ON Semi's EV Demand Slump: Utilization Cuts Loom as Analyst Warns

ON Semiconductor (ON) is facing a challenging environment as demand for electric vehicles (EVs) softens, leading to potential utilization cuts and a warning from an analyst. Let's dive into the details and explore the implications for the company and the broader semiconductor industry.



The slowdown in EV demand is a significant headwind for ON Semiconductor, as the company is heavily reliant on the automotive sector for its revenue. In the third quarter of 2023, the company's automotive sales grew by 50% year-over-year, but there are signs of softening demand in the second half of the year. This is a concern for ON Semiconductor and other semiconductor companies that supply components to the EV industry.



Analyst N. Quinn Bolton from Needham recently met with ON Semiconductor management at the Consumer Electronics Show and shared his concerns about the company's outlook. He noted that end demand conditions remain muted across the company's key industrial and automotive end markets, and inventory digestion continues. In the near term, turn orders have been weaker than expected, and management expects results to be below typical seasonal patterns for the first half of 2025.

Bolton expects management to further reduce fab utilization rates below the 65% level at which utilization ran for most of 2024. This reduction in utilization rates is likely to push adjusted gross margin below 45% in the first half of 2025. While Bolton continues to view ON Semiconductor as a promising semiconductor cycle recovery play, the delayed industry recovery prompted him to reduce his forward estimates and lower the price target.



The softening EV demand and potential utilization cuts at ON Semiconductor highlight the cyclical nature of the semiconductor industry and the challenges faced by companies that are heavily exposed to the automotive sector. As EV adoption continues to grow, the demand for semiconductor components is expected to increase, but the pace of growth may be slower than previously anticipated.

Investors should monitor the situation closely and consider the potential impact on ON Semiconductor's financial performance and stock price. As the company navigates the current challenges, it is essential to evaluate its strategic focus on silicon carbide technology and its position in the market.



In conclusion, ON Semiconductor is facing a challenging environment as EV demand softens, leading to potential utilization cuts and a warning from an analyst. Investors should closely monitor the situation and consider the potential impact on the company's financial performance and stock price. The company's strategic focus on silicon carbide technology and its position in the market will be crucial factors in determining its long-term success.