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ON Semiconductor (ON) Tops Q3 Earnings and Revenue Estimates
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Shares of ON Semiconductor Corporation (ON - Free Report) surged more than 8% yesterday, following the company’s stellar third-quarter 2018 results.
The company delivered third-quarter non-GAAP earnings of 57 cents per share beating the Zacks Consensus Estimate by 7 cents. Further, the figure increased 30% year over year and 24% sequentially.
The company reported revenues of $1.542 billion, surpassing the Zacks Consensus Estimate of $1.51 billion and also increasing 11% year over year from the year-ago quarter’s level of $1.39 billion. Moreover, the figure was higher than management’s guided range of $1.485-$1.535 billion.
Further, on a sequential basis revenues increased 6% year over year.
Robust demand, adoption and favorable product mix of the company’s diversified product portfolio drove year-over-year growth. The company continues to gain from its strength in automotive and industrial end-markets.
ON Semiconductor has three business units namely — Power Solutions Group or PSG (revenues of $810 million), Analog Solutions (revenues of $532 million) and Intelligent Sensing Group (revenues of $200 million).
End-Market Metrics:
Automotive (30% of revenues) end-market revenues were approximately $464 million, up 12% year over year. In the reported quarter, the company’s CMOS image sensors, ADAS, power management products, wireless charging, mixed signal ASICs, MOSFETs and sensor interface products witnessed strong demand. Continued growth in ADAS and LEDs design wins fueled growth.
Notably, the company holds a competitive edge over its peers in delivering a comprehensive image sensor solution for autonomous driving applications and ADAS.
Industrial (26%) end-market revenues increased 12% year over year to $400 million. The segment includes military, aerospace and medical. Solid demand for a broad range of power products aided growth. Demand in industrial end-markets was further driven by power modules, image sensors and machine vision.
Communications (20%) end-market revenues increased 13% year over year to $314 million. The increase can primarily be attributed to rollout of new smartphone models.
Computing (11%) grew 16% year over year to $163 million, thanks to the ramp in cloud and server solutions segments and a favorable client PC market.
Consumer (13%) end-market revenues declined 1% on a year-over-year basis to $200 million. The decline was due to weaker-than-expected participation in consumer electronics market.
Operating Details
Non-GAAP gross margin was 38.7%, up 60 basis points (bps) sequentially and 80 bps on a year-over-year basis driven by improvement in operational efficiency. Moreover, strengthened product mix and improved contribution from the higher-margined industrial, server and automotive segments positively impacted gross margins. Management expects mix improvement, portfolio optimization and rise in additional internal wafer capacity to further drive margins.
Non-GAAP operating expenses for the third quarter came in at $321.7 million compared with $295.8 million reported in the year-ago period and $317.6 million in the previous quarter.
Non-GAAP operating margin was 17.8%, reflecting year-over-year and sequential increase of 120 bps and 150 bps, respectively.
Balance Sheet
Cash & cash equivalents were $951 million, up from $850.2 million in the previous quarter. Total debt (long-term plus short term) came in at $2.71 billion.
In the third quarter, the company generated operating and free cash flow of $358.2 million and $227.8 million, respectively.
The company repurchased 3.6 million shares worth $75 million during the quarter under review.
Guidance
For the fourth quarter of 2018, ON Semiconductor forecasts revenues to be in the range of $1.480-$1.530 billion (mid-point $1.505 billion), given its booking trends, estimated turn level and backlog level. The Zacks Consensus Estimate for is currently pegged at $1.48 billion.
Automotive revenues are anticipated to be up sequentially due to normal seasonality. Further, impressive demand witnessed by image sensors for ADAS applications, and IGBTs for electric vehicle traction motors in China is expected to drive results.
Ramp of design wins led to impressive growth in LED lighting business, consequently bolstering the prospects of automotive lighting.
Industrial end-market revenues are projected to be down sequentially, primarily owing to weakness in the China market. However, management anticipates energy-efficient power modules to be a key catalyst in the long term for industrial end-market.
Management envisions Communications end market revenues to be flat sequentially, primarily due to normal seasonality, increased content, and unveiling of new device models.
Revenues for computing end-market are projected to be flat sequentially. Management expects Server business to significantly contribute to computing end market in 2018. Notably, ON Semiconductor is engaging important cloud and server companies, and working on next generation platforms for leading CPU providers.
However, revenues in consumer end-market are anticipated to be down sequentially due to weakness in white goods market and normal seasonality.
Non-GAAP gross margin is projected to be in the range of approximately 37.1-38.1%.
Non-GAAP operating expenses are expected in the range of $319-$333 million. The company revealed that the sequential increase can be attributed to seasonality of stock-based compensation grant.
For full year 2018, management targets free cash flow generation of $800 million. It continues to expect margin expansion and free cash flow growth throughout 2018 driven by synergies from Fairchild acquisition and better product mix.
Conclusion
ON Semiconductor anticipates long-term growth backed by robust demand for products in the automotive and industrial end markets. Specifically, power management and imaging products which are gaining traction remain a key catalyst.
Moreover, integration and optimization of Fairchild’s manufacturing operations is anticipated to bolster the company’s profitability.
The company is already enjoying cross-selling opportunities to a combined customer base that is aiding its top-line. Management also remains elated on improved customer engagement leading to long-term supply agreements.
Additionally, ON Semiconductor is likely to gain a competitive edge through increased investment in captive raw wafer manufacturing. Rising raw wafer prices will bolster the company’s margins in the long run.
Zacks Rank & Stocks to Consider
Currently, ON Semiconductor carries a Zacks Rank #3 (Hold).
NetApp, Intel and Upland Software have a long-term earnings growth rate of 14.1%, 8.4% and 20%, respectively.
The Hottest Tech Mega-Trend of All
Last year, it generated $8 billion in global revenues. By 2020, it's predicted to blast through the roof to $47 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.
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ON Semiconductor (ON) Tops Q3 Earnings and Revenue Estimates
Shares of ON Semiconductor Corporation (ON - Free Report) surged more than 8% yesterday, following the company’s stellar third-quarter 2018 results.
The company delivered third-quarter non-GAAP earnings of 57 cents per share beating the Zacks Consensus Estimate by 7 cents. Further, the figure increased 30% year over year and 24% sequentially.
The company reported revenues of $1.542 billion, surpassing the Zacks Consensus Estimate of $1.51 billion and also increasing 11% year over year from the year-ago quarter’s level of $1.39 billion. Moreover, the figure was higher than management’s guided range of $1.485-$1.535 billion.
Further, on a sequential basis revenues increased 6% year over year.
Robust demand, adoption and favorable product mix of the company’s diversified product portfolio drove year-over-year growth. The company continues to gain from its strength in automotive and industrial end-markets.
ON Semiconductor Corporation Revenue (TTM)
ON Semiconductor Corporation Revenue (TTM) | ON Semiconductor Corporation Quote
Revenue Details
Business Units Metrics:
ON Semiconductor has three business units namely — Power Solutions Group or PSG (revenues of $810 million), Analog Solutions (revenues of $532 million) and Intelligent Sensing Group (revenues of $200 million).
End-Market Metrics:
Automotive (30% of revenues) end-market revenues were approximately $464 million, up 12% year over year. In the reported quarter, the company’s CMOS image sensors, ADAS, power management products, wireless charging, mixed signal ASICs, MOSFETs and sensor interface products witnessed strong demand. Continued growth in ADAS and LEDs design wins fueled growth.
Notably, the company holds a competitive edge over its peers in delivering a comprehensive image sensor solution for autonomous driving applications and ADAS.
Industrial (26%) end-market revenues increased 12% year over year to $400 million. The segment includes military, aerospace and medical. Solid demand for a broad range of power products aided growth. Demand in industrial end-markets was further driven by power modules, image sensors and machine vision.
Communications (20%) end-market revenues increased 13% year over year to $314 million. The increase can primarily be attributed to rollout of new smartphone models.
Computing (11%) grew 16% year over year to $163 million, thanks to the ramp in cloud and server solutions segments and a favorable client PC market.
Consumer (13%) end-market revenues declined 1% on a year-over-year basis to $200 million. The decline was due to weaker-than-expected participation in consumer electronics market.
Operating Details
Non-GAAP gross margin was 38.7%, up 60 basis points (bps) sequentially and 80 bps on a year-over-year basis driven by improvement in operational efficiency. Moreover, strengthened product mix and improved contribution from the higher-margined industrial, server and automotive segments positively impacted gross margins. Management expects mix improvement, portfolio optimization and rise in additional internal wafer capacity to further drive margins.
Non-GAAP operating expenses for the third quarter came in at $321.7 million compared with $295.8 million reported in the year-ago period and $317.6 million in the previous quarter.
Non-GAAP operating margin was 17.8%, reflecting year-over-year and sequential increase of 120 bps and 150 bps, respectively.
Balance Sheet
Cash & cash equivalents were $951 million, up from $850.2 million in the previous quarter. Total debt (long-term plus short term) came in at $2.71 billion.
In the third quarter, the company generated operating and free cash flow of $358.2 million and $227.8 million, respectively.
The company repurchased 3.6 million shares worth $75 million during the quarter under review.
Guidance
For the fourth quarter of 2018, ON Semiconductor forecasts revenues to be in the range of $1.480-$1.530 billion (mid-point $1.505 billion), given its booking trends, estimated turn level and backlog level. The Zacks Consensus Estimate for is currently pegged at $1.48 billion.
Automotive revenues are anticipated to be up sequentially due to normal seasonality. Further, impressive demand witnessed by image sensors for ADAS applications, and IGBTs for electric vehicle traction motors in China is expected to drive results.
Ramp of design wins led to impressive growth in LED lighting business, consequently bolstering the prospects of automotive lighting.
Industrial end-market revenues are projected to be down sequentially, primarily owing to weakness in the China market. However, management anticipates energy-efficient power modules to be a key catalyst in the long term for industrial end-market.
Management envisions Communications end market revenues to be flat sequentially, primarily due to normal seasonality, increased content, and unveiling of new device models.
Revenues for computing end-market are projected to be flat sequentially. Management expects Server business to significantly contribute to computing end market in 2018. Notably, ON Semiconductor is engaging important cloud and server companies, and working on next generation platforms for leading CPU providers.
However, revenues in consumer end-market are anticipated to be down sequentially due to weakness in white goods market and normal seasonality.
Non-GAAP gross margin is projected to be in the range of approximately 37.1-38.1%.
Non-GAAP operating expenses are expected in the range of $319-$333 million. The company revealed that the sequential increase can be attributed to seasonality of stock-based compensation grant.
For full year 2018, management targets free cash flow generation of $800 million. It continues to expect margin expansion and free cash flow growth throughout 2018 driven by synergies from Fairchild acquisition and better product mix.
Conclusion
ON Semiconductor anticipates long-term growth backed by robust demand for products in the automotive and industrial end markets. Specifically, power management and imaging products which are gaining traction remain a key catalyst.
Moreover, integration and optimization of Fairchild’s manufacturing operations is anticipated to bolster the company’s profitability.
The company is already enjoying cross-selling opportunities to a combined customer base that is aiding its top-line. Management also remains elated on improved customer engagement leading to long-term supply agreements.
Additionally, ON Semiconductor is likely to gain a competitive edge through increased investment in captive raw wafer manufacturing. Rising raw wafer prices will bolster the company’s margins in the long run.
Zacks Rank & Stocks to Consider
Currently, ON Semiconductor carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the broader technology sector are NetApp, Inc. (NTAP - Free Report) , Intel Corporation (INTC - Free Report) and Upland Software, Inc. (UPLD - Free Report) , each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
NetApp, Intel and Upland Software have a long-term earnings growth rate of 14.1%, 8.4% and 20%, respectively.
The Hottest Tech Mega-Trend of All
Last year, it generated $8 billion in global revenues. By 2020, it's predicted to blast through the roof to $47 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.
See Zacks' 3 Best Stocks to Play This Trend >>