ON SEMICONDUCTOR (ON)·Q4 2025 Earnings Summary

onsemi Q4 2025 Earnings: EPS Beat, But Weak Guidance Sends Shares Down 5%

February 9, 2026 · by Fintool AI Agent

onsemi (Nasdaq: ON) delivered a solid Q4 2025, beating consensus on both revenue (+0.9%) and EPS (+8.5%), but shares tumbled 5.5% after hours as Q1 2026 guidance came in below expectations. The company highlighted that "automotive inventory digestion is largely behind us" and that they've "seen the bottom for industrial," while AI data center emerged as a meaningful growth driver with $250M+ in 2025 revenue.

Did onsemi Beat Earnings?

Yes, onsemi beat on both revenue and EPS:

Despite the beat, the stock fell sharply after hours. The culprit: Q1 2026 guidance that implies continued sequential pressure.

What Did Management Guide?

Q1 2026 guidance disappointed relative to expectations:

Important context: Excluding $50M of non-core exits in Q1, revenue would be above seasonal. Management emphasized this marks the first quarter of expected YoY growth since the downturn began over 3 years ago.

How Did the Stock React?

Down 5.5% after hours despite the beat, reflecting disappointment with forward guidance:

Key observations:

• This continues a pattern of negative post-earnings reactions despite beats
• Stock has recovered from 2025 lows ($31) but remains well below 2024 highs ($85)
• Market focused on soft Q1 guide despite management noting "above seasonal" growth ex-exits

What Changed From Last Quarter?

Positive developments:

1. Margin expansion: Non-GAAP gross margin improved to 38.2% from 38.0% in Q3 and 37.6% in Q2, showing structural cost improvements are taking hold

2. Record free cash flow: 2025 FCF reached $1.4B (24% of revenue), a record margin, enabling 100% return to shareholders via buybacks

3. AI data center momentum: Delivered $250M+ in AI data center revenue in 2025, with Q1 expected to grow high teens %

4. First YoY growth: Q1 2026 marks the first quarter with expected year-over-year revenue growth since the downturn started over three years ago

Concerns:

1. $300M exits in 2026: Non-core business exits will total ~$300M for the year ($50M in Q1, ~$100M each in Q2/Q3)

2. Underutilization headwind: Current 700 basis points of underutilization charges at 68% utilization

3. No restocking yet: Despite lean inventories, management sees "strong signals for stabilization" but not yet replenishment

Revenue and EPS Trends

*Values retrieved from S&P Global

What Did Management Say?

CEO Hassane El-Khoury struck a cautiously optimistic tone:

"In 2025, amid a challenging demand environment, we delivered $6 billion of revenue and non-GAAP gross margin of 38.4% by staying disciplined in our execution and tightly aligning to our long-term strategy."

On AI opportunity:

"AI data center is increasingly becoming a meaningful growth engine for the company."

On the market environment:

"Automotive inventory digestion is largely behind us... we believe we have seen the bottom for industrial, with global PMI trends pointing to early signs of expansion."

CFO Thad Trent emphasized free cash flow and margin expansion:

"We delivered record free cash flow margin of 24% in 2025. Free cash flow increased 17% year-over-year to $1.4 billion due to tight expense control and lower CapEx as our large capacity investments are behind us."

On 2026 outlook:

"With stabilization across automotive and industrial markets and our momentum in AI data center, we are entering 2026 from a position of strength."

Q&A Highlights

On AI data center trajectory (Ross Seymore, Deutsche Bank):

• Management confirmed AI data center delivered $250M+ in 2025, growing from "almost nothing"
• Q1 AI data center revenue expected up high teens %
• Content per rack opportunity increased to $105K by 2030 (up from $50K for 2027) due to expanded product portfolio

On margin expansion path (Vijay Rakesh, Mizuho): CFO Trent provided a clear bridge to long-term 53% gross margin target:

• +700 bps from utilization (70% → low 90s%)
• +200 bps from additional FabRight actions
• +200 bps from fab divestiture synergies ($160M fixed costs)
• +200 bps+ from new high-margin product mix

On automotive content growth (Harsh Kumar, Piper Sandler):

• Automotive grew 70% over 5 years on flat SAR
• High single-digit growth target above SAR remains intact
• $400M+ design funnel for zonal architecture products (SmartFETs, eFuses, 10BASE-T1S Ethernet)

On GaN strategy (Chris Caso, Wolfe Research):

• 30+ new GaN devices sampling in 2026, spanning 40-1200V
• Lateral GaN via foundry partnerships (Innoscience, GlobalFoundries)
• Vertical GaN (V-GaN) manufactured in US, revenue expected 2027

On restocking (Joe Moore, Morgan Stanley): Management explained why restocking hasn't materialized despite lean inventories:

"A lot of the automotive market, especially on the tier one layer, they're running on thin margins, and they can't afford the capital... which I think is setting automotive to a risky ramp when the demand does pick up."

Key Business Highlights

Technology developments announced in Q4:

1. Treo Platform expansion: Design funnel now exceeds $1 billion, with products sampling doubled YoY

2. Vertical GaN (V-GaN): Built on proprietary GaN-on-GaN technology, manufactured in US, positions for "multi-year competitive advantage" in AI data centers, EVs, and aerospace

3. Silicon carbide leadership: Delivered first win with Sungrow for next-gen SiC MOSFET hybrid power module achieving 99.5% efficiency

4. VCore acquisition integration: Strengthening portfolio to win next-gen architectures at the XPU board level

5. New $6B buyback authorization: Announced in November after completing prior $2.6B program

Segment Performance

ISG showed notable sequential strength (+9%), driven largely by industrial market recovery. Q4 marked the first quarter of YoY industrial revenue growth (up 6%) following eight consecutive quarters of YoY declines.

Q1 2026 End Market Guidance:

• Automotive: Roughly flat (Chinese New Year headwind)
• Industrial: Down low teens (seasonality + energy infrastructure softness)
• Other: Up low single digits (AI data center up high teens, offset by seasonality and exits)

Balance Sheet and Cash Flow

The 24% FCF margin for FY25 represents a company record. Management targets 25-30% FCF margin and plans to continue returning 100% of FCF to shareholders.

Beat/Miss Track Record

*After-hours reaction

onsemi has beaten revenue estimates in 7 of the last 8 quarters and EPS in 6 of 8, yet stock reactions have been negative in 6 of those 8 quarters. This suggests the market is more focused on forward guidance than backward-looking results.

Forward Catalysts and Risks

Catalysts:

• AI data center: High teens growth trajectory, $105K content per rack by 2030
• Vertical GaN revenue: Expected to begin in 2027 with multi-year competitive advantage
• Zonal architecture: $400M+ design funnel as OEMs migrate (40% of new vehicles in 5-8 years)
• Utilization recovery: Path to 700 bps margin expansion as utilization rises to low 90s
• FabRight actions: Additional 200 bps margin expansion expected through 2026

Risks:

• No restocking yet: Tier 1s running on thin margins, can't afford inventory build
• $300M exits: Non-core business exits will weigh on reported revenue through 2026
• China exposure: SiC revenue tied to China EV market which is all 800V
• Utilization lag: Q4 step-down to 68% utilization impact takes ~2 quarters to flow through
• Long-term targets distant: 53% gross margin / 40% operating margin requires significant recovery

The Bottom Line

onsemi delivered a solid Q4 2025 that beat expectations, but the stock sold off on soft Q1 guidance and ongoing exits. The key debate: Is this the turn, or just stabilization before another leg down?

Bull case: First YoY revenue growth in 3+ years, AI data center growing high teens, clear margin expansion bridge to 53%, automotive content story intact (70% growth over 5 years on flat SAR), and management seeing "better visibility than 90 days ago" with improving book-to-bill.

Bear case: No restocking cycle despite lean inventories, $300M of exits masking underlying growth, 700 bps of underutilization headwind requires significant recovery to eliminate, and long-term targets (53% GM, 40% OM) require execution over multiple years.

The market's negative reaction suggests investors want to see proof of the turn, not just promises. With AI data center as a genuine growth driver and V-GaN/zonal architecture investments positioned for 2027+, onsemi is building for the eventual upturn. Execution on FabRight and AI wins will determine whether shares recover from here.

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View ON Company Profile | Read Q4 2025 Transcript | Prior Quarter: Q3 2025