Analog chips maker onsemi (NASDAQ: ON) reported revenue ahead of Wall Street’s expectations in Q1 CY2025, but sales fell by 22.4% year on year to $1.45 billion. Guidance for next quarter’s revenue was optimistic at $1.45 billion at the midpoint, 2.5% above analysts’ estimates. Its non-GAAP profit of $0.55 per share was 9.6% above analysts’ consensus estimates.
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onsemi (ON) Q1 CY2025 Highlights:
- Revenue: $1.45 billion vs analyst estimates of $1.40 billion (22.4% year-on-year decline, 3.1% beat)
- Adjusted EPS: $0.55 vs analyst estimates of $0.50 (9.6% beat)
- Adjusted Operating Income: $264 million vs analyst estimates of $242.5 million (18.3% margin, 8.9% beat)
- Revenue Guidance for Q2 CY2025 is $1.45 billion at the midpoint, above analyst estimates of $1.41 billion
- Adjusted EPS guidance for Q2 CY2025 is $0.53 at the midpoint, above analyst estimates of $0.51
- Operating Margin: -39.7%, down from 28.2% in the same quarter last year
- Free Cash Flow Margin: 31.5%, up from 14.8% in the same quarter last year
- Inventory Days Outstanding: 164, down from 216 in the previous quarter
- Market Capitalization: $17.69 billion
“Our results in the first quarter reflect the disciplined approach we have maintained through this downturn – managing our cost structure, right-sizing our manufacturing footprint, and rationalizing our portfolio – enabling us to generate increased free cash flow. We are committed to long-term value creation and we are accelerating our capital return to shareholders while investing in our future growth,” said Hassane El-Khoury, president and CEO, onsemi.
Company Overview
Spun out of Motorola in 1999 and built through a series of acquisitions, onsemi (NASDAQ: ON) is a global provider of analog chips specializing in autos, industrial applications, and power management in cloud data centers.
Sales Growth
A company’s long-term sales performance is one signal of its overall quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Unfortunately, onsemi’s 4.3% annualized revenue growth over the last five years was sluggish. This fell short of our benchmark for the semiconductor sector and is a rough starting point for our analysis. Semiconductors are a cyclical industry, and long-term investors should be prepared for periods of high growth followed by periods of revenue contractions.
Long-term growth is the most important, but short-term results matter for semiconductors because the rapid pace of technological innovation (Moore's Law) could make yesterday's hit product obsolete today. onsemi’s performance shows it grew in the past but relinquished its gains over the last two years, as its revenue fell by 10.6% annually. 
This quarter, onsemi’s revenue fell by 22.4% year on year to $1.45 billion but beat Wall Street’s estimates by 3.1%. Despite the beat, the drop in sales could mean that the current downcycle is deepening. Company management is currently guiding for a 16.4% year-on-year decline in sales next quarter.
Looking further ahead, sell-side analysts expect revenue to decline by 9.8% over the next 12 months, similar to its two-year rate. This projection doesn't excite us and implies its newer products and services will not lead to better top-line performance yet.
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Product Demand & Outstanding Inventory
Days Inventory Outstanding (DIO) is an important metric for chipmakers, as it reflects a business’ capital intensity and the cyclical nature of semiconductor supply and demand. In a tight supply environment, inventories tend to be stable, allowing chipmakers to exert pricing power. Steadily increasing DIO can be a warning sign that demand is weak, and if inventories continue to rise, the company may have to downsize production.
This quarter, onsemi’s DIO came in at 164, which is 10 days above its five-year average. These numbers suggest that despite the recent decrease, the company’s inventory levels are higher than what we’ve seen in the past.
Key Takeaways from onsemi’s Q1 Results
We were impressed by onsemi’s strong improvement in inventory levels. We were also excited it beat Wall Street’s estimates and outlook expectations across the board. Zooming out, we think this was a good print with some key areas of upside. The stock traded up 3.2% to $43.25 immediately following the results.
onsemi had an encouraging quarter, but one earnings result doesn’t necessarily make the stock a buy. Let’s see if this is a good investment. We think that the latest quarter is only one piece of the longer-term business quality puzzle. Quality, when combined with valuation, can help determine if the stock is a buy. We cover that in our actionable full research report which you can read here, it’s free.
