ON Semiconductor Quarterly Profit Misses Estimates; Top Analyst Sticks To Buy

ON Semiconductor missed quarterly earnings estimates as the U.S. chipmaker continues to grapple with the disruptions and financial fallout caused by the coronavirus pandemic.

Adjusted earnings per share in the second quarter plunged 71% to $0.12 year-on-year falling short of analysts’ estimates by $0.05. ON Semiconductor’s (ON) total revenue declined 10% to $1.21 billion missing the consensus by $60 million.

“Despite disruption from COVID-19 pandemic, we continue to make strong progress towards our key strategic initiatives. To achieve our gross margin target, we have accelerated the pace of manufacturing optimization,” said ON Semiconductor CEO Keith Jackson. “In addition, we have made outstanding progress in ramp of our 300mm manufacturing processes at East Fishkill fab with our 300mm wafer production starting in the second quarter, significantly ahead of schedule.”

Jackson expects to see sustained improvement in margins as COVID-19 related costs decline and demand is starting to pick up moderately across most end-markets and geographies amid an ongoing recovery in global macroeconomic activity.

“Our design win pipeline continues to expand rapidly with multiple strategic wins for our power, analog and sensor products in automotive, industrial, and cloud-power applications,” he added.

Looking ahead, the chipmaker anticipates to generate between $1.2 billion to $1.33 billion in revenue in the third quarter, based on product booking trends and backlog levels.

GAAP and Non-GAAP gross margin for the third quarter is expected to be between 32% and 34%. The 2020 third quarter outlook also includes anticipated stock-based compensation expense of about $17 million to $19 million. Net cash paid for income taxes is expected to be $17 million to $22 million.

Separately, ON Semiconductor announced that the company is exploring a sale of its Niigata manufacturing facility in Japan. The sale is part of a plan to optimize manufacturing and strengthen the focus on highly differentiated power, analog and sensor products. ON Semiconductor will begin searching for strategic buyers to facilitate the transition of products from its Niigata factory to other facilities in its network.

Shares in ON Semiconductor have dropped 15% this year and closed at $20.84 on Friday. (See ON Semiconductor stock analysis on TipRanks).

Following the earnings results, five-star analyst Kevin Cassidy at Rosenblatt Securities maintained a Buy rating on the stock, praising the company’s steps to optimize manufacturing.

“We believe the company’s earnings leverage will return driven by increased factory utilization and gross margin expansion,” Cassidy wrote in a note to investors. “Importantly, management is accelerating its 300mm wafer transition and optimizing its worldwide factory footprint.”

The rest of the Street has a cautiously optimistic outlook on the stock. The Moderate Buy analyst consensus breaks down into 13 Buys versus 2 Holds and 3 Sells. The $21.31 average price target provide investors with a modest 2.3% upside potential in the shares in the coming 12 months.

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