ON Semiconductor's Strong Position in Silicon Carbide Excites Analyst Despite Macroeconomic Challenges

Piper Sandler analyst Harsh V. Kumar had an Overweight rating on ON Semiconductor Corp ON with a price target of $135.

After recently meeting the management, Kumar reaffirmed that the company is still on track to execute well despite macro weakness impacting the industrial end market. 

ON has the potential to avoid much of this weakness due to its strong positions in both Silicon Carbide (SiC) and the general growth of its other automotive products, such as LEDs and CMOS sensors. 

ON has roughly $20 billion in long-term supply agreements, $11 billion of which are related to silicon carbide (SiC) products, and most of the LTSAs are typically 4 to 5 years long, with some extending to 2x the average length offering ON with significant visibility to revenues for the near future.

ON is still tracking to exit this year at roughly $1 billion of SiC revenues. While this business goal is 2H loaded to some degree, he remains pretty confident in the company’s ability to meet this goal. 

ON is on track to have the majority of substrates manufactured internally by the end of this calendar year.

Once it achieves scale, most likely close to the end of 2025, management expects the SiC business operating income to be greater than corporate operating income.

ON is expecting to start sampling quantities of 8-inch wafers in 2024. Commercial production of 8-inch wafers will likely happen during 2025, along with chip revenues of 8-inch wafers coming in small doses. Regarding the existing ON fabs, the Bucheon, South Korea, fab is 8-inch capable, along with most of the infrastructure in Hudson, NH.

ON is branching off into manufacturing drivers fine-tuned to optimize the switches for their silicon carbide EV products, implying an attractive opportunity.

East Fishkill continues to be an essential fab for ON and its large volume of products.

Overall, he feels that nearly all the metrics laid out by management remain on track and continues to believe in the scalability of the SiC business and its impending profitability. 

ON Price Action: ON Semiconductor shares closed higher by 0.04% at $96.83 on Wednesday.