ON Semiconductor Corporation Q4 FY2025 earnings call

• In 2025, ON Semiconductor delivered $6 billion of revenue with a non-GAAP gross margin of 38.4% by staying disciplined in execution and aligning to long-term strategy. They advanced technology leadership, strengthened the portfolio through various means, and returned $1.4 billion of free cash flow.
• The Treo platform doubled product sampling year over year, used in automotive, industrial, and medical applications. They broadened GaN technology leadership with lateral and vertical GaN strategies, preparing to sample over 30 new GaN devices.
• In automotive, they are expanding content in zonal architecture. Industrial is growing in machine vision, factory automation, etc. AI data center revenue was over $250 million in 2025 with strong growth potential. FabRite actions reduced fab capacity 12% in 2025, expecting margin expansion in 2026.

In the fourth quarter, the Power Solutions Group (PSG) had revenue of $724 million, a 2% quarter-over-quarter decrease and an 11% year-over-year decrease. The Analog and Mixed Signal Group (AMG) had revenue of $556 million, a 5% quarter-over-quarter decrease and a 9% year-over-year decrease. The Intelligent Sensing Group (ISG) had revenue of $250 million, a 9% quarter-over-quarter increase but a 17% year-over-year decrease. Automotive revenue was $798 million, up approximately 1% quarter over quarter. Industrial revenue was $442 million, up approximately 4% quarter over quarter, marking the first year-over-year growth in eight quarters with a 6% increase year over year. AI data center revenue was over $250 million for the full year 2025 and is expected to grow in Q1 2026.

• Q1 2026 revenue is expected to be in the range of $1.44 billion to $1.54 billion, midpoint in line with normal seasonality; excluding non-core exits, revenue would be above seasonal.
• Non-GAAP gross margin is expected to be between 37.5% and 39.5%, including share-based compensation of $7 million. Non-GAAP operating expenses are expected to be between $285 million and $300 million, including share-based compensation of $29 million. Non-GAAP earnings per share is expected to be in the range of $0.56 to $0.66.
• Capital expenditures are expected to be in the range of $35 million to $45 million.

• Factors affecting the business include those detailed in SEC filings, which could cause actual results to differ materially from forward-looking statements.
• Automotive inventory digestion is largely behind but restocking not yet seen; there are market demand uncertainties.

Q: What was going on in the Other category?

A: There were exits and seasonality; the Other category was weak due to seasonality and soft demand conditions outside of AI data center along with about $40 million of exits.

Q: When could be above seasonal?

A: Excluding non-core exits, revenue would be above seasonal.

Q: TAM for AI data center?

A: Confident in growth, differentiated by technology from wall to board, being one of the few able to handle high voltage conversion with highest efficiency.

Q: Non-core exits impact?

A: Neutral, no impact on gross margin as the margin on that business was near corporate average and it was volatile historically.

Q: Q1 gross margin outlook?

A: Up 30 basis points due to FabRite actions offsetting seasonal headwind.

Q: AI data center growth in 2026?

A: Expected to grow high teens percentage-wise in Q1.

Q: GaN product targeting?

A: Across voltage range from 40 to 1,200 volts, including automotive and data center applications.

Q: FabRite and gross margin to 40s?

A: Within sight with market recovery as utilization can be matched to recovery and with FabRite actions.

Q: Automotive restocking?

A: Not seen yet due to thin margins at tier one layer.

Q: GaN manufacturing strategy?

A: Partnerships with Innoscience and GlobalFoundry for lateral GaN, with native vertical GaN manufacturing.

Q: Seasonality in Q2?

A: Typically up 3% to 4%.

Q: Automotive vs industrial growth?

A: Industrial rising faster now, but automotive to resume high single-digit growth above SAAR driven by content over multiyear period.

Q: 700 basis points underutilization?

A: Requires approximately 25% higher revenue to dissipate with market recovery.