ON Semiconductor Corporation (ON - Free Report) effectively purchased additional stake of 20% in Fujitsu’s 8-inch wafer fab in Aizu-Wakamatsu, taking its ownership to 60%. However, the financial terms of the deal were kept under wraps. Subsequently, Aizu Fujitsu Semiconductor Manufacturing Limited will now be named as ON Semiconductor Aizu Co., Ltd effective immediately.
The two companies originally inked a deal in 2014 per which ON Semiconductor bought only 10% ownership interest in Fujitsu’s Aizu 8-inch fab.Both the companies came together again in October 2017 with ON Semiconductor purchasing 30% of incremental share in Fujitsu’s Aizu 8-inch fab.
Notably, under an agreement ON Semiconductor again increased its ownership stake in Fujitsu bringing it to 40% in April 2018.
Currently, ON Semiconductor effectively holds a 60% stake in Fujitsu’s 8-inch wafer fab. Consequently, the company intends to increase its ownership to 100% over the next two years.
The deal will expand ON Semiconductor’s presence in the rapidly growing Asian market by increase production at the Aizu 8-inch fab, consequently garnering additional revenues.
Per the press release, “This additional capacity will allow ON Semiconductor to continue to scale its operations to meet forecasted demand and enable increased supply chain flexibility.”
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.
ON Semiconductor Corporation Price
ON Semiconductor anticipates long-term growth backed by robust demand for products in the automotive and industrial end markets. Driven by sustained momentum, power management and imaging products remain key catalysts.
Moreover, integration and optimization of Fairchild’s manufacturing operations is anticipated to boost 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. We believe these factors will help this Zacks Rank #3 (Hold) stock to improve performance going forward.
Stocks to Consider
Some better-ranked stocks in the broader technology sector are Paycom Software, Inc. (PAYC - Free Report) , Salesforce.com Inc (CRM - Free Report) and Aspen Technology, Inc. (AZPN - Free Report) , all sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Paycom Software, Salesforce and Aspen Technology have a long-term earnings growth rate of 25.5%, 25% and 16.5%, respectively.
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