ON Semiconductor (ON) Q3 Earnings call transcript Oct 28, 2024

In onsemi's Q3 2024 earnings call, management highlighted the company's financial performance and market outlook amid ongoing market challenges. Here are some key themes and trends that emerged during the call:

Strategic Focus on Execution and Operational Excellence

onsemi's third quarter results demonstrated the company's commitment to execution and operational excellence, with revenue, gross margin, and earnings per share all above the midpoint of the guidance. This focus on operational efficiency has enabled the company to navigate the current market challenges and position itself for future growth.

Market Outlook and Challenges

The demand environment remains muted, with ongoing inventory digestion and slow end demand. Automotive sales, particularly in the EV sector, have been soft, with China and Japan recovering more quickly than North America and Europe. Industrial sales, which slowed first, have not yet fully recovered, except for pockets in utility-scale solar, aerospace, and defense. Despite these challenges, onsemi is confident in its strategy, as it is positioned in the markets that matter and is committed to delivering value to its customers through product and system-level innovation.

Silicon Carbide Growth and Strategy

onsemi's silicon carbide business has shown sequential growth, driven by utility-scale solar and share gains in China BEVs. However, the company remains cautious about demand and is focused on avoiding inventory build-up on its customers' shelves. For the full year 2024, onsemi expects silicon carbide revenue to be in the low- to mid-single-digit growth range over 2023. The company is also investing in the development of 200-millimeter M3 silicon carbide and is vertically integrating upstream to optimize energy efficiency for its customers.

Diversification and Strategic Investments

Beyond silicon carbide, onsemi is investing in the performance of its power portfolio to address emerging trends in renewable energy. The company's high-density F5BP IGBT and hybrid SiC and IGBT modules are gaining momentum in the utility-scale solar and energy storage markets. onsemi is also expanding its intelligent sensing business, proliferating its portfolio to access new industrial applications, and investing in analog mixed signal products for data centers.

Financial Performance and Outlook

onsemi's financial performance has remained resilient, with revenue, gross margin, and earnings per share all above the midpoint of the guidance. The company's capital intensity target has been lowered, and it remains committed to returning 50% of free cash flow to shareholders. Despite the current macroeconomic challenges, onsemi remains focused on its long-term strategy, investing in new generations of intelligent power and sensing products, and positioning itself to scale efficiently for a market recovery.

Investor Questions and Management's Responses

During the Q&A session, key shareholders and investors asked questions about silicon carbide growth, the company's inventory management strategies, and the impact of market conditions on its financial performance. Management provided detailed responses, highlighting the company's strategic focus on operational excellence and its commitment to delivering value to customers. The call concluded with a reiteration of onsemi's confidence in its strategy and its focus on execution, as it navigates the current market challenges and prepares for future growth opportunities.