Yahoo Finance No Surprises In ON Semiconductor's (NASDAQ:ON) Q2 Sales Numbers, Stock Soars
Analog chips maker ON Semiconductor (NASDAQ:ON) reported results in line with analysts' expectations in Q2 CY2024, with revenue down 17.2% year on year to $1.74 billion. On the other hand, next quarter's revenue guidance of $1.75 billion was less impressive, coming in 1.7% below analysts' estimates. It made a non-GAAP profit of $0.96 per share, down from its profit of $1.33 per share in the same quarter last year.
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ON Semiconductor (ON) Q2 CY2024 Highlights:
Revenue: $1.74 billion vs analyst estimates of $1.73 billion (small beat)
Adjusted Operating Income: $477.2 million vs analyst estimates of $462.9 million (3.1% beat)
EPS (non-GAAP): $0.96 vs analyst estimates of $0.92 (4.6% beat)
Revenue Guidance for Q3 CY2024 is $1.75 billion at the midpoint, below analyst estimates of $1.78 billion (EPS (non-GAAP) guide also below estimates)
Gross Margin (GAAP): 45.2%, down from 47.4% in the same quarter last year
Inventory Days Outstanding: 213, up from 194 in the previous quarter
Free Cash Flow of $207.7 million, down 24.8% from the previous quarter
Market Capitalization: $30.19 billion
“We remain dedicated to driving growth through market share gains, doubling down on investments in strategic markets, and expanding the breadth of our portfolio of industry-leading products with analog and mixed-signal solutions,” said Hassane El-Khoury, president and CEO, onsemi.
Spun out of Motorola in 1999 and built through a series of acquisitions, ON Semiconductor (NASDAQ:ON) is a global provider of analog chips specializing in autos, industrial applications, and power management in cloud data centers.
Analog Semiconductors
Demand for analog chips is generally linked to the overall level of economic growth, as analog chips serve as the building blocks of most electronic goods and equipment. Unlike digital chip designers, analog chip makers tend to produce the majority of their own chips, as analog chip production does not require expensive leading edge nodes. Less dependent on major secular growth drivers, analog product cycles are much longer, often 5-7 years.
Sales Growth
ON Semiconductor's revenue growth over the last three years has been unremarkable, averaging 10.9% annually. This quarter, its revenue declined from $2.09 billion in the same quarter last year to $1.74 billion. Semiconductors are a cyclical industry, and long-term investors should be prepared for periods of high growth followed by periods of revenue contractions (which can sometimes offer opportune times to buy).
This was a slow quarter for the company as its revenue dropped 17.2% year on year, in line with analysts' estimates. This could mean that the current downcycle is deepening.
ON Semiconductor's revenue growth has decelerated over the last three quarters and its management team projects revenue to fall next quarter. As such, the company is guiding for a 19.8% year-on-year revenue decline while analysts are expecting a 4.3% drop over the next 12 months.
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Product Demand & Outstanding Inventory
Days Inventory Outstanding (DIO) is an important metric for chipmakers, as it reflects a business' capital intensity and the cyclical nature of semiconductor supply and demand. In a tight supply environment, inventories tend to be stable, allowing chipmakers to exert pricing power. Steadily increasing DIO can be a warning sign that demand is weak, and if inventories continue to rise, the company may have to downsize production.
This quarter, ON Semiconductor's DIO came in at 213, which is 70 days above its five-year average, suggesting that the company's inventory has grown to higher levels than we've seen in the past.
Key Takeaways from ON Semiconductor's Q2 Results
We enjoyed seeing ON Semiconductor exceed analysts' revenue, operating income, and EPS expectations this quarter. On the other hand, its revenue guidance for next quarter missed analysts' expectations and its inventory levels increased. Overall, this was a mixed quarter for ON Semiconductor, but the market seemed to show some relief and focus on the positives. The stock traded up 5.7% to $74.20 immediately after reporting.
So should you invest in ON Semiconductor right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.
