ON Semiconductor Corporation (onsemi) — 2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023. This is an annual filing; the provided filing text does not give a standalone fourth-quarter income statement or other Q4-only financial results.
Business context
Onsemi designs and manufactures intelligent power and sensing semiconductors, with primary exposure to automotive and industrial markets. Its reportable segments are Power Solutions Group (PSG), Advanced Solutions Group (ASG), and Intelligent Sensing Group (ISG). Automotive represented 52% of 2023 revenue, industrial 28%, and other markets 20%. The company’s strategic focus includes SiC power products, automotive electrification, sensing, and manufacturing efficiency.
Key financial results
| Metric | 2023 | 2022 | Change |
|---|---|---|---|
| Revenue | $8.253 billion | $8.326 billion | Down 0.9% |
| Gross profit / margin | $3.884 billion / 47.1% | $4.077 billion / 49.0% | Gross profit down $193.7 million; margin down 1.9 percentage points |
| Operating income | $2.539 billion | $2.360 billion | Up $178.7 million |
| Net income attributable to onsemi | $2.184 billion | $1.902 billion | Up $281.5 million |
| Diluted EPS | $4.89 | $4.25 | Up $0.64 |
| Cash from operations | $1.978 billion | $2.633 billion | Down $655.6 million |
| Capital expenditures | $1.576 billion | $1.005 billion | Up $570.6 million |
Operating cash flow less reported property, plant and equipment purchases was approximately $401.9 million in 2023, compared with $1.628 billion in 2022. This is a simple calculation from the filing’s cash-flow figures, not a company-defined free-cash-flow measure.
- Segment revenue: PSG $4.449 billion, up 5.7%; ASG $2.489 billion, down 12.4%; ISG $1.316 billion, up 3.0%.
- End-market mix: Automotive revenue was $4.320 billion, up from $3.361 billion; industrial was $2.278 billion, roughly flat; other markets were $1.655 billion, down from $2.675 billion.
- Liquidity: Cash and cash equivalents were $2.483 billion at year-end, versus $2.919 billion a year earlier. The $1.5 billion revolving facility had approximately $1.125 billion available.
- Debt: Gross long-term debt, including current maturities, was $3.380 billion. The $804.9 million principal of the 0% convertible notes was classified as current due to share-price conversion provisions. The company reported compliance with its debt covenants.
- Balance sheet: Total assets were $13.215 billion and total stockholders’ equity was $7.801 billion. Inventory increased to $2.112 billion from $1.617 billion.
Material changes versus 2022
- Revenue edged lower as a 12.4% decline in ASG outweighed growth in PSG and ISG. Management cited planned product exits and weaker computing and consumer demand in ASG.
- Gross margin contracted to 47.1%. Management attributed the decline to lower revenue from existing products and higher EFK start-up and ramp costs, as well as an unfavorable foundry-business impact. New-product sales partly offset these pressures.
- Net income and operating income increased, but the comparison benefited from the absence of $386.8 million of 2022 goodwill and intangible impairment charges associated with the QCS wind-down. The 2022 comparison also included a $67.0 million gain on divestitures.
- Operating cash flow fell, primarily due to higher working-capital needs, including strategic SiC and fab-transition inventory, and payments of 2022 variable compensation. Capital spending rose substantially as the company expanded SiC capacity.
- The company issued $1.5 billion of 0.50% convertible notes due 2029 and used proceeds in part to repay $1.086 billion of term-loan debt. It replaced its prior credit agreement with a $1.5 billion revolver, drew $375 million, and repaid the old revolver balance.
Outlook, management commentary, risks and unusual items
- Management described a semiconductor-industry slowdown and softening demand in 2023. It said it was adjusting manufacturing capacity and spending to align with forecast 2024 demand, while continuing to prioritize automotive and industrial growth initiatives. No specific 2024 revenue or earnings guidance is provided in the filing text.
- Management expects 2024 capital expenditures of 10%–12% of revenue, down from 19% in 2023, as SiC expansion and other investment needs are expected to decrease.
- In 2023, the company notified approximately 1,900 employees of termination as part of business realignment and its “Fab Right” strategy. It recorded $59.1 million of related severance and benefits charges; approximately 1,600 employees had exited by year-end.
- The company continued to ramp SiC manufacturing at EFK and expand capacity in Hudson, the Czech Republic, and South Korea. Risks include execution, yield, qualification, cost, and demand challenges as capacity grows.
- A putative securities class action filed in December 2023 alleges misleading statements concerning the SiC business; a related derivative action was filed in January 2024. Both were in early stages, and the company stated it believed it had defenses. The filing does not quantify a potential loss.
- Other principal risks include cyclical and macroeconomic demand, concentration in automotive and industrial markets, manufacturing and supplier disruption, inventory obsolescence, tariffs and U.S.–China tensions, foreign-exchange exposure, competition, and debt-service and refinancing needs. Management reported no cybersecurity risk or incident that had materially affected the company as of year-end.
- The company repurchased $564.0 million of shares under its $3.0 billion program in 2023 and had $2.436 billion remaining authorization at year-end. It has not paid cash dividends on common stock.
Important facts for investors to verify
- Whether 2024 demand and the anticipated 10%–12% capital-expenditure ratio support the company’s production plans and SiC investment returns.
- Whether inventory growth, particularly strategic SiC and work-in-process inventory, converts into sales without material excess or obsolescence charges.
- Whether EFK ramp costs and foundry-business pressures ease, and whether gross margins recover after the 2023 decline.
- The terms, conversion triggers, potential dilution, and cash requirements of the $804.9 million 0% notes classified as current, alongside the remaining convertible notes and warrants.
- Developments in the SiC-related securities and derivative litigation, including any estimate of exposure if one becomes available.
- The complete audited statements and notes for additional detail on legal contingencies, purchase commitments, government incentives, and the assumptions underlying inventory valuation. PwC issued unqualified opinions on the financial statements and internal control; inventory valuation was identified as a critical audit matter.