ON Semi On the Right Path

ON Semiconductor Corporation (ONNN - Analyst Report) is an original equipment manufacturer (OEM) of primarily analog semiconductors used within a diverse set of end markets. March quarter results beat consensus estimates on the top and bottom-line.

Next quarter's revenue guidance is for 3%-6% growth. Management anticipates that total revenues will be approximately $545 to $560 million in the second quarter of 2008. Further, they expect that average selling prices for the second quarter of 2008 will be down approximately two per cent sequentially. Backlog represents over 85% of next quarter's revenue projection.

The company has also begun to get significant revenue from its recent major purchase of LSI Logic's (LSI - Analyst Report) Gresham, Oregon wafer facility, which has the potential to be a solid revenue driver. The products produced at the Gresham facility are of the high-margin variety. We feel the stock is under valued at these levels, and recommend investors Buy the shares.

The stock is currently trading at a 9.8x multiple of our 2009 earnings estimate (P/E). This marked the sixth quarter the company included a complete quarter of sales from the new facility. We expect this business will contribute $100 to $112 million per year.

Regarding the new merger, (AMI) management expects $50 million annually in cost savings. We feel the company can outgrow the industry. ONNN's considerable debt burden and the TPG sale are still major concerns that investors should consider when purchasing the stock. We believe that the shares will trade above the current set of metrics, and consequently are setting a $13 price target with a corresponding 13.3x P/E.

Read the full analyst report on ONNN.

Read the full analyst report on LSI.

Read the full analyst report on ONNN

Read the full analyst report on LSI