Q2 2026 ON Semiconductor Corp Earnings Call Transcript
Key Points
- Q2 revenue of $1.6 billion, non-GAAP gross margin of 39.3%, and non-GAAP EPS of $0.74 all exceeded the midpoint of guidance, demonstrating strong operating leverage.
- AI data center revenue is expected to more than double in 2026, driven by expanded customer wins and content across the entire power tree, including new design wins with NVIDIA MGX, Great Wall, and AWS.
- Silicon carbide revenue in China is expected to grow 60-70% year-over-year, supported by market share gains with customers like Geely, ZEEKR, and Xiaomi, despite a 4% decline in total vehicle sales.
- Gross margin expanded for the fourth consecutive quarter to 39.3%, with expectations for continued sequential expansion throughout the year, driven by rising utilization and favorable mix.
- Free cash flow nearly quadrupled to $425 million in Q2, with a record LTM free cash flow margin of 24%, and the company returned approximately 105% of free cash flow to shareholders year-to-date.
- The company is implementing a second round of price increases to offset rising input costs, which is expected to benefit gross margins over the next several quarters.
- The announced divestitures of Mountain Top and Philippines facilities are expected to deliver approximately $35 million in annualized savings, contributing to the Fab Right strategy and long-term margin improvement.
- Automotive revenue declined 2% sequentially in Q2, impacted by specific customer seasonality in Europe, and the company had to prioritize AI data center shipments over automotive and industrial, potentially limiting near-term growth in those segments.
- Industrial revenue growth was modest at 1% sequentially, with strength in energy infrastructure, medical, and factory automation partially offset by declines in traditional industrial markets.
- The company is experiencing incremental increases in input costs, particularly in raw materials and external manufacturing, which are not expected to decrease and may pressure margins if pricing actions are insufficient.
- Utilization increased sharply to 83% from 77%, but the company faces supply constraints in certain product lanes, leading to extended lead times (from 27 to 32 weeks) and potential customer escalations.
- The acquisition of Synaptics, expected to close in mid-2027, introduces integration risks and may dilute focus on core power semiconductor operations in the near term.
- Inventory days declined to 192, but base inventory remains at 125 days, which could pose a risk if demand softens or if the company overestimates the recovery pace.
- The company's guidance for Q3 implies a significant step-up in gross margin (40-42%), but this is dependent on continued utilization improvements and favorable mix, which may not materialize as expected.
Good day and thank you for standing by. Welcome to the onsemi's second-quarter 2026 earnings conference call. At this time, all participants are in a listen-only mode. Please be advised that today's conference is being recorded. (Operator Instructions)
I would now like to hand the conference over to your speaker today, Parag Agarwal, Vice President of Investor Relations and Corporate Development.
Thank you, Josh. Good afternoon, and thank you for joining onsemi's second-quarter results conference call. I'm joined today by Hassane El-Khoury, our President and CEO; and Thad Trent, our CFO.
This call is being webcast in the Investor Relations section of our website at www.onsemi.com. A replay of this webcast, along with our second-quarter earnings release, will be available on our website approximately one hour following this conference call, and the recorded webcast will be available
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