On Semiconductor's Q4 2024: Key Contradictions in Automotive Performance, Silicon Carbide Growth, and Pricing Strategies

These are the key contradictions discussed in ON Semiconductor's latest 2024 Q4 earnings call, specifically including: Automotive Market Performance, Silicon Carbide Growth Expectations, Pricing Strategies, and Inventory Management Strategy:



Demand Challenges and Inventory Digestion:
- onsemi reported a decline in revenue to $1.72 billion for the fourth quarter, with a non-GAAP gross margin of 45.3% and non-GAAP earnings per share of $0.95.
- Regional revenue declined, especially in Japan, and noncore market segments experienced significant declines, indicating an end market softness and ongoing inventory digestion.

Automotive Segment Performance:
- Fourth quarter automotive revenue increased by 8% sequentially, driven by China and other regions, but weakened towards the end of the quarter.
- The increase was due to share gains and new customer ramps, though demand weakened in Q1 due to geopolitical uncertainty and EV tax credit uncertainties.

Silicon Carbide Growth and Strategy:
- Fourth quarter silicon carbide revenue showed a 22% increase for the second half of 2024 over the first half, despite full-year revenue declining slightly from 2023.
- This growth is attributed to increasing demand, particularly in AI data centers, where SiC JFET acquisitions are expected to unlock a $1.3 billion TAM opportunity by 2030.

Treo Platform and Strategic Investments:
- onsemi introduced the Treo Platform, built on leading-edge BCD 65-nanometer technology, supporting a wide voltage range and enabling portfolio proliferation.
- The focus on high-value products aims to accelerate growth and unlock a $36 billion TAM opportunity with up to 70% gross margins.

Operational Efficiencies and Cost Management:
- Despite the downturn, the company achieved a non-GAAP gross margin of 45.5% for 2024, generating $1.2 billion in free cash flow, indicating successful cost management and operational efficiency.
- Planned actions include further rationalizing the manufacturing footprint and reducing operating expenses to position for future margin expansion.