Release Date: May 05, 2025
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- ON Semiconductor Corp (ON, Financial) exceeded the midpoint of their guidance with Q1 revenue of $1.45 billion and non-GAAP earnings per share of $0.55.
- The company has a flexible and geographically diversified supply chain, enhancing supply resilience and reducing risk exposure.
- ON Semiconductor Corp (ON) is seeing early signs of stabilization in the industrial market with favorable booking trends.
- The company has secured significant design wins in the automotive sector, particularly with silicon carbide technology in electric vehicles.
- ON Semiconductor Corp (ON) increased their share buyback to 66% of free cash flow, repurchasing $300 million of shares in Q1, and plans to increase it to 100% for 2025.
Negative Points
- Automotive revenue declined 26% sequentially, driven by weakness in Europe and seasonality in Asia.
- Non-GAAP gross margin decreased to 40%, down 530 basis points sequentially due to lower revenue and under absorption.
- The company expects low single-digit pricing declines in certain parts of their business.
- ON Semiconductor Corp (ON) reduced their global workforce by 9% as part of a restructuring initiative.
- The company is facing challenges with inventory digestion and cautious customer behavior in the current macroeconomic environment.
Q & A Highlights
Q: ON Semiconductor's revenue guidance seems conservative compared to peers. Is there a structural reason for this?
A: Hassane El-Khoury, President and CEO, explained that the difference is not structural but rather due to the specific end markets ON Semiconductor is focused on, such as automotive and EVs, which have not yet seen recovery outside of China. The ramp in China is expected in the second half of 2025.
Q: How should we think about gross margin improvements relative to revenue growth and utilization?
A: Thad Trent, CFO, stated that every point of utilization now results in a 25 to 30 basis point improvement in gross margin, up from 20 to 25 basis points previously. The company expects to see the benefits of reduced capacity and depreciation savings in Q4, with gross margin expansion driven by utilization as the market recovers.
Q: What has changed in the pricing environment, and how does it affect revenue and margins?
A: Hassane El-Khoury noted that the extended downturn has led to competitive pricing pressures. ON Semiconductor is using pricing strategically to defend and increase market share in forward-looking programs. The impact on revenue is more demand-driven than pricing-specific.
Q: Can you provide an update on the non-core business exit plan and its impact on market share?
A: Hassane El-Khoury confirmed the plan to exit non-core businesses remains, with $50 million already walked away from in Q1. The company expects to exit around $300 million for the year, depending on market conditions and margin sustainability.
Q: What are the expectations for silicon carbide growth and its impact on gross margins?
A: Hassane El-Khoury expressed confidence in maintaining market leadership in silicon carbide, with significant wins in China. The company expects to ramp up in the second half of 2025 and believes it has the best cost structure in the industry, with gross margins impacted by underutilization rather than pricing.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
