Q4 2024 Summary
Published Feb 10, 2025, 6:14 PM UTC- ON Semiconductor is gaining market share in silicon carbide products, aiming to be the market leader with high profitability, particularly in the EV sector. They are designed in with major customers and are in a very good position for future growth. , ,
- AI data center revenue grew more than 40% in 2024 and is expected to continue growing in 2025, supported by their JFET business and new products like the Treo Platform. This positions the company to capitalize on the growth in AI data centers.
- The company is exiting low-margin, volatile non-core businesses totaling approximately $350 million to $400 million, and focusing on high-value, high-margin core products such as silicon carbide and the Treo Platform, which are expected to drive future growth and profitability. ,
- ON Semiconductor is facing a significant decline in demand across all end markets, resulting in Q1 revenue guidance of $1.35 billion to $1.45 billion, a substantial decrease from Q4 revenue of $1.72 billion. This indicates a challenging market environment and may lead to continued revenue pressures.
- The company plans to exit approximately $350 million to $400 million of non-core, highly volatile, and price-sensitive business over the next several quarters. This strategic move will potentially reduce revenue further and exacerbate top-line pressures.
- Lower fab utilization rates, dropping to mid-50% in Q1 from 59% in Q4 due to decreased demand, are leading to higher under-absorption of fixed costs and negatively impacting gross margins, which are guided to decrease to 39%-41% in Q1 from 45.3% in Q4. This highlights the company's challenge in maintaining profitability amid slowing demand.
| Metric | YoY Change | Reason |
|---|---|---|
Total Revenue | -15% | The decline was driven by reduced demand in automotive and industrial end-markets, which had previously been key growth drivers. Company-specific product exits and softening regional demand, notably in Asia, also contributed to lower overall sales. Going forward, management is focusing on core automotive and energy infrastructure solutions to mitigate market headwinds. |
PSG | -25% | The group saw a pronounced drop due to lower automotive power demand and an overall reduction in industrial orders, reversing the strong gains from silicon carbide solutions in prior periods. Underutilization of facilities pressured gross margins, and the shift away from non-core products further impacted revenue. The company aims to align capacity and product mix to meet a more selective customer base going forward. |
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Revenue | Q1 2025 | no prior guidance | $1.35B – $1.45B | no prior guidance |
Non-GAAP Gross Margin | Q1 2025 | no prior guidance | 39% – 41% | no prior guidance |
Utilization | Q1 2025 | no prior guidance | mid-50% range | no prior guidance |
Non-GAAP Operating Expenses | Q1 2025 | no prior guidance | $313M – $328M , incl. $31M SBC | no prior guidance |
Non-GAAP Other Income | Q1 2025 | no prior guidance | net benefit of $14M | no prior guidance |
Non-GAAP Tax Rate | Q1 2025 | no prior guidance | ~16% | no prior guidance |
Non-GAAP Diluted Share Count | Q1 2025 | no prior guidance | ~425M shares | no prior guidance |
Non-GAAP EPS | Q1 2025 | no prior guidance | $0.45 – $0.55 | no prior guidance |
Capital Expenditures | Q1 2025 | no prior guidance | $110M – $150M | no prior guidance |
| Metric | Period | Guidance | Actual | Performance |
|---|---|---|---|---|
Revenue | Q4 2024 | $1.71B – $1.81B | $1,722.5 | Met |
CapEx | Q4 2024 | $130M – $170M | $157.3 | Met |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
Silicon carbide technology and design wins | Mentioned consistently in Q1, Q2, Q3 2024, highlighting strong design wins in automotive, industrial, and AI data centers; references to major Volkswagen win in Q2 and substantial penetration in China. | Emphasized technology advancements (200 mm wafers, 350 μm substrates), acquisition of Qorvo’s SiC JFET business, and ramp of design wins for hyperscalers with expected revenue growth in 2025. | Recurring topic with ongoing innovation, expanded design wins, and positive long-term outlook. |
Automotive and EV market focus | Discussed in Q1, Q2, Q3 2024 around EV adoption, SiC penetration, and regional gains in China. Mentioned design wins in Europe and China, with persistent optimism about long-term EV electrification. | Maintained focus on EV growth and share gains, though Q1 2025 demand appears lumpy, particularly in China. Stressed long-term potential of SiC in EVs and continuing share gains despite slower-than-expected program ramps. | Recurring topic with short-term demand volatility but continued long-term EV strategic emphasis. |
Inventory management and utilization rate | Q1, Q2, Q3 2024 calls highlighted increasing internal inventory days, distribution inventory adjustments, and reduced utilization (mid-60% range). Emphasis on matching supply to demand. | In Q4, internal inventory was flat on a dollar basis but up in days to 216. Utilization fell to 59% and is projected to drop further in Q1 2025 due to weaker demand and market visibility. | Ongoing challenge with active management; utilization continues to decline as demand moderates. |
AI data center growth opportunities | Q1, Q2, Q3 2024 calls highlighted expanding content per rack, design wins with top hyperscalers, and the importance of SiC solutions in power-hungry AI workloads. | Reported 40%+ growth in AI data center revenue for 2024, with design wins ramping into 2025. Acquisition of Qorvo’s JFET business unlocks a $1.3B TAM and a 30% CAGR through 2030 for SiC-based power solutions in AI servers. | Recurring topic showing continued optimism, with new technology (JFET) and strong future growth prospects. |
Exiting non-core, low-margin businesses | In Q1 2024, noted walking away from $475M of highly volatile, commodity-type businesses, particularly in non-automotive/industrial segments. No mention in Q2 or Q3 documents. | Announced plan to exit $350M–$400M of non-core, price-sensitive business over multiple quarters. Strategy aligns with focusing on high-margin areas like SiC, Treo, and medical. | Reemerged in Q4 after partial mention in Q1, reinforcing strategy to focus on higher-value segments. |
Volkswagen Group partnership no longer mentioned | Mentioned in Q2 2024 as a significant design win and primary supplier of SiC solutions for VW. No specific updates in Q1 or Q3 documents. | No mention in Q4 2024. | Topic no longer mentioned despite prior significance (Q2). |
Shifts in sentiment around silicon carbide growth | Q1, Q2, Q3 2024 calls all noted softness in short-term demand but optimism about long-term SiC adoption in EVs, industrial, and AI. Market penetration expected to increase. | Company remains positive long term, despite short-term lumpiness tied to EV sales. Emphasizes share gains and technology leadership in 200 mm SiC. Q4 2024 revenue grew in H2 but fell short of prior year due to slower ramps. | Recurring topic with continued near-term volatility offset by strong long-term outlook and share gains. |
Potential large impact from strategic realignment and capacity investments | Q2 2024 mentioned fab right strategy, Czech Republic SiC facility, and capacity to support future growth. Q3 noted capacity optimization and lower capital intensity. | In Q4, highlighted Fab Right actions, potential site closures, and headcount reductions. Reduced capex to mid-single-digit percentage of revenue in 2025; expects favorably impacting margins as early as late 2025. | Recurring strategic actions aimed at long-term cost efficiency and margin expansion. |
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Q1 Segment Outlook
Q: What are your Q1 segment trends and recovery path?
A: In Q1, we expect automotive revenue to decline over 25% sequentially, while industrial and other segments will be down mid- to high single digits. Visibility remains limited to one quarter, and we are not assuming a second-half recovery but are managing based on current data. -
Gross Margin Decline
Q: What's causing the sequential gross margin decline?
A: Approximately half of the gross margin decline from Q4 to Q1 is due to a calculation change in under-absorption from lower revenue. There's a 100 basis point impact from unfavorable product mix, and about 150 basis points from reduced utilization as we lower factory utilization to the mid-50% range. -
Long-Term Margin Targets
Q: Are you still committed to your 2027 margin goals?
A: Yes, we remain committed to our 53% gross margin target. Despite current utilization headwinds, we believe we'll achieve our targets with market recovery and by rightsizing manufacturing. We continue to generate strong free cash flow, reaching a 25% free cash flow margin in Q4 2024. -
Silicon Carbide Outlook
Q: Are you reassessing long-term silicon carbide targets?
A: No, we remain focused on leading the silicon carbide market with high profitability. Short-term EV demand volatility doesn't change our long-term growth and margin goals. We're gaining share and our innovations support this strategy. -
Noncore Business Exit
Q: How much of the revenue drop is ON-specific?
A: The largest decline is in our noncore business, about $350 million to $400 million, which is volatile and we plan to exit over time. We're focusing on core products like Treo and silicon carbide, where growth will come from. -
LTSAs Impact on Demand
Q: Is your emphasis on LTSAs causing the decline?
A: No, the decline isn't due to LTSAs. We've consistently adjusted LTSAs to match actual demand, sometimes renegotiating multiple times. Customers are abiding by adjusted LTSAs to reflect true demand and manage inventory healthily. -
Under-shipment vs Demand
Q: How much are you under-shipping relative to demand?
A: It's difficult to quantify as demand hasn't stabilized and customer inventories are moving targets. We're ensuring we don't overship, managing based on what we can see, and aligning LTSAs to aid inventory normalization. -
Fab Utilization Outlook
Q: How will fab utilization trend after Q1?
A: Utilization will remain around the mid-50% until demand recovers. We reduced from 59% in Q4 to mid-50% in Q1. As demand picks up, utilization will increase, but margin improvements will lag due to latency. -
Auto Demand by Geography
Q: How is March auto demand trending by region?
A: We expect demand to be down globally. Q4 growth was driven by China, but Q1 is impacted by early Chinese New Year and shutdowns. As car inventories sell through, orders should recover, but it's uncertain and depends on consumer confidence. -
Guidance Basis
Q: Is your guidance based on judgment or current data?
A: Our guidance is strictly based on our own visibility, not on peers. We're disciplined in managing internal and distribution inventories, reducing disti inventory by $55 million in Q4, focusing on what we can control to maintain margins. -
Core Product Pricing
Q: What are pricing trends for core products?
A: We're not seeing price reductions from annual negotiations. Instead, we're offsetting any customer discussions with internal efficiencies, maintaining consistent standard margins. There's no demand-driven need for price cuts on proprietary products. -
Inventory Levels at Tier 1s
Q: What are inventory levels at auto Tier 1 customers?
A: It's hard to quantify as Tier 1s manage inventory differently. We're under-shipping demand to help deplete inventories. Some have normalized, but overall, inventory digestion continues across the industry. -
Image Sensor Business
Q: How is image sensor impacting auto weakness?
A: Image sensor business remains stable. We've refocused on machine vision applications, not chasing market share at low profits. We're ramping 8-megapixel sensors and addressing competition by focusing on value-added areas. -
AI Data Center Growth
Q: What's the outlook for AI data center growth?
A: We expect continued strong growth, building on over 40% growth in 2024. With design wins and our Treo Platform speeding time to market, we'll see acceleration in 2025, including from the JFET business. -
Tracking Treo's Success
Q: How can we track Treo's financial performance?
A: We'll update on early milestones like product launches and margin profiles. Revenue ramps in 2025, but we won't provide detailed financials for Treo on a quarterly or annual basis.