Onsemi: Navigating Industry Challenges With Strategic Transformation

Rafa F. Oliver, CFA
997 Followers
(11min)

Summary

  • Onsemi's significant transformation under CEO Hassane El-Khoury focuses on high-growth markets like EVs and industrial automation.
  • The company's vertical integration strategy, particularly in Silicon Carbide (SiC) technology, enhances cost efficiency and positions it as a key player in the SiC market.
  • My valuation model estimates Onsemi's stock at $114.5 per share, a 63% premium, indicating strong upside potential despite industry challenges and competition.
  • Risks include high exposure to the automotive sector, growing competition from Chinese manufacturers, and geopolitical issues that could impact profitability.

Autonomous driving technology and automobile semiconductor chip shortage concept 3D graphics

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Overview

On Semiconductor (NASDAQ:ON), also known by Onsemi, has been struggling (Figure 1) more than its peers. Q2 2024 revenue was $1.735 billion, a 17% decrease from the same quarter in 2023. The industry faces problems because auto manufacturers invested in excess inventory after the

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997 Followers
Investing in high-growth opportunities across industries, employing a value investing approach that prioritizes robust business models and strategic foresight. Focusing on companies with the potential to profoundly influence the global landscape in the years aheadI primarily employ the discounted cash flow (DCF) valuation methodology, although I remain adaptable to various valuation techniques. Additionally, I leverage business model frameworks derived from institutions like Harvard Business School and other renowned universities for in-depth analysis. This approach ensures a comprehensive understanding of a company's intrinsic value and strategic positioning within its industry landscape, facilitating informed investment decisions with a focus on long-term growth potential and risk mitigation.Educational background: MBA IESE Business School, University of Navarra and chartered financial analyst with CFA Institute

Analyst’s Disclosure:I/we have no stock, option or similar derivative position in any of the companies mentioned, but may initiate a beneficial Short position through short-selling of the stock, or purchase of put options or similar derivatives in ON over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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