lynch -- Analyst

Vijay Rakesh -- Mizuho Securities -- Analyst

Mark Delaney -- Goldman Sachs Group -- Analyst

Craig Ellis -- B. Riley FBR -- Analyst

Shawn Harrison -- Longbow Research -- Analyst

Christopher Rolland -- Susquehanna Financial Group -- Analyst

Matthew Ramsay -- Cowen and Company -- Analyst

Ari Shusterman -- Needham & Company -- Analyst

Harlan Sur -- JP Morgan -- Analyst

Kevin Cassidy -- Stifel, Nicolaus & Company -- Analyst

John Pitzer -- Credit Suisse -- Analyst

Ambrish Srivastava -- BMO Capital Markets -- Analyst

Tristan Gerra -- Robert W. Baird -- Analyst

Harsh Kumar -- Piper Jaffray -- Analyst

Christopher Caso -- Raymond James -- Analyst

Craig Hettenbach -- Morgan Stanley -- Analyst

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