Why Is ON Semiconductor Stock Trading Higher On Monday?

ON Semiconductor Corp (NASDAQ: ON) stock reported a fiscal first-quarter 2024 revenue decline of 5% year-on-year to $1.86 billion, beating the consensus of $1.85 billion. The adjusted EPS of $1.08 beat the consensus of $1.04. 

Revenue from Power Solutions Group (PSG) grew 2% year over year to $874.2 million, Analog and Mixed-Signal Group (AMG) decreased 6% year over year to $697.0 million, and Intelligent Sensing Group (ISG) fell 18% year over year to $291.5 million.

The adjusted gross margin declined by 90 bps to 45.9%, and the adjusted operating margin decreased by 320 bps to 29.0%.

ON Semiconductor generated $276.3 million in free cash flow and held $2.61 billion in cash and equivalents as of March 29, 2024.

Outlook: ON Semiconductor expects second-quarter adjusted revenue of $1.68 billion – $1.78 billion, below the consensus of $1.92 billion.

The company sees adjusted EPS of $0.86 – $0.98 versus the consensus of $1.10.

Last week, Piper Sandler analyst Harsh V. Kumar noted that fundamentals will bottom in the June quarter, and commentary on the call will remain conservative while pointing to opportunities for growth in the second half. 

However, the shape of any potential recovery through the second half remains uncertain and will depend on demand trends in key end markets, he said.

Kumar expected second-quarter guidance to be slightly down from the March 2024 quarter, modeling a 2.7% sequential decline primarily driven by automotive. 

He forecasted automotive, which is 50%+ of revenues for ON, to be down 4% for the June quarter. 

Given current lead times and channel levels, Kumar’s base case posits that the June quarter will serve as the bottom quarter for this cycle. 

For the second half of 2024, he expects sequential growth in both the September and December quarters, where he modeled low single-digit type growth sequentially for each quarter. 

Kumar noted a robust and steady recovery starting in the second half of 2024 for gross and operating margin trends.  

Despite the recent consternations in the EV market, Kumar noted that the EV market is set to grow 20%+ long-term. Additionally, EVs come with further benefits, such as high electronic content. 

Notably, silicon carbide penetration for EVs is still only in the high teens to 20% range, and excluding Tesla Inc TSLA, the penetration of silicon carbide in EVs is in the mid-single digits. Kumar had projected first-quarter revenue and EPS of $1.86 billion and $1.05.

ON Semiconductor stock lost over 13% in the last 12 months. Investors can gain exposure to the stock via First Trust NASDAQ Clean Edge Green Energy Index Fund QCLN and EA Series Trust Strive U.S. Semiconductor ETF SHOC.

Price Action: ON shares are trading higher by 4.23% at $70.94 on the last check Monday.

Photo by Anne Nygård on Unsplash