ON Semiconductor(ON) Seeking Alpha·2024-09-06 16:55Core Insights - ON Semiconductor Corporation is experiencing stabilization in the automotive market, with demand being flat to slightly up, attributed to inventory adjustments by customers rather than a full recovery [5][6][7] - The company emphasizes the importance of long-term supply agreements (LTSAs) in managing customer relationships and inventory levels, allowing for better visibility and proactive adjustments [10][12][16] - The automotive supply chain is characterized by customer-specific inventory levels, with some Tier 1 suppliers holding insufficient inventory, raising concerns among OEMs [21][22][24] - The company has a significant presence in the electric vehicle (EV) market, with average content of 50 for internal combustion engine (ICE) vehicles, indicating a strong growth potential in the EV segment [27][28][30] - The silicon carbide market is expected to grow, with ON Semiconductor positioned to benefit from increased penetration in EVs and industrial applications [52][62] Automotive Market Trends - The automotive market is currently mixed, with varying demand trends among competitors, but ON Semiconductor sees some positive signs of stabilization [4][5] - The company has proactively lowered utilization rates in anticipation of market corrections, allowing for better management of inventory and customer demand [9][13] - OEMs are increasingly concerned about low inventory levels among Tier 1 suppliers, which could lead to production disruptions if demand suddenly increases [21][22] Long-Term Supply Agreements (LTSAs) - LTSAs provide ON Semiconductor with a competitive advantage by ensuring ongoing communication with customers regarding demand, allowing for timely adjustments to production [11][12][16] - The number of LTSAs has remained relatively flat, indicating continued customer value in these agreements [16] - The company believes that LTSAs help mitigate the risks associated with inventory management and demand fluctuations [12][16] Electric Vehicle (EV) Market - The average content for EVs is significantly higher than for ICE vehicles, with ON Semiconductor's content for EVs averaging 50 for ICE [27][28] - The company anticipates that the long-term trend will favor EVs, despite short-term challenges such as high interest rates and affordability issues [30][33] - ON Semiconductor is well-positioned in the Chinese EV market, with over 60% of new vehicles featuring its silicon carbide technology [40][41] Silicon Carbide Market - The silicon carbide market is expected to grow, with ON Semiconductor's design wins indicating a strong future demand [52][62] - The company is focused on increasing its market share in both the automotive and industrial sectors, with a significant portion of its revenue coming from silicon carbide products [61][62] - The gross margin for silicon carbide is expected to improve as production scales up, with the company confident in its pricing strategy [56][58]