A month has gone by since the last earnings report for ON Semiconductor Corp. (ON) . Shares have added about 23% in that time frame, outperforming the S&P 500.Will the recent positive trend continue leading up to its next earnings release, or is ON Semiconductor Corp. due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.How Have Estimates Been Moving Si ...

Core Insights - The company is strategically repositioning itself and focusing on controllable factors amidst market volatility, including demand fluctuations and geopolitical issues [1] - There is an emphasis on maintaining investments in new products to drive both current and future growth [1] Manufacturing Strategy - The company has rationalized its manufacturing footprint to align with its high-value product portfolio, including taking capacity offline to optimize operations [2] - The approach includes a focus on areas that add value and ensuring the right manufacturing capacity to support growth [2] Financial Outlook - Recent changes have led to a more predictable environment for gross margin expansion, with expectations of better margin performance due to strategic realignment [3] - The current manufacturing footprint is viewed as a competitive advantage in light of the geopolitical landscape [3]

Summary of Conference Call Company and Industry Overview - The company is focused on strategic repositioning and financial posture amidst market volatility, including demand fluctuations and geopolitical issues [1][2] - Emphasis on maintaining investments in new products to drive growth [1] Manufacturing and Operational Strategy - The company is rationalizing its manufacturing footprint to align with high-value product portfolios, which includes taking capacity offline [2] - A strategic realignment is expected to lead to better gross margin expansion due to a more predictable manufacturing environment [2][3] - The dual manufacturing strategy (primary in the US and secondary outside) provides a competitive advantage in managing geopolitical uncertainties [3] Demand and Market Recovery - Signs of recovery are noted in the industrial market, with expectations for growth in the automotive sector, particularly driven by electric vehicles (EVs) in China [4][6] - The second half of the year is anticipated to show improvement, with Q2 expected to be the bottom for automotive demand [4][7] - The company has seen a 19% year-on-year increase in customer count in the broad market due to strategic inventory management [16] Inventory Management - The company has maintained tight control over channel inventory, allowing for measured shipping based on demand certainty [14][15] - Base inventory is reported at 119 days, with a target fluctuation between 100 and 120 days [18] - Customer-specific inventory levels vary, with some customers still holding excess inventory while others have achieved inventory burn [20] Silicon Carbide Market - Silicon carbide technology is deemed strategic for the company, applicable in automotive and renewable energy sectors [23] - The company emphasizes the value of efficiency in silicon carbide products, which allows customers to reduce battery size and costs [25] - The company aims to increase its market share in silicon carbide from 20% to a target of 30-40% [37] Automotive and EV Market Insights - The company is experiencing share gains in both North America and China, with a focus on new product ramps in the EV market [11][37] - The overall EV market in Europe is still growing, with a shift towards 800-volt battery systems where silicon carbide is increasingly utilized [34] Image Sensors and ADAS - The image sensors market is growing, particularly in automotive and industrial applications, with a high market share in ADAS [46] - The company is ramping up production for a major Chinese OEM focusing on autonomy [47] Pricing Strategy - The pricing environment is characterized as stable, with strategic pricing adjustments made to gain market share [51][57] - The company has walked away from volatile business segments to maintain favorable margins [58] Gross Margin and Utilization - Short-term gross margins are expected to be driven by utilization rates, with a correlation between utilization and margin improvement [68] - Long-term margin expansion is anticipated from new product introductions and increased utilization [70] Future Outlook - The company is optimistic about growth opportunities in the data center market, particularly with differentiated technologies like silicon carbide JFET [75] - The focus remains on providing value through strategic product offerings rather than competing in crowded markets [76]

Core Viewpoint - ON Semiconductor has experienced a significant decline in share price, losing 34.5% year to date, which is a stark contrast to the broader semiconductor industry and technology sector performance [1] Group 1: Financial Performance - In Q1 2025, ON Semiconductor's revenues from the Power Solutions Group (PSG), Analog and Mixed Signals Group (AMG), and Intelligent Sensing Group (ISG) saw substantial declines, with PSG down 26.2%, AMG down 18.7%, and ISG down 19.7% year over year [2] - Automotive revenues, which account for 52.7% of total revenues, fell by 25.1% year over year, while Industrial revenues, making up 27.7% of revenues, declined by 16% year over year [3] - The gross margin for Q1 2025 decreased by 590 basis points to 40%, with management anticipating approximately 900 basis points of non-cash underabsorption charges for Q2 [9] Group 2: Market Dynamics - Weak demand in the automotive sector, influenced by geopolitical tensions and a slowdown in electric vehicle (EV) adoption, has adversely affected ON Semiconductor's growth [3] - The company is facing intense competition from peers such as Magnachip Semiconductor, NXP Semiconductors, and Analog Devices, with their shares also experiencing declines [5] - ON Semiconductor is contending with pricing pressure and low utilization rates, with manufacturing capacity utilized at only 60% in Q1 2025, which is expected to decline further [7][8] Group 3: Growth Opportunities - AI data centers have emerged as a significant growth market for ON Semiconductor, with revenues from this segment more than doubling year over year in Q1 2025 [4] - The company is leveraging its silicon carbide (SiC) technology, having recently acquired Qorvo's SiC JFET assets, and is targeting a 35-40% market share in the near future [13][14] - ON Semiconductor's SiC and silicon-based intelligent power portfolio is increasingly being adopted in uninterruptible power supply (UPS) systems, with expectations of revenue growth between 40% and 50% by 2025 [4][15] Group 4: Future Guidance - For Q2 2025, ON Semiconductor expects revenues between $1.40 billion and $1.50 billion, reflecting a 16.48% decline from the previous year [11] - Non-GAAP earnings for Q2 2025 are projected to be between 48 cents and 58 cents per share, indicating a steep 43.75% decline from the year-ago quarter [12]

Group 1 - The meeting between the Vice President of China Council for the Promotion of International Trade, Chen Jianan, and the President of ON Semiconductor, Hassan El-Khoury, focused on enhancing exchanges between Chinese and American business communities [1] - Discussions included improving foreign investment service guarantees and deepening cooperation in industrial and supply chains [1]

Group 1 - The last analysis on ON Semiconductor raised concerns about the company's outlook, particularly due to management's lack of confidence in a recovery of end markets for 2025 [1] Group 2 - The analyst has a background in Mechanical Engineering and has transitioned from the oil and gas sector to focus on global equities, particularly in the semiconductor industry [2] - The investment approach emphasizes growth at a reasonable price, with a mid- to long-term investment horizon [2] - The analyst aims to provide small investors with valuable investment ideas in sectors with high barriers to entry, avoiding smaller companies due to perceived risks [2]

Core Insights - ON Semiconductor's first-quarter 2025 Power Solutions Group revenues of $645.1 million missed the Zacks Consensus Estimate by 17.93% and fell 26.2% year over year and 20% sequentially, accounting for 44.6% of total sales in the quarter [1] - The company's adjusted earnings of 55 cents per share exceeded the Zacks Consensus Estimate by 7.8%, but decreased 49.1% year over year [1] Financial Performance - Net sales for ON Semiconductor were reported at $1.45 billion, down 22.4% year over year and lagging the Zacks Consensus Estimate by 2.9% [2] - Automotive revenues were $762 million, decreasing 26% sequentially and 25.1% year over year, while industrial revenues were $400 million, down 4% sequentially and 16% year over year [5] - Automotive revenues missed the Zacks Consensus Estimate by 6.4%, while industrial revenues beat the consensus mark by 3.14% [6] Market Conditions - The company is facing challenging macroeconomic conditions and an uncertain geopolitical environment, with the industrial market remaining weak due to high inventory levels and cautious customer spending [4] - ON Semiconductor expects low single-digit pricing declines in certain parts of its business to negatively impact growth [4] Strategic Initiatives - ON Semiconductor is implementing a restructuring plan to expand gross and operating margins, including a 12% reduction in internal fab capacity and a 9% reduction in global workforce [7][8] - These initiatives are expected to generate approximately $25 million in savings in the second quarter compared to the first quarter, with an additional $5 million per quarter in the second half of the year [8] - The company aims to achieve a free cash flow margin of 25% to 30% for 2025 through these cost-saving measures [8]

Core Viewpoint - ON Semiconductor Corporation (onsemi) reported Q1 earnings indicating ongoing operational challenges and a GAAP loss for the first time in a significant period [1] Financial Performance - The company experienced a GAAP loss in Q1, marking a notable shift in its financial performance [1] - The earnings report reflects a continuation of operational difficulties faced by the company [1]

Core Viewpoint - Onsemi's stock price has reached a bottom, with Q1 results showing a 22% revenue contraction but better than expected performance, leading to raised guidance and an outlook for growth resuming next year [1][10][13] Financial Performance - Q1 revenue contracted by 22%, with the PSG segment experiencing the worst decline at 26%, followed by ISG at 20% and AMG at 19% [10] - Cash from operations exceeded $602 million, representing over 40% of revenue, while free cash flow grew by more than 70% to $455 million [12] - The company is expected to guide for Q2 revenue near $1.45 billion, which is flat compared to Q1, with contraction slowing from 22% to 16% [13] Market Sentiment and Analyst Activity - Analyst sentiment has shifted positively, with a moderate buy rating and a potential upside of 58.8% [11] - Institutional activity showed a reversal from selling in Q1 2025 to buying in early Q2, indicating the stock's decline may have ended [7] - Analysts are expected to reaffirm price targets, which could catalyze a rebound in Onsemi's stock price [6][7] Growth Outlook - Onsemi trades at a low P/E ratio of 10.66, with significant long-term growth potential driven by advancements in automotive technology, industrial applications, AI, and IoT [2][3] - Despite macroeconomic headwinds, the company has a robust outlook for growth, with expectations for acceleration in the coming quarters [4] Shareholder Value - The company has been actively buying back shares, reducing the count by 1.9% sequentially and 3.5% year-over-year, which supports shareholder value [12][14] - The balance sheet reflects improvements in cash flow and a low leverage position, which is expected to continue into 2025 and beyond [14]

Core Insights - ON Semiconductor reported first-quarter 2025 non-GAAP earnings of 55 cents per share, exceeding the Zacks Consensus Estimate by 7.8% but showing a decline of 49.1% year over year. Revenues of $1.45 billion fell short of the Zacks Consensus Estimate by 2.9% and decreased by 22.4% year over year [1]. Revenue Breakdown - Automotive segment, which constitutes 52.7% of revenues, generated $761.9 million, down 25.1% year over year [2]. - Industrial segment, accounting for 27.7% of revenues, saw revenues decline 16% year over year to $400 million [2]. - Other segments, making up 19.6% of revenues, reported a revenue drop of 23.2% year over year to $283.8 million [2]. Segment Performance - Power Solutions Group revenues were $645.1 million, contributing 44.6% to total revenues, and fell 26.2% year over year [3]. - Analog & Mixed Group revenues reached $566.4 million, representing 39.2% of revenues, declining 18.7% year over year [3]. - Intelligent Sensing Group revenues totaled $234.2 million, accounting for 16.2% of revenues, and decreased by 19.7% year over year [3]. Margin and Expenses - Non-GAAP gross margin contracted by 590 basis points year over year to 40% [4]. - Non-GAAP operating expenses increased by 0.1% year over year to $314.5 million, with operating expenses as a percentage of revenues rising by 490 basis points year over year [4]. - Non-GAAP operating margin was reported at 18.3%, down from 29% in the same quarter last year [4]. Financial Position - As of April 4, 2025, ON Semiconductor had cash and cash equivalents of $3.01 billion, up from $2.69 billion as of December 31, 2024 [5]. - Total debt remained unchanged at $3.35 billion as of April 4, 2025 [5]. - Cash flow from operations for the first quarter of 2025 was $602.3 million, compared to $579.7 million in the previous quarter [5]. Free Cash Flow - Free cash flow for the first quarter amounted to $454.7 million, an increase from $264.8 million in the previous quarter [6]. Q2 Guidance - For Q2 2025, ON Semiconductor expects revenues between $1.40 billion and $1.50 billion [7]. - Projected non-GAAP gross margin is expected to be in the range of 36.5-38.5% [7]. - Non-GAAP operating expenses are anticipated to be between $285 million and $300 million, with earnings projected between 48 cents and 58 cents per share [7]. Zacks Rank - ON Semiconductor currently holds a Zacks Rank 4 (Sell) [8]. - Other stocks in the sector with better rankings include Affirm (Zacks Rank 1), Compass (Zacks Rank 2), and StoneCo (Zacks Rank 1) [8].