ON Semiconductor CorpON reported third-quarter FY22 revenue growth of 26% year-on-year to $2.19 billion, beating the consensus of $2.12 billion. Non-GAAP EPS of $1.45 beat the consensus of $1.32.
He saw ON well-positioned with SiC capacity continuing to ramp. However, investors are concerned with the near-term gross margin outlook with SiC and 300mm ramps, the slowing macro environment into 2023, and potential industry pricing.
KeyBanc analyst John Vinh reiterated Overweight on ON and the $80 price target.
While the guidance is lower than anticipated, the analyst highlighted guidance has been better than the peers.
ON’s guidance, and commentary around the business, around its GM trajectory, where he now has GM going down meaningfully vs. his prior model for 2023, shows that it cannot outrun the slowdown either.
This is a cyclical industry, and it all comes down to how deep the downturn is and how well companies manage it.
ON’s capital intensity is increasing substantially as the company ramps up its SiC capacity.
His numbers have been well below consensus for some time and are going down again.
Benchmark analyst David Williams reiterated Buy and reduced the price target to $69, down from $72.
Despite the softening macro backdrop, ON’s Q3 results topped estimates on continued strength in Automotive. Still, ongoing softness in non-core segments and pockets of weakness developing in the Industrial market weighed on the Q4 outlook.
The underlying growth drivers remain solidly intact, and the model is structurally sound with incremental leverage available. He expects the margin to remain under pressure over the next several quarters as SiC expansion, EFK startup costs, and slowing sales growth erode the benefits of pricing actions, portfolio rationalization, and fab disposition.
He remains confident in the longer-term growth opportunities with solid content expansion as EV adoption accelerates but is cautious about near-term macro volatility.
Price Action: ON shares traded higher by 0.86% at $61.96 on the last check Tuesday.
