ON Semiconductor Corporation ((ON)) has held its Q1 earnings call. Read on for the main highlights of the call.
The recent earnings call of ON Semiconductor Corporation (Onsemi) painted a mixed picture, highlighting both significant achievements and notable challenges. While the company celebrated substantial growth in its AI data center segment and a robust increase in free cash flow, it also faced hurdles such as a decline in automotive revenue and pressures on gross margins. Nevertheless, Onsemi’s proactive restructuring measures and its focus on silicon carbide adoption in the automotive sector signal positive long-term potential.
Q1 2025 Revenue and Earnings Exceed Midpoint
In the first quarter of 2025, Onsemi reported revenue of $1.45 billion and non-GAAP earnings per share of $0.55, both surpassing the midpoint of their guidance. This performance reflects the company’s ability to navigate market challenges and deliver solid financial results.
AI Data Center Revenue Growth
Onsemi’s AI data center revenue more than doubled year-over-year in the first quarter, driven by the adoption of its intelligent power solutions. This growth underscores the company’s strategic focus on expanding its presence in the AI sector, which is rapidly becoming a crucial area for technological advancement.
Strong Free Cash Flow and Share Buyback
The company reported a 72% year-over-year increase in free cash flow for Q1, alongside a $300 million share repurchase, representing 66% of the free cash flow. This move demonstrates Onsemi’s commitment to returning value to shareholders and maintaining financial stability.
Silicon Carbide Adoption in Automotive
Onsemi secured design wins with leading OEMs for its silicon carbide technology, particularly in plug-in hybrid and battery electric vehicles. The company expects silicon carbide adoption in nearly 50% of new models from recent launches in China, positioning itself as a key player in the automotive industry’s shift towards electrification.
Automotive Revenue Decline
The earnings call revealed a 26% sequential decline in automotive revenue, attributed to weakness in Europe and seasonality in Asia, especially during the Chinese New Year. This decline highlights the challenges faced by Onsemi in maintaining its automotive market share.
Non-GAAP Gross Margin Decrease
Onsemi’s non-GAAP gross margin decreased to 40%, down 530 basis points sequentially and 590 basis points year-over-year. This decline was impacted by lower revenue and under-absorption, indicating areas where the company needs to improve operational efficiency.
Restructuring and Workforce Reduction
The company undertook significant restructuring efforts, including a 9% reduction in its global workforce, which led to increased GAAP operating expenses. These measures are part of Onsemi’s strategy to streamline operations and improve long-term cost efficiency.
Pricing Pressure and Low Single-Digit Declines
Onsemi experienced low single-digit pricing declines in certain business segments, affecting revenue and margin expectations. This pricing pressure reflects the competitive landscape and the need for strategic adjustments to maintain profitability.
Forward-Looking Guidance
Looking ahead, Onsemi anticipates Q2 revenue between $1.4 billion and $1.5 billion, with a projected non-GAAP gross margin between 36.5% and 38.5%. The company plans to increase its share repurchase to 100% of free cash flow for 2025, with $1.5 billion remaining on its repurchase authorization. Strategic initiatives, such as the “Fab Right” approach and investments in R&D, aim to streamline operations and drive gross margin expansion.
In summary, Onsemi’s earnings call highlighted a balance of achievements and challenges. While the company faces pressures in the automotive sector and gross margins, its growth in AI data centers and strategic restructuring efforts offer promising prospects. Investors and stakeholders will be keenly watching how Onsemi navigates these dynamics in the coming quarters.