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ON sets up as a bounce back candidate after in line Q3 outlook

AInvestMonday, Jul 29, 2024 8:41 am ET
1min read

ON Semiconductor reported its Q2 earnings, showcasing a mixed performance against market expectations. The company achieved revenue of $1.74 billion, a 17% decrease year-over-year, but slightly above the estimated $1.73 billion. This decline reflects challenging market conditions, but the slight beat indicates resilience in some segments. The Power Solutions segment saw a significant revenue drop of 25% year-over-year, totaling $835.2 million. In contrast, the Analog Solutions Group reported relatively stable revenue at $647.8 million, only a 0.3% decrease year-over-year, significantly surpassing the $593.7 million estimate.

The Intelligent Sensing Group underperformed, with revenue falling 22% year-over-year to $252.2 million, missing the forecasted $272.4 million. ON's adjusted earnings per share (EPS) stood at $0.96, down from $1.33 the previous year but exceeding the expected $0.92. However, the GAAP EPS was $0.78, lower than the anticipated $0.87 and significantly down from $1.29 in Q2 of the previous year. This disparity between GAAP and adjusted EPS highlights the impact of non-recurring items on the company's profitability.

ON's adjusted gross margin for Q2 was 45.3%, slightly above the estimated 45.2% but below the previous year's 47.4%. The adjusted operating margin also saw a decline, coming in at 27.5% compared to 32.8% last year, though it exceeded the expected 26.8%. Research and Development (R&D) expenses increased by 7.7% year-over-year to $156.5 million, marginally above the forecasted $154.3 million. This increase in R&D spending underscores ON's commitment to innovation despite facing revenue pressures.

For Q3, ON provided guidance with adjusted EPS expected to range between $0.91 and $1.03, aligning with the market estimate of $0.97. The company anticipates an adjusted gross margin between 44.4% and 46.4%, slightly below the estimated 45.4%. Revenue guidance for Q3 is projected to be between $1.70 billion and $1.80 billion, close to the expected $1.78 billion. These projections suggest cautious optimism as ON navigates through market uncertainties.

In summary, ON Semiconductor's Q2 results reflect a challenging environment with significant year-over-year declines in key financial metrics. However, the company managed to slightly exceed revenue expectations and maintained margins close to forecasts. The notable performance in the Analog Solutions Group and the strategic increase in R&D spending are positive highlights amidst the broader declines. Looking ahead, ON's guidance for Q3 indicates a stable outlook, balancing cautious optimism with realistic expectations. The company's ongoing stock repurchase program, returning approximately $650 million of free cash flow to shareholders over the past twelve months, underscores its commitment to delivering value despite the current headwinds.

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