ON's Q1 Suffers From Weak Power Group Sales: Time to Fold the Stock?

ON Semiconductor’s ON first-quarter 2025 Power Solutions Group (PSG) revenues of $645.1 million missed the Zacks Consensus Estimate by 17.93%. PSG revenues fell 26.2% year over year and 20% sequentially, which accounted for 44.6% of sales in the reported quarter.

In first-quarter 2025, ON’s adjusted earnings of 55 cents per share exceeded the Zacks Consensus Estimate by 7.8%. The earnings figure decreased 49.1% year over year.

Net sales reported $1.45 billion, down 22.4% year over year and lagging the Zacks Consensus Estimate by 2.9%.
 

ON Semiconductor Corporation Revenue (TTM)

ON Semiconductor Corporation revenue-ttm | ON Semiconductor Corporation Quote

Click here to check the details of ON Semiconductor’s first-quarter 2025 results.

ON’s Prospects Suffer From Macroeconomic Headwinds

ON Semiconductor suffers from challenging macroeconomic conditions and an uncertain geopolitical environment. However, the company believes current tariff policies will have a minimum direct impact on its business. 

The industrial market remains weak due to higher inventory levels and cautious customer spending. ON Semiconductor expects low single-digit pricing declines in certain parts of its business to hurt growth.

On Semiconductor’s automotive and industrial business suffered from challenging macroeconomic conditions. These businesses accounted for 80% of ON’s revenues in the first quarter of 2025. Automotive revenues were $762 million, which decreased 26% sequentially and 25.1% year over year, driven by weakness in Europe and seasonality in Asia, mainly in China due to the Chinese New Year. Industrial revenues were $400 million, down 4% sequentially and 16% year over year.

Automotive’s first-quarter 2025 revenues missed the Zacks Consensus Estimate by 6.4% while industrial beat the consensus mark by 3.14%.

Restructuring Plan to Expand ON’s Margins

ON Semiconductor has been taking initiatives to expand gross and operating margins and generate free cash flow in the long term. As part of its Fab Right initiative, ON Semiconductor reduced internal fab capacity by 12% through manufacturing realignment that intends to lower its fixed cost structure. These actions are expected to reduce depreciation costs by $22 million annually. Rationalization of the manufacturing footprint is expected to boost gross margin expansion over the long term.

In the first quarter of 2025, ON started a company-wide restructuring, including a reduction of the global workforce by 9% and further reduction of non-manufacturing sites. These are expected to generate roughly $25 million of savings in the second quarter compared with the first quarter, with an additional $5 million per quarter of savings to be realized in the second half of the year. These, along with lower capital spending, are expected to help ON hit its 25% to 30% free cash flow margin for 2025. (Find the latest EPS estimates and surprises on Zacks Earnings Calendar.)

Zacks Rank & Upcoming Earnings to Watch

Currently, ON Semiconductor has a Zacks Rank #4 (Sell), which implies investors should stay away from the stock. 

Chegg CHGG, Baidu BIDU, and Marvell Technology MRVL are some better-ranked stocks in the broader Zacks Computer & Technology sector. Each of the three stocks carries a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Chegg and Baidu are set to report their first-quarter 2025 results on May 12 and May 21, respectively. Marvell Technology is set to report its first-quarter fiscal 2026 results on May 29.

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This article originally published on Zacks Investment Research (zacks.com).

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