Shares of ON Semiconductor (ON +0.72%), a chipmaker focused on power and sensing technologies for the auto and industrial markets, surged 11.5% on Monday.
The catalyst for the gain was the company's release of a better-than-expected second-quarter report. Revenue and earnings both beat Wall Street's estimates.
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ON Semiconductor's key numbers
| Metric | Q2 2023 | Q2 2024 | Change |
|---|---|---|---|
| Revenue | $2.094 billion | $1.735 billion | (17%) |
| GAAP net income | $576.6 million | $338.2 million | (41%) |
| Adjusted net income | $583.3 million | $412.1 million | (29%) |
| GAAP earnings per share (EPS) | $1.29 | $0.78 | (40%) |
| Adjusted EPS | $1.33 | $0.96 | (28%) |
Data source: On Semiconductor. GAAP = generally accepted accounting principles.
Investors should focus on the adjusted numbers because they exclude one-time items.
Wall Street was looking for adjusted EPS of $0.92 on revenue of $1.73 billion, so Onsemi, as the company is commonly known, edged by the top-line expectation and also exceeded the profit estimate. Its revenue met its own guidance, which was for $1.68 billion to $1.78 billion, and its adjusted EPS came in at the high end of its guidance range, which was $0.86 to $0.98.
Onsemi used $590.9 million in cash running its operations during the quarter, compared with using $383.5 million in the year-ago period. The company ended the quarter with cash, cash equivalents, and short-term investments of $2.68 billion and long-term debt of $2.55 billion.
ON Semiconductor's revenue breakdown
| Segment | Q2 2024 Revenue | Change (YOY) |
|---|---|---|
| Power supply group (PSG) | $835.2 million | (15%) |
| Analog & mixed-signal group (AMG) | $647.8 million | (18%) |
| Intelligent sensing group (ISG) | $252.2 million | (22%) |
| Total | $1.735 billion | (17%) |
Data source: ON Semiconductor. YOY = year over year.
Like many chipmakers (at least those not focused on artificial intelligence chips, such as Nvidia), Onsemi has been struggling to grow revenue recently due to the slowdown in its end markets, namely automotive and industrial companies. Electric vehicle (EV) sales appear to be in the early stages of rebounding, and overall auto sales should pick up if the Federal Reserve starts cutting interest rates, which most economists are forecasting will start in September.
NASDAQ: ON
Key Data Points
What the CEO had to say
Here's CEO Hassane El-Khoury's statement in the earnings release:
We remain dedicated to driving growth through market share gains, doubling down on investments in strategic markets, and expanding the breadth of our portfolio of industry-leading products with analog and mixed-signal solutions. As reflected by our recent supply agreement with Volkswagen Group, we also continue to strengthen our silicon carbide leadership position in automotive as we ramp production with leading global OEMs [original equipment manufacturers] in Europe, North America, and China.
The Volkswagen EV supply deal
The Volkswagen supply agreement that El-Khoury mentioned refers to a multiyear deal announced last week. Under this deal, Onsemi will be VW's primary supplier of a complete power box solution as part of VW's next-generation traction inverter for its electric vehicles (EVs) across several brands. Onsemi's solution "features silicon carbide-based technologies in an integrated module that can scale across all power levels," the company said in the press release.
ON Semiconductors is one of the largest producers of silicon carbide (SiC) power chips. Silicon carbide semiconductors are increasingly being used in EV traction inverters and charging stations. They enable faster charging and extend the range per charge.
Third-quarter guidance
For Q3, management guided for:
- Revenue of $1.7 billion to $1.8 billion, which equates to a decrease of 22% to 17% year over year.
- Adjusted EPS of $0.91 to $1.03, which equates to a decrease of 34% to 26% year over year.
Going into the release, Wall Street had been modeling for Q3 adjusted EPS of $0.97 on revenue of $1.78 billion. So, Onsemi's revenue guidance, at the midpoint of the range, came in a little lighter than analysts had been expecting, while the company's bottom-line outlook, at the midpoint, was in line with the Street's projection.
A stock worth watching
In short, On Semiconductor's Q2 results show it's still struggling to grow, but the stock is worth watching because the company is one of the largest producers of silicon carbide power chips. These chips are increasingly being used in EVs, chargers, and other applications.
