ON Semiconductors, another reason to turn bullish on microchips

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ON Semiconductors (NASDAQ: ON) provided further confirmation of what we already knew to be true about the semiconductor industry. Dem. overall systemic …

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August 3, 2021

4 minutes to read

This story originally appeared on MarketBeat

ON Semiconductor on the verge of reaching a new high

ON Semiconductors (NASDAQ: enabled) gave further confirmation of what we already knew to be true about the semiconductor industry. Global systemic electronic chip application triggered a secular upward cycle in the microchip industry. ON Semiconductor’s exposure to the automotive OEM market and the computer vision / automation industry makes it a leading choice in the industry. Its position as a US-based manufacturer makes it an easy buy given the growing tensions between the US and China.

Although ON Semiconductors has yet to pay a dividend, the company is experiencing double-digit growth, has a strong balance sheet and is generating record free cash flow with a positive outlook. Based on the results of this company and others within the industry, we expect growth to continue in the second half of the year and exceed analyst consensus.

“We continue to see an acceleration in demand for our products in our strategic automotive and industrial end markets. As we continue to improve the operational efficiency of our manufacturing sites, we expect supply and revenue to increase in the second half of 2021. ”

On Semiconductors had a record quarter

Structural changes within the company and global systemic demand for microchips drove ON Semiconductors second quarter sales to an all-time high. Consolidated net sales of $ 1.67 billion are up 38% from last year, but that’s from a relatively easy mix. Second quarter revenue from last year fell almost 10%, but this loss was more than offset, second quarter revenue is up 13% sequentially and 23% over the past two years, proving that the company’s strategy and positioning are working. The company reports strength in both OEM and industrial end markets as well as double-digit revenue increases in all three operating segments.

Going down in the report, the results become even more interesting. The company reported a significant improvement in adjusted gross margin, which generated a record profit on bottom line. Adjusted gross margin widened 310 basis points sequentially and 750 basis points year-on-year to 38.4%, beating consensus estimates by 200 basis points. This generated record profits as well as record free cash flow and led the company to steer third quarter expectations higher. In the end, GAAP’s $ 0.42 beat $ 0.07 while the adjusted $ 0.63 beat $ 0.14.

Looking ahead, the company expects revenue strength to continue into the third quarter and aims for stable sequential growth at 5.3% at the upper end of the range. This equates to around 26% year-on-year growth in the lower end of the range and is also compounded by positive margin forecasts. The company expects third quarter margins to improve further by 100 basis points or more and another record quarter for adjusted income. We are confident that the company will be at the upper end of the benchmark range, or even exceed it.

Technical outlook: ON Semiconductors is on rupture alert

ON Semiconductor shares are up nearly 10% in pre-market action on strong earnings and a positive outlook. The move has price action very close to setting an all-time high which, if established, will confirm a secular uptrend. Looking at the monthly chart we see a very strong bullish flag about to hit a new high. If that high is set, it will put price targets in the range of $ 60 into play, which would be worth about 50% of the rise from current levels. Whereas most industry professionals see the shortage of electronic chips lingering until 2022, we believe that the bull market for this stock and this market has many ways to work.


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