Onsemi reported a decline in performance for the past quarter, attributing the downturn to short-term economic headwinds. Despite these challenges, the company remains confident in its leadership in the Silicon Carbide (SiC) market and is anticipating increased SiC adoption within the AI data center sector.
Onsemi announced its financial results for the second quarter. Revenue for the period totaled US$1.74 billion, a 17% year-on-year decline. Adjusted gross margin contracted to 45.3% from 47.4% in the prior year. Adjusted operating margin slipped from 32.8% to 27.5%.
Onsemi's Power Solutions segment experienced the steepest drop, with revenue falling 25% year-over-year to US$835.2 million. The Analog Solutions Group saw a slight decline of 0.3% to US$647.8 million. The Intelligent Sensing Group also reported a decrease, with revenue down 22% to US$252.2 million.
"We remain dedicated to driving growth through market share gains, doubling down on investments in strategic markets, and expanding the breadth of our portfolio of industry-leading products with analog and mixed-signal solutions," said Hassane El-Khoury, president and CEO of Onsemi.
"As reflected by our recent supply agreement with Volkswagen Group, we continue to strengthen our SiC leadership position in automotive as we ramp production with leading global OEMs in Europe, North America, and China."
Onsemi CFO Thad Trend said the revenue of US$1.74 billion exceeded the midpoint of its guidance despite a 17% year-over-year decline, primarily due to the ongoing inventory adjustments in the automotive and industrial sectors, which account for nearly 80% of its business.
El-Khoury said Onsemi did not see a change in the L-shaped curve but expects part of the industrial sector to recover in the second half, adding that Asia-Pacific, particularly in China, is recovering, driven by both automotive and industrial.
Guidance
As for the financial guidance, Onsemi expects revenue to be between US$1.70 billion and US$1.80 billion. Adjusted gross margin is projected to be 44.4-46.4%. Onsemi anticipates capex ranging from US$130 million to US$170 million for the quarter.
According to Bloomberg, KeyBanc Capital Markets described the results as strong, with revenue marginally exceeding expectations. The report quoted Truist Securities analyst William Stein pointing to the industrial and "other" market segments as the primary drivers of the upside surprise.
SiC leadership
According to El-Khoury, Onsemi is a dominant player in the SiC market, particularly in China, where it supplies nearly 60% of BEV models. Onsemi's focus on high-efficiency modules and devices, like the M3e, has driven strong adoption by Chinese OEMs transitioning to 800V platforms.
El-Khoury further said Onsemi remains on track to outgrow the SiC market growth by 2x in 2024 through geographic and market diversification, driven by a significant increase in unit shipments compared to BEV unit growth.
El-Houry said China is a key market for Onsemi's SiC business, with a market share exceeding 60%. While Onsemi expects growth in other regions, such as Europe, in the second half of the year, China remains a significant driver of its SiC revenue.
SiC in AI data centers
According to El-Khoury, Onsemi sees significant growth potential in the data center and AI market. By leveraging its silicon and SiC technologies, Onsemi aims to address the entire power supply chain. As data center power consumption surges, Onsemi expects a substantial increase in its addressable market, from US$2,500 to US$9,500 per rack by 2025.
Onsemi has previously indicated that the overall data center market is expected to grow at a 22% compound annual growth rate over multiple years, and they anticipate even higher growth rates with the acceleration of AI. Still, Onsemi focuses on design wins and product development before providing a more detailed opportunity breakdown.
Onsemi financial results (US$m) | ||||||
Financial | 2Q23 | 3Q23 | 4Q23 | 1Q24 | 2Q24 | YoY for 2Q24 (%) |
Sales | 2,094 | 2,181 | 2,018 | 1,863 | 1,735 | -17.15 |
Profit | 993 | 1,031 | 942 | 854 | 784 | -21.08 |
Operating income | 675 | 687 | 612 | 525 | 389 | -42.42 |
Profit | 577 | 583 | 563 | 453 | 338 | -41.35 |
Source: Onsemi, July 2024
Onsemi sales by group (US$m) | ||||||
Group | 2Q23 | 3Q23 | 4Q23 | 1Q24 | 2Q24 | YoY for 2Q24 (%) |
PSG | 978 | 1,077 | 966 | 874 | 835 | -14.56 |
AMG | 792 | 776 | 745 | 697 | 648 | -18.2 |
ISG | 325 | 329 | 308 | 292 | 252 | -22.4 |
Source: Onsemi, July 2024
Onsemi sales by end market (US$m) | ||||||
End market | 2Q23 | 3Q23 | 4Q23 | 1Q24 | 2Q24 | YoY for 2Q24 (%) |
Automotive | 1,062 | 1,158 | 1,120 | 1,017 | 907 | -14.59 |
Industrial | 609 | 616 | 485 | 476 | 468 | -23.19 |
Other | 423 | 407 | 413 | 369 | 360 | -14.86 |
Source: Onsemi, July 2024
