ON Semiconductor Corporation — Q1 2024 Form 10-Q
Business context and period. onsemi supplies intelligent power and sensing products, primarily for automotive and industrial markets. This unaudited 13-week quarter ended March 29, 2024; the comparable quarter ended March 31, 2023 had 90 days versus 89 days in Q1 2024. The company reports three segments: Power Solutions Group (PSG), Analog & Mixed-Signal Group (AMG), and Intelligent Sensing Group (ISG).
Financial highlights
Amounts are in millions of dollars except per-share data and percentages.
| Metric | Q1 2024 | Q1 2023 | Change |
|---|---|---|---|
| Revenue | $1,862.7 | $1,959.7 | Down 5% |
| Gross profit / margin | $853.6 / 45.8% | $917.5 / 46.8% | Down $63.9 / 1.0 pp |
| Operating income / margin | $525.2 / 28.2% | $564.9 / 28.8% | Down $39.7 |
| Net income attributable to onsemi | $453.0 | $461.7 | Down $8.7 |
| Diluted EPS | $1.04 | $1.03 | Up $0.01 |
| Operating cash flow | $498.7 | $408.9 | Up $89.8 |
| Cash capital expenditures | $222.4 | $321.5 | Down $99.1 |
- Revenue mix: Automotive revenue was $1,017.2, up from $986.0; industrial revenue fell to $476.1 from $556.2; other markets declined to $369.4 from $417.5.
- Segments: PSG revenue increased 2% to $874.2; AMG declined 6% to $697.0; ISG declined 18% to $291.5. Segment gross margins were 41.8%, 48.6%, and 51.3%, respectively.
- Cash and liquidity: Cash and cash equivalents were $2,614.4 at quarter-end, versus $2,483.0 at year-end. Current assets were $6,148.9 and current liabilities $2,139.0. Management reported approximately $1.1 billion available under its revolving credit facility and believes available liquidity is adequate for at least 12 months.
- Debt: Gross debt was $3,379.9, including $375.0 drawn under the revolving facility; net carrying-value debt was $3,338.9 before current maturities. The $794.8 balance of 0% Notes due 2027 is classified as current because share-price conditions give holders a conversion right during the quarter ending June 30, 2024. The company reported compliance with debt covenants.
- Capital returns: onsemi repurchased approximately 1.3 million shares for $100.0 at an average price of about $78.57. Approximately $2.3 billion remained authorized under the $3.0 billion repurchase program. It also settled the remaining warrants related to the 1.625% Notes by issuing 4.0 million shares on a net-share basis.
Material changes and drivers
- Management attributed the overall revenue decline mainly to weaker demand in industrial, consumer, and other markets. Automotive Power revenue grew, supported by the SiC and other automotive power ramp, but declines in AMG and ISG more than offset that growth.
- Gross profit fell primarily because lower existing-product revenue reduced gross profit by approximately $142 million, partly offset by about $45 million from new-product sales. A $34 million manufacturing-cost reallocation related to the EFK foundry business also affected segment comparisons.
- Operating expenses decreased to $328.4 from $352.6, chiefly because restructuring, impairment, and other charges fell to $1.4 from $51.5; Q1 2023 charges related mainly to ASG realignment. R&D rose 8% to $150.0, and general and administrative expense increased 26% to $95.3.
- Interest expense declined to $15.6 from $26.4, while interest income increased to $27.6 from $17.1. These changes helped limit the decline in net income despite lower operating income.
- Operating cash flow improved, which management attributed primarily to working-capital management. Investing cash use declined to $235.3 from $562.0, reflecting lower capital expenditures and the absence of the prior-year EFK acquisition payment. Financing cash use was $130.8.
- Inventory was $2,147.1 at quarter-end, up from $2,111.8 at December 31, 2023.
Outlook, risks, and contingencies
- No revenue or earnings guidance is provided in the supplied filing text. Management expects 2024 capital expenditures to be 10%–12% of revenue for the remainder of the year; Q1 capital expenditures were approximately 12% of revenue.
- Remaining performance obligations under long-term supply agreements were approximately $15.6 billion, excluding contracts with durations of one year or less. The company expects to recognize about 30% over the next 12 months as products ship; actual timing and amounts may vary with demand, supply constraints, contract changes, and other factors.
- Management’s strategy emphasizes profitable revenue, stable gross margin and operating income, growth in automotive and industrial markets, manufacturing efficiency, and disciplined operating and capital spending. It said cash, operating cash flow, and facility availability should cover needs for at least the next 12 months.
- Key risks discussed include changes in demand, pricing pressure, supply-chain and manufacturing-capacity constraints, cost management, capital-market access, and compliance with debt covenants. Management reported no material change to the risk factors in the 2023 Form 10-K.
- A securities class action alleges misleading statements concerning the SiC business; the case is at an early stage, and the company says it will vigorously defend itself. Two related derivative actions remain pending at early stages; two other derivative actions were dismissed without prejudice in April 2024. Management does not believe ordinary-course legal matters are expected to have a material adverse effect, but litigation outcomes are uncertain.
- The filing reports no new restructuring program in Q1 2024 and no goodwill impairment from the segment reorganization. Management concluded disclosure controls were effective and reported no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether industrial, consumer, and sensing demand stabilizes, and whether automotive Power growth continues to offset weakness elsewhere.
- How the SiC business ramp, product mix, and manufacturing costs affect gross margin, particularly PSG’s 41.8% Q1 margin.
- Whether the $15.6 billion of long-term supply agreement obligations converts to shipments and revenue on the expected schedule.
- How holders treat the 0% Notes’ conversion right through June 30, 2024, and any resulting cash or share dilution implications.
- Progress on inventory management, the 2024 capital-spending range, and continued operating cash generation.
- Developments in the SiC-related securities and derivative litigation and any change in the company’s assessment of potential exposure.