Why Are ON Semiconductor (ON) Shares Soaring Today
What Happened:
Shares of analog chips maker ON Semiconductor (NASDAQ:ON) jumped 8.7% in the morning session after the company reported fourth-quarter results, with revenue and EPS exceeding analysts' expectations. Management cited "record automotive revenue and 4x year-over-year growth in silicon carbide revenue."
During the Q3'2023 earnings call, the company highlighted the potential in the silicon carbide business, where it commands more than 25% market share and expected to deliver a 4x increase in revenue from FY'22, which was achieved this quarter. In addition, it expected growth in the silicon carbide business to double market growth in 2024.
On the other hand, its revenue guidance for the next quarter missed analysts' expectations, and its inventory levels increased amid "uncertain market conditions." Overall, this was a mixed quarter for ON Semiconductor, but the market is likely relieved that the results were not worse, considering some of the weaker semis prints thus far this earnings season.
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What is the market telling us:
ON Semiconductor's shares are quite volatile and over the last year have had 8 moves greater than 5%. In context of that, today's move is indicating the market considers this news meaningful but not something that would fundamentally change its perception of the business.
The biggest move we wrote about over the last year was 3 months ago, when the stock dropped 6.6% on the news that the company reported third quarter results, with revenue and EPS guidance for the next quarter coming below Wall Street's expectations, amid "market softness." Gross and operating margins declined year on year while inventory levels rose slightly. It is worth mentioning that ON Semiconductor guided for near-term headwinds to margins at the beginning of the year (FY 2023) due to the expansion of its silicon carbide operation and its East Fishkill fab. This cautious guidance implies that the market may be uncertain about the duration of these challenges, although management emphasized their ongoing efforts to enhance efficiency, especially in the silicon carbide division. On the other hand, revenue and earnings per share exceeded analysts' expectations during the quarter. Overall, the results were mixed, with the guidance likely a cause for concern.
ON Semiconductor is down 5.4% since the beginning of the year, and at $77.06 per share it is trading 28.7% below its 52-week high of $108.09 from July 2023. Investors who bought $1,000 worth of ON Semiconductor's shares 5 years ago would now be looking at an investment worth $3,521.
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