onsemi (ON)

Analog chips maker onsemi (NASDAQ:ON) reported Q3 CY2025 results exceeding the market’s revenue expectations, but sales fell by 12% year on year to $1.55 billion. The company expects next quarter’s revenue to be around $1.53 billion, close to analysts’ estimates. Its non-GAAP profit of $0.63 per share was 6.6% above analysts’ consensus estimates.

Company Overview

Spun out of Motorola in 1999 and built through a series of acquisitions, onsemi (NASDAQ:ON) is a global provider of analog chips specializing in autos, industrial applications, and power management in cloud data centers.

onsemi’s peers and competitors include Analog Devices (NASDAQ:ADI), Texas Instruments (NASDAQ:TXN), Skyworks (NASDAQ:SWKS), Infineon (XTRA:IFX), NXP Semiconductors NV (NASDAQ:NXPI), Monolithic Power Systems (NASDAQ:MPWR), Marvell Technology (NASDAQ:MRVL), and Microchip (NASDAQ:MCHP).

Longer manufacturing duration allows analog chip makers to generate greater efficiencies, leading to structurally higher gross margins than their fabless digital peers. The downside of vertical integration is that cyclicality can be more pronounced for analog chipmakers, as capacity utilization upsides work in reverse during down periods. Read More. The semiconductor industry is broadly divided into analog and digital semiconductors. Digital chips are what most people think of as the brains of almost every electronic device. Their primary purpose is to either store (memory chips) or process (CPUs/GPUs) data. By comparison, analog chips regulate real world signals, such as temperature, speed, sound, or electrical current, converting them into a stream of digital data that can be processed by digital semiconductors. Analog semiconductors are also used to manage power in any electronic device; they convert, store and distribute the electrical energy that comes from a battery or wall plug. Analog chips are found everywhere from household appliances like refrigerators or washing machines, to smartphones, cars and factory production lines.

A company’s long-term sales performance can indicate its overall quality. Any business can have short-term success, but a top-tier one grows for years. Regrettably, onsemi’s sales grew at a mediocre 3.5% compounded annual growth rate over the last five years. This was below our standard for the semiconductor sector and is a rough starting point for our analysis. Semiconductors are a cyclical industry, and long-term investors should be prepared for periods of high growth followed by periods of revenue contractions.

We at StockStory place the most emphasis on long-term growth, but within semiconductors, a half-decade historical view may miss new demand cycles or industry trends like AI. onsemi’s performance shows it grew in the past but relinquished its gains over the last two years, as its revenue fell by 13.9% annually.

This quarter, onsemi’s revenue fell by 12% year on year to $1.55 billion but beat Wall Street’s estimates by 2.2%. Despite the beat, the drop in sales could mean that the current downcycle is deepening. Company management is currently guiding for a 11.2% year-on-year decline in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to remain flat over the next 12 months. While this projection indicates its newer products and services will fuel better top-line performance, it is still below average for the sector.

Days Inventory Outstanding (DIO) is an important metric for chipmakers, as it reflects a business’ capital intensity and the cyclical nature of semiconductor supply and demand. In a tight supply environment, inventories tend to be stable, allowing chipmakers to exert pricing power. Steadily increasing DIO can be a warning sign that demand is weak, and if inventories continue to rise, the company may have to downsize production.

This quarter, onsemi’s DIO came in at 193, which is 33 days above its five-year average. These numbers suggest that despite the recent decrease, the company’s inventory levels are higher than what we’ve seen in the past.

In the semiconductor industry, a company’s gross profit margin is a critical metric to track because it sheds light on its pricing power, complexity of products, and ability to procure raw materials, equipment, and labor.

onsemi’s gross margin is well below other semiconductor companies, indicating a lack of pricing power and a competitive market. As you can see below, it averaged a 41.2% gross margin over the last two years. Said differently, onsemi had to pay a chunky $58.79 to its suppliers for every $100 in revenue.

onsemi produced a 37.9% gross profit margin in Q3, marking a 7.5 percentage point decrease from 45.4% in the same quarter last year. onsemi’s full-year margin has also been trending down over the past 12 months, decreasing by 10 percentage points. If this move continues, it could suggest deteriorating pricing power and higher input costs (such as raw materials and manufacturing expenses).

Operating margin is one of the best measures of profitability because it tells us how much money a company takes home after procuring and manufacturing its products, marketing and selling those products, and most importantly, keeping them relevant through research and development.

onsemi has done a decent job managing its cost base over the last two years. The company has produced an average operating margin of 16.7%, higher than the broader semiconductor sector.

Looking at the trend in its profitability, onsemi’s operating margin decreased by 10.7 percentage points over the last five years. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability.

This quarter, onsemi generated an operating margin profit margin of 17%, down 8.2 percentage points year on year. Since onsemi’s operating margin decreased more than its gross margin, we can assume it was less efficient because expenses such as marketing, R&D, and administrative overhead increased.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

onsemi’s EPS grew at a remarkable 27.5% compounded annual growth rate over the last five years, higher than its 3.5% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.

We can take a deeper look into onsemi’s earnings quality to better understand the drivers of its performance. A five-year view shows that onsemi has repurchased its stock, shrinking its share count by 2.5%. This tells us its EPS outperformed its revenue not because of increased operational efficiency but financial engineering, as buybacks boost per share earnings.

In Q3, onsemi reported adjusted EPS of $0.63, down from $0.99 in the same quarter last year. Despite falling year on year, this print beat analysts’ estimates by 6.6%. Over the next 12 months, Wall Street expects onsemi’s full-year EPS of $2.66 to grow 1.8%.

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

onsemi has shown decent cash profitability, giving it some flexibility to reinvest or return capital to investors. The company’s free cash flow margin averaged 17.4% over the last two years, slightly better than the broader semiconductor sector.

Taking a step back, we can see that onsemi’s margin expanded by 3.5 percentage points over the last five years. This shows the company is heading in the right direction, and we can see it became a less capital-intensive business because its free cash flow profitability rose while its operating profitability fell.

onsemi’s free cash flow clocked in at $372.4 million in Q3, equivalent to a 24% margin. This result was good as its margin was 6.8 percentage points higher than in the same quarter last year, building on its favorable historical trend.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

onsemi’s management team makes decent investment decisions and generates value for shareholders. Its five-year average ROIC was 18.3%, slightly better than typical semiconductor business.

onsemi reported $2.87 billion of cash and $3.35 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $1.91 billion of EBITDA over the last 12 months, we view onsemi’s 0.3× net-debt-to-EBITDA ratio as safe. We also see its $42.9 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

We enjoyed seeing onsemi beat analysts’ adjusted operating income expectations this quarter. We were also glad its EPS outperformed Wall Street’s estimates. Zooming out, we think this quarter featured some important positives. The stock traded up 4.3% to $52.17 immediately after reporting.

Updated: December 4, 2025 at 9:28 PM EST

The latest quarterly earnings matters, sure, but we actually think longer-term fundamentals and valuation matter more. Investors should consider all these pieces before deciding whether or not to invest in onsemi.

onsemi isn’t a terrible business, but it doesn’t pass our bar. To begin with, its revenue growth was mediocre over the last five years, and analysts expect its demand to deteriorate over the next 12 months. And while its spectacular EPS growth over the last five years shows its profits are trickling down to shareholders, the downside is its projected EPS for the next year is lacking. On top of that, its gross margins are lower than its semiconductor peers.

onsemi’s P/E ratio based on the next 12 months is 21.1x. Investors with a higher risk tolerance might like the company, but we think the potential downside is too great. We're fairly confident there are better investments elsewhere.

Wall Street analysts have a consensus one-year price target of $58.70 on the company (compared to the current share price of $54.73).