Will On Semiconductor's Meltdown Continue?

As the semiconductor industry continues to face headwinds, investors are wondering if ON Semiconductor's (NASDAQ: ON) recent struggles will persist. The company, which provides intelligent sensing and power solutions, has seen its stock price decline by over 20% in the past year. However, there are reasons to believe that the worst may be over for ON Semiconductor.



One of the primary factors driving ON Semiconductor's recent performance decline is the weak memory market. The memory chip market was a significant swing factor in the semiconductor industry's performance in 2023, with sales dropping by 31% compared to 2022. This decline negatively impacted the overall chip market and contributed to the industry's overall downturn. However, memory sales are expected to rebound in 2024, which could benefit ON Semiconductor.

Another factor contributing to ON Semiconductor's performance decline is the weak demand for smartphone and computer chips. The PC and smartphone markets experienced declines in 2023, with sales down 14% and 3.5%, respectively. This weak demand for these devices, which are significant consumers of semiconductors, contributed to the semiconductor industry's overall performance decline. However, as the demand for these devices rebounds, ON Semiconductor could see a corresponding increase in revenue.

Geopolitical factors also play a significant role in ON Semiconductor's supply chain and revenue growth. The KPMG Semiconductor Industry Confidence Index survey found that territorialism, including tariffs and trade restrictions, is the biggest issue facing the semiconductor industry over the next three years, particularly for large companies with $1 billion or more in annual revenue. In response, increasing geographic diversity is cited as the top improvement semiconductor leaders expect to make to improve supply chain resiliency. ON Semiconductor may need to diversify its supply chain to mitigate geopolitical risks and maintain its competitiveness in the global semiconductor market.

Despite these challenges, ON Semiconductor has been focusing on high-growth segments such as automotive and AI data centers. In 2023, the company's record automotive revenue increased by 29% year-over-year, reaching $4.3 billion. This growth is a testament to the company's focus on the automotive industry and its ability to capitalize on the increasing demand for intelligent power and sensing solutions in electric vehicles. Additionally, ON Semiconductor has been expanding its presence in the AI data center market, announcing its entry into the silicon carbide junction field-effect transistor (SiC JFET) technology market in 2024. This move further solidifies the company's position in the high-growth AI data center segment.

In conclusion, while ON Semiconductor has faced challenges in recent months, there are reasons to believe that the worst may be over for the company. The expected rebound in memory sales, the potential recovery in smartphone and computer chip demand, and the company's focus on high-growth segments such as automotive and AI data centers all point to a potential turnaround for ON Semiconductor. However, investors should continue to monitor the company's performance and the broader semiconductor industry to assess the potential impact of geopolitical risks and other factors on the company's future prospects.