On Semiconductor ( NASDAQ: ON ) shares dipped on Friday even as investment firm Susquehanna noted the growing speculation about a "long-term" deal with Tesla ( NASDAQ: TSLA ) to provide silicon carbide.
Analyst Christopher Rolland highlighted a report from Seoul Economic Daily that provided new details on a potential deal between On Semiconductor ( ON ) and Tesla ( TSLA ), noting that an old plant in Bucheon, South Korea may have been selected as a new location to produce silicon carbide, or SiC, products from Tesla's ( TSLA ) inverters, which are currently supplied by STMicroelectronics ( STM ).
"While ON has previously highlighted a $1 billion annual run rate for SiC starting in 2024, this win would add credence to that expectation," Rolland wrote in a note to clients, adding that Wall Street is estimating less than $500M in incremental revenue year-over-year in 2024.
On Semiconductor ( ON ) shares fell slightly less than 1.5% to $51.37 in premarket trading.
If On Semiconductor ( ON ) were to generate $1B in SiC-related revenue, it could be worth an additional $1 per share in earnings for the company, Rolland explained, even if has to share silicon carbide production for Tesla ( TSLA ) vehicles with another company.
Holland added that On Semiconductor ( ON ) is transitioning itself from a commodity power management provider to a "value-add supplier" for high-growth markets such as automotive, industrial, 5G and servers and could actually make some strategic deals to accelerate the switch.
"New higher-margin products and improved execution by this management team should lead to multiple opportunities for organic growth and multiple expansion... driving a multiple re-rating for this traditionally inexpensive name," Holland added.
Last month, Morgan Stanley listed On Semiconductor ( ON ) as one of the companies with the most revenue coming from China as the country emerges from its COVID-related lockdowns .
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ON Semiconductor dips even as Susquehanna highlights speculation about Tesla deal