ON Semiconductor Corporation (ON) 2024 Q2 Earnings Call Summary

Optimistic Highlights

• Exceeded Guidance: onsemi exceeded the midpoint of its guidance for revenue, non-GAAP gross margin, and non-GAAP earnings per share.
• Stabilization in Core Markets: Some stabilization in demand observed in core markets, with expectations of recovery in parts of industrial, such as Energy Infrastructure.
• Growth in Asia-Pacific: Notably, China is recovering, driven by automotive and industrial sectors.
• Strategic Investments and Design Wins: Continued investments in Analog and Mixed-Signal and Power Solutions, securing significant design wins in power.
• Volkswagen Group Partnership: Announced as the primary supplier for a complete powerbox solution for Volkswagen Group's next-generation traction inverter, highlighting onsemi's leadership in silicon carbide solutions.

Pessimistic Highlights

• Inventory Digestion Continues: Ongoing inventory correction in automotive and industrial end markets, contributing to a cautious stance among customers.
• Revenue Decline: Q2 revenue declined 7% sequentially and 17% from Q2 of 2023, driven by inventory correction in key markets.
• Automotive Revenue Decline: Automotive revenue declined 11% quarter-over-quarter and 15% year-over-year.

Company Outlook

• Q3 Revenue Guidance: Anticipated Q3 revenue in the range of $1.7 billion to $1.8 billion, with non-GAAP gross margin between 44.4% and 46.4%.
• Long-term Financial Model Commitment: Despite the downturn, onsemi remains committed to its long-term financial model, focusing on future growth and operational effectiveness.
• L-Shaped Recovery Expectation: The company does not foresee a significant change from the current market conditions in the near term, expecting a flat or slight improvement in automotive and industrial sectors.

Q & A Highlights

• Q: Can you provide pluses or minuses by your three segments for the third quarter guide? And any color on your Automotive business for the back half of the year? (Ross Seymore, Deutsche Bank)

  A: Both automotive and industrial are expected to be down, with some stabilization in industrials. Automotive revenue declined 11% quarter-over-quarter to $907 million. (Thad Trent)

• Q: What's your outlook for different end markets, especially automotive, in Q3? (Vivek Arya, Bank of America Securities)

  A: Automotive and industrial markets are expected to be flat-to-up slightly in Q3. (Hassane El-Khoury)

• Q: How did the SiC business trend in Q2, and what are your expectations for Q3 and the full year? (Toshiya Hari, GS)

  A: Not breaking out SiC on a quarterly basis but focusing on 2x market growth and unit growth outgrowing BEV unit growth by 2x. (Hassane El-Khoury)

• Q: Can you discuss the inventory at disti and your plan for managing it? (Toshiya Hari, GS)

  A: Distribution inventory increased to 8.9 weeks, expected to stay around 9 weeks for the short term. (Thad Trent)

• Q: Can you give us some thoughts on the silicon carbide backlog and pricing assumptions? (Vijay Rakesh, Mizuho)

  A: Pricing is stable, and the backlog is healthy despite short-term softness in the EV market. (Thad Trent and Hassane El-Khoury)

• Q: Given the announcements on data center power using SiC, can you size that opportunity? (Christopher Rolland, Susquehanna)

  A: Not breaking down the AI market at that level yet but focusing on product design-in and SAM per rack. (Hassane El-Khoury and Thad Trent)

• Q: Did the order trends in direct start to stabilize in Q2, and has that stabilization continued? (Harlan Sur, J.P. Morgan)

  A: Things are stabilizing, with China leading the recovery in both automotive and industrial. (Thad Trent and Hassane El-Khoury)

• Q: How sustainable is the pickup in China, and how would you categorize inventories there? (Tristan Gerra, Baird)

  A: The market pickup in China is driven by end-market demand, not specific government incentives, and is considered sustainable. (Hassane El-Khoury)

• Q: Why do you think the channel is not spiking up despite being starved in the past? (Harsh Kumar, Piper Sandler)

  A: The channel is managed tightly, with strategic replenishment for the mass market based on customer count and inventory velocity. (Hassane El-Khoury)