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onsemi's (ON) New Sensing Solutions Aid Top-Line Growth

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onsemi (ON - Free Report) recently launched a dual-inductive rotary position sensor, the NCS32100. The sensing solution is created using a new patented approach to differentiate its performance from competitors and provide high speed and accuracy to industrial applications with robotics technology.

The solution will aid in reducing design time and the number of external components required to manufacture the product, thus decreasing launch time to market and effectively lowering operating costs.

The latest launch reflects the company’s strategy to invest heavily in building its intelligent power and sensing products to help address key high-growth megatrends in automotive, industrial and plug power.

In the third quarter, despite ongoing market volatility, onsemi’s automotive and industrial revenues accounted for 49.1% 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.

Due to rising inflation, customers will look for sensing solutions that provide high efficiency within lower production time to decrease operating costs, specifically in high-margin business opportunities like robotics. Its latest sensing solutions will aid onsemi in attracting new clients and aid top-line growth.

onsemi Addressing Megatrends to Boost Bottom Line

ON stock, which currently carries Zacks Rank #3 (Hold), has risen 6.7% in the year-to-date period against the Zacks Semiconductor - Analog and Mixed industry’s and Zacks Computer and Technology sector’s decline of 15.7% and 32%, respectively.

The entire Semiconductor - Analog and Mixed industry is reeling under various operational challenges due to the macro-economic turmoil and geopolitical tensions. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.

onsemi has been able to beat the cyclical downtrend by investing in strategic areas like intelligent power and sensing, which helps it to grow its gross and operating margins.

The launch of onsemi’s latest sensing solutions comes right after the company approved to further direct its investments to high-growth margin business segments, which is expected to boost its bottom-line growth.

This has aided ON’s third-quarter 2022 earnings, which surged 87% year over year to $1.45. It is looking to bank on this strategy further in the coming quarters.

onsemi is also expanding its silicon carbide (SiC) facility in Hudson, NH. The new hub will increase ON’s SiC boule production capacity by five times year over year and address certain supply-chain bottlenecks. 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 expand operations in high-growth markets was President Biden's decision to sign the CHIPS and Science Act in late August 2022, supporting investments in domestic semiconductor manufacturing and reducing dependence on foreign markets like China. Onsemi peer Microchip Technology (MCHP - Free Report) is also looking to benefit from the recent declaration of the act by the government.

The declaration will help Microchip to diversify income from its microcontroller business, which is riddled with supply-chain disturbances.  MCHP 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 Texas Instruments (TXN - Free Report) and STMicroelectronics (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 help EV makers achieve faster charging and 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 EVs and powertrain segments of the automotive market. It also experiences significant traction from the EV megatrend.

However, onsemi expects demand to continue outpacing supply in the fourth quarter of 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.

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