ON Semiconductor Powers Through Expectations, But Analysts Dial Down Targets On Margin Squeeze

Wall Street analysts rerated ON Semiconductor Corp ON after the company reported upbeat quarterly results on Monday.

The company reported a quarterly revenue decline of 22.4% to $1.45 billion, topping the analyst consensus estimate of $1.40 billion. The adjusted EPS of $0.55 beat the analyst consensus estimate of $0.51.

ON Semiconductor expects second-quarter adjusted revenue of $1.40 billion-$1.45 billion, compared to the analyst consensus estimate of $1.42 billion. The company expects quarterly adjusted EPS of 48 cents to 58 cents. That’s above the analyst consensus estimate of 45 cents and an adjusted gross margin of 36.5%-38.5%.

Benchmark analyst David Williams maintained ON Semiconductor with a Buy and lowered the price target from $60 to $50.
Rosenblatt analyst Kevin Cassidy reiterated ON Semiconductor with a Neutral and a $42 price target.
Needham analyst Quinn Bolton maintained ON Semiconductor with a Buy and lowered the price target from $57 to $50.

Also Read: ON Semiconductor Q1 Earnings Beat Estimates, CEO Optimistic On Design Wins Despite Margin Decline

Benchmark: Revenue was about $46 million ahead of the prior guidance. Lower operating expenditures drove a 5 cent earnings upside. Williams remains encouraged by the flattish guide. End markets have mostly stabilized following six consecutive quarters in decline, where sales have fallen 34% from the second-quarter 2023 peak.

Gross margin pressure persists. Analysts blamed under-absorption and pricing actions taken to defend or gain market share. The pricing issues are more strategic and less broad-based than feared.

Automotive was down 26% Q/Q and 25% Y/Y and will likely be down in the high single digits in the second quarter. Auto demand remains dynamic and is not anticipated to materially improve in the next couple of quarters, but Williams noted that the transition to 800V architecture will continue to drive meaningful content expansion and grow penetration, particularly in China.

Industrial fell 4% Q/Q (-16% Y/Y) and is expected to return to growth in second-quarter. Medical and traditional Industrial have improved with signs of stabilization and a few green shoots.

Pockets of weakness remain, including energy infrastructure. Williams estimates renewable energy makes up < 10% of total revenue, with strong secular tailwinds underpinning healthy growth opportunities, especially as demand recovers.

Williams projected second-quarter revenue of $1.45 billion and adjusted EPS of 53 cents.

Rosenblatt: ON Semiconductor’s geographically diversified supply chain should help minimize tariff impacts.

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Adjusted gross margins declined Q/Q and will likely decrease further in the second quarter. The analyst expects a decline in utilization and low single-digit price declines. There continue to be some green shoots (i.e., ON Semiconductor’s unique Treo Platform, data center power traction, and 200mm SiC).

Despite some early signs of stabilization in the industrial market, Cassidy noted gross margin pressure overshadowing any positives in the near term.

Cassidy projected second-quarter revenue of $1.45 billion and adjusted EPS of 53 cents.

Needham: ON Semiconductor posted a solid quarter and guide, but gross margin estimates moved lower due to unfavorable pricing and under-absorption charges.

Gross margin will remain under pressure through calendar 2025 as management gets competitive on pricing to defend and gain share in key markets. To offset this, the company is reducing manufacturing capacity by 12% and its workforce by 9%.

This footprint change removes excess capacity, specifically around the ~$500 million in non-core business (high volume, low mix) the company has walked away from thus far. These structural changes will enable a sharper gross margin improvement when demand returns: for every point of utilization, ON Semiconductor will now see a 25-30bps margin improvement (up from 20-25bps last quarter).

Industrial is stabilizing as bookings picked up towards the end of the first quarter 2025, along with growth in the A&D and Medical end markets. Additionally, the company’s Consumer Industrial subsegment continues to improve, while Traditional Industrial has been demonstrating nascent signs of recovery.

Most of the headwinds in the Industrial segment seem to be in the rearview mirror. Bolton projected second-quarter revenue of $1.45 billion and adjusted EPS of 53 cents.

Price Action: ON stock is up 0.29% at $38.52 at the last check on Tuesday.

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