Company Profile
Introduction
ON Semiconductor (onsemi, ticker: ON) is an American semiconductor supplier, formerly the semiconductor components department of Motorola Group (ticker: MSI). It has an industry-leading position in the fields of automotive, industrial and cloud power semiconductor components.
Transformation
ON Semiconductor was once a maker of commoditized technology parts, but companies of this type often experience wild ebbs and flows due to supply and demand. After years of R&D, mergers and acquisitions, and transformation; today, ON Semiconductor is a more professional semiconductor manufacturer, focusing on power management solutions, connections and sensors.
In particular, ON Semiconductor’s solutions in the automotive, industrial equipment, and aerospace and defense sectors are becoming increasingly important, and the company’s business has been booming over the past few years.
Company History Highlighted
In the company’s history of more than 20 years, the following three major events can be said to be the most important milestones for ON Semiconductor:
- On July 4, 1999, Motorola spun off its standard products semiconductor business into an independent company called ON Semiconductor.
- On April 28, 2000, it went public for the first time.
- On August 19, 2016, ON Semiconductor completed the acquisition of Fairchild Semiconductor, a pioneer in the integrated circuit industry, becoming the top semiconductor manufacturer in the industry.
Main business
ON Semiconductor manufactures a variety of products including:
- Customization: ASIC; customized ULP memory; customized CMOS image sensor; integrated passive components; ASSP for audio/video; connectivity; SoC, SiP and customized products; customized foundry services, wafer foundry services
- Discrete: Bipolar junction transistors (BJTs); diodes and rectifiers; ESD and EMI protection diodes and filters; IGBTs and FETs; tunable components; thyristors
- Power management: AC-DC controllers and regulators; DC-DC controllers, converters and regulators; LED drivers; power modules; thermal management; voltage and current management
- Analog, Logic, and Timing: Amplifiers and Comparators; Clock Generation; Clock and Data Distribution; Interfaces; Memory; Microcontrollers; Standard Logic; Analog Switches; Digital Potentiometers; EMI/RFI Filters
- Optoelectronics: IGBT/MOSFET gate drive optocoupler; high performance optocoupler; optoelectronic crystal optocoupler; infrared; TRIAC drive optocoupler
- Sensors: Optoelectronic, image and touch sensors; light and touch sensors; thermal management; battery-less wireless sensors
Second largest supplier of silicon carbide
Notice
Regarding the third generation semiconductor, silicon carbide (SiC), Wolfspeed, please see the details in my following posts:
- “Gen 3 semiconductor“
- “The hot gen 3 silicon carbide (SiC)“
- “Wolfspeed, the upstar of gen 3 semiconductor“
Top manufacturers of SiC
The third-generation semiconductor silicon carbide (SiC) market is currently in a stable growth stage, and competition among manufacturers is extremely fierce. According to previous data from TrendForce, the top five silicon carbide power semiconductor manufacturers in 2022 are STMicroelectronics (36.5%), Infineon (17.9%), Wolfspeed (16.3%), ON Semiconductor (11.6%) and Rohm ( 8.1%), and the rest are enterprises accounting for only 9.6%.
In 2023, the revenue ranking of this market has undergone great changes. According to calculations based on public information published by various silicon carbide power semiconductor markets, ON Semiconductor will rank second in revenue in the silicon carbide power semiconductor market in 2023.
In 2023, STM Semiconductor’s silicon carbide product revenue will reach US$1.14 billion, an increase of 60% compared with 2022 and the same period last year. The revenue of ON Semiconductor’s silicon carbide business will reach US$800 million in 2023, an increase of four times year-on-year, and the market share is expected to be 25%. Infineon’s SiC business revenue in fiscal year 2023 is 500 million euros (approximately US$540 million), an increase of more than 10% compared with last year.
ON Semicon in SiC power semiconductor market
Although ON Semiconductor entered the power SiC device market relatively late, it has still established a strong position in the silicon carbide power semiconductor market. Led by CEO Hassane El-Khoury, ON Semiconductor has certainly adopted an aggressive and agile strategy.
Through the acquisition of US-based GT Advanced Technologies in 2021, ON Semiconductor has gained its own in-house wafer supply. In the past few years, ON Semiconductor has continued to expand its production capacity, and ON Semiconductor has spent approximately 10% to 15% of its annual revenue on capacity expansion. By 2026, the company aims to increase production capacity fivefold (compared to 2022). In 2023, ON Semiconductor achieved record automotive revenue and established partnerships with OEMs such as Hyundai, Zeekr, and German Volkswagen and BMW.
The future market of SiC
The market competition for silicon carbide will remain increasingly fierce in the future. Each silicon carbide manufacturer also has very clear goals. Ifa Semiconductor will achieve silicon carbide revenue of US$2 billion by 2025 and revenue of US$5 billion in 2030. Rohm lowered its silicon carbide revenue forecast in 2024. The latest target is that SiC revenue is expected to reach US$700 million by 2025 and US$1.4 billion in 2027. Infineon expects SiC revenue to reach US$1 billion in 2025, with a market share target of 30%.
Competitors
Bigger rivals
Since ON Semiconductor’s business scope is now very broad, it has many competitors, among which the more important large-scale competitors are as follows:
- Texas Instruments (ticker: TXN): See my post of “How does Texas Instruments make money? Amazing long term capital reward and company net profit margin!“
- Broadcom (ticker: AVGO): See my post of “Significant changes in Broadcom’s business approach” and “The reasons behind Broadcom share price consistantly outperformance“
- Marvell (Marvell, ticker: MRVL): Please see my post of”How low-key Marvell makes money?“
- STMicroelectronics (ticker: STM)
- Infineon (ticker: IFNNY)
- NXP (ticker: NXPI)
- ROHM (ticker: ROHCY)
- Renesas (ticker: RNECY)
- Wolfspeed (US: WOLF)
The rivals of gen 3 semiconductor SiC
Regarding ON Semiconductor’s opponents in the silicon carbide power semiconductor market, please see the details in my following posts:
- “Gen 3 semiconductor“
- “The hot gen 3 silicon carbide (SiC)“
- “Wolfspeed, the upstar of gen 3 semiconductor“
Capital market performance
Share price performance
As of the end of May 2024, the stock price has increased by 313.86% in the past five years; it has fallen by 14.16% in the past year.
Market valuation
As of the end of May 2024, the price-to-earnings ratio is 15 times and the market value is US$31.48 billion.
Why did the stock price fall?
Against the backdrop of the slowdown in electric vehicles, ON Semiconductor’s stock price has fallen 40% from its high point, and its current price-to-earnings ratio is less than 14, which is a very low price for technology stocks.
Business Outlook
Electric vehicle related business
In addition, ON Semiconductor predicts that over time, its silicon carbide revenue will grow at twice the growth rate of the entire silicon carbide market. By 2027, the silicon carbide market share will reach 35% to 40%, by which time electric vehicles will Cars may be reaching a tipping point that transcends early adopters. Overall, ON Semiconductor, which focuses on smart power and smart sensing chips for automotive and industrial applications, expects annual growth rates between 2022 and 2027 to be between 10% and 12%.
Other business
Additionally, since this growth also includes the gradual reduction of traditional businesses outside of these verticals, negatively impacting the overall growth figures, ON Semiconductor has the potential to maintain this growth rate beyond 2027 due to higher growth automotive and industrial Wafers will make up for this growth.
Forward valuations are cheap
Based on ON Semiconductor’s 2027 revenue growth target and its goal of increasing free cash flow margins to 25% to 30%, the company could theoretically achieve $3.5 billion in free cash flow in 2027, relative to its current market cap. That’s only about 8 times future cash flow forecasts four years from now. Additionally, ON Semiconductor is still generating cash and buying back shares today, so the company’s share count should be lower by then.
Risk
Of course, given the sudden slowdown in 2023, today’s market is very skeptical of electric vehicle-related chip stocks. But assuming this is just a bump in the road, so to speak, and EV growth resumes later this decade, ON Semiconductor stock looks super cheap.
On June 13, ON Semiconductor mentioned in a document submitted to the U.S. Securities and Exchange Commission that it planned to consolidate nine of its factories and reduce its global workforce by approximately 1,000. Another approximately 300 employees will be reassigned or required to relocate to Another factory.
Related articles
- “How does ON Semiconductor make money? Experts in power and analog signal processing and sensor“
- “How Astera Labs, AI high-speed transmission expert, make money? “
- “The lucrative semiconductor supply chain“
- “How does Microchip, a specialist in microcontrollers, memory and analogs, make money?“
- “Monolithic Power Systems, a new force in power management expertise“
- “Gen 3 semiconductor“
- “The hot gen 3 silicon carbide (SiC)“
- “Wolfspeed, the upstar of gen 3 semiconductor“
- “Will Intel go bankrupt?“
- “How does Micron make money? What investors should know?“
- “How does Texas Instruments make money? Amazing long term capital reward and company net profit margin!“
- “Significant changes in Broadcom’s business approach“
- “The reasons behind Broadcom share price consistantly outperformance“
- “How low-key Marvell makes money?“
- “The lucrative semiconductor supply chain“
- “Global semiconductor chip market in detail, big dominators and markets“
- “6 common wrong semiconductor investment myths“
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