ON Q1 Earnings Call: Auto Weakness, Industrial Stabilization, and Cost Actions Shape Outlook

Analog chips maker onsemi (NASDAQ:ON) reported Q1 CY2025 results beating Wall Street’s revenue expectations, but sales fell by 22.4% year on year to $1.45 billion. The company expects next quarter’s revenue to be around $1.45 billion, close to analysts’ estimates. Its non-GAAP profit of $0.55 per share was 9.6% above analysts’ consensus estimates.

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StockStory’s Take

onsemi’s first quarter results reflected a continued downturn in automotive demand, especially outside China, and persistent inventory adjustments across its customer base. CEO Hassane El-Khoury cited challenges in the automotive segment, where revenue fell 26% sequentially, but noted that parts of the industrial market began showing early signs of stabilization. The company’s efforts to streamline manufacturing and defend market share through selective pricing were key themes in the quarter, alongside ongoing investments in R&D and operational restructuring.

Looking ahead, management maintained a cautious tone, attributing second quarter guidance to ongoing uncertainty in end markets and a strategic focus on operational discipline. El-Khoury emphasized that the company’s diversified manufacturing footprint and flexible supply chain are positioning it to manage tariff risks, while CFO Thad Trent highlighted continued cost control and a focus on free cash flow generation. Management expects gross margin improvement to be driven by utilization gains and structural cost reductions as the market recovers.

Key Insights from Management’s Remarks

onsemi’s management zeroed in on operational efficiency and product differentiation as central to navigating the ongoing semiconductor downturn. While automotive demand remained subdued, management pointed to areas of relative strength and strategic wins outside this segment.

• Automotive Segment Headwinds: Automotive revenue dropped due to weaker demand outside China and seasonality in Asia, though management noted that new electric vehicle (EV) launches in China could bolster results in late 2025.
• Industrial Market Recovery: Certain industrial sub-segments, such as medical and aerospace, saw sequential growth, and traditional industrial is beginning to recover after early weakness through the downturn.
• Operational Restructuring: The company executed a 12% reduction in internal manufacturing capacity and a 9% global workforce reduction, moves expected to yield significant cost savings and long-term margin leverage.
• Strategic Pricing Approach: Management is selectively using pricing to defend or expand share in targeted forward-looking programs, while accepting low single-digit pricing declines in less strategic areas.
• Product and Technology Advancements: New wins in silicon carbide (SiC) devices for plug-in hybrid and battery electric vehicles, and progress in AI data center power solutions, are expected to support future growth and margin expansion.

Drivers of Future Performance

Management’s outlook for the coming quarters is shaped by expectations of gradual end-market recovery, a continued emphasis on operational discipline, and a focus on technology-driven growth areas.

• Market Recovery Pace: The timing and strength of recovery in automotive and industrial end markets will be crucial, with China’s EV market expected to drive near-term growth and traditional industrial showing early stabilization.
• Margin Expansion Potential: Gross margin improvement is expected to be driven by higher manufacturing utilization and the benefits of recent cost reduction actions, though under-absorption and pricing pressures remain near-term headwinds.
• Tariff and Geopolitical Risks: Management is monitoring the impact of tariffs and geopolitical developments, leveraging a flexible and geographically diverse manufacturing network to mitigate supply chain risks.

Top Analyst Questions

• Ross Seymore (Deutsche Bank): Asked if there are structural reasons for onsemi’s guidance lagging peers’ sequential growth. El-Khoury explained it reflects the company’s higher exposure to automotive, especially EVs, which have not yet recovered outside China.
• Vivek Arya (Bank of America): Pressed on the shift to using pricing as a tool and its impact on revenue. Management clarified that pricing actions are opportunistic and focused on defending or gaining share in strategic programs, not broad-based discounting.
• Chris Danely (Citi): Queried the status of the planned exit from $350–400 million of non-core business. Leadership reiterated the plan to exit remains, but timing will depend on market conditions and ability to maintain margins.
• Joshua Buchalter (TD Cowen): Sought clarity on whether recent demand trends were inventory-driven or reflected true end-market weakness. Management stated results matched expectations, with some early signs of stabilization in traditional industrial.
• Gary Mobley (Loop Capital): Asked about silicon carbide market share in China and pricing dynamics. El-Khoury said onsemi’s share is growing and wins are driven by product capabilities rather than price concessions.

Catalysts in Upcoming Quarters

In the next few quarters, our analysts will be watching (1) the pace of recovery in automotive demand, particularly in China’s electric vehicle market; (2) sustained improvement in traditional industrial segments that are beginning to stabilize; and (3) the effect of ongoing operational changes on gross margin and free cash flow. Additional attention will be paid to how management navigates tariff-related risks and executes on new product ramps in silicon carbide and AI data center solutions.

onsemi currently trades at a forward P/E ratio of 16.4×. Is the company at an inflection point that warrants a buy or sell? The answer lies in our free research report.

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