ON Semiconductor ON has initiated a restructuring plan that will reduce the workforce by 2,400 employees and spend $50-$60 million on employment-related charges. The reduction in workforce is expected to generate savings between $105 million and $115 million annually.

The restructuring plan aims to improve ON’s profitability, which has suffered from declining demand in key end markets (automotive and industrial) amid ongoing inventory digestion. Fourth-quarter 2024 non-GAAP earnings of 95 cents per share declined 24% year over year, with revenues falling 14.7% year over year to $1.72 billion. ON shares have fallen 19.8% year to date, underperforming the Zacks Computer & Technology sector’s 1.6% decline.

ON Stock’s Performance

Image Source: Zacks Investment Research

ON saw Japan sales declining sharply on a sequential basis in fourth-quarter 2024. Although China grew 18% sequentially, an early Chinese New Year and extended shutdown period negatively impacted January electric vehicle deliveries from the top China-based automakers, which is expected to hurt ON’s top-line growth prospects. 

However, the company’s stringent cost management and capacity planning, along with rightsizing the organization, is expected to expand gross and operating margins and generate strong cash flow in the long term. Should investors pile up the ON stock on these promises? Let’s dig deep to find out.

Acquisitions & Rich Partner Base to Aid ON’s Prospects

ON’s long-term prospects are expected to ride on strong growth in silicon carbide, particularly in utility-scale solar and China BEVs, along with increased demand for intelligent sensing solutions and power delivery for AI data centers (revenues up 40% in 2024 over 2023), as well as aerospace and defence (revenues jump 50% in 2024 over 2023). In China, ON expects to gain more market share as the transition to 800-volt batteries continue. 

Acquisitions have also played an important role in expanding ON’s portfolio, particularly in the field of energy-efficient power solutions. The acquisition of Silicon Carbide Junction Field-Effect Transistor (SiC JFET) technology, including the United Silicon Carbide subsidiary from Qorvo QRVO, expands ON’s EliteSiC power portfolio, supporting energy-efficient power supply solutions for AI data centers and accelerating advancements in EV battery disconnects and solid-state circuit breakers.

ON expects JFET to continue to replace the incumbent super junction technologies and PSUs as the need for a smaller footprint, better performance, and lower costs continues to increase. The company expects SiC JFET and SiC MOSFET revenues to continue to grow in 2025. ON Semiconductor expects its expanding footprint in EV battery disconnects and solid-state circuit breakers domain to expand the total addressable market worth $1.3 billion, with a 30% revenue CAGR through 2030.

ON Semiconductor’s rich partner base is a positive. ON’s partnership with BorgWarner expands its collaboration for silicon carbide (SiC) technology, with a $1 billion lifetime value. The partnership involves the integration of ON’s EliteSiC power devices into BorgWarner’s VIPER power modules to enhance EV efficiency and performance. Partnership with Magna involves a long-term supply agreement to integrate ON’s EliteSiC intelligent power solutions into Magna’s eDrive systems, enhancing EV efficiency, range, and production capacity.

ON’s Earnings Estimate Revisions Show Downward Trend

The Zacks Consensus Estimate for first-quarter 2025 earnings is pegged at 54 cents per share, down 35.5% over the past 30 days, suggesting a 41.3% decline over the year-ago quarter’s reported figure. 

The consensus mark for first-quarter 2025 revenues is currently pegged at $1.41 billion, indicating a 24.53% decline over the year-ago quarter’s reported figure.

The Zacks Consensus Estimate for 2025 earnings is pegged at $2.60 per share, down 35.5% over the past 30 days, suggesting a 34.67% decline over 2024’s reported figure. 

The consensus mark for 2025 revenues is currently pegged at $6.17 billion, indicating a 12.92% decline over 2024’s reported figure.

ON’s earnings beat the Zacks Consensus Estimate in three of the trailing four quarters, missing once, with the average surprise being 1.80%.
 

Find the latest EPS estimates and surprises on Zacks Earnings Calendar.

ON Shares Are Overvalued

ON Semiconductor shares are currently overvalued, as suggested by the Value Score of D.

ON shares are trading below the 50-day and 200-day moving averages, indicating a bearish trend.

ON Shares Trade Below 50-Day & 200-Day SMAs

Image Source: Zacks Investment Research

Here’s Why You Should Avoid ON

Apart from the latest downsizing plan, ON plans to rationalize its manufacturing footprint and reduce excess capacity. These factors are expected to lower the company’s fixed cost structure and positively impact profitably in late 2025. The company plans to continue its investments in differentiated high-margin products to support long-term growth. It plans to reduce capital spending and targets a mid-single-digit percentage range in 2025.

Nevertheless, ON is expected to suffer from weak demand in its end markets as visibility remains limited amid growing geopolitical uncertainty. The company expects geopolitical uncertainty across all geographies and the negative impact of tariffs to hurt near-term prospects. 

ON Semiconductor currently carries a Zacks Rank #5 (Strong Sell), which implies that investors should stay away from the stock for the time being. 

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

Qorvo, Inc. (QRVO) : Free Stock Analysis Report

ON Semiconductor Corporation (ON) : Free Stock Analysis Report

This article originally published on Zacks Investment Research (zacks.com).

Zacks Investment Research