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ON SEMICONDUCTOR CORP (ON)·Q1 2025 Earnings Summary

Executive Summary

  • Q1 2025 delivered revenue of $1.45B and non-GAAP EPS of $0.55, both above the midpoint of guidance; GAAP results were heavily impacted by restructuring, yielding a GAAP diluted loss per share of ($1.15) .
  • Non-GAAP gross margin fell to 40.0% from 45.3% in Q4 2024 and 45.9% in Q1 2024 due to lower utilization and pricing pockets; GAAP gross margin was 20.3% after $283M restructuring-related inventory and other charges .
  • Guidance for Q2 2025: revenue $1.40–$1.50B, non-GAAP gross margin 36.5%–38.5%, non-GAAP EPS $0.48–$0.58; OpEx is guided down materially on restructuring savings, with utilization expected to decline slightly near-term .
  • Structural actions and capital return: management reduced internal fab capacity by ~12%, cut workforce by ~9%, and intends to repurchase 100% of 2025 free cash flow (Q1 buybacks: $300M; ~66% of FCF) .

What Went Well and What Went Wrong

What Went Well

  • Strong free cash flow and disciplined cost/working-capital management: Cash from operations of $602M and free cash flow of $455M (31% of revenue), up 72% YoY; returned 66% of FCF via $300M buybacks .
  • Industrial outperformed expectations: industrial revenue decreased only ~4% QoQ with “early signs of stabilization” and better late-quarter bookings trends; medical and aerospace & defense increased sequentially .
  • Strategic design-win momentum and AI/data center traction: SiC JFET/MOSFET solutions ramping across UPS/PSU/BBU with hyperscaler wins; UPS revenue expected to grow 40%–50% YoY in 2025; image sensor wins at leading China OEMs .

Quotes:

  • “We continue to see strong design win momentum... secured key wins with major global customers across all end-markets.” — CEO Hassane El‑Khoury .
  • “For 2025, we intend to increase our share repurchase to 100% of free cash flow.” — CFO Thad Trent .
  • “We are ramping with a large U.S. hyperscaler securing the majority share in their PSU and BBU.” — CEO Hassane El‑Khoury .

What Went Wrong

  • Automotive softness and utilization under-absorption: automotive revenue down ~26% QoQ (seasonality in China, Europe weakness); utilization ticked to ~60% (from 59%), but non-GAAP gross margin declined to 40% with ~900 bps under-absorption in Q2 guide .
  • Pricing pockets: management is using low single-digit price declines opportunistically to defend/increase share, contributing to margin pressure near-term .
  • Significant restructuring charges hit GAAP: $539M in OpEx restructuring and $283M in gross restructuring-related inventory charges drove GAAP operating margin to (39.7)% and GAAP net loss of ($486.1)M .

Financial Results

Key GAAP Metrics

MetricQ3 2024Q4 2024Q1 2025
Revenue ($USD Millions)$1,761.9 $1,722.5 $1,445.7
Gross Margin (%)45.4% 45.2% 20.3%
Operating Margin (%)25.3% 23.7% (39.7)%
Net Income (Loss) ($USD Millions)$401.7 $379.9 ($486.1)
Diluted EPS ($USD)$0.93 $0.88 ($1.15)
Cash from Operations ($USD Millions)$465.8 $579.7 $602.3
Free Cash Flow ($USD Millions)$293.6 $422.4 $454.7

Key Non-GAAP Metrics

MetricQ3 2024Q4 2024Q1 2025
Gross Margin (%)45.5% 45.3% 40.0%
Operating Margin (%)28.2% 26.7% 18.3%
Net Income ($USD Millions)$423.8 $404.2 $231.6
Diluted EPS ($USD)$0.99 $0.95 $0.55

Actual vs Wall Street Consensus (S&P Global)

MetricQ3 2024Q4 2024Q1 2025
Revenue Actual ($MM)1,761.9 1,722.5 1,445.7
Revenue Consensus Mean ($MM)1,753.0*1,758.3*1,401.8*
Revenue Surprise ($MM)+8.9*(35.8)*+43.9*
EPS Actual ($)0.99 0.95 0.55
EPS Consensus Mean ($)0.966*0.974*0.502*
EPS Surprise ($)+0.024*(0.024)*+0.048*

Values marked with * retrieved from S&P Global (Capital IQ) via GetEstimates.

Segment Revenue

Segment ($USD Millions)Q3 2024Q4 2024Q1 2025
PSG (Power Solutions Group)$829.4 $809.4 $645.1
AMG (Analog & Mixed-Signal Group)$653.7 $610.6 $566.4
ISG (Intelligent Sensing Group)$278.8 $302.5 $234.2
Total$1,761.9 $1,722.5 $1,445.7

Operating KPIs

KPIQ4 2024Q1 2025
Manufacturing Utilization (%)59% ~60%
Inventory Days (Company)216 219 (incl. ~100 days bridge SiC)
Distribution Inventory Weeks9.6 10.1
Share Repurchases ($USD Millions)$204.1 $300.1
Capital Expenditure ($USD Millions)$157.3 $147.6

Guidance Changes

MetricPeriodPrevious Guidance (from Feb 10, 2025)Current Guidance (May 5, 2025)Change
Revenue ($MM)Q2 2025 vs Q1 2025$1,350–$1,450 $1,400–$1,500 Raised
Non-GAAP Gross Margin (%)Q2 2025 vs Q1 202539.0–41.0 36.5–38.5 Lowered
Non-GAAP OpEx ($MM)Q2 2025 vs Q1 2025$313–$328 $285–$300 Lowered
Other Inc/Exp (net) ($MM)Q2 2025 vs Q1 2025($14) +$11 Raised
Non-GAAP Diluted EPS ($)Q2 2025 vs Q1 2025$0.45–$0.55 $0.48–$0.58 Raised
Diluted Shares (Non-GAAP) (MM)Q2 2025 vs Q1 2025~425 ~419 Lowered
CapEx ($MM)Q2 2025 vs Q1 2025$110–$150 $70–$90 Lowered

Earnings Call Themes & Trends

TopicQ3 2024 (Oct 28)Q4 2024 (Feb 10)Q1 2025 (May 5)Trend
AI/Data Center power (SiC JFET/MOSFET)Strategy to invest across power spectrum; non-GAAP GM ~45.5% Acquired Qorvo SiC JFET; hyperscaler design wins; AI DC revenue +40% YoY in 2024 Ramping with large U.S. hyperscaler; UPS revenue expected +40–50% YoY in 2025 Improving
Supply chain/tariffsN/AGeopolitical uncertainty flagged; cautious Flexible diversified manufacturing footprint; minimal direct tariff impact expected; no material pull-ins/push-outs Stable/Cautious
Pricing dynamicsN/AWill not pursue volatile/pricing-pressured noncore markets Opportunistic low single-digit declines to defend/increase share; offset with cost actions Near-term headwind
Silicon Carbide for EVQ3 segments normalizing; strong China EV 2H’24 SiC up vs 1H; EV ramps lumpy; share gains continuing Expect SiC in ~50% of new China models; PHEV SiC adoption; trench MOSFET sampling; revenue ramps late 2025+ Improving medium-term
Utilization and margin leverageN/AUtilization fell to 59%; every +100 bps utilization → +20–25 bps GM at low-60% range Capacity reduced 12%; now +25–30 bps GM per +100 bps utilization; ~900 bps under-absorption in Q2 guide Near-term pressure, higher leverage later
Treo analog platformN/ALaunched Treo BCD 65nm; targeting 60–70% margin products “First revenue” recognized; building toward $1B by 2030 Early ramp

Management Commentary

  • Strategic focus: “Fab Right approach” and R&D investments aim to deliver gross margin expansion as markets recover .
  • Capacity actions: “Reduced our internal fab capacity by 12%… reduce ongoing depreciation by ~$22M annually; P&L impact in Q4’25” .
  • Capital returns: “We intend to increase our share repurchase to 100% of free cash flow… ~$1.5B remaining authorization” .
  • China EV positioning: “We expect to have our silicon carbide in nearly 50% of the new models… most set to ramp in late 2025” .
  • Margin mechanics: “For every point of utilization, it’s now 25 to 30 bps of gross margin improvement… ~900 bps under-absorption in Q2” .

Q&A Highlights

  • Relative conservatism vs peers: ON’s flat-ish Q2 revenue guide reflects end-market exposure (EV outside China lagging) rather than structural issues .
  • Gross margin trajectory: Near-term GM constrained by utilization; add back ~900 bps under-absorption to gauge “standard” margin; leverage improves as utilization rises with a ~2-quarter lag .
  • Noncore exits: Walked away from ~$50M in Q1; ~$300M likely for 2025 depending on margins; modulation can help utilization short term .
  • Pricing: Low single-digit price declines used opportunistically to defend/increase share; expect cost actions to offset pricing over time .
  • China EV and SiC: Competition primarily global peers; wins driven by performance/cost-of-ownership; trench MOSFET revenue in 2026 .

Estimates Context

  • Q1 2025 results beat consensus: revenue $1.4457B vs $1.4018B* and non-GAAP EPS $0.55 vs $0.502*; EBITDA miss on GAAP due to restructuring .
  • Q2 2025 consensus sits near ON’s guide midpoints: revenue ~$1.451B*, EPS ~$0.532* vs non-GAAP EPS guide $0.48–$0.58 .

Values marked with * retrieved from S&P Global (Capital IQ) via GetEstimates.

Key Takeaways for Investors

  • Near-term margin pressure is primarily utilization-driven; structural actions enhance margin leverage per utilization point, setting up a stronger exit rate into late 2025/2026 .
  • Expect continued FCF strength and aggressive buybacks (targeting 100% of FCF in 2025), a tangible support to EPS and share count despite cyclical headwinds .
  • Industrial stabilization, medical/aerospace resilience, and AI/data center wins should partially offset automotive seasonality and pricing pockets in Q2 .
  • SiC positioning in China EVs (targeting ~50% of new models) and PHEV adoption plus trench MOSFET roadmap provide medium-term revenue/margin catalysts .
  • Watch Q2 utilization and under-absorption impacts; add back ~900 bps to approximate “standard” GM, and track inventory/bridge SiC normalization through 2H .
  • Segment mix matters: PSG/AMG declines drove Q1 contraction; recovery in higher-value products (Treo, SiC) will be margin accretive over time .
  • Trading implication: Results and guide imply a “wait for utilization turn” setup; near-term volatility likely around pricing/tariff narratives, while capital return and AI power wins underpin the medium-term thesis .