STM - ON Semiconductor: Strong Q1 Performance As It Doubled Its SiC Market Share

2023-05-03 12:06:55 ET

Summary

• ON Semiconductor Corporation reported Q1 2023 earnings with automotive revenue increasing 38% YoY, consistent with other semiconductor company reports.
• ON Semiconductor doubled its market share in the silicon carbide chip market.
• The company also announced a new $3 billion share repurchase authorization that is worth about 9.0% of the market cap.

ON Semiconductor Corporation ( ON ) aka onsemi reported Q1 FY23 revenue growth of 1% YoY to $1.96 billion, beating the consensus of $1.92 billion. ON expects second-quarter adjusted revenue of $1.975 billion - $2.075 billion, above the consensus of $1.93 billion.

In Q1, automotive and industrial accounted for 79% of total revenue, as compared to 65% in the quarter a year ago.

Automotive revenue increased 38% YoY, it was flat QoQ. In Q2, ON expects to see QoQ growth in our automotive revenue.

onsemi makes power and discrete products used in applications such as sensors, imaging and electric motors. In image sensors, the company has a 40% market share of the market. ON's earnings crushed the street consensus badly. One of the drivers for this is ON's move to silicon carbide ("SiC") for its IGBT power semiconductors for autos.

Automotive Semiconductor Manufacturer Metrics

Table 1 shows semiconductor companies with a large percentage of its total revenues from the automotive sector and listed by descending "Automotive Revenues." Also shown is one-year stock performance of these companies, which coincides with the time period of the semiconductor shortage impacting the automotive industry.

onsemi is in the Top 10 of semiconductor manufacturers, with revenues coming from automotive chips of one form or another.

Of the 10 stocks in this chart, just six have a positive stock growth in the one-year period. Significantly, onsemi's stock price increased 43% in the past year.

Semiconductor content in automobiles is increasing at a CAGR (compound annual growth rate) of 9.6% between 2015 and 2025, as shown in Chart 1, according to The Information Network report entitled " Hot ICs: A Market Analysis of Artificial Intelligence, 5G, Automotive, and Memory Chips ."

Chart 1

SiC

Global automotive OEMs are choosing to partner with On Semi for the superior performance of our end-to-end silicon carbide solutions.

ON's CEO Hassane El-Khoury said in the Q1 earnings call:

"Our accelerating Silicon Carbide manufacturing output exceeded our internal plans and enabled us to nearly double our silicon carbide revenue quarter-over-quarter, and we grew both ADAS and energy infrastructure revenue by approximately 50% year-over-year."

According to The Information Network's report entitled: Power Semiconductors: Markets, Materials and Technologies , and illustrated in Chart 2. STMicroelectronics N.V. ( STM ) has the largest market share, but the real growth in 2022 came from ON, which more than doubled its market share in 2022.

Chart 2

CMOS Image Sensors

Another strong market for ON is in CMOS Image Sensors ((CIS)). The company has 40% market share for the ADAS (Advanced Driver-Assistance Systems) market. In the automotive market, cameras with image sensors are gaining popularity as the number of ADAS/AV features continues to proliferate. These image sensors are used for monitoring blind spots to the front, rear and sides of vehicles, for recording evidence of accidents, and for monitoring driver behavior.

Tied to its automotive business, Q1 revenue for Intelligent Sensing increased 32% YoY. ON introduced its new Hyperlux Family of image sensors to support the transition to eight megapixel devices where ASPs can be up to 2.5 times that of one or two megapixel image sensors. It's traction for image sensors in automotive has proliferated into industrial automation and smart retail applications.

Chart 3 shows ON's share of the CIS in 2022 with a 4.5% share (down from 5.4% in 2018) of the $20 billion market. This chart combines CIS for all applications, including automotive ADAS (9%) and smartphones (13% share).

Chart 3

Investor Takeaway

Table 2 shows 2021 YoY revenue growth of individual auto makers. The greatest growth was exhibited Kia ( KIMTF ) at 22%. U.S. sales for Q1 were up 8.4% on total sales of 3,458,016 new vehicles.

But the real market opportunity for ON are electric vehicles, or EVs. Kelley Blue Book team estimates EV sales in Q1 increased by 44.9% YoY and reached 258,882, a record quarter for the U.S. market, as shown in Table 3.

Tesla, Inc. (TSLA) led the market in Q1. Tesla sales were up 24.6% YoY. Tesla's share of the EV market fell to 62.4%, down slightly from its full-year result in 2022-64.2%-but down significantly from the nearly 79% share Tesla commanded in 2020.

ON Semi makes power and discrete products used in applications such as sensors, imaging and electric motors. In image sensors, the company has a 40% market share of the ADAS market. ON's earnings crushed the street consensus badly. One of the drivers for this is ON's move to silicon carbide ("SiC") for its IGBT power semiconductors for autos.

ON Semiconductor Corporation has strong tailwinds. Importantly, it is a key supplier of ICs for EV automobiles, as evidenced by its strong 38% growth. Solid growth in automobile sectors has been echoed by many semiconductor companies I have written about.

Another strong market for ON is in image sensors, the company has 40% market share for the ADAS market. In the automotive market, cameras with image sensors are gaining popularity as the number of ADAS/AV features continues to proliferate. These image sensors are used for monitoring blind spots to the front, rear and sides of vehicles, for recording evidence of accidents, and for monitoring driver behavior.

ON Semiconductor Corporation raised revenue and earnings guidance for Q2. The company expects revenue and earnings in a range well above the consensus figures, which should result in upward revisions from analysts.

The company also announced a new $3 billion share repurchase authorization that is worth about 9.0% of the ON Semiconductor Corporation market cap going into the release. That is yet another support for this market that will help sustain the rally.

I rate ON Semiconductor Corporation a buy.

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