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ON Semiconductor Plunges 20% in a Year: Should You Buy the Dip or Wait?
ONON Semiconductor(ON) ZACKS·2024-12-26 17:01

Acquisitions and Portfolio Expansion - The company has acquired Silicon Carbide Junction Field-Effect Transistor (SiC JFET) technology, including the United Silicon Carbide subsidiary from Qorvo, for 115million[1]−Thisacquisitionenhancesthecompany′sEliteSiCpowerportfolio,supportingenergy−efficientpowersupplysolutionsforAIdatacentersandadvancementsinEVbatterydisconnectsandsolid−statecircuitbreakers[15]−Frequentbuyoutsexpandthecompany′scapabilitiesbutintroduceintegrationrisksthatcouldcomplicatefuturegrowth[18]PartnershipsandClientBase−Thecompanyhasastrongpartnerbase,includingVolkswagen,whichdrivesgrowth[2]−Amulti−yeardealwithVolkswagenGroupwasannouncedtosupplyacompletepowerboxsolutionfeaturingsiliconcarbide−basedtechnologiesfornext−generationtractioninverters,enhancingEVefficiencyandperformance[12]−Thecompanyhasalong−termpartnershipwithDENSOCorporationtoadvancetheprocurementofautonomousdrivingandadvanceddriverassistancesystemstechnologies[19]−Foroveradecade,thecompanyhassuppliedDENSOwithintelligentautomotivesensorstoenhancevehicleintelligenceandconnectivity,aimingtoreducetrafficaccidentfatalities[6]FinancialPerformanceandEstimates−Thecompany′sshareshavelost20.2115 million [1] - This acquisition enhances the company's EliteSiC power portfolio, supporting energy-efficient power supply solutions for AI data centers and advancements in EV battery disconnects and solid-state circuit breakers [15] - Frequent buyouts expand the company's capabilities but introduce integration risks that could complicate future growth [18] Partnerships and Client Base - The company has a strong partner base, including Volkswagen, which drives growth [2] - A multi-year deal with Volkswagen Group was announced to supply a complete power box solution featuring silicon carbide-based technologies for next-generation traction inverters, enhancing EV efficiency and performance [12] - The company has a long-term partnership with DENSO Corporation to advance the procurement of autonomous driving and advanced driver assistance systems technologies [19] - For over a decade, the company has supplied DENSO with intelligent automotive sensors to enhance vehicle intelligence and connectivity, aiming to reduce traffic accident fatalities [6] Financial Performance and Estimates - The company's shares have lost 20.2% over the trailing 12 months against the Zacks Computer & Technology sector's return of 34.8% [9] - For the fourth quarter of 2024, the company expects revenues between 1.71 billion and 1.81billion,indicatingayear−over−yeardeclineof12.731.81 billion, indicating a year-over-year decline of 12.73% [10] - Non-GAAP earnings for the fourth quarter are expected to be between 92 cents per share and 1.04 cents, with a Zacks Consensus Estimate of 99 cents per share, indicating a year-over-year decline of 20.8% [14] - For 2024, the Zacks Consensus Estimate for revenues is pegged at 7.12 billion, indicating a year-over-year decline of 13.70%, and the consensus mark for earnings is pegged at $4 per share, indicating a 22.48% decline year over year [17] Market Challenges and Opportunities - The company is suffering from macroeconomic uncertainty, which has impacted investor confidence and is likely to weigh on performance [4] - Soft demand across automotive and industrial markets, inventory digestion, and weaker-than-expected growth in key sectors are expected to hurt the company's top line [7] - The underperformance can be attributed to muted demand due to ongoing inventory digestion and sluggish end markets, particularly in North America and Europe [13] - Prospects are expected to ride on strong growth in silicon carbide, particularly in utility-scale solar and China BEVs, along with increased demand for intelligent sensing solutions and power delivery for AI data centers [16] Valuation and Investment Considerations - The company's stock is not considered cheap, with a Value Score of C suggesting a stretched valuation at this moment [11] - The company carries a Zacks Rank 3 (Hold), implying investors should wait for a more favorable entry point to accumulate the stock [3]