ON Semiconductor's Shift from Supplier to Solutions Provider: Analyst Forecasts Earnings Surge and Gross Margin Expansion

Benchmark analyst David Williams reiterates ON Semiconductor Corp ON with a Buy and a $110 price target.

The analyst recently hosted an investor call with ON’s CFO, Thad Trent, and believes the story remains early in the transition with only partial contribution from the sweeping structural changes in the business over the last two years. 

He views ON as one of the most compelling growth stories throughout the semi-complex with significant earnings power, as the playbook has already demonstrated its early potential. 

Execution has been the hallmark of management, and the analyst fully expects continued momentum, having re-positioned the company to capture a dominant position in the Auto and Industrial end markets. 

Williams is highly encouraged by the Sic ramp progression and accelerating customer enthusiasm, demonstrated by the $11 billion+ in LTSAs and gaining momentum. L

TSAs continue to gain strength despite the softer macro environment for SiC and silicon, with customers motivated to shore up supply as the transition to EV architecture accelerates. 

Automotive is the dominant SiC LTSA driver, contributing ~ 90% of the mix, and Industrial the remaining 10%. SiC LTSAs are approaching $11 billion, including recent announcements.

The analyst sees a clear path to 55%+ gross margin mid-term with further expansion once SiC scales and becomes a more meaningful mix contributor. 

On his base case assumptions, the analyst estimates earnings north of $10 in FY27 and over $11 if gross and operating margins perform. 

The secular tailwinds in Auto and Industrial have proven resilient and remain in the initial innings, likely providing an elongated runway of growth as ON capitalizes on the strength of its portfolio and captures a more significant wallet share, transitioning from supplier to a solutions provider and partner. 

ON Price Action: ON Semiconductor shares are trading lower by 1.76% at $88.56 on the last check Tuesday.