ON Semiconductor Q4 net income up 58 percent due to robust automotive component demand

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ON Semiconductor Q1 earnings hurt by COVID-19.

ON Semiconductor increased its net income by 58 percent in the fourth quarter due to robust automotive component demand. In fact, the company stated it generated record revenue from its vehicle segment last period.

The firm also offered an optimistic but measured near-term forecast and the impact of the global semiconductor shortage.

ON Semiconductor’s Strong Q4 Performance

In the three months ending December 31, ON Semiconductor generated $1.44 billion in revenue with net income of $89 million. That represents a significant improvement from its Q4 2019 sales of $1.4 billion and $56.5 million in profit. Its earnings also exceeded the forecast it offered for the quarter last November.

CEO Hassane El-Khoury explained the corporation benefited from a significant spike in demand from the automotive sector. It recorded $490 million in sales from the segment in Q4 2020, a new record and a 6 percent expansion year-over-year. While its annual vehicle-related intake fell by 7.5 percent, the executive noted that the shortfall came amid a 16 percent drop in global personal transport production.

The firm’s automotive income outpaced the broader downward market trend because of the increasing chip content in new cars.

ON Semiconductor saw a 2 percent uptick in its industrial unit revenue, which totaled $384 million in the holiday quarter. El-Khoury said the chipmaker’s aerospace, medical, and military business grew in conjunction with a worldwide increase in commercial spending.

Positive But Measure Outlook

ON Semiconductor expects the strong vehicle component demand that drove its robust Q4 performance to continue in the New Year. The corporation anticipates earning $1.41 billion to $1.51 billion in the current period, an improvement of 14.33 percent year-over-year. It indicated its optimism stems from its recent bookings and backlog level.

The Phoenix-based company also commented on the current global semiconductor shortage. The firm acknowledged the supply crunch is causing its lead times to creep up past the mid-teens. It mentioned that its pricing has increased due to its materials costs trending upward.

El-Khoury said the chipmaker is closely monitoring the situation, but is “cautiously optimistic” right now. The executive anticipates at the bottleneck will be resolved within a few quarters while automotive sector interest will remain high. He also revealed the company had a few design wins in the advanced driver assistance system (ADAS) and lidar categories that will bolster its income.

In addition, the corporation is in the process of adopting a “fab-lite” business model to optimize its earnings. Though it is retaining some of its manufacturing facilities, it wants to work with pure-play foundries more in the future. The firm is divesting Belgian and Japanese facilities and recently sold its Rochester, New York factory, which will provide an annual savings of $15 million.

At present, industry experts expect the component shortage to proceed through the first half of 2021. Given the information it presented with its Q4 earnings, ON Semiconductor should successfully endure the crisis. Beyond that, its focus on innovation, operational flexibility, and a pursuit of a highly lucrative end-market should drive its long-term growth.

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