ON Semiconductor (ON): Navigating Tariffs, Automotive Slowdown, and SiC Opportunities#
Shares of ON Semiconductor Corporation (ON) took a hit, plummeting -8.92% to $31.95, a stark contrast to its previous close of $35.08. This drop reflects growing anxieties surrounding potential tariffs, slumping automotive sales, and the ever-present threat of silicon carbide (SiC) commoditization, creating a volatile environment for investors. The company's response includes a significant restructuring plan aimed at streamlining operations and freeing up capital, while also doubling down on strategic opportunities within the burgeoning SiC market.
The confluence of these factors paints a complex picture for ON, requiring a careful assessment of both the challenges and potential pathways to future growth.
ON Semiconductor Faces Tariff Headwinds#
The looming threat of tariffs, particularly the proposed 32% tariff on goods from Taiwan, casts a long shadow over the semiconductor industry and ON. These tariffs are projected to inflate the cost of goods sold (COGS) for semiconductor manufacturers, potentially eroding profit margins. Industry analysis suggests tariffs could trigger a +7% surge in COGS across the technology hardware sector, creating a substantial challenge for ON given its reliance on a globalized supply chain Smartkarma.
The ripple effects of these tariffs extend beyond immediate cost increases. Companies reliant on semiconductor imports, including giants like Apple, NVIDIA, and Tesla, could face escalating production costs, potentially leading to reduced profitability or higher prices for consumers. A +10% increase in COGS stemming from tariffs could potentially wipe out the entire operating income of PC and server vendors, underscoring the systemic risks across the technology landscape AlixPartners.
To navigate these tariff headwinds, ON is likely exploring a multifaceted approach, including supply chain diversification, tariff exemption applications, and product redesigns to utilize components sourced from tariff-free regions. Some companies are even establishing dedicated 'tariff war rooms' to safeguard current operating margins, aiming to mitigate 40-80% of tariff impacts on COGS through operational adjustments Grant Thornton.
Effective tariff mitigation strategies encompass supply chain adjustments, financial restructuring, and lobbying for exclusions Grant Thornton. While diversifying the supply chain can be complex and costly, it is crucial for ensuring long-term resilience. Financial restructuring might involve renegotiating supplier contracts or adjusting pricing strategies to absorb some tariff costs. Lobbying efforts could focus on advocating for tariff relief or exemptions for specific components or products.
Automotive Slowdown: Adapting to Market Shifts#
ON is also grappling with headwinds stemming from a slowdown in automotive sales, a significant challenge given the company's substantial exposure to this sector. This slowdown, compounded by broader industry volatility, has clouded the company's near-term outlook. The automotive industry's inherent difficulty in accurately forecasting semiconductor demand, as highlighted by McKinsey, further complicates matters McKinsey & Company.
In response to these challenges, ON has initiated a restructuring plan that includes reducing its global workforce by approximately 2,400 employees. This plan is designed to align spending with current business trends and streamline operations. While workforce reductions are a difficult decision, they are often necessary to improve efficiency and maintain competitiveness in a challenging market environment.
The restructuring plan is projected to yield annual savings ranging from $105 million to $115 million. These savings are expected to partially offset the impact of declining automotive sales and bolster the company's overall profitability. However, the effectiveness of these measures in the near term (2-4 quarters) remains uncertain.
Analysts have voiced concerns regarding ON's utilization rate and market share, leading to price target reductions. For instance, Baird analyst Tristan Gerra lowered the price target to $48, citing a significant drop in the company's utilization rate Investing.com. This suggests that the market remains skeptical about ON's ability to overcome its current challenges.
Silicon Carbide (SiC) Market: Opportunities and Risks#
The silicon carbide (SiC) market presents a substantial growth opportunity for ON. SiC semiconductors are increasingly being adopted in electric vehicles, solar inverters, industrial motor drives, and power supplies due to their superior performance and energy efficiency. The global silicon carbide semiconductor market is projected to reach approximately USD 14.20 billion by 2032, exhibiting a CAGR of roughly +22.50% between 2024 and 2032 Zion Market Research. Another report estimates the SiC power semiconductors market will reach US$ 11.7 billion by 2035, advancing at a CAGR of +19.0% from 2025 to 2035 TMRGL86467.
Automotive applications dominate the SiC market, accounting for 70% of the power SiC market in 2022 Yole Group. This aligns well with ON's strategic focus on the automotive sector. The increasing demand for green technologies and energy-efficient products is driving the adoption of SiC MOSFETs, further fueling market growth.
However, the SiC market faces the risk of commoditization. Significant improvements in wafer yield levels by SiC suppliers, potentially reaching an average of 60% in 2027, could lead to commoditization, resulting in price pressures and reduced profitability. This is a key concern for ON and other SiC manufacturers.
To mitigate this risk, ON needs to prioritize technological innovation, application-specific solutions, and strong customer relationships. Investing in research and development to create differentiated SiC products is crucial. Building strong relationships with key customers and partners is also essential for maintaining market share and securing long-term supply agreements.
ON Stock Analysis: Potential for Rebound?#
ON's stock has experienced a significant decline, with a year-to-date decrease of -49.33%. As of April 9, 2025, the stock price stands at $31.95, representing a drop of -8.92%. This decline reflects concerns regarding tariff impacts, automotive sales slowdown, and potential SiC commoditization. Despite these challenges, some technical indicators suggest a potential for a rebound.
The stock's Relative Strength Index (RSI) of 21.87 suggests that it may be oversold, potentially setting the stage for a rebound. An oversold RSI typically indicates that the stock has been oversold and is due for a correction. Additionally, the analyst average target price is $60.37, implying a potential upside of +34.05% from its current level MarketBeat. However, investors should exercise caution, as KeyBanc recently cut the price target to $55 from $60, citing weakening demand trends Smartkarma.
Inventory Turnover: A Comparative Analysis#
Inventory turnover is a critical metric for evaluating a company's operational efficiency and working capital management. ON's inventory turnover ratio has been declining, raising concerns about its inventory management practices. In the fourth quarter of 2024, ON's inventory turnover ratio sequentially decreased to 1.75 CSIMarket. This indicates that ON is taking longer to sell its inventory compared to previous periods.
ON's average inventory processing period in the Dec 31 2024 quarter has increased to 209 days, from 199 days in the Sep 27 2024 quarter CSIMarket. This further underscores the challenges in inventory management. A longer inventory processing period ties up working capital and increases the risk of obsolescence.
Compared to some of its competitors, ON's inventory turnover ratio appears relatively low. Taiwan Semiconductor Manufacturing (TSMC), for example, has a higher inventory turnover ratio that has fluctuated between 4.2x and 5.7x over the past 5 years GuruFocus. This suggests that TSMC is more efficient in managing its inventory and converting it into sales. The semiconductors industry has a wide range of inventory turnover, indicating a high average of 9.1, a low average of 1.98 and -58.1 in Q1 2025 CSIMarket.
A low inventory turnover ratio can have significant implications for ON's working capital. It means that more capital is tied up in inventory, reducing the company's financial flexibility. Inefficient inventory management can also lead to higher storage costs, obsolescence, and reduced profitability. Therefore, improving inventory turnover is a key priority for ON.
ON Semiconductor's Hyperlux ID Family#
ON Semiconductor's Hyperlux ID family represents a significant advancement in depth-sensing technology. This innovative solution addresses LiDAR challenges by providing high-precision, long-distance measurements and 3D imaging of fast-moving objects in real-time. The Hyperlux ID family utilizes ON Semiconductor's new proprietary global shutter pixel architecture and on-board storage to capture an entire scene and simultaneously process depth measurement in real-time.
Financial Overview#
| Metric | 2021 | 2022 | 2023 | 2024 |
|---|---|---|---|---|
| Revenue (USD Billions) | 6.74 | 8.33 | 8.25 | 7.08 |
| Gross Profit (USD Billions) | 2.71 | 4.08 | 3.88 | 3.22 |
| Net Income (USD Billions) | 1.01 | 1.90 | 2.18 | 1.57 |
| Research & Development (USD Millions) | 655.0 | 600.2 | 577.3 | 612.7 |
| Financial Health Metric | TTM Value |
|---|---|
| Current Ratio | 5.06x |
| Debt-to-Equity Ratio | 0.38x |
| Total Debt to EBITDA | 0.26x |
Key Takeaways and Strategic Implications#
ON Semiconductor Corporation (ON) is currently navigating a complex landscape characterized by tariff uncertainties, an automotive market slowdown, and the looming threat of SiC commoditization. While the company's restructuring efforts and strategic focus on the SiC market offer potential pathways to future growth, investors should remain cautious due to industry volatility and inventory management concerns.
Key Considerations for Investors:
- Tariff Impact: Monitor the impact of tariffs on ON's cost of goods sold and profit margins.
- Automotive Market: Assess the company's ability to adapt to the automotive market slowdown and maintain market share.
- SiC Market: Evaluate ON's strategy for mitigating the risk of SiC commoditization and capitalizing on growth opportunities.
- Inventory Management: Track ON's progress in improving inventory turnover and working capital management.
By carefully considering these factors, investors can make informed decisions about ON's potential for long-term value creation.