Skip to content
    ON
    Earnings call· Jun 2026(Q2 FY26)

    ON SEMICONDUCTOR Q2 FY26 earnings call ON

    Aug 3, 2026 Source

    Executive summary

    onsemi Q2 FY26 — AI Data Center Demand Fuels Strong Performance and Margin Expansion

    onsemi delivered strong Q2 FY26 results, exceeding guidance driven by robust AI data center demand and operational efficiencies. Management highlighted continued momentum in AI, automotive, and industrial markets, with strategic investments in power solutions enabling content expansion across evolving architectures. The focus remains on disciplined execution and margin expansion, supported by the Fab Right strategy and strategic acquisitions like Synaptics.

    Highlights

    5

    • Delivered $1.6 billion of revenue, non-GAAP gross margin of 39.3%, and non-GAAP diluted EPS of $0.74, all above the midpoint of guidance.

    • AI data center revenue is now expected to more than double in 2026 compared to 2025.

    • Free cash flow nearly quadrupled in Q2 to $425 million, with 105% of free cash flow returned to shareholders year-to-date.

    • Non-GAAP gross margin expanded for the fourth consecutive quarter, increasing 80 basis points sequentially to 39.3%.

    • Automotive silicon carbide revenue in China is expected to increase between 60% and 70% year-over-year.

    Concerns

    3

    • Prioritized shipments to AI data center over automotive and industrial due to accelerated demand, leading to short-term impacts on other businesses.

    • Automotive revenue declined 2% quarter-over-quarter, primarily due to specific customer seasonality in Europe.

    • Experiencing incremental increases in input costs, mainly in raw materials and external manufacturing.

    Guidance & targets

    16
    CategoryTargetConfidence
    Q3 Revenue
    $1.65 billion to $1.75 billion
    high materiality
    High
    Q3 Non-GAAP Gross Margin
    40% to 42%
    high materiality
    High
    Q3 Non-GAAP Operating Expenses
    $303 million and $318 million
    medium materiality
    High
    Q3 Non-GAAP Other Income
    $18 million net benefit
    low materiality
    High
    Q3 Non-GAAP Tax Rate
    approximately 15%
    low materiality
    High
    Q3 Non-GAAP Share Count
    approximately 395 million shares
    low materiality
    High
    Q3 Non-GAAP EPS
    $0.81 to $0.93
    high materiality
    High
    Q3 Capital Expenditures
    $40 million to $50 million
    medium materiality
    High
    FY26 AI Data Center Revenue Growth
    more than double
    high materiality
    High
    FY26 ESS Revenue Growth
    approximately 40% year-over-year
    medium materiality
    High
    FY26 China Automotive Silicon Carbide Revenue Growth
    between 60% and 70% year-over-year
    medium materiality
    High
    FY26 Capital Expenditures as % of Revenue
    below 5%
    medium materiality
    High
    Fab Right Annualized Savings
    approximately $35 million
    medium materiality
    High
    Automotive Revenue Growth
    up low single digits
    medium materiality
    High
    Industrial Revenue Growth
    relatively flat
    medium materiality
    High
    Other Revenue Growth
    up high teens
    medium materiality
    High

    Segment performance

    6
    SegmentRevenueYoYQoQMargin
    Automotive
    Sequential decline driven by specific customer seasonality in Europe, offset by strength in China. Maintaining content gains with new products.
    Year-to-date revenue increase: 6% compared to 2025China automotive revenue H1 FY26: +13% over same period last year
    		$781 million7%-2%—
    Industrial
    Driven by strength in energy infrastructure, medical, and factory automation, partially offset by declines in traditional industrial markets.
    		$423 million4%1%—
    Other
    Anchored by stronger-than-expected AI data center demand as well as growth in other end markets.
    		$400 million—34%—
    Power Solutions Group (PSG)
    Strong growth reflecting increasing demand.
    		$829 million19%13%—
    Analog and Mixed Signal Group (AMG)
    Modest sequential growth, but slight year-over-year decline.
    		$546 million-2%1%—
    Intelligent Sensing Group (ISG)
    Sequential decrease, but year-over-year growth.
    		$229 million7%-3%—

    Operational metrics

    29
    Non-GAAP Gross Margin
    39.3%up 80 bps sequentially
    Q2 FY26

    Expanded for the fourth consecutive quarter.

    Non-GAAP Operating Margin
    20.8%
    Q2 FY26
    Non-GAAP EPS
    $0.7416% increase over prior quarter
    Q2 FY26

    Grew approximately 4x faster than revenue.

    Cash and investments balance
    $3.9 billion
    Q2 FY26

    Cash and short-term investments.

    Total liquidity
    $5.4 billion
    Q2 FY26
    Free Cash Flow Margin
    24%achieved record
    LTM
    Capital Expenditures
    $34 million
    Q2 FY26
    Inventory Days
    192 daysdeclined 9 days
    Q2 FY26
    Base Inventory Days
    125 daysdeclined 1 day
    Q2 FY26

    Reflecting a healthy level of inventory supporting expected revenue growth.

    Distribution Inventory Weeks
    10.1 weeksdeclined from 10.8 weeks in Q1
    Q2 FY26

    Sell-through outpacing sell-in.

    Mass Market Revenue Growth
    20%sequentially
    Q2 FY26
    Utilization Rate
    83%increased to from 77%
    Q2 FY26

    As production ramps to support increasing backlog.

    Non-GAAP Tax Rate
    15%
    Q2 FY26
    Non-GAAP Share Count
    397 million
    Q2 FY26
    GAAP Operating Expenses
    $358 million
    Q2 FY26
    Non-GAAP Operating Expenses
    $297 million
    Q2 FY26
    GAAP Operating Margin
    16.1%
    Q2 FY26
    GAAP Tax Rate
    16%
    Q2 FY26
    GAAP EPS
    $0.56
    Q2 FY26
    GAAP Share Count
    404 million
    Q2 FY26
    Share Repurchases
    $332 million
    Q2 FY26

    Returned to shareholders.

    Capital Returned to Shareholders
    approximately 105%of free cash flow
    YTD
    Non-core Revenue Exits
    $35 million
    Q2 FY26

    Final planned non-core revenue exits completed.

    Annualized Savings from Fab Right
    $35 million
    Annualized
    AI Data Center TAM
    ~$50 billionup from $12 billion
    2030

    Based on projected gigawatt scale installations and expanded product portfolio.

    EV TAM
    ~$63 billionup from $26 billion
    Future

    Driven by increased EV penetration, higher silicon carbide penetration within EVs, and new opportunities in hybrid vehicles and Treo products.

    Content per rack (current)
    $15,000
    Current
    Content per rack (future)
    $115,000
    Future

    For an 800-volt DC rack, representing a step function increase in content.

    Lead times
    ~32 weeksstretched out from ~27 weeks
    Q2 FY26

    On average, across the entire portfolio.

    Industry KPIs

    9
    MetricValueDetails
    Lead times~32 weeksweeks
    Backlog order book—
    Book to bill ratiosignificantly above 1
    Ai data center revenueprimary driver of Other segment's 34% QoQ growth
    Fab capacity utilization83%%
    Bookings net order intake—
    Design wins socket pipeline—
    Inventory channel inventory192 daysdays
    End market segment revenue mix—

    Orderbook & backlog

    1
    Book-to-bill ratiosignificantly above 1Q2 FY26

    continued to strengthen

    Has been significantly above 1 for several quarters; indicates strong demand and future revenue visibility.

    Product announcements

    2
    ProductTypeDetails
    EliteSiC hybrid ESS module (next-generation)launch
    Hybrid module platform (500 kilowatts)launch

    Deals & partnerships

    1
    SynapticsAcquisition of Synaptics to complement onsemi's strengths in power, sensing, and control with connected compute capabilities.

    Agreement announced, subject to customary approvals.

    Risks & headwinds

    2
    Incremental increases in input costsOngoing

    Primarily in raw materials and external manufacturing

    Mitigation: Implementing a second round of price increases to offset these costs, with benefits expected over the next several quarters.

    Supply constraints and prioritization of AI data centerShort-term (Q2-Q3 FY26)

    Prioritized shipments to AI data center over automotive and industrial due to accelerated demand; lead times extending from ~27 weeks to ~32 weeks.

    Mitigation: Ramping production to support increasing backlog; manufacturing output catching up to demand signals; confident in ability to service demand.

    What to watch in Q3 FY26

    5

    Non-GAAP Gross Margin

    Q3 FY26
    Current39.3%
    Target40%-42%

    Why it matters

    Indicator of operational efficiency and pricing power, key to profitability and reflects the benefits of increasing utilization.

    Our non-GAAP gross margin is expected to be between 40% and 42%, which includes share-based compensation of $8 million.

    Q&A highlights

    8

    How should we think about the automotive business in Q3 given the Q2 sequential decline, typical seasonality, and whether pricing levers apply to automotive customers?

    Q2 automotive decline was due to typical seasonality in Europe, but overall demand is stable with content gains. Pricing actions to offset material cost increases apply across all markets, including automotive, as these costs are material in nature.

    “our pricing actions that Thad and I both talked about last quarter are offsetting those costs across all of our markets. We do have some surgical cost increases where we see strength or we see really allocation. But in general, where we're offsetting cost, that's across the board, including automotive.”

    asked by Vivek Arya · answered by Hassane El-Khoury

    2 min read5 chapters

    Detailed Narrative

    01

    AI Data Center Momentum

    AI data center revenue is expected to more than double in 2026, driven by stronger demand, broader customer wins, and expanding content across the Power Tree. The company expanded its role in the NVIDIA MGX ecosystem and secured two power supply platform wins with Great Wall for China's cloud and AI infrastructure. Design wins with U.S. hyperscalers for AWS power supply and battery backup systems further contribute to growth, with silicon carbide revenue in AI data center applications projected to grow nearly 60% year-over-year.

    02

    Automotive Market Share Gains

    Automotive revenue in China increased 13% in the first half of FY26, despite a 4% decline in total vehicle sales, supported by expanding content per vehicle with customers like Geely Zeekr and Xiaomi. Silicon carbide revenue in China's EV market is expected to increase between 60% and 70% year-over-year. New design wins include MOSFETs supporting power distribution in Rivian's R2 platform and silicon carbide solutions deployed in its onboard charging system, highlighting the company's ability to participate across multiple vehicle domains.

    03

    Industrial AI Halo Effect

    The industrial business is increasingly benefiting from the 'AI halo effect,' where AI growth drives demand across the power infrastructure required to support it, including energy storage systems (ESS). ESS revenue is expected to grow approximately 40% year-over-year in 2026, primarily driven by North American microgrid customers. The company also released its next-generation EliteSiC hybrid ESS module, delivering industry-leading 99.3% efficiency, and began sampling a 500-kilowatt hybrid module platform that increases power density by 20%.

    04

    Operational Efficiency and Margin Expansion

    Q2 results demonstrated operating leverage, with non-GAAP gross margin expanding 80 basis points sequentially to 39.3% and non-GAAP EPS growing approximately 4x faster than revenue. Utilization increased to 83% from 77%, and the company expects continued gross margin expansion throughout the year as utilization rises. The Fab Right strategy, including the divestitures of Mountain Top and Philippines manufacturing facilities, is expected to yield approximately $35 million in annualized savings, with initial benefits starting in 2027.

    05

    Strategic Acquisition of Synaptics

    onsemi announced an agreement to acquire Synaptics, with the transaction expected to close in mid-2027, subject to customary approvals. This combination is anticipated to leverage onsemi's manufacturing scale, global sales channel, and mass market engine to drive growth across a highly complementary portfolio. Synaptics' market-leading connected compute capabilities are expected to complement onsemi's strengths in power, sensing, and control, contributing accretive gross margins.

    AI-generated summary of the company’s earnings call. Not investment advice.