onsemi ( ON Quick Quote ON - Free Report) shares inched up 0.3% in the year-do-date period, outperforming the Zacks Semiconductor - Analog and Mixed industry’s and Zacks Computer and Technology sector’s fall of 20.4% and 31.3%, respectively. The entire Semiconductor - Analog and Mixed industry is reeling under various operational challenges due to the macro-economic turmoil and geopolitical tensions.
onsemi has been able to beat the cyclical downtrend as investors show bullish sentiments regarding the stock. It has been investing in strategic areas like intelligent power and sensing. onsemi has been investing heavily in building its intelligent power and sensing products to help address key high-growth megatrends in automotive, industrial and plug power.
In the second quarter, despite ongoing market volatility, onsemi reported that automotive and industrial revenue accounted for 66% of its overall business and combined grew 38% year over year. This was driven by the adoption of intelligent power and sensing solutions in the markets like automotive due to the electric vehicle (EV) megatrend.
onsemi’s investments in intelligent power and sensing reflect the company’s strategy to provide differentiated and varied solutions to its customers to drive top-line growth. ON is reallocating its focus to strategic and high-margin products to drive a favorable mix shift and eliminate the price-to-value discrepancies.
onsemi Diversifying Product Portfolio to Drive Top Line
onsemi recently announced that it has approved an exit plan to close one of its divisions in the advanced solutions group segment to further enable the company to direct its investments to high-growth margin business segments.
The unit is generally associated with the Quantenna business division, which the company acquired in 2019. Slow growth for the Quantenna business segment products has stunted the analog solutions group revenues. In the second quarter of 2022, advanced solutions group or ASG revenues of $716.7 million (34.4% of revenues) increased 4% on a year-over-year basis.
This news comes after onsemi’s announcement that it is expanding its silicon carbide (SiC) facility in Hudson, NH. The newly inaugurated hub will increase ON’s SiC boule production capacity by five times year over year and address certain supply-chain bottlenecks.
This will aid in fully controlling onsemi’s SiC manufacturing supply chain, from sourcing silicon carbide powder and graphite raw material to delivering fully packaged SiC devices.
onsemi’s recent expansion of its Hudson facility will aid in meeting the rising demand for SiC-based solutions, which is critical for developing EVs and energy infrastructure and is an important contributor to decarbonization. Per
onsemi, the SiC total addressable market is projected to grow from $2 billion in 2021 to $6.5 billion in 2026, at a CAGR of 33%.
Further positively impacting onsemi’s decision to diversify its product portfolio and expand operations is President Biden's decision to the CHIPS and Science Act, supporting investments in domestic semiconductor manufacturing and reducing dependence on foreign markets like China. Onsemi peer
Microchip Technology ( MCHP Quick Quote MCHP - Free Report) is also looking to benefit from the recent declaration of the act by the government.
The recent declaration by the government will help Microchip to diversify income from its microcontroller business, riddled with supply-chain disturbances. Microchip continues developing and introducing a wide range of innovative and proprietary new linear, mixed-signal, power, interface and timing products to spur growth in the analog business.
However, ON is facing stiff competition from the likes of
Texas Instruments ( TXN Quick Quote TXN - Free Report) and STMicroelectronics ( STM Quick Quote STM - Free Report) .
STMicroelectronics’ third-generation STPOWER SiC MOSFETs help meet the energy-saving efficiency requirements in EVs and are a chief competitor of onsemi in the EV market. STMicroelectronics’ solutions will aid EV makers in achieving faster charging and help reduce EV weight. This helps STM win a significant market share in the industry.
Texas Instruments is also seeing success in certain fast-growing automotive market segments. TXN is focused on infotainment, safety and ADAS, body electronics (including lighting), hybrid electric vehicle and powertrain segments of the automotive market. It also experiences significant traction from the EV megatrend.
However, onsemi which currently carries Zacks Rank #3 (Hold), expects demand to continue outpacing supply throughout 2022. With the recent focus on high-growth margin business segments, onsemi can address the rising supply-chain issues, distinguishing its services from its competitors. You can see
. the complete list of today's Zacks #1 Rank (Strong Buy) stocks here