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ON Semiconductor Corp - $ON - Earnings Analysis: Focus on automotive and industrial end-markets aligned with secular megatrends.

By sagebytes in Business —

Business Model

onsemi generates revenue through its Power Solutions Group (PSG), Analog and Mixed Signal Group (AMG), and Intelligent Sensing Group (ISG). The company focuses on automotive and industrial end-markets, accelerating change in vehicle electrification and safety, sustainable energy grids, industrial automation, and 5G and cloud infrastructure.

Revenue Sources

  • Power Solutions Group (PSG): Focuses on intelligent power technologies.
  • Analog and Mixed Signal Group (AMG): Focuses on analog and mixed-signal solutions.
  • Intelligent Sensing Group (ISG): Focuses on intelligent sensing technologies, including image sensors.

Income Statement Analysis

  • Revenue decreased by 2.23% sequentially from Q3 2024 and 14.65% year-over-year from Q4 2023, indicating a slowdown in demand across end markets.
  • Gross margin decreased slightly from 45.4% in Q3 2024 to 45.2% in Q4 2024, and decreased from 46.7% in Q4 2023, reflecting pricing pressures and lower utilization rates.
  • Operating income decreased by 8.26% sequentially from Q3 2024 and 33.24% year-over-year from Q4 2023, due to lower revenue and gross margin.
  • Net income attributable to ON Semiconductor Corporation decreased by 5.43% sequentially from Q3 2024 and 32.5% year-over-year from Q4 2023, following the trend of lower revenue and profitability.
  • Diluted EPS decreased by 5.38% sequentially from Q3 2024 and 31.25% year-over-year from Q4 2023, mirroring the decline in net income.

Balance Sheet Analysis

  • Total assets increased by 1.19% from September 27, 2024, and 6.62% from December 31, 2023, indicating overall growth in the company's resources.
  • Total stockholders' equity increased by 2.45% from September 27, 2024, and 12.99% from December 31, 2023, reflecting increased retained earnings.
  • Total liabilities decreased by 0.83% from September 27, 2024, but increased by 2.57% from December 31, 2023, indicating changes in the company's obligations.

Cash Flow Analysis

  • Net cash provided by operating activities increased by 24.45% from Q3 2024, but decreased from Q4 2023.
  • Net cash used in investing activities significantly increased from Q3 2024, but decreased from Q4 2023, indicating a change in investment strategy.
  • Net cash used in financing activities increased slightly from Q3 2024, but decreased significantly from Q4 2023, showing changes in financing activities.
  • Ending cash, cash equivalents, and restricted cash increased, driven primarily by increased operating activities.

Capital Allocation

onsemi is focused on returning capital to shareholders through share repurchases. In 2024, they returned 54% of free cash flow to shareholders through stock repurchases, exceeding their target of 50%. The company also invests in R&D and strategic acquisitions to drive long-term growth.

Management Commentary

As we continue to navigate this market downturn, our actions over the last four years have proven we are a structurally different company that is well-equipped to navigate prolonged volatility.

We will maintain our financial discipline, streamline our operations and continue to deliver high-value, differentiated intelligent power and sensing solutions that position onsemi to emerge even stronger.

While 2025 remains uncertain, we remain committed to our long-term strategy.

Automotive is going to be down the most. We think that's going to be probably 25% or more down sequentially.

Overall Sentiment: Cautious optimism. Management acknowledges the current market downturn and uncertainty for 2025 but emphasizes their commitment to long-term strategy, financial discipline, and delivering high-value solutions.

Recommendation

Rating: Hold

Reason for Rating: Given the current market downturn, revenue decline, and uncertainty for 2025, a hold rating is appropriate. The company is taking steps to streamline operations and maintain financial discipline, but the near-term outlook remains challenging. However, onsemi long term portfolio is well positioned for recovery and growth.

Disclaimer: This report is for informational purposes only and not investment advice. The analysis is based on limited information and subject to change. Investing in securities involves risks, including potential loss of principal. Past performance doesn't guarantee future results. Always conduct your own research, understand the risks, and consult a financial professional before making investment decisions.

Generated on: 2/11/2025, 4:49:31 AM