ON Semiconductor Corporation ((ON)) has held its Q2 earnings call. Read on for the main highlights of the call.
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In the recent earnings call, ON Semiconductor Corporation presented a mixed sentiment, highlighting both positive growth and ongoing challenges. The company reported strong growth in the Chinese market and the AI data center sector, alongside strategic milestones with the Treo platform and share repurchases. However, these positive developments were tempered by declines in automotive and ISG revenue, as well as lower gross margin guidance due to underutilization charges.
Q2 Revenue and Earnings
ON Semiconductor delivered Q2 revenue of $1.47 billion, surpassing the midpoint of their guidance. The company reported a non-GAAP gross margin of 37.6% and earnings per share (EPS) of $0.53, showcasing a solid financial performance despite some sectoral challenges.
China Market Growth
The company experienced a 23% sequential growth in China revenue during Q2, driven by the increasing demand for silicon carbide in new electric vehicle (EV) ramps. This growth indicates strong traction in both battery electric vehicle (BEV) and plug-in hybrid electric vehicle (PHEV) platforms.
AI Data Center Growth
ON Semiconductor’s revenue from AI data centers nearly doubled in Q2 compared to the same quarter last year. This impressive growth was fueled by collaborations with market leaders such as NVIDIA, highlighting the company’s strategic positioning in the AI sector.
Share Repurchase Program
The company repurchased an additional $300 million of shares in Q2, returning 107% of free cash flow to shareholders year-to-date. This move underscores ON Semiconductor’s commitment to delivering value to its shareholders.
Treo Platform Milestones
ON Semiconductor achieved significant milestones with its Treo platform, more than doubling the design funnel quarter-over-quarter and shipping over 5 million units from its East Fishkill facility this year. These achievements reflect the company’s focus on innovation and market expansion.
Automotive Revenue Decline
Automotive revenue saw a 4% sequential decline, amounting to $733 million, primarily due to weaknesses in the American and European markets. This decline highlights the challenges faced in the automotive sector.
Lower Gross Margin Guidance
The company provided a non-GAAP gross margin guidance for Q3 between 36.5% and 38.5%, reflecting ongoing noncash under-absorption charges. This guidance indicates potential margin pressures in the upcoming quarter.
ISG Revenue Decline
Revenue for the Intelligent Sensing Group (ISG) decreased by 8% quarter-over-quarter and 15% compared to the same quarter last year, amounting to $215 million. This decline underscores the challenges within the ISG sector.
End-of-life of Legacy Products
Approximately 5% of 2025 revenue will not recur in 2026 due to the end of life of certain legacy products and ongoing noncore exits, posing a revenue headwind for the company.
Weakness in Traditional Industrial
Traditional industrial revenue experienced a slight decline in Q2 compared to Q1, impacting overall industrial growth. This decline reflects the challenges in maintaining momentum in traditional industrial sectors.
Forward-Looking Guidance
Looking ahead to Q3, ON Semiconductor anticipates revenue between $1.465 billion and $1.565 billion, with a non-GAAP gross margin ranging from 36.5% to 38.5%. The company projects operating expenses between $280 million and $295 million and a non-GAAP EPS of $0.54 to $0.64. ON Semiconductor remains focused on enhancing structural efficiencies and strategic investments to bolster long-term growth, targeting a 25% free cash flow margin for the full year.
In conclusion, ON Semiconductor’s recent earnings call presented a mixed outlook, with strong growth in certain sectors offset by challenges in others. The company’s strategic initiatives and forward-looking guidance suggest a focus on long-term growth, despite near-term pressures. Investors will be keenly watching how ON Semiconductor navigates these dynamics in the coming quarters.