On Semiconductor (ON, Financial) has experienced a slight increase today after reporting Q1 earnings and revenues that exceeded consensus expectations. This performance is particularly noteworthy as the company has consistently met or surpassed financial targets since the first quarter of 2020. The positive results come as a relief to investors, especially in light of the slower recovery pace mentioned by peers Texas Instruments (TXN, Financial) and STMicroelectronics (STM, Financial) last week.
Despite the positive earnings report, shares of ON Semiconductor have been on a downward trend since peaking in July of the previous year, even hitting one-year lows just last week. This decline is largely attributed to a prolonged inventory rebalancing cycle among its customers. While this cycle may be nearing its end, the company's cautious Q2 outlook suggests an immediate market recovery is unlikely.
- Q1 revealed weakening end-market demand, with revenues decreasing by 4.9% year-over-year to $1.86 billion. Adjusted EPS also saw a decline, both year-over-year and sequentially.
- Challenges were noted particularly in the automotive and industrial sectors, which make up 80% of ON's business, though some stabilization in inventory levels was seen.
- Despite overall market challenges, ON is making strides in the silicon carbide sector, vital for the electric vehicle industry, expecting to double its market growth in revenue by 2024.
- However, the near-term outlook remains tepid, with Q2 adjusted EPS projected between $0.86 and $0.98 and revenues forecasted to be between $1.68 billion and $1.78 billion.
While ON's Q1 performance has outstripped investor apprehensions, set by last week's peer warnings, the company still faces a challenging demand environment. Notably, ON is finding competitive advantages in areas like automotive, with its high-resolution image sensors, and in healthcare, through its contributions to the over-the-counter hearing aid market. Additionally, investments in AI servers for data centers are showing promise. Yet, without a broader market recovery, ON's potential for significant growth remains constrained.
