ON Semiconductor Corporation ON

Key data

The business

ON Semiconductor sells power and sensing chips. Automakers are the largest buyer group, taking parts that manage battery power in electric vehicles, run onboard chargers, and feed the image sensors behind driver assistance cameras. Industrial is second: factory automation, energy infrastructure, and power delivery inside AI data centers. ON gets paid per chip shipped, so revenue tracks unit demand and its own fab utilization, with no subscription or recurring layer underneath to smooth a downturn.

The engine of the last cycle was silicon carbide, a material that handles high voltage more efficiently than standard silicon and became the standard in EV traction inverters. ON spent $1.54B in 2023 to own that supply chain. Then EV demand slowed, automakers worked down chip inventory, and revenue fell from $8.3B in 2022 to $6.0B in 2025 while gross margin went from 47.1% to 32.3%.

Business read. A fab-heavy cyclical that concentrated into one end market just as that end market corrected.

Things you might not know

FY2025 free cash flow of $1.42B sat against GAAP net income of just $121M. The bridge is $686M of depreciation on fabs already built and paid for. Cash earnings can look healthy for years while reported profit sits near zero, which is exactly what the trough of a capital-intensive business produces.

Inventory was $2,047.5M at the June quarter end against quarterly cost of revenue of $987.2M, roughly 189 days on hand and turnover of 1.89x. Product built ahead of orders is either the recovery arriving or the recovery being assumed, and days on hand is the first number that tells you which one it is.

The 50-day average is $92.77 against a $74.21 price, with the 200-day at $77.10, so most of the 45% drawdown landed inside the last several weeks. Tangible book value is $13.38 a share, real assets rather than goodwill, a floor far below the price but a genuine one.

Fundamentals

Revenue turned in the June quarter, up 9.2% on the year and 6.0% sequentially after eight quarters of decline, with gross margin holding near 38.4%, six points above the 2025 trough and nine below the 2023 peak. The annual columns still carry the damage: margin down 13.1 points, and free cash flow higher only because capital spending fell by half.

Valuation

Peers on the same basis: Texas Instruments, Analog Devices, Microchip Technology, Infineon Technologies, STMicroelectronics.

The source report carried no peer set, and this page does not pull comparison multiples that were not sourced in it, so the peer column is empty by design rather than by oversight. The company column runs on street non-GAAP earnings for the forward multiples and as-reported cash flow for the yield, so the two are not on the same accounting basis as each other.

Management

Compensation

The linchpins

Win big if

Revenue keeps stepping up and gross margin climbs back through 41% as utilization rises on fabs already paid for, which turns the $4.50 of 2027 consensus into an earnings number the market capitalizes at more than 16.5x. First observable proof is the September quarter reported 2026-11-02: consensus $1.7B, another 6.2% sequential step, with gross margin above 38%. Confirming signal is inventory days falling below 160 while revenue grows, which separates real demand from a single restock, alongside capital spending staying under $600M as revenue heads toward the $7.4B consensus.

Surprised down if

The June step was a restock, September revenue lands flat or below $1.6B, and the 189 days of inventory turn out to be product built ahead of orders that never arrived. First observable proof is inventory growing again against flat revenue in that same 2026-11-02 report. Confirming signal is gross margin stuck in the high 30s for four consecutive quarters while revenue grows, which would mean silicon carbide pricing reset permanently, plus capital spending back above $800M in 2027, which roughly halves free cash flow at the same operating performance.

Last word

A 6.1% free cash flow yield is a fine thing to own, right up until the company has to buy another machine.