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    ON
    Earnings call· Dec 2024(Q4 FY24)

    ON SEMICONDUCTOR Q4 FY24 earnings call ON

    Feb 10, 2025 Source

    Executive summary

    onsemi Q4 FY24 — Automotive and Industrial Strength Amidst Broad Market Weakness

    onsemi navigated a challenging Q4 FY24 with resilient non-GAAP gross margins and strong free cash flow, driven by automotive and industrial segments. However, broad market softness and geopolitical uncertainties led to a significant sequential decline in Q1 FY25 guidance, particularly in automotive. The company is implementing structural changes to rationalize its portfolio, optimize manufacturing, and control spending, aiming to emerge stronger and achieve long-term margin targets despite limited near-term visibility.

    Highlights

    5

    • Achieved full-year non-GAAP gross margin of 45.5% on $7.1 billion revenue.

    • Generated $1.2 billion in free cash flow for the full year, a 3x increase year-over-year.

    • Q4 automotive revenue increased 8% sequentially, driven by 18% QoQ growth in China.

    • AI data center and aerospace & defense revenue grew over 40% and 50% respectively in 2024.

    • Returned 54% of free cash flow ($650 million) to shareholders in 2024, exceeding the 50% target.

    Concerns

    5

    • Q1 FY25 revenue guidance of $1.35 billion to $1.45 billion is significantly below Q4 FY24 revenue of $1.72 billion.

    • Q1 FY25 non-GAAP gross margin guidance of 39%-41% is down from 45.3% in Q4 FY24, impacted by lower utilization (mid-50s%) and unfavorable product mix.

    • Q1 FY25 automotive revenue is expected to decline by 25% or more sequentially.

    • Manufacturing utilization decreased to 59% in Q4 FY24 and is projected to drop further to mid-50s% in Q1 FY25.

    • Inventory digestion persists across key end markets, with weakness expected to continue into 2025.

    Guidance & targets

    12
    CategoryTargetConfidence
    Q1 FY25 Revenue
    $1.35 billion to $1.45 billion
    high materiality
    High
    Q1 FY25 Non-GAAP Gross Margin
    39% to 41%
    high materiality
    High
    Q1 FY25 Non-GAAP Operating Expenses
    $313 million to $328 million
    medium materiality
    High
    Q1 FY25 Non-GAAP Other Income
    $14 million net benefit
    low materiality
    High
    Q1 FY25 Non-GAAP Tax Rate
    approximately 16%
    low materiality
    High
    Q1 FY25 Non-GAAP Diluted Share Count
    approximately 425 million shares
    low materiality
    High
    Q1 FY25 Non-GAAP Earnings Per Share
    $0.45 to $0.55
    high materiality
    High
    Q1 FY25 Capital Expenditures
    $110 million to $150 million
    medium materiality
    High
    Long-term Free Cash Flow Return to Shareholders
    50%
    high materiality
    High
    2025 Capital Intensity
    mid-single-digit percentage range
    medium materiality
    High
    Long-term Non-GAAP Gross Margin
    53%
    high materiality
    High
    2025 Free Cash Flow Margin
    25% to 30%
    high materiality
    High

    Segment performance

    6
    SegmentRevenueYoYQoQMargin
    Automotive
    Revenue increased sequentially, driven by share gains and new customer ramps, particularly in China. Expected to be down 25%+ sequentially in Q1 FY25 due to geopolitical uncertainty, slower EV ramp, and inventory digestion.
    China growth QoQ: 18%
    		$1.03 billion—8%—
    Industrial
    Revenue decreased sequentially due to weakness in traditional parts of the business and ongoing inventory digestion, partially offset by growth in medical. Weakness expected to persist into 2025. Expected to be down mid-to-high single digits sequentially in Q1 FY25.
    		$417 million—-5%—
    Other Business
    Revenue declined more than seasonally expected. Early signs of pricing pressures in pockets of these noncore end markets, which the company will not pursue. Expected to be down mid-to-high single digits sequentially in Q1 FY25.
    		——-24%—
    Power Solutions Group (PSG)
    Revenue decreased quarter-over-quarter and year-over-year.
    		$809 million-16%-2%—
    Analog and Mixed-Signal Group (AMG)
    Revenue decreased quarter-over-quarter and year-over-year.
    		$611 million-18%-7%—
    Intelligent Sensing Group (ISG)
    Revenue increased quarter-over-quarter but decreased year-over-year. Image sensor business is stable, focusing on machine vision where quality adds value.
    		$303 million-2%9%—

    Operational metrics

    26
    Non-GAAP gross margin
    45.3%-20 bps QoQ, -140 bps YoY
    Q4 FY24

    Down sequentially and year-over-year.

    Non-GAAP operating expenses
    $321 millionvs $306 million Q4 FY23
    Q4 FY24

    Increased sequentially due to timing of R&D project expenses.

    Non-GAAP operating margin
    26.7%
    Q4 FY24

    Reported for the quarter.

    Non-GAAP tax rate
    16%
    Q4 FY24

    Reported for the quarter.

    Non-GAAP EPS
    $0.95vs $1.25 Q4 FY23
    Q4 FY24

    Reported for the quarter.

    Non-GAAP diluted share count
    426 million
    Q4 FY24

    Reported for the quarter.

    Cash and short-term investments balance
    $3 billion
    Q4 FY24

    Balance at the end of the quarter.

    Total liquidity
    $4.1 billion
    Q4 FY24

    Includes cash and short-term investments plus undrawn revolver capacity.

    Free cash flow margin
    25%
    Q4 FY24

    Representing 25% of revenue.

    Capital expenditures
    $157 million
    Q4 FY24

    Spend during the quarter.

    Capital intensity
    9%
    Q4 FY24

    Equates to 9% of revenue.

    Inventory days
    216 days+3 days QoQ
    Q4 FY24

    Inventory was flat QoQ in dollars but increased in days. Strategic builds for fab transitions are expected to peak in H1 2025.

    Distribution inventory
    declined $55 million
    Q4 FY24

    Reduced during the quarter.

    Distribution weeks of inventory
    9.6 weeksvs 9.7 weeks Q3 FY24
    Q4 FY24

    Remained relatively flat, expected to be within target range going forward.

    Customer count (mass market channel)
    18%YoY increase
    FY24

    Increase due to plan to change mix in the channel.

    Manufacturing utilization
    59%
    Q4 FY24

    Decreased as actions were taken to match demand visibility.

    Share repurchases
    $200 million
    Q4 FY24

    Executed during the quarter.

    Full-year share repurchases
    $650 million
    FY24

    Total repurchases for the full year.

    Remaining repurchase authorization
    $1.7 billion
    Q4 FY24

    Amount remaining on the share repurchase program.

    Noncore business (exit target)
    $350 million to $400 millionpreviously $800 million to $900 million
    Current

    Portion of business that is more volatile and will be exited over time if pricing continues to drop.

    AI data center revenue growth
    >40%over FY23
    FY24

    Strong growth in the AI data center segment.

    Aerospace & defense revenue growth
    >50%over FY23
    FY24

    Strong growth in the aerospace and defense segment.

    SiC JFET TAM opportunity
    $1.3 billion
    through 2030

    Expected TAM unlocked by the acquisition of Qorvo's SiC JFET business.

    Treo Platform TAM opportunity
    $36 billion
    Long-term

    Expected TAM unlocked by the new Treo Platform.

    Gross margin impact from utilization
    20 to 25 bpsfor every 100 bps utilization change
    Q1 FY25

    At lower utilization levels (up to low 60s%), fixed costs become a larger portion of total factory cost.

    Automotive and Industrial Revenue Mix
    84%
    Q4 FY24

    Automotive and industrial segments combined accounted for 84% of total revenue.

    Industry KPIs

    6
    MetricValueDetails
    Ai data center revenue>40%%
    Fab capacity utilization59%%
    Design wins socket pipelineRamping
    Inventory channel inventory216 daysdays
    Node platform ramp schedule200-millimeter technology development
    End market segment revenue mixAutomotive: $1.03B; Industrial: $417M; Other: declinedUSD

    Product announcements

    1
    ProductTypeDetails
    Treo Platformlaunch

    Deals & partnerships

    1
    QorvoAcquisition of Silicon Carbide Junction Field-Effect Transistor (SiC JFET) business.

    The SiC JFET portfolio complements onsemi's EliteSiC power solutions and is considered the most competitive technology for energy efficiency and power density in power supply units for AI data centers. It accelerates readiness for emerging markets like EV battery disconnects and solid-state circuit breakers.

    Risks & headwinds

    5
    End Market Softness & Inventory DigestionQ1 FY25 and into 2025

    Q1 FY25 revenue guidance of $1.35B-$1.45B (down from $1.72B in Q4 FY24). Inventory digestion persists across key end markets, with weakness expected to continue into 2025.

    Mitigation: Prioritizing value, not playing in volatile/price-sensitive markets, rationalizing portfolio, optimizing manufacturing footprint, controlling spending, and managing LTSAs to accelerate inventory burn.

    Geopolitical Uncertainty & TariffsOngoing, Q1 FY25

    Impacts customer manufacturing footprints and demand signals (e.g., EV adoption, tax credits, infrastructure deployment).

    Mitigation: Monitoring demand signals, focusing on controllable factors, strategic reviews of capacity, and managing the business based on observed data rather than market recovery hopes.

    EV Demand WeaknessQ4 FY24, Q1 FY25

    Europe EV demand weakened in Q4 (registrations down 10% MoM in Dec). US Tier 1s impacted by lower global auto demand and slower EV ramp. China EV deliveries impacted by early Chinese New Year and extended shutdowns. Q1 auto revenue expected down 25%+ sequentially.

    Mitigation: Gaining share in the silicon carbide TAM, focusing on performance-driven solutions, and being designed into new platforms.

    Noncore Business VolatilityOngoing, multi-quarter period

    $350 million to $400 million of noncore business is highly volatile and price-sensitive.

    Mitigation: Will exit this business over time if volatility returns to historical levels, maintaining the integrity of core product value proposition.

    Manufacturing UnderutilizationQ4 FY24, Q1 FY25, and potentially beyond

    Utilization decreased to 59% in Q4 FY24, expected to drop to mid-50s% in Q1 FY25. This drives a 20 to 25 basis points change in gross margin for every 100 basis points of utilization at these lower levels.

    Mitigation: Implementing Fab Right strategy to reduce underutilization absorption, making structural changes to lower fixed cost structure, and expecting positive impact on income statement in late 2025 as market recovers.

    What to watch in Q1 FY25

    5

    Q1 FY25 Revenue Performance

    Next quarter (Q1 FY25 results, Q2 FY25 guidance)
    CurrentQ1 guidance $1.35B-$1.45B
    TargetActual Q1 results vs. guidance, and Q2 guidance

    Why it matters

    This will indicate the pace of market recovery and the effectiveness of onsemi's demand management and portfolio rationalization efforts.

    Given our visibility, we anticipate Q1 revenue will be in the range of $1.35 billion to $1.45 billion.

    Q&A highlights

    6

    How much of the demand drop is ON-specific versus end market, and is a larger portfolio adjustment needed given the magnitude of the decline?

    Hassane clarified that the largest decline is in the noncore business, estimated at $350 million to $400 million, which they will exit due to volatility. He emphasized that core products (Treo, SiC, medical) are where they are investing and that the company remains consistent in not playing in highly volatile, price-sensitive markets.

    “the big change in the precipitous, the one thing I can say that is ON specific is the noncore business that has seen the largest decline. And we've been very consistent not to play in that volatility.”

    asked by Ross Seymore · answered by Hassane El-Khoury

    2 min read6 chapters

    Detailed Narrative

    01

    Transformation Journey & Strategic Focus

    onsemi's four-year transformation focused on intelligent power and sensing technologies, investing in differentiated products for automotive, industrial, and AI data centers. The company streamlined manufacturing via its Fab Right strategy and improved operational efficiencies, delivering a full-year non-GAAP gross margin of 45.5% on $7.1 billion revenue, demonstrating resilience in its business model.

    02

    Market Headwinds & Portfolio Rationalization

    Demand declined late in Q4 and continued into January, leading to a significant Q1 FY25 guidance cut. The company is prioritizing value and will not pursue highly volatile, price-sensitive markets, particularly in its noncore business, which is estimated at $350 million to $400 million. Management plans further portfolio rationalization and manufacturing footprint optimization to improve cost structure and operating leverage, with meaningful impact expected as early as Q2.

    03

    Silicon Carbide & AI Data Center Growth

    Despite overall market weakness🌐, silicon carbide revenue increased sequentially in Q4, with full-year revenue slightly down from 2023 due to slower program ramps. The acquisition of Qorvo's SiC JFET business is expected to unlock a $1.3 billion TAM opportunity with a 30% revenue CAGR through 2030, specifically targeting AI data centers where power levels are nearly doubling. AI data center revenue grew over 40% in 2024, with design wins for hyperscalers ramping in Q4.

    04

    Treo Platform Innovation

    onsemi introduced the Treo Platform, an advanced analog and mixed-signal platform built on leading-edge BCD 65-nanometer technology, supporting the industry's widest voltage range of 1 to 90 volts. This platform is designed to accelerate portfolio proliferation, unlock a $36 billion TAM opportunity at up to 70% gross margins, and enable faster product sampling. First revenues are expected in 2025, with customers actively designing Treo-based devices into next-generation platforms for applications like automotive zonal architecture and AI data center power management.

    05

    Cost Management & Cash Flow Generation

    The company is aggressively implementing structural changes, including potential headcount reductions and site closures, to reduce operating expenses and lower underutilization absorption. Free cash flow generation remains a focus for 2025, with tight working capital management and reduced capital spending to a mid-single-digit intensity target. onsemi generated $1.2 billion in free cash flow in 2024 and returned 54% ($650 million) to shareholders, exceeding its long-term target.

    06

    Inventory Management & LTSA Strategy

    Inventory was flat QoQ in dollars but increased by 3 days to 216 days, including 100 days of strategic bridge inventory for fab transitions, expected to peak in H1 2025. Base inventory (excluding strategic builds) is at 116 days, within the 100-120 day target range. Distribution inventory declined $55 million, with weeks of inventory remaining relatively flat at 9.6 weeks. The company maintains its strategy of continuously negotiating LTSAs to match real demand and avoid overshipping, aiming to accelerate inventory burn at customers.

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