ON Semiconductor (ON) Citi’s 2025 Global Technology, Media and Telecommunications Conference summary

Market environment and outlook

• Current environment is characterized by stabilization, not recovery, with the second half of the year expected to outperform the first half, especially in automotive and industrial segments.

• Inventory levels at customers, especially in automotive, are very low, with replenishment cycles delayed due to uncertainty and short lead times.

• Visibility has improved for the near term, with higher backlog entering the quarter and less reliance on in-quarter turns, but long-term visibility remains limited.

• Tariff and geopolitical uncertainties are causing customers to order only as needed, further delaying inventory replenishment and contributing to short lead times.

• Pricing is described as normalized, with no significant changes, and the company continues to exit non-core, price-sensitive business segments.

Operational strategy and restructuring

• Inventory is managed in two buckets: working inventory is stable, while strategic inventory related to fab transitions and silicon carbide ramps will decrease over time.

• Utilization rates are closely matched to revenue forecasts, with improvements expected to flow through to gross margins with a two-quarter lag.

• Restructuring efforts have taken 12% of front-end capacity offline, with more to come, and the shift to higher-value products allows for further capacity reductions.

• Gross margin targets remain in the low 50% range, driven by improved utilization, manufacturing footprint optimization, product mix, and prior fab divestitures.

• Exiting lower-margin and non-core businesses is expected to remove about $300 million in revenue by 2026, with no negative impact on gross margin.

Automotive and end-market trends

• Automotive segment is performing as expected, with share gains in electric vehicles (EVs), plug-in hybrids, and new automotive designs, especially in China.

• Silicon carbide is a key driver of share gains, with penetration increasing globally, and the company is engaged with major Chinese OEMs and Tier 1s.

• EV growth is steady on a multi-year view, with increasing EV share of total vehicle production and rising silicon carbide penetration.

• China is the healthiest geographic market, followed by Europe and North America, with strong relationships across top Chinese OEMs.

• Silicon carbide margins are currently diluted by underutilization, but product margins are strong and expected to improve as utilization increases.