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ON Semiconductor (ON) Beats on Q2 Earnings & Revenues
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ON Semiconductor (ON - Free Report) reported second-quarter 2016 non-GAAP earnings of 21 cents that exceeded the Zacks Consensus Estimate by a penny.
Revenues
ON Semiconductor reported revenues of $877.8 million, up 7.4% sequentially but down 0.3% year over year. Also, reported revenues were not only above the company’s expected range of $835.0–$875.0 million but also greater than the Zacks Consensus Estimate of $855.0 million.
Revenues in the quarter were driven by accelerating momentum in the automotive and industrial markets. Also demand for mobile devices remained strong.
Revenues by End Market
Automotive accounted for 36% of total revenue. Segment revenues were flat on a sequential basis but up 15% year over year. The higher demand for ADAS and active safety, LED lighting, power devices, and networking solutions led to the strong year over year revenue performance.
Industrial market, which includes Military/Aerospace/Medical, contributed 23% to total revenue, up 7% from the prior quarter. The growth was driven by strength in the security cameras, machine vision, medical, and general lighting related applications.
Communications (both networking and wireless) accounted for 18% of revenues and improved 11% on a sequential basis. The increase was due to seasonality and the ramp up of new design wins in various platforms.
Consumer brought in 11% of total revenue, up 5% sequentially. The white goods market posted strong growth in the second quarter. Also, demand for gaming and set top boxes led to the upside.
Computing generated 12% of total revenue, up 15% from the last quarter. The increase was driven by the improved processing power of the Skylake platform. Also, build-up of performance in power supplies for servers and workstations led to higher revenues in the quarter.
Margins
Pro forma gross margin was 35.1%, up 136 basis points (bps) sequentially and 51 bps year over year. The increase was largely driven by higher utilization rates, higher revenue and an improved product mix.
ON Semiconductor incurred operating expenses of $199.7 million, 5.5% higher than the previous quarter and 2.0% from the year-ago quarter. The company reported an operating margin of 12.3%, up 177 bps sequentially but down 1 bps year over year.
Net Profit
On a pro forma basis, ON Semiconductor reported net income of $88.5 million or 21 cents per share compared with $70.3 million or 17 cents in the previous quarter and $92.7 million or 21 cents in the year-ago quarter. Our pro forma estimate for the reported quarter excluded restructuring, intangibles amortization and other charges on a tax-adjusted basis but included stock-based compensation. Our calculation may differ from the company’s presentation due to ours having made the inclusion/exclusion of some items that were not considered by management.
On a GAAP basis, the company recorded net income of $25.1 million or 6 cents per share, lower than $36.0 million, or 9 cents per share, in the previous quarter and $50.7 million, or 12 cents per share, in the year-ago quarter.
Balance Sheet
Cash and short-term investments balance fell to $588.1 million at the end of the quarter from $619.5 million in the prior quarter. Inventories fell to $750.2 million from $759.7 million in the previous quarter.
At the end of the reported quarter, ON Semiconductor was carrying the burden of $2.9 billion in long-term debt versus the lower $835.1 million in the prior quarter. Cash flow from operations for the quarter was about $104.2 million, lower than approximately $114.9 million in the previous quarter. The cash flow was impacted by approximately $24 million accrued cost due to interest expense from the pre-funding of the Fairchild transaction.
The company spent $52 million in cash for the purchase of capital equipment and $28 million was used for the repayment of long-term debt in capital leases.
Guidance
ON Semiconductor expects third-quarter revenues in the range of $885.0–$925.0 million, with the median being $905.0 million. The Zacks Consensus Estimate is pegged at $896.2 million.
Gross margin is expected in the 34.6% to 36.6% range, both on a GAAP and a non-GAAP basis. Operating expenses, on a GAAP basis, are expected within $225 million to $237 million, and that of $200 million to $210 million on a non-GAAP basis. The company also expects other net income/expense within $9.5–$12.5 million, both on a GAAP basis and a non-GAAP basis with a share count of 420.0 million.
ON Semiconductor has a well-diversified business and an end-market focus that would typically generate relatively steady revenues throughout the year. The company reported a strong quarter with both the top and bottom line exceeding our expectations.
The company witnessed continued strength in orders in the reported quarter and expects the momentum to continue in the near-to-mid term based on a solid design-win pipeline.
Though macroeconomic conditions remain weak, the end-market demand trend is, however, favorable due to seasonality. Management expects communication, consumer and computing to increase sequentially in the third quarter. However, auto and industrial markets are expected to remain flat in the upcoming quarter.
During the quarter, the company also provided an update on its acquisition of Fairchild Semiconductor International Inc. The deal is expected to close by the end of this month. The acquisition will propel ON toward a leadership position in the power semiconductor space with combined revenues of roughly $5 billion, diversified across manifold markets with a planned focus on smartphone, automotive and industrial end markets.
The company has an attractive product portfolio and is an outstanding manufacturing and operational organization. Currently, it is streamlining its costs, which, in addition to its assets, will boost revenues and cash flow.
ON Semiconductor has a Zacks Rank #3 (Hold).
Investors may consider stocks like Silicon Laboratories Inc. (SLAB - Free Report) , carrying a Zacks Rank #1 (Strong Buy), and MaxLinear, Inc. (MXL - Free Report) and Microsemi Corporation , carrying a Zacks Rank #2 (Buy).
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ON Semiconductor (ON) Beats on Q2 Earnings & Revenues
ON Semiconductor (ON - Free Report) reported second-quarter 2016 non-GAAP earnings of 21 cents that exceeded the Zacks Consensus Estimate by a penny.
Revenues
ON Semiconductor reported revenues of $877.8 million, up 7.4% sequentially but down 0.3% year over year. Also, reported revenues were not only above the company’s expected range of $835.0–$875.0 million but also greater than the Zacks Consensus Estimate of $855.0 million.
Revenues in the quarter were driven by accelerating momentum in the automotive and industrial markets. Also demand for mobile devices remained strong.
Revenues by End Market
Automotive accounted for 36% of total revenue. Segment revenues were flat on a sequential basis but up 15% year over year. The higher demand for ADAS and active safety, LED lighting, power devices, and networking solutions led to the strong year over year revenue performance.
Industrial market, which includes Military/Aerospace/Medical, contributed 23% to total revenue, up 7% from the prior quarter. The growth was driven by strength in the security cameras, machine vision, medical, and general lighting related applications.
Communications (both networking and wireless) accounted for 18% of revenues and improved 11% on a sequential basis. The increase was due to seasonality and the ramp up of new design wins in various platforms.
Consumer brought in 11% of total revenue, up 5% sequentially. The white goods market posted strong growth in the second quarter. Also, demand for gaming and set top boxes led to the upside.
Computing generated 12% of total revenue, up 15% from the last quarter. The increase was driven by the improved processing power of the Skylake platform. Also, build-up of performance in power supplies for servers and workstations led to higher revenues in the quarter.
Margins
Pro forma gross margin was 35.1%, up 136 basis points (bps) sequentially and 51 bps year over year. The increase was largely driven by higher utilization rates, higher revenue and an improved product mix.
ON Semiconductor incurred operating expenses of $199.7 million, 5.5% higher than the previous quarter and 2.0% from the year-ago quarter. The company reported an operating margin of 12.3%, up 177 bps sequentially but down 1 bps year over year.
Net Profit
On a pro forma basis, ON Semiconductor reported net income of $88.5 million or 21 cents per share compared with $70.3 million or 17 cents in the previous quarter and $92.7 million or 21 cents in the year-ago quarter. Our pro forma estimate for the reported quarter excluded restructuring, intangibles amortization and other charges on a tax-adjusted basis but included stock-based compensation. Our calculation may differ from the company’s presentation due to ours having made the inclusion/exclusion of some items that were not considered by management.
On a GAAP basis, the company recorded net income of $25.1 million or 6 cents per share, lower than $36.0 million, or 9 cents per share, in the previous quarter and $50.7 million, or 12 cents per share, in the year-ago quarter.
Balance Sheet
Cash and short-term investments balance fell to $588.1 million at the end of the quarter from $619.5 million in the prior quarter. Inventories fell to $750.2 million from $759.7 million in the previous quarter.
At the end of the reported quarter, ON Semiconductor was carrying the burden of $2.9 billion in long-term debt versus the lower $835.1 million in the prior quarter. Cash flow from operations for the quarter was about $104.2 million, lower than approximately $114.9 million in the previous quarter. The cash flow was impacted by approximately $24 million accrued cost due to interest expense from the pre-funding of the Fairchild transaction.
The company spent $52 million in cash for the purchase of capital equipment and $28 million was used for the repayment of long-term debt in capital leases.
Guidance
ON Semiconductor expects third-quarter revenues in the range of $885.0–$925.0 million, with the median being $905.0 million. The Zacks Consensus Estimate is pegged at $896.2 million.
Gross margin is expected in the 34.6% to 36.6% range, both on a GAAP and a non-GAAP basis. Operating expenses, on a GAAP basis, are expected within $225 million to $237 million, and that of $200 million to $210 million on a non-GAAP basis. The company also expects other net income/expense within $9.5–$12.5 million, both on a GAAP basis and a non-GAAP basis with a share count of 420.0 million.
ON SEMICON CORP Price, Consensus and EPS Surprise
ON SEMICON CORP Price, Consensus and EPS Surprise | ON SEMICON CORP Quote
Conclusion
ON Semiconductor has a well-diversified business and an end-market focus that would typically generate relatively steady revenues throughout the year. The company reported a strong quarter with both the top and bottom line exceeding our expectations.
The company witnessed continued strength in orders in the reported quarter and expects the momentum to continue in the near-to-mid term based on a solid design-win pipeline.
Though macroeconomic conditions remain weak, the end-market demand trend is, however, favorable due to seasonality. Management expects communication, consumer and computing to increase sequentially in the third quarter. However, auto and industrial markets are expected to remain flat in the upcoming quarter.
During the quarter, the company also provided an update on its acquisition of Fairchild Semiconductor International Inc. The deal is expected to close by the end of this month. The acquisition will propel ON toward a leadership position in the power semiconductor space with combined revenues of roughly $5 billion, diversified across manifold markets with a planned focus on smartphone, automotive and industrial end markets.
The company has an attractive product portfolio and is an outstanding manufacturing and operational organization. Currently, it is streamlining its costs, which, in addition to its assets, will boost revenues and cash flow.
ON Semiconductor has a Zacks Rank #3 (Hold).
Investors may consider stocks like Silicon Laboratories Inc. (SLAB - Free Report) , carrying a Zacks Rank #1 (Strong Buy), and MaxLinear, Inc. (MXL - Free Report) and Microsemi Corporation , carrying a Zacks Rank #2 (Buy).
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>