TipRanks Smart Value #10: Powering the Turnaround
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Dear Investors,
Dear Investors,
Welcome to the tenth edition of our recently launched TipRanks Smart Value Newsletter!
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This Week’s Top Value Pick: ON Semiconductor (ON)
ON Semiconductor (ON), aka onsemi, is a U.S.-based global leader in intelligent power and sensing technologies, specializing in the design and manufacturing of semiconductor components. Its products – including power management, sensors, and custom devices – serve the automotive, industrial, consumer electronics, and 5G/cloud markets. With a focus on vehicle electrification, industrial automation, and sustainable energy, onsemi operates a network of 19 manufacturing sites and 43 design centers worldwide. It is a major player in the global semiconductor industry, particularly in intelligent power and sensing technologies.
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Strategic Evolution
Founded in 1999 as a spin-off from Motorola’s Semiconductor Components Group, ON Semiconductor began as a supplier of discrete semiconductors and standard analog components. Leveraging Motorola’s legacy, the company quickly gained traction in power management and automotive markets. Throughout the early 2000s, onsemi expanded aggressively through acquisitions, including SANYO Semiconductor in 2011 and Fairchild Semiconductor in 2016 – moves that significantly broadened its product base and strengthened its industrial and automotive positioning.
The past five years have marked a strategic transformation for onsemi, redefining its role in the semiconductor landscape. In 2021, the acquisition of GT Advanced Technologies brought silicon carbide (SiC) capabilities in-house, positioning the company to meet surging demand for high-efficiency power solutions in electric vehicles (EVs) and renewable energy systems. Recognizing the need for manufacturing autonomy and supply chain control, onsemi also acquired GlobalFoundries’ 300mm wafer fabrication facility in East Fishkill, New York – a pivotal step that significantly boosted its capacity and operational resilience.
The company continued to evolve its technology portfolio. In 2022, it acquired SWIR Vision Systems, integrating advanced short-wave infrared imaging into its sensor offerings – a move aimed at expanding its footprint in automotive autonomy, industrial automation, and defense. By 2025, onsemi further solidified its silicon carbide leadership through the acquisition of Qorvo’s SiC JFET business, including United Silicon Carbide. This deal expanded its EliteSiC portfolio to address emerging applications such as AI-enabled data centers and next-gen EV platforms.
Throughout this period, ON has aggressively streamlined operations, divested non-core assets, and aligned itself with high-margin, high-growth verticals. These actions have reshaped the company into a focused, innovation-driven semiconductor supplier with deep ties to future-proof industries like electric mobility, automation, and intelligent infrastructure – putting it on a path to sustained competitive strength.
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Commanding the Curve
onsemi operates a vertically integrated business model focused on the development and manufacture of intelligent power and sensing semiconductor solutions. Its strategy centers on delivering differentiated technologies for high-growth end markets, including electric vehicles, industrial automation, renewable energy, and AI infrastructure. Full control over its silicon carbide (SiC) value chain – from raw crystal growth to advanced packaging – enables ON to optimize cost, performance, and supply continuity in an increasingly capacity-constrained industry.
The business is organized into three segments. The Power Solutions Group (PSG), which includes SiC, IGBT, and other power discrete technologies, is the largest contributor, generating about 45% of revenue. It addresses demand in EV powertrains, energy conversion systems, and solar inverters. The Analog & Mixed Signal Group (AMG) accounts for around 39%, focused on analog and mixed-signal ICs for automotive and industrial applications. The Intelligent Sensing Group (ISG), contributing roughly 16%, develops image sensors and LiDAR for advanced driver-assistance systems (ADAS), factory automation, and machine vision.
ON generates most of its revenue from direct sales to automotive and industrial OEMs and tier-one suppliers. Long-term supply agreements, especially in EV and ADAS, provide predictable volumes and revenue visibility. Its top 20 customers represent around 40% of revenue, each sourcing hundreds of SKUs from onsemi’s broad portfolio.
The company estimates a total addressable market (TAM) of $44 billion, growing at a projected 18% CAGR. EVs remain the largest growth engine, with demand expected to rise at a 17% CAGR through 2029. Adoption is also accelerating in AI data centers, ADAS, and smart manufacturing, where onsemi’s technologies are gaining market share.
onsemi holds a dominant 68% share of the global ADAS image sensor market and commands nearly one-third of the industrial image sensor segment. Its 8-megapixel automotive sensors are in demand for their higher resolution and ASPs. It also leads the market in ultrasonic and inductive sensors for automotive and industrial use, while expanding its footprint in machine vision systems. In power, onsemi is pushing to expand its global SiC market share to between 35% and 40%, supported by its trench MOSFET technology and full-stack manufacturing capability.
In AI data centers, onsemi supplies a full stack of intelligent power solutions – from SiC-based power conversion to smart power stages and regulators – enabling efficient energy delivery from the grid to processors. With a $4.4 billion TAM growing at 19% CAGR (2024–2028), the segment is a strategic growth area. The company more than doubled its AI data center revenue in Q1 2025 year-over-year, aided by its acquisition of Qorvo’s SiC JFET assets and the ramp-up of its vertically integrated SiC platform.
By focusing on secular megatrends, streamlining operations, and scaling high-margin technologies, onsemi has built a business designed not only for growth, but for leadership. Its vertical integration, innovation in power and sensing, and alignment with electrification and automation give it a durable edge in a rapidly transforming industry.
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Reset and Resilience
Over the past five years, onsemi has been actively reshaping its financial profile through an ongoing transformation aimed at aligning the business with higher-growth, higher-margin opportunities. This shift is still unfolding, driven by a deliberate repositioning toward intelligent power and sensing technologies, expanded investment in silicon carbide (SiC) innovation, and a strategic concentration on secular growth verticals like automotive electrification, industrial automation, and AI infrastructure.
In 2024, onsemi posted $7.08 billion in revenue, down from $8.25 billion in 2023 amid industry-wide inventory corrections and cyclical softness. Despite this contraction, the company maintained a gross margin of 45.4% and a non-GAAP operating margin of 27.9%, underscoring the resilience of its business model and product mix. The softness continued into early 2025. In Q1, revenue declined 22% year-over-year to $1.45 billion, though it came in at the high end of guidance.
Still, the quarter had several bright spots. Adjusted EPS of $0.55 and a 40% gross margin both exceeded expectations. Free cash flow surged by 72% YoY, reaching $455 million, or 21% of revenue, supported by tight working capital controls and lower capital intensity. onsemi ended the quarter with $3 billion in cash and returned 66% of its free cash flow to shareholders via buybacks.
Despite cyclical headwinds, signs of a growth revival are emerging. Revenue from AI data center applications more than doubled year-over-year, driven by growing demand for onsemi’s SiC power modules and smart power stages across hyperscale and AI compute infrastructure. The company sees continued momentum here as AI-related workloads reshape power requirements across the data center stack.
Meanwhile, in automotive, onsemi secured a design win with a major U.S. OEM for its fourth-generation trench SiC MOSFETs, slated for a new plug-in hybrid platform. Management also highlighted growing content per vehicle, especially in China, where onsemi’s SiC solutions are expected to appear in nearly half of new EV models. These signals suggest that the company is well-positioned to capitalize on global vehicle electrification trends.
In the industrial segment, early signs of stabilization are taking hold. Traditional factory automation and infrastructure demand remain soft, but growth in medical and aerospace applications is helping offset the drag. This sets up a potential rebound for the back half of 2025.
ON’s operational initiatives also support recovery. Its Fab Right program, which reduces internal fab capacity by 12% and includes a 9% workforce reduction, is expected to deliver $30 million in quarterly operational cost savings and $22 million annually in depreciation savings – measures that will buffer margins through the downturn.
The company’s Q2 2025 guidance calls for revenue of $1.4 to $1.5 billion, non-GAAP EPS of $0.48 to $0.58, and gross margins of 36.5% to 38.5%, reflecting continued pricing pressure and fab underutilization. However, management expects margin stabilization as cost savings from Fab Right begin to materialize and demand in core markets gradually recovers.
Looking further out, onsemi has reaffirmed ambitious long-term targets: 10-12% compound annual revenue growth, gross margins expanding to 53%, and FCF margins of 25-30% by 2027. These targets, driven by a continued SiC ramp-up, new product cycles, and a streamlined cost base, reflect a strategic posture aimed not just at recovery – but towards outpacing the industry when demand accelerates.
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Undervalued and Unfolding
Most semiconductor stocks outside the AI-focused chip universe have faced a tough year, weighed down by macroeconomic uncertainty and escalating trade tensions. ON has underperformed many of its peers during this period, largely due to ongoing operational restructuring and weaker-than-expected earnings. The stock lost over 45% in the 12 months leading up to its trough on April 8, 2025 – a steeper decline than most of its peers. However, it has since rebounded sharply, rallying approximately 40% in just over a month.
Despite this rebound, the stock remains attractively valued. onsemi trades at a roughly 40% discount to the broader Technology sector average, and ranks near the bottom among its peer group in terms of both trailing non-GAAP P/E and forward earnings multiples. When measured on a discounted cash flow basis, the stock appears to be undervalued by about 35%, reinforcing its appeal as a value-driven investment in the semiconductor space.
onsemi does not pay a dividend, instead channeling its capital into growth initiatives and shareholder returns through buybacks. This approach aligns with its strategy to reinvest in high-margin opportunities across EVs, industrial automation, and AI data centers. The company consistently prioritizes R&D, strategic acquisitions, and cost optimization to drive long-term performance.
Share repurchases are a central pillar of ON’s capital return strategy. In Q1 2025 alone, onsemi bought back $300 million worth of stock – equivalent to 66% of its FCF – and plans to return 100% of free cash flow to shareholders for the remainder of the year. As of Q1, approximately $1.5 billion remains under the current repurchase authorization. The Fab Right initiative is expected to deliver substantial savings, supporting increased buyback capacity and enhancing earnings per share through reduced share count.
ON’s return on equity of 7.6% places it in the top third of its industry, giving the company the financial foundation to support aggressive buybacks while continuing to invest in strategic growth. If its transformation continues to gain traction and end markets stabilize, the company is well-positioned for re-rating as both margins and investor sentiment recover.
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Investing Takeaway
onsemi is navigating a strategic transformation, shifting its focus toward high-growth, high-margin markets like electric vehicles, industrial automation, and AI infrastructure. With a vertically integrated model, strong customer relationships, and leadership in silicon carbide and intelligent sensing technologies, the company is well-positioned to capitalize on long-term industry trends. While recent operational challenges and macro headwinds have weighed on performance, signs of stabilization and targeted cost-saving initiatives are laying the groundwork for recovery. The stock’s current valuation presents an opportunity for investors looking to gain exposure to critical enablers of electrification and automation. As onsemi’s execution improves and growth segments ramp, the company has the potential to re-rate meaningfully, making it a compelling value story within the semiconductor sector.