Analog chips maker ON Semiconductor (NASDAQ:ON) missed Wall Street’s revenue expectations in Q4 CY2024, with sales falling 14.6% year on year to $1.72 billion. Next quarter’s revenue guidance of $1.4 billion underwhelmed, coming in 16.8% below analysts’ estimates. Its non-GAAP profit of $0.95 per share was 2.4% below analysts’ consensus estimates.
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ON Semiconductor (ON) Q4 CY2024 Highlights:
- Revenue: $1.72 billion vs analyst estimates of $1.76 billion (14.6% year-on-year decline, 1.9% miss)
- Adjusted EPS: $0.95 vs analyst expectations of $0.97 (2.4% miss)
- Adjusted Operating Income: $459.4 million vs analyst estimates of $483 million (26.7% margin, 4.9% miss)
- Revenue Guidance for Q1 CY2025 is $1.4 billion at the midpoint, below analyst estimates of $1.68 billion
- Adjusted EPS guidance for Q1 CY2025 is $0.50 at the midpoint, below analyst estimates of $0.90
- Operating Margin: 23.7%, down from 30.3% in the same quarter last year
- Free Cash Flow Margin: 24.5%, up from 10.9% in the same quarter last year
- Inventory Days Outstanding: 216, up from 212 in the previous quarter
- Market Capitalization: $21.82 billion
“As we continue to navigate this market downturn, our actions over the last four years have proven we are a structurally different company that is well-equipped to navigate prolonged volatility,” said Hassane El-Khoury, president and CEO, onsemi.
Company Overview
Spun out of Motorola in 1999 and built through a series of acquisitions, ON Semiconductor (NASDAQ:ON) is a global provider of analog chips specializing in autos, industrial applications, and power management in cloud data centers.
Analog Semiconductors
Demand for analog chips is generally linked to the overall level of economic growth, as analog chips serve as the building blocks of most electronic goods and equipment. Unlike digital chip designers, analog chip makers tend to produce the majority of their own chips, as analog chip production does not require expensive leading edge nodes. Less dependent on major secular growth drivers, analog product cycles are much longer, often 5-7 years.
Sales Growth
Examining a company’s long-term performance can provide clues about its quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Unfortunately, ON Semiconductor’s 5.1% annualized revenue growth over the last five years was tepid. This fell short of our benchmark for the semiconductor sector and is a poor baseline 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. ON Semiconductor’s history shows it grew in the past but relinquished its gains over the last two years, as its revenue fell by 7.8% annually. 
This quarter, ON Semiconductor missed Wall Street’s estimates and reported a rather uninspiring 14.6% year-on-year revenue decline, generating $1.72 billion of revenue. Company management is currently guiding for a 24.8% year-on-year decline in sales next quarter.
Looking further ahead, sell-side analysts expect revenue to remain flat over the next 12 months. Although this projection suggests its newer products and services will fuel better top-line performance, it is still below average for the sector.
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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, ON Semiconductor’s DIO came in at 216, which is 64 days above its five-year average, suggesting that the company’s inventory has grown to higher levels than we’ve seen in the past.
Key Takeaways from ON Semiconductor’s Q4 Results
We struggled to find many positives in these results as the company's revenue and EPS missed analysts' estimates. Its revenue and EPS guidance for next quarter also fell short of Wall Street’s estimates. The stock traded down 8% to $47.13 immediately following the results.
ON Semiconductor didn’t show it’s best hand this quarter, but does that create an opportunity to buy the stock right now? If you’re making that decision, you should consider the bigger picture of valuation, business qualities, as well as the latest earnings. We cover that in our actionable full research report which you can read here, it’s free.