It’s no secret that the role of CFO is in many ways evolving into more of a strategic partner of the CEO. Thad Trent, EVP and finance chief at Onsemi, knows a thing or two about that. He joined the semiconductor manufacturer in early 2021 and has worked alongside president and CEO Hassane El-Khoury to transform Onsemi from what Trent called a “very defocused” company to one that has clear and specific objectives.
Before teaming up at Onsemi, the two held similar executive roles at Cypress Semiconductor, which is now part of Germany-based Infineon Technologies. “A very strong strategic partnership started at that point,” Trent said. He joined Onsemi two months after El-Khoury started, marking the start of their quest to reshape the company.
CFO Brew spoke with Trent about his role as CFO as a strategic partner to the CEO in this undertaking.
This interview has been lightly edited for length and clarity.
How did you and El-Khoury rethink the strategic direction of Onsemi?
What we had to do was really rationalize the portfolio, and that was through strategic review…[The] CEO and I knew each other and we came in as strategic business partners. We knew this was going to be a transformation, and the thesis was [that] we could drive valuation up on the company by making it more predictable and sustainable in the financial results. The company did well in good times, and not so well in bad times, and the volatility was there.
We knew, by being more predictable, we could drive the valuation up, and by going to more proprietary products and getting out of the commoditized business, we knew that we could drive the multiple up on the business.
When we rationalized that portfolio, we had to get out of a bunch of these businesses. We walked away from about $475 million of business, we divested some businesses, and then we [shrank] our manufacturing footprint.
How did you determine where the company should put its focus?
I joined in February. By August, we had to have a strategic plan that we could roll out to Wall Street…We went through every one of the businesses and understood the value of all the product lines that we had—what was the financial profile of it, what are the growth rates, and the investments in the past. That’s where we started reallocating resources and capital. Our capital allocation went to things that had high growth, where we could differentiate, and we started shutting down projects and shutting down the various products as well…We went from trying to service all markets to saying, “We’re going to focus on auto and industrial primarily.” Today, auto/industrial is 80% of our business. At that time, I think it was just over 50%.
News built for finance pros
CFO Brew helps finance pros navigate their roles with insights into risk management, compliance, and strategy through our newsletter, virtual events, and digital guides.
You said you let go of around $475 million of business when you were refocusing the company. Was some convincing of investors needed?
By the time we got to August, it was communicating what our strategy was. During that process, we went to the board and said, “This is what we’re going to do.” There was an element of communication to the board and buy-in from the board that we were going to walk away from businesses. The company had acquired a semiconductor company about a year and a half before this, and we said, “Look, we’re going to shut that business down.” They bought it for $1 billion. So, telling the board that I’m going to shut down a business that [they] all approved a little over a year ago, you can imagine there was a little tension in the room.
But it was laying out that whole strategic process [that] eventually resulted in that analyst day presentation that we ended up giving in August to investors to say, “This is why this is a compelling investment. We’re going to go through this transformation—here’s what it’s going to take, here’s what it’s going to look like, and here’s how you’re going to measure us.” And we gave financial targets that the investment community can measure.
What are the goals you’re working toward now?
[Our transformation] is still ongoing. It’s been very successful, but it’s not done. We did an analyst day last year, and…we laid out the next set of financials. When we did that initial analyst day, we set out a target for gross margin that we thought we could hit in three years, and we hit it the first year because the transformation went faster than we thought. Now, we’re focused on [a] gross margin of 53% [and] operating margin of 40%…When we think about long term, it’s to outgrow the industry and it’s to have a sustainable and predictable financial performance.