ON Semiconductor Corporation (ON) Earnings & Analysis

Latest quarter

Onsemi reported Q3 FY2026 revenue of $1.72 billion, above the $1.70 billion consensus, and adjusted earnings of $0.90 per share, above the $0.87 consensus. Diluted earnings per share were $0.79, compared with $0.63 a year earlier.

The company’s filing attributed the year-over-year revenue increase to demand in industrial, AI data center and other markets, partly offset by lower automotive sales as supply was redirected. CFO Thad Trent said automotive revenue was $777 million, down 1% year over year, while industrial revenue rose 9% to $467 million. AI data center revenue was $180 million, up 175% from a year earlier.

Gross margin rose to 41.4% from 37.9%; the filing attributed the increase primarily to improved manufacturing utilization and product mix, partly offset by higher input prices. Trent reported $489 million in free cash flow for the quarter.

Revenue and gross margin were within the company’s guidance ranges. CEO Hassane El-Khoury said revenue, non-GAAP gross margin and non-GAAP earnings per share were above their guidance midpoints.

Adjusted EPS is the figure the consensus estimates, not the GAAP EPS above.

What management said on the call

El-Khoury said AI data center demand had grown faster than onsemi anticipated entering the year as new customer programs began shipping. He said industrial demand was improving, particularly in power infrastructure and energy applications, and that some industrial demand was tied to infrastructure serving data centers.

Supply constraints affected particular technologies, El-Khoury said, so onsemi allocated more supply to AI data center and industrial customers in the third quarter and planned to continue doing so in the fourth. He said the company was meeting automotive customers’ end demand but deferring inventory replenishment.

Asked about the automotive decision, El-Khoury described it as “supply-driven, not strategically driven” and said the company had not lost share. He expected replenishment shipments to resume in the first quarter as supply came online. He declined to give a first-quarter revenue guide, while saying some replenishment otherwise would have occurred in the fourth quarter.

On margins, Trent said improvements in factory utilization from earlier quarters would flow through to fourth-quarter results. He also pointed to new-product mix and pricing: onsemi had raised prices in response to input costs, but “we haven’t seen that necessarily fully hit the P&L.” Trent said utilization was expected to increase in 2027 as demand improved.

Trent said onsemi had announced a planned Ferric acquisition for $600 million plus up to $175 million in revenue-milestone earnouts, with closing expected in the fourth quarter subject to conditions. El-Khoury said Ferric’s integrated voltage-regulator technology would extend onsemi’s processor power-delivery capabilities. Asked about acquisition revenue, he declined to quantify it.

Trent said capital spending would support maintenance and additional throughput on constrained lines. He also said the Philippines back-end facility divestiture had closed and the Mountaintop fab divestiture remained on track for the end of 2027.

Guidance

El-Khoury said onsemi now expects approximately $620 million in AI data center revenue in 2026, up 140% year over year; its prior expectation was for revenue to more than double. He reiterated that the company expects revenue from that market to double in 2027, now from the higher base.

El-Khoury raised the 2030 AI data center revenue target by $500 million to more than $3 billion. Trent said full-year 2026 capital expenditure would be approximately 2% of revenue, compared with the company’s earlier expectation of below 5%.