ON Q2 2025: Q3 automotive rebound guided, AI data-center sales double
- Automotive Recovery: Management expects automotive revenue to rebound in Q3 after hitting a trough in Q2—with strong performance in China and continued EV ramp activity supporting the recovery.
- Secular Growth in AI Data Center: The company’s focus on the AI data center segment, which has doubled year-over-year, highlights a robust and growing market opportunity that could drive overall revenue expansion.
- Margin Expansion Potential: Improved manufacturing utilization—with each percentage point potentially boosting gross margin by 25–30 basis points—and disciplined cost management (including initiatives like Fab Right) set the stage for long‑term margin expansion toward the 53% target.
- Weakness in the Automotive Segment: The call noted that markets in North America and Europe remain weak with automotive traction still recovering, which could prolong lower demand outside of China.
- Margin Pressure from Underutilization: The company highlighted a 900 basis points underutilization charge in its Q3 guidance, implying significant margin drag until capacity is improved, which may weigh on short-term profitability.
- Revenue Headwinds from Non-Core Exits: The planned exits of non-core businesses are expected to reduce revenue by about $200 million in 2025, representing a material headwind that could impact overall topline growth.
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Revenue | Q2 2025 | $1.4 billion to $1.5 billion | no current guidance | no current guidance |
Non-GAAP Gross Margin | Q2 2025 | 36.5% to 38.5% including share‐based comp. $8M | no current guidance | no current guidance |
Impact of Underabsorption | Q2 2025 | 900 basis points | no current guidance | no current guidance |
Utilization | Q2 2025 | Decline slightly | no current guidance | no current guidance |
Non-GAAP Operating Expenses | Q2 2025 | $285 million to $300 million including share‐based comp. $29M | no current guidance | no current guidance |
Non-GAAP Other Income | Q2 2025 | Net benefit of $11 million | no current guidance | no current guidance |
Non-GAAP Tax Rate | Q2 2025 | 16% | no current guidance | no current guidance |
Non-GAAP Diluted Share Count | Q2 2025 | 419 million shares | no current guidance | no current guidance |
Non-GAAP EPS | Q2 2025 | $0.48 to $0.58 | no current guidance | no current guidance |
Q2 2025 Capital Expenditures | Q2 2025 | $70 million to $90 million | no current guidance | no current guidance |
Revenue | Q3 2025 | no prior guidance | $1,465,000,000 to $1,565,000,000 | no prior guidance |
Non-GAAP Gross Margin | Q3 2025 | no prior guidance | 36.5% to 38.5% with share‐based comp. $6,000,000 | no prior guidance |
Non-GAAP Operating Expenses | Q3 2025 | no prior guidance | $280,000,000 to $295,000,000 including share‐based comp. $32,000,000 | no prior guidance |
Non-GAAP Other Income | Q3 2025 | no prior guidance | Net benefit of $8,000,000 | no prior guidance |
Non-GAAP Tax Rate | Q3 2025 | no prior guidance | 16% | no prior guidance |
Non-GAAP Diluted Share Count | Q3 2025 | no prior guidance | 410,000,000 shares | no prior guidance |
Non-GAAP EPS | Q3 2025 | no prior guidance | $0.54 to $0.64 | no prior guidance |
Capital Expenditures | Q3 2025 | no prior guidance | $35,000,000 to $50,000,000 | no prior guidance |
Utilization | Q3 2025 | no prior guidance | Flat to up slightly in Q3 | no prior guidance |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
Automotive Sector Recovery and Demand Trends | Previous calls in Q1 2025, Q4 2024, and Q3 2024 emphasized inventory digestion, significant regional differences with cautious or muted recovery in North America/Europe and some optimism in China ( , , ) | Q2 2025 highlighted strong growth in China with 23% sequential revenue increase, while caution remains for North America and Europe with expectations for recovery in upcoming quarters ( , ) | Consistent focus on regional performance with a shift toward cautious optimism driven by a strong China recovery while global challenges persist ( ) |
AI Data Center Growth and Secular Opportunities | Earlier periods (Q1 2025, Q4 2024, Q3 2024) discussed revenue doubling, significant design wins, and strong secular trends driven by power efficiency and capability enhancements ( , , ) | Q2 2025 reinforced nearly double year‐over‐year revenue growth, strong product strategy through collaborations and integration of the Treo platform, supporting secular opportunities in high‐value markets ( ) | Ongoing robust growth with consistent emphasis on innovation, integration, and market expansion across periods ( ) |
Silicon Carbide and Advanced Semiconductor Technologies | In Q1 2025 and Q4 2024, and Q3 2024, there was focus on market share leadership, technological advancements like trench and planar SiC, and integration with GaN for high‐power applications ( , , ) | In Q2 2025, the discussion centered on new trench silicon carbide technology (EliteSiC M4T) and its application in automotive, alongside advanced semiconductor technologies like GaN for AI data center efficiency ( ) | Persistent emphasis on technological leadership with evolving product innovations, continuing to sharpen differentiation across periods ( ) |
Manufacturing Utilization and Margin Dynamics | Q1 2025 and Q4 2024 detailed capacity reduction, utilization levels ranging from 59% to 60%, and margin pressures due to underutilization; Q3 2024 showed flat utilization around 65% with maintained margins ( , , ) | Q2 2025 reported a flat utilization at 68% along with underutilization charges (900 bps) and expectations for margin improvement from recovery and structural initiatives ( ) | Steady focus on controlling fixed costs and underutilization across periods with a constant drive toward margin expansion as capacity adapts ( ) |
Strategic Exit of Non-Core Businesses and Portfolio Optimization | Q1 2025 and Q4 2024 emphasized exiting approximately $350–$400 million of non-core, price-sensitive businesses and portfolio rationalization; Q3 2024 had no mention ( , ) | Q2 2025 reaffirmed the strategy through portfolio rationalization, ending legacy products, and anticipating a 5% revenue drop in 2026 from these exits ( ) | Consistent commitment over time to focus on high-value segments by eliminating non-core businesses, with continued execution in Q2 2025 ( ) |
Geopolitical and Tariff Dynamics | In Q1 2025 and Q4 2024, the discussions centered on uncertainties from geopolitical factors and minimal direct tariff impacts, while Q3 2024 did not mention these topics ( , , N/A) | Q2 2025 noted the company's flexible manufacturing footprint as a competitive advantage amid uncertain tariff outcomes, reflecting a diminishing emphasis on geopolitical risks ( ) | While still monitored, geopolitical and tariff concerns have gradually diminished in emphasis, with a stable narrative of limited direct impact ( ) |
Emergence of New Design Wins in the Automotive Sector | Q1 2025 and Q4 2024 highlighted design wins including silicon carbide adoption and new EV/PHEV platforms, and Q3 2024 focused on design wins tied to China’s 800-volt architectures and share gains ( , , ) | Q2 2025 introduced new design wins such as the Xiaomi and Scheffler collaborations, along with progress on the Treo platform design funnel, furthering automotive innovation ( ) | Consistent emphasis on securing design wins with continuous innovation and regional focus, particularly in China, across all periods ( ) |
Introduction of New Product Platforms (e.g., Treo) in AI and Semiconductor Markets | Q1 2025 and Q4 2024 introduced the Treo platform with emphasis on versatility, margin potential, and key technological integration; Q3 2024 mentioned new products like the T10 Trench Pad with emerging revenue potential ( , , ) | Q2 2025 stressed significant progress on the Treo platform with strong shipment numbers, expanding sampling, and a move toward a $1 billion revenue target, confirming its market impact ( ) | Steady progress with consistent product innovation; current discussions highlight scaling and strong market adoption momentum ( ) |
Capital Expenditure Adjustments and Capacity Expansion Strategies | Q1 2025 and Q4 2024 described reductions in capital spending, capacity cuts (e.g. 12% reduction) and strategic initiatives to lower fixed costs; Q3 2024 reported achieving earlier CapEx targets and a move toward a lower CapEx intensity model ( , , ) | Q2 2025 reported lowered CapEx expenditures (e.g., $78M in Q2) and ongoing capacity optimization via the FabRite initiative, aligning capacity with higher-margin product demand ( ) | Consistent focus on cost management and capacity alignment, evolving from major cuts to a disciplined, ongoing optimization strategy ( ) |
Inventory Management and Demand Discipline | Q1 2025 and Q4 2024 discussed disciplined channel and balance sheet inventory levels and maintaining target ranges, while Q3 2024 highlighted strategic builds and customer-focused inventory controls ( , , ) | Q2 2025 continued with a disciplined approach showing slight inventory improvements (e.g., reduction in bridge inventory from 100 to 87 days) and a focus on demand discipline to support efficient utilization ( ) | A constant emphasis on maintaining healthy inventory levels and strict demand discipline, with incremental improvements and slight adjustments across periods ( ) |
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Market Outlook
Q: What is the cyclical and secular market outlook?
A: Management noted that after a Q2 trough, demand is stabilizing with automotive poised to grow in Q3 while secular drivers like the AI data center and Trejo product ramp up, even as non‐core exits add roughly 5% headwinds. -
Automotive Recovery
Q: When will auto business regrow year-over-year?
A: They explained that automotive bottomed in Q2 and expects recovery in Q3, led by strong performance in China despite subdued markets in North America and Europe. -
Gross Margin
Q: How will exits and SiC affect gross margins?
A: Management indicated exiting non‐core products (about 5%) is neutral in the short term, while improved utilization and Fab Right initiatives will help target a long-term gross margin of 53%; silicon carbide margins, currently lower due to underutilization, will improve with higher volumes. -
Utilization Impact
Q: What is your target manufacturing utilization now?
A: They stated that a fully utilized capacity is now around 92%, with each point of improvement adding about 25–30 basis points in margin, and combined with Fab Right initiatives, a recovery of roughly 900 basis points is expected over time. -
Inventory Trends
Q: Will inventory decline after Q2 peak?
A: Management expects Q2’s inventory to peak and then decline modestly in Q3, with base inventory remaining healthy at about 121 days, aiding cash flow as demand returns. -
Exit Impact
Q: What are non-core exit headwinds for the near term?
A: They expect non-core exits to contribute roughly $200M in headwinds for 2025 and about $300M in 2026, with faster exits than initially anticipated. -
SiC Product Mix
Q: Do chip vs. module choices affect SiC performance?
A: Management clarified that whether sold as a die or module, their advanced trench technology delivers superior performance, and the mix decision does not change their long-term market view. -
Inventory Write-offs
Q: Will inventory write-offs impact recovery?
A: They emphasized a disciplined approach to inventory with no expected write-offs, as strategic stock is being reduced in line with recovering demand. -
ISG Repositioning
Q: What is the revenue impact of ISG repositioning?
A: Management noted that repositioning the ISG toward machine vision, which includes legacy exits, is expected to produce a non-repeating impact of roughly $50–100M in 2026. -
Pricing Stability
Q: Has the pricing environment changed recently?
A: They confirmed that pricing has remained stable throughout the quarter, consistent with their expectations and past trends.
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