ON Semiconductor (ON) Posts Strong Q4 Earnings, Guides Well

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ON SemiconductorON posted fourth-quarter 2016 reported earnings of 26 cents per share that compared favorably with the year-ago earnings of 13 cents as well as third-quarter earnings of 2 cents. Notably, the company exceeded its own revenue and margin guidance for the fourth-quarter of 2016.

Shares of the company have outperformed the Zacks Semiconductor - Analog And Mixed industry over the last one year. While the industry gained 58.9%, the stock appreciated a whopping 112.9% on the back of improved revenues due to the Fairchild deal.


ON Semiconductor reported revenues of $1.261 billion, up 32.6% sequentially and 50.1% year over year. Notably, revenues beat the Zacks Consensus Estimate of $1.216 billion quite comfortably.

Revenue growth in the quarter was driven by strong progress of the Fairchild integration, solid execution of the company's organic business and an improving demand environment for its products.

ON Semiconductor currently has three business units namely - Power Solutions Group or PSG (contributed nearly $0.62 billion), Analog Solutions (contributed nearly $0.469 billion) and Sensor Group (contributed approximately $0.17 billion).

The company's fourth-quarter revenues include a contribution of approximately $0.36 billion from Fairchild Semiconductor whose acquisition was closed on Sep 19, 2016. Overall, the revenue performance of ON Semiconductor's organic business as well as Fairchild improved substantially seasonally. The company's organic business (excluding Fairchild) witnessed a 7% year-over-year increase in the fourth quarter.


Non GAAP gross margin was 35.2%, down 70 basis points (bps) sequentially but up 190 bps year over year. The year-over-year increase was largely driven by strong progress of the Fairchild integration as well as higher-than-expected revenues.

ON Semiconductor incurred operating expenses of $0.29 billion, up 23.6% from the previous quarter and 57.5% from the year-ago quarter.

Non-GAAP operating margin was 12.9%, down 10 bps sequentially and 180 bps year over year.

Balance Sheet

Cash and cash equivalents were $1.03 billion at the end of the fourth quarter, increasing $0.15 billion sequentially and $0.41 billion on a year-over-year basis.

Inventories decreased to $1.03 billion from $1.08 billion in the previous quarter. However, inventories increased $0.28 billion when compared to the year-ago quarter.

At the end of the reported quarter, ON Semiconductor had $3.1 billion in long-term debt, flat sequentially.


ON Semiconductor expects first-quarter 2017 revenues in a range of $1.215 billion to $1.265 billion. The Zacks Consensus Estimate is pegged at $1.19 billion.

Non-GAAP gross margin is expected in the 34% to 36% range, while GAAP gross margin is expected in a range of 33.4% to 34.8%. Operating expenses, on a GAAP basis, are expected within $0.30 billion to $0.33 billion, and within $0.27 billion to $0.28 billion on a non-GAAP basis. The company expects other net income/expense (inclusive of interest expense) to remain within $0.03 billion to $0.04 billion on a non-GAAP basis with a share count of 0.42 billion.

ON Semiconductor Corporation Price, Consensus and EPS Surprise

ON Semiconductor Corporation Price, Consensus and EPS Surprise | ON Semiconductor Corporation Quote


ON Semiconductor has a well-diversified business and an end-market focus that would typically generate relatively steady revenues throughout the year. The company's strong fourth-quarter results are an indication to that end.

The company witnessed continued strength in orders in the reported quarter and expects the momentum to continue in the near-to-mid term based on a solid design-win pipeline.

Though macroeconomic conditions remain weak, the end-market demand trend is favorable due to seasonality.

The Fairchild acquisition is expected to propel On Semiconductor toward a leadership position in the power semiconductor space with a planned focus on smartphone, automotive and industrial end markets.

The company has an attractive product portfolio. Currently, it is streamlining its costs. This in addition to its assets will boost revenues and cash flow.

Zacks Rank & Key Picks

On Semiconductor has a Zacks Rank #4 (Sell).

Some better-ranked stocks in the broader technology space include Applied Optoelectronics, AAOI , sporting a Zacks Rank #1 (Strong Buy) and ARRIS International plc ARRS and HealthStream Inc. HSTM carrying a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank stocks here .

Notably, the consensus estimate for Applied Optoelectronics' current year has improved to 94 cents from 80 cents over the last 30 days.

Similarly, the consensus estimate for ARRIS' current year has improved to $2.56 from $2.51 cents over the last 30 days.

Last but not the least, the consensus estimate for HealthStream's current year has remained stable at 21 cents over the last 90 days.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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