ON Semiconductor Stock Declines Amid Sales Drop Despite Earnings Beat

ON Semiconductor Corp (NASDAQ: ON) stock fell despite reporting a fiscal third-quarter 2024 revenue decline of 19.2% year-on-year to $1.76 billion, beating the analyst consensus estimate of $1.75 billion. The adjusted EPS of $0.99 also beat the analyst consensus estimate of $0.97. The company's adjusted gross margin declined by 180 bps to 45.5%, and the adjusted operating margin decreased by 440 bps to 28.2%, implying semiconductor industry pricing pressures.

The decline in sales was driven by a 23% year-over-year drop in revenue from the Power Solutions Group (PSG) to $829.4 million, a 16% decrease in the Analog and Mixed-Signal Group (AMG) to $653.7 million, and a 15% fall in the Intelligent Sensing Group (ISG) to $278.8 million. Market conditions and demand fluctuations played a significant role in the sales decline, as the semiconductor industry faces ongoing pricing pressures and uncertainty.

ON Semiconductor's strategic investments in new manufacturing and supply chain diversification have not yet fully offset the impact of declining sales. The company generated $293.6 million in free cash flow and held $2.77 billion in cash and equivalents as of September 27, 2024, indicating a strong financial position despite the sales decline.

CEO Hassane El-Khoury stated, "As power demands continue to rise across our key markets, and the need for greater efficiency becomes paramount, we are investing to win across the entire power spectrum to ensure that onsemi is best positioned to gain share in automotive, industrial and AI data center." The company's long-term growth strategy focuses on diversifying its product mix and expanding into new markets to mitigate the impact of industry-wide pricing pressures.

ON Semiconductor stock declined 13% year-to-date, and at least three Wall Street firms slashed their price targets on the stock in July, including two rating downgrades. The company's topline and margins took a hit for the three quarters of 2024, contributing to the stock's decline despite beating earnings estimates.

The company expects fourth-quarter adjusted revenue of $1.71 billion—$1.80 billion, versus the consensus of $1.75 billion, and adjusted EPS of $0.92–$1.04 versus the consensus of $0.97. The earnings guidance suggests that the company is working to stabilize its financial performance despite the ongoing industry challenges.

In conclusion, ON Semiconductor stock fell despite beating earnings estimates due to a significant decline in sales and margins, driven by industry-wide pricing pressures and market conditions. The company's strategic investments in new manufacturing and supply chain diversification aim to mitigate the impact of these challenges and position the company for long-term growth. As the semiconductor industry continues to face uncertainty, investors will closely monitor ON Semiconductor's progress in executing its growth strategy and stabilizing its financial performance.