What happened

Stock in semiconductor manufacturer ON Semiconductor Corp. (NASDAQ:ON) rose 13.8% in May, according to data from S&P Global Market Intelligence.

So what

ON Semiconductor shares enjoyed a steady ascent throughout the month of May after the company released first-quarter 2018 results. While revenue decreased by 4% during the quarter to $1.38 billion, after allowing for a one-time accounting change tied to revenue recognition, the top line expanded by 7% on an adjusted basis.

ON improved gross margin by 2.6 percentage points over the prior-year quarter, to 37.6%. The company also exhibited a tight control over selling, general, and administrative expenses: Operating income increased by $2.6 million to $185.7 million versus the first quarter of 2017, despite the lower GAAP revenue.

Shareholders were also likely enthused by a few significant trends pointed out by management during the company's earnings conference call. Specifically, CFO Bernard Gutmann described a favorable macroeconomic environment, noting that ON is seeing "strong demand from all geographies."

Gutmann also observed that ON is currently enjoying steeper long-term demand in core markets, particularly in the automotive market, and within industrial applications. CEO Keith Jackson singled out automotive image sensors, LEDs, and industrial power modules as examples of products experiencing sharpened demand.

To meet burgeoning demand, the company is increasing its manufacturing capacity, thus pushing up capital expenditures over the next two years. Still, Gutmann forecast that ON would generate $800 million in free cash flow during the current year, which the company intends to use to reduce its balance sheet leverage, and to repurchase shares -- always a shareholder-friendly action.

Closeup of a golden silicon wafer in a clean-room testing environment

Image source: Getty Images.

Now what

Looking ahead to next quarter, ON appears to expect strong, if not supercharged, results over the next three months. For the second quarter of 2018, the company anticipates revenue of between $1.405 billion and $1.455 billion. While the manufacturer doesn't provide guidance for net income or earnings per share, it expects gross margin to expand sequentially, to a range of 37% to 39%. In sum, operating performance should fall within the healthy framework of recent quarters.