The News: onsemi announced its first quarter 2024 (Q1 2024) results with the following highlights: revenue of $1,862.7 million; generally accepted accounting principles (GAAP) gross margin and non-GAAP gross margin of 45.8% and 45.9%, respectively; GAAP operating margin and non-GAAP operating margin of 28.2% and 29.0%, respectively; slightly surpassing revenue forecasts but otherwise generally meeting analyst expectations for earnings per share (EPS). The onsemi earnings report is available here.
onsemi Q1 2024 Results Exceed Expectations
Analyst Take: My expectation for the semiconductor industry this year is that quarter-over-quarter (QoQ) growth might feel a bit fickle at times. Several reasons for that. First, artificial intelligence (AI) will continue driving a lot of semiconductor design and demand but not evenly across all segments. The data center segment will likely see more steady numbers, and devices could feel soft well into H2, but automotive semis may initially feel mercurial. Get ready for ups and downs as macroeconomic conditions, supply chain strain, political uncertainty, and consumer anxiety impact EV demand, particularly in the US market. That is QoQ though. Year-over-year (YoY), and more importantly, in the mid- to long-term, my read on semiconductor demand looks like upside almost across the board. Even non-AI-specific chip demand will be uplifted by AI-everywhere, and that includes semiconductors aimed at the automotive market.
Another critical point we feel that needs to be made here is that the core technology segments that drive the automotive sector are not as monolithic as most conversations about the topic would have you think: It is not all about EVs. Yes, EVs are an important technology segment within the automotive tech ecosystem, but software-defined vehicles are equally if not more important, especially when it comes to semiconductor vendors serving the auto industry. ADAS and AD technologies do not necessarily care what kind of drivetrain a vehicle has. In-vehicle connectivity, screens, intelligence, and other features don’t either. In other words, slow EV sales don’t necessarily spell doom for semiconductor vendors so long as new vehicle sales as a whole don’t soften as well. Soft quarters for EV shipments don’t signal doom or gloom for auto semi vendors. Looking at the industry through 2030, we see a healthy growth runway for semiconductors and automotive platforms despite its occasional hiccups.
This brings us to onsemi, with its power semiconductors and sensors, with obvious plays in automotive and industrial markets. The company’s transition to EVs, ADAS/AD, and renewable energy has padded its portfolio with enough diversity to more or less insulate it from the EV market’s inevitable but occasional disappointing quarters in the US. Case in point: “The structural changes we have made to the business over the last three years have enabled us to sustain our gross margin despite challenging market conditions,” said Hassane El-Khoury, president and CEO of onsemi. “In the current environment, we remain focused on execution while investing for our long-term growth. As power continues to play a critical role in the world’s increasing energy demands, efficiency is paramount, and we are positioned to continue to gain share with our portfolio of industry-leading power and sensing technologies.” Decarbonization efforts across most industrial sectors and the transition to EVs are still moving forward at scale. Long runway, this continues to look good for onsemi’s strategy.
Q1 2024’s $1,862.7 million revenue figure represents a slight sequential drop from Q4 2023’s $2,018.1 million and landed roughly on par with last year’s Q1 numbers but beat analyst consensus projections of $1,851.31 million for the quarter. We also note that gross margins for the quarter were slightly down from last year’s 46.7%, but Q1 2024’s margins of 45.8% still look robust and stable. Operating margin also decreased slightly to 28.2% from 28.8% but again, these shifts are not consequential and suggest strong operational discipline and good execution despite evidence of volatility in the semiconductor space.
The buzz among financial analysts seems to be that Q2 numbers for onsemi will continue to soften a bit, and that may well be true if weak EV demand persists into the summer. If that scenario does indeed play out, here is my take: For starters, part of the reason why EV sales seem low right now is that the push made by automakers in H2 2023, including Tesla’s dramatic slashing of prices to maintain its market share and break quarterly sales records, “artificially” inflated EV sales inside of that short window. The “softening” we are feeling QoQ is likely just an adjustment to EV sales that should have been spread out more organically across H2 2023 and H1 of 2024 having been concentrated in H2 2023. Second, consumers still need more EV options at lower price points for the category to start gaining more mainstream traction, particularly in the US. Hopefully, EV OEMs will start introducing more budget-friendly EVs this year that will inject momentum back into the sales cycle. Third, US consumers still have concerns about charging infrastructure, range, serviceability, and resale value, and auto OEMs and their dealer networks will need to address those to lower the risk perception that continues to keep many prospective EV buyers on the fence “a little while longer.”
Regarding onsemi’s other segments, we expect a mixed bag of growth this year. Communication may feel sluggish as capital investments in comms infrastructure upgrades winds down. On the compute side, we anticipate a significant reset for the PC segment starting in H2, but the fruits of that reset may not begin to be felt until Q4, and more likely Q1 and Q2 of 2025. Industrial and LED lighting should see some growth but slow and steady, so we would not expect any major surprises there. Medical, military and aerospace, as well as power applications may show a little more vitality going into H2, but again, we would not expect significant acceleration in Q2. All in all, onsemi is set to have a somewhat slow start to its next multi-year growth cycle. If how we interpret segment trending relative to semiconductor demand is correct, we expect an acceleration of both sequential and YoY earnings growth for onsemi a year from now. Between now and then, we anticipate onsemi to focus on execution even more this year and zero-in with even more precision on the high-growth use cases that will set up its next growth cycle.
Disclosure: The Futurum Group is a research and advisory firm that engages or has engaged in research, analysis, and advisory services with many technology companies, including those mentioned in this article. The author does not hold any equity positions with any company mentioned in this article.
Analysis and opinions expressed herein are specific to the analyst individually and data and other information that might have been provided for validation, not those of The Futurum Group as a whole.
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Author Information
Daniel is the CEO of The Futurum Group. Living his life at the intersection of people and technology, Daniel works with the world’s largest technology brands exploring Digital Transformation and how it is influencing the enterprise.
From the leading edge of AI to global technology policy, Daniel makes the connections between business, people and tech that are required for companies to benefit most from their technology investments. Daniel is a top 5 globally ranked industry analyst and his ideas are regularly cited or shared in television appearances by CNBC, Bloomberg, Wall Street Journal and hundreds of other sites around the world.
A 7x Best-Selling Author including his most recent book “Human/Machine.” Daniel is also a Forbes and MarketWatch (Dow Jones) contributor.
An MBA and Former Graduate Adjunct Faculty, Daniel is an Austin Texas transplant after 40 years in Chicago. His speaking takes him around the world each year as he shares his vision of the role technology will play in our future.
Olivier Blanchard has extensive experience managing product innovation, technology adoption, digital integration, and change management for industry leaders in the B2B, B2C, B2G sectors, and the IT channel. His passion is helping decision-makers and their organizations understand the many risks and opportunities of technology-driven disruption, and leverage innovation to build stronger, better, more competitive companies. Read Full Bio.
