onsemi Corporation (Nasdaq: ON)

onsemi’s first quarter 2025 results reflected a challenging operating environment with revenue declining 22% year-over-year to $1.45 billion. This represented a significant contraction from Q1 2024’s $1.86 billion, primarily driven by continued softness across multiple end-markets, particularly automotive and industrial applications.

GAAP gross margin declined substantially to 20.3% from 45.8% in Q1 2024, impacted by restructuring-related inventory charges of $283.4 million. On a non-GAAP basis, excluding these special items, gross margin was 40.0%, down 5.9 percentage points year-over-year but demonstrating the company’s underlying operational discipline.

Operating income on a GAAP basis showed a loss of $573.7 million compared to income of $525.2 million in Q1 2024, reflecting significant restructuring charges totaling $539.3 million. Non-GAAP operating income was $264.0 million, down from $540.8 million in the prior year, with an operating margin of 18.3%.

GAAP diluted loss per share was $(1.15) compared to earnings of $1.04 in Q1 2024, while non-GAAP diluted earnings per share decreased to $0.55 from $1.08, reflecting both the revenue decline and restructuring impacts. Despite the substantial earnings decrease, free cash flow demonstrated remarkable strength, increasing 72% year-over-year to $455 million, representing a 31% free cash flow margin.

Power Solutions Group (PSG) experienced the most significant decline with revenue decreasing 26% year-over-year to $645.1 million. This segment, which includes power management and analog solutions for automotive and industrial applications, was impacted by continued softness in both end markets. Sequential revenue declined 20% from Q4 2024.

Advanced Solutions Group (AMG) posted a 19% year-over-year decline to $566.4 million, with sequential revenue down 7%. The segment, which focuses on advanced automotive electronics including ADAS and imaging solutions, continues to face reduced demand as automotive customers manage inventory levels and adjust production schedules.

Intelligent Sensing Group (ISG) declined 20% year-over-year to $234.2 million, with sequential revenue down 23%. The segment’s performance reflects continued weakness in industrial automation applications and reduced demand for sensing solutions across multiple verticals.

Despite the revenue declines, all segments demonstrated cost management discipline. The company continues to see strong design win momentum across all end-markets, positioning it well for recovery as market conditions improve. Management emphasized that current automotive inventory corrections are temporary and underlying demand for electrification and advanced driver assistance systems remains robust long-term.

onsemi’s margin performance in Q1 2025 highlighted both challenges and strategic achievements in cost management:

Gross margin performance was impacted by several key factors:

• Restructuring Charges: GAAP results included $283.4 million in restructuring-related inventory charges, significantly impacting reported gross margin
• Volume Impact: Lower production volumes drove manufacturing underutilization charges and reduced gross margin
• Cost Management: Despite volume pressure, the company maintained disciplined pricing and demonstrated non-GAAP gross margin resilience at 40.0%

The company executed a comprehensive restructuring program in Q1 2025, with $539.3 million in restructuring, asset impairments and other charges. This included rightsizing manufacturing capacity, optimizing the product portfolio, and reducing fixed costs. The restructuring program is expected to deliver significant cost structure improvements in 2025 and beyond.

Operating expense management showed discipline with non-GAAP operating expenses of $314.5 million compared to $314.3 million in Q1 2024. Despite revenue decline of 22%, operating expenses remained effectively flat on a non-GAAP basis, demonstrating strong cost control. The company reduced headcount and implemented various operational efficiency initiatives to align with demand levels.

Despite the GAAP operating loss of $(573.7) million, the company achieved non-GAAP operating income of $264.0 million with an 18.3% operating margin. This represents a contraction from the 29.0% margin in Q1 2024 but demonstrates the underlying profitability of the business despite challenging market conditions.

onsemi delivered exceptional cash flow performance in Q1 2025, demonstrating the strength of its business model even during market downturns:

• Free Cash Flow: $455 million, up 72% year-over-year, representing a free cash flow margin of 31% of revenue
• Operating Cash Flow: $602 million, compared to $499 million in Q1 2024
• Capital Expenditures: $148 million, down from $234 million in Q1 2024, reflecting disciplined investment in strategic initiatives
• Cash Position: $2.76 billion in cash and equivalents, plus $250 million in short-term investments

The company maintained a strong balance sheet with total liquidity exceeding $3 billion. The robust cash position provides significant financial flexibility to navigate the current market downturn and invest in growth initiatives when market conditions improve.

Capital allocation focused on shareholder returns, with the company repurchasing $300 million of common stock during Q1 2025, representing 66% of free cash flow. This aggressive share repurchase program demonstrates management’s confidence in the long-term value of the company despite near-term market challenges.

The company reduced total debt slightly to $3.35 billion from $3.35 billion at year-end 2024. With strong cash generation and a manageable debt level, onsemi is well-positioned to continue investments in strategic initiatives including R&D for next-generation power and sensing technologies.

For the second quarter of 2025, onsemi provided the following guidance:

• Revenue expected to be $1.40 to $1.50 billion, implying a sequential increase of approximately 3% at the midpoint
• GAAP gross margin of 36.4% to 38.4%, with non-GAAP gross margin of 36.5% to 38.5%
• GAAP diluted earnings per share of $0.45 to $0.55, with non-GAAP diluted EPS of $0.48 to $0.58
• Operating expenses (GAAP) of $300 to $315 million; non-GAAP operating expenses of $285 to $300 million

Management’s outlook suggests a modest sequential improvement in revenue but continued margin pressure as the company works through its restructuring program. The sequential revenue growth reflects early signs of stabilization in some end markets while others continue to adjust inventory levels.

The company expects the restructuring benefits to become more visible in the second half of 2025 as cost reduction initiatives take full effect. Management remains committed to maintaining strong margins and robust cash flow generation as market conditions normalize.

Despite the challenging market environment, onsemi continues to invest in strategic initiatives that position the company for long-term success:

Technology Leadership

• Silicon Carbide (SiC): Continued expansion of SiC manufacturing capacity to meet growing EV demand
• Intelligent Sensing: Development of next-generation CMOS image sensors and LiDAR technologies for automotive and industrial applications
• Power Management: Innovation in power semiconductors for data center and renewable energy applications

Design Win Momentum

Despite current market softness, onsemi reported strong design win momentum across all end-markets. The company secured key wins with major global customers across automotive, industrial, and cloud infrastructure applications. These design wins typically have long lead times, positioning onsemi to capture market share as demand recovers.

Manufacturing Optimization

The company is rightsizing its manufacturing footprint through its restructuring program, focusing on:

• Optimizing utilization of advanced manufacturing nodes
• Rationalizing product portfolio to focus on higher-margin solutions
• Reducing fixed cost structure to improve operating leverage

Market Position

Management emphasized that the company’s products deliver industry-leading performance and energy efficiency, crucial advantages in automotive electrification and energy management applications. The focus on high-growth markets like EVs, advanced driver assistance, and renewable energy provides long-term growth momentum despite near-term challenges.