ON Semiconductor Corp. Q2 FY2025 earnings call

• Made meaningful progress across strategic priorities in Automotive, Industrial, and AI Data Center. In Automotive, helped customers like Xiaomi and expanded with global OEMs/Tier 1s. In AI Data Centers, enabled next-generation power architectures with partners like NVIDIA. - Delivered Q2 revenue of $1.47 billion, exceeding guidance midpoint, with non-GAAP gross margin 37.6% and EPS $0.53. - Saw signs of stabilization in end markets, with Automotive expected to grow in Q3. China revenue grew 23% sequentially in Q2 driven by silicon carbide. - Industrial revenue up 2% QoQ. AI data center business nearly doubled YoY. - Treo platform momentum building, with over 5 million units shipped from East Fishkill facility this year. - Making strategic investments and structural improvements to enhance efficiency and competitiveness.

In the second quarter, onsemi reported revenue of $1.47 billion. By segment: Power Solutions Group (PSG) had revenue of $698 million, an 8% quarter-over-quarter increase and a 16% year-over-year decrease. Analog and Mixed-Signal Group (AMG) had revenue of $556 million, a 2% quarter-over-quarter decrease and a 14% year-over-year decrease. Intelligent Sensing Group (ISG) had revenue of $215 million, an 8% quarter-over-quarter decrease and a 15% year-over-year decrease. Automotive revenue in Q2 was $733 million, down 4% sequentially, with China revenue growing 23% sequentially. Industrial revenue increased 2% quarter-over-quarter. The 'Other' business, which includes AI data center, increased 16% quarter-over-quarter and nearly doubled year-over-year.

• Q3 revenue expected to be in the range of $1.465 billion to $1.565 billion. - Non-GAAP gross margin expected to be between 36.5% and 38.5%. - Non-GAAP operating expenses expected to be in the range of $280 million to $295 million. - Non-GAAP other income expected to be a net benefit of $8 million. - Non-GAAP tax rate expected to be approximately 16%. - Non-GAAP earnings per share expected to be in the range of $0.54 to $0.64. - Capital expenditures expected to be in the range of $35 million to $50 million.

• Uncertainty around tariffs announced, though current guidance is inclusive of no material direct impact. - Potential impacts of exiting noncore businesses, which will be dilutive to margins long term. - Inventory management, with strategic bridge inventory for silicon carbide fab transitions but expecting to burn through it as demand recovers.

Q: What are you seeing cyclically and where are the tailwinds and headwinds?

A: Seeing stabilization, with Automotive hitting low end in Q2 but expected to be up in Q3. AI data center business doubled YoY, Treo platform showing traction.

Q: Why is gross margin flat to slightly down near term and what are the levers to reach long-term 53% target?

A: Key to margin expansion is utilization; as recovery happens, utilization will improve. Long-term levers include utilization improvement, Fab Right initiative, and ramping new high-margin products.

Q: What drove Industrial being softer and the strength of Other?

A: Industrial was softer due to traditional industrial being down slightly. Other, especially AI data center, was strong, doubling YoY.

Q: Where is the automotive recovery cycle for ON?

A: Automotive in regions other than China (US and Europe) is weaker due to tariff uncertainty and end market uncertainty, but expected to grow in Q3.

Q: What is the repositioning in ISG and revenue impact?

A: Repositioning focus on machine vision for high-value, safety-critical applications. 2026 revenue impact expected to be $50 million to $100 million.

Q: How does silicon carbide fit into gross margin and exit of business?

A: Silicon carbide gross margin below corporate average due to underutilization; exiting noncore business is long-term dilutive to margins.

Q: Expectations for Q3 business segments?

A: Expect Auto and Industrial to be up low single-digit percentages, Other to be up mid- to high single-digit percentages.

Q: Inventory levels and utilization?

A: Expect inventory to peak in Q2 and decline in Q3, with utilization flat quarter-on-quarter but improving as demand recovers.

Q: Pricing environment and inventory burn?

A: Pricing environment stable; inventory expected to be burned through as demand recovers.

Q: Preparation for Section 232, 301 and silicon carbide business risk?

A: Focus on controlling own footprint and manufacturing; bankruptcy of peer doesn't significantly impact road map.

Q: Legacy business exit and silicon carbide gross margin?

A: Legacy business exit is long-term dilutive; silicon carbide gross margin below average due to underutilization, but expected to improve with volume and manufacturing leverage.