On Monday, ON Semiconductor (NASDAQ:ON) discussed first-quarter financial results during its earnings call. The full transcript is provided below.
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View the webcast at https://edge.media-server.com/mmc/p/62mp4a93
Summary
ON Semiconductor reported Q1 2026 revenue of $1.51 billion, with non-GAAP EPS of $0.64, both exceeding guidance midpoints.
The company experienced strong growth in AI data centers, automotive, and industrial segments, with AI data center revenue projected to double in 2026.
Gross margin expanded to 38.5%, marking the third consecutive quarter of improvement, and is expected to continue growing throughout the year.
Strategic initiatives include ramping Trio products across automotive and AI applications, with significant design wins in these areas.
Management highlighted a positive demand environment, with signs of recovery across key markets and ongoing investments in power and sensing technologies.
Full Transcript
OPERATOR
Good day and thank you for standing by. Welcome to the ON Semiconductor first quarter 2026 earnings conference call. At this time all participants are in a listen only mode. After the speaker’s presentation there will be a question and answer session. To ask a question during this session you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised to withdraw your question. Please press star 11 again. Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your speaker today, Parag Agarwal, Vice President of Investor Relations and Corporate Development. Please go ahead.
Parag Agarwal (Vice President of Investor Relations and Corporate Development)
Thank you. Daniel Good after and thank you for joining ON Semiconductor’s first quarter results conference call. I’m joined today by Hassan Al Khoury, our President and CEO and Thad Trent, our CFO. This call is being webcast on the Investor Relations section of our website@www.onsemi.com. a replay of this webcast along with our first quarter earnings release will be available on our website approximately one hour following this conference call and the recorded webcast will be available for approximately 30 days following this conference call. Additional information is posted on the Investor Relations section of our website. Our earnings release and this presentation includes certain non GAAP financial measures. Reconciliation of these non GAAP financial measures to the most directly comparable GAAP financial measures and a discussion of certain limitations when using non GAAP financial measures are included in our earnings release which is posted separately on our website in the Investor Relations section. During the course of this conference call, we’ll make projections or other forward looking statements regarding future events or the future financial performance of the company. We wish to caution that such statements are subject to risks and uncertainties that could cause actual events or results to differ materially from projections. Important factors that can affect our business, including factors that could cause actual results to differ materially from forward looking statements, are described in Our most recent Form 10K, Form 10-Qs and other filings with the securities and Exchange Commission and in our earnings release for the first quarter, our estimates or other forward looking statements might change and the Company assumes no obligation to update forward looking statements to reflect actual results, change assumptions or other events that may occur except as required by law. Now let me turn it over to Hassan.
Hassan Al Khoury (President and CEO)
Hassan thank you Parag Good afternoon to everyone on the call and thank you for joining us. This quarter marks a clear inflection point for onsemi. Improving demand signals, accelerating AI data center growth and sustained gross margin expansion demonstrate that the structural changes we made over the past several years are now translating into tangible financial results. We delivered revenue of $1.51 billion and non GAAP diluted earnings per share of $0.64, both above the midpoint of guidance. Driven by growth in AI data center, we expanded gross margin for the third consecutive quarter to 38.5% while returning meaningful capital to shareholders as volumes recover and new products ramp. Our focused portfolio and lean cost structure are driving the operating leverage we designed this model to deliver. Turning to the demand environment, we saw a clear improvement as the quarter progressed with strengthening order patterns and an increase in short lead time orders. Taken together, these signals give us confidence that this cycle has found its low point and we are now on a path to recovery. On the new products front, our execution on Treo continues to accelerate as the platform moves from product proliferation into ramping revenue and design wins. In the first quarter, revenue increased more than two and a half times sequentially and we saw broader adoption across high volume automotive, industrial and AI applications with Treo design wins supporting the transition to software defined vehicles. Programs in our funnel include zonal architectures built on 10BASE-T1S paired with smart FETs, auto ADAS park assist system using ultrasonic sensing, power management for AI client platforms and inductive position sensing for humanoids and advanced automation use cases. These wins reinforce Trio’s penetration as customers move to a more centralized compute model with zonor for a scalable software architecture and require a faster time to market. Our Trio based driver ICs and inductive position sensing combined with our Gallium Nitride products deliver high power density, efficiency and ease of use in humanoid applications, AI data centers and automotive. Our overall GAN Solutions design funnel which includes vertical GaN now exceeds $1.5 billion supported by a rich product portfolio spanning 40 to 1200 volts. 10 products already sampling with another 20 sampling in the second half of 2026. With a balanced model that combines internal GAN development and foundry partnerships, we have a differentiated roadmap and resilient supply chain that positions us to begin ramping in these markets with revenue starting in 2027. Diving deeper into automotive in the first quarter we began production shipments of our trio based 10BASE-T1S Ethernet solutions for a leading North American customer’s next generation zonal architecture. The platform integrates more than 30 trio devices enabling in zone connectivity. Higher energy costs are accelerating EV demand with cost optimized EV platforms driving increased adoption of IGBT based traction inverter solutions. Our latest generation IGBTs deliver a compelling balance of performance efficiency and cost complementing our silicon carbide wins, particularly in front axle applications. During the quarter, we were awarded a new IGBT based traction inverter program with a North American OEM that is transitioning to direct semiconductor sourcing as the industry transitions to 900 volt EV architectures led by Chinese OEMs. We are the preferred power solution and are already in production at customers in their next generation of EV platforms, enabling flash charging and higher efficiency for a longer drive range. Our China automotive revenue grew year over year in Q1 despite a decline in the China passenger vehicle market of 6% for the same period. Our silicon carbide share of new EV models deployed at the 2026 Beijing Auto show in April is approximately 55%. Recent expanded collaborations with Geely and NIO highlight our role in enabling these customers to scale globally with their next generation 900 volt platforms. The latest reports from the China association of Automobile Manufacturers highlight continued strength in new energy vehicle exports in the first quarter, supporting our view that EV adoption is extending beyond the China domestic market. With ongoing fuel supply disruption and elevated energy costs, we expect demand for high efficiency EV platforms and silicon carbide content to remain durable, supporting long term growth opportunities for onsemi in automotive power globally. Turning to AI data centers, our revenue grew more than 30% quarter over quarter, nearly double our expected growth rate entering the quarter driven by a broader adoption across the PowerTree. With multiple XPU vendors and all the leading hyperscalers looking ahead, we now expect our AI data center revenue to double year over year in 2026. As the only broad based US power semiconductor supplier, ONSEMI continues to build a leading position in AI data centers across the full set of power capabilities required to modernize the PowerTree, including high voltage conversion, intelligent power stages, protection and control and system level integration from the grid to the processor. As policymakers push for greater transparency in the US Data center energy use, it reinforces a trend we have been aligned with for some time. Onsemi’s power portfolio helps hyperscalers overcome power density and efficiency constraints, reducing losses from the grid to the processor. We are engaged with all major power supply vendors serving every major AI hyperscaler with flex power. For example, our partnership now spans more than 30 active programs across intermediate bus converters, power supplies, battery backup, super capacitors and next generation 800-volt DC architectures. The AI halo effect continues to drive incremental demand in adjacent infrastructure markets, particularly energy storage systems, as rising energy costs and declining battery prices accelerate. Project economics Driven by our differentiated SIC hybrid modules. We are seeing renewed growth in our string ESS and microgrid business globally from China to North America. We now expect to outpace the power semiconductor growth for this market in 2026 with more than 40% revenue growth year over year and a market share approaching 60% and are now ramping revenue for a large US OEM’s microgrid deployment. Our announcement with Sanang Electric highlights our hybrid power integrated modules combining ElitSiC technology and FS7 IGBTs enabling higher efficiency and higher power density for utility scale solar inverters and liquid cooled energy storage platforms. These solutions deliver the best system level electrical and thermal performance and reinforce our position as a technology partner of choice as customers scale next generation renewable and storage deployments. Turning to sensing, we are delivering a multimodal sensing capability that customers can deploy across industrial autonomous automotive sensing and emerging robotics applications. We secured a meaningful design win with a leading global robotics platform where our high resolution image sensor and indirect time of flight technology were selected to enable reliable depth perception and navigation in autonomous systems. Our roadmap spans complementary modalities including high resolution imaging depth and other sensing approaches like short-wave infrared (SWIR) that are designed to work together with automotive grade reliability and long lifetime performance. As we move forward, we are encouraged by improving market conditions and the momentum we are seeing across our highest value applications. Our continued evolution towards a product and solution centric portfolio combined with disciplined investment decisions and our fabright actions is strengthening our operating model and enhancing margin durability. We are executing a clear strategy with deeper customer intimacy and a portfolio aligned to the most important long term power and sensing transitions. This positions us well to deliver sustainable growth, expanding profitability and long term value creation.
Thad Trent
I’ll now turn it over to Thad to give you more details on our result and guidance for the second quarter. Thanks Hassan the improving market conditions are coming through in our financial results and outlook. As demand visibility improves this year, we expect the impact of the structural changes we have made to become increasingly visible in our results. With a leaner cost structure, a more focused portfolio and differentiated power and sensing investments, we have built a model that delivers strong operating leverage with incremental revenue driving expanded margins, earnings and free cash flow in the first quarter, Order patterns and improving backlog visibility indicate that we are moving away from the bottom of the cycle and we are on a path to recovery. We delivered revenue of $1.51 billion better than normal seasonality and non GAAP earnings per share of 64 cents, both above the midpoint of our guidance. We expanded non GAAP gross margin for the third consecutive quarter to 38.5% and we expect sequential gross margin expansion throughout the year and we returned $346 million to shareholders through Opportunistic share repurchases representing nearly 160% of free cash flow. Q1 revenue was $1.51 billion, down 1%, versus the fourth quarter and up 5% year over year. As expected, there was roughly $50 million of planned non core exits in the quarter. Turning to the end markets, Automotive revenue was $797 million in the first quarter, roughly flat quarter over quarter and grew nearly 5% year over year, marking the first year-over-year growth after seven quarters of decline. We continue to see stabilization in the automotive market and we now believe we’re shifting to natural demand. China Electric vehicle programs continue to outperform other regions driven by a strong export market. Industrial revenue was $417 million, down 6% sequentially but ahead of our expectations. We saw broad based strength across our traditional industrial business for the second consecutive quarter, partially offset by the typical Chinese New Year seasonality. Our AI Data center business is accelerating with Q1 revenue growing more than 30% quarter to quarter and doubling year over year reflecting platform ramps and expanding engagement across the PowerTree. We expect our 2026 AI data center revenue to double compared to full year 2025. For the first quarter. Total revenue for the other category was $299 million and increased 3% quarter over quarter due to AI data center strength. Looking at the first quarter split between the business units, revenue for the Power Solutions Group (PSG) was $737 million, an increase of 2% quarter over quarter and 14% year over year. Revenue for the Analog and Mixed Signal Group (AMG) was $540 million, a decrease of 3% quarter over quarter and 5% year over year. Revenue for the Intelligent Sensing Group OR ISG was $246 million, a 5% decrease quarter over quarter and a 1% increase over the same quarter last year. Moving to gross margin in the first quarter, GAAP and non GAAP gross margin of 38.5% increased sequentially in a seasonally down quarter. The improvement in gross margin is a result of the structural changes we have made over the last several years that have improved our manufacturing performance. Manufacturing utilization increased sequentially to 77% as we ramped production quickly to respond to stronger demand signals in the quarter. In Q2 we expect utilization to be flat to up slightly given the improving demand outlook and our ongoing FABRITE actions. We expect sequential gross margin expansion throughout the year. GAAP operating expenses were $637 million including $329 million in restructuring expenses. Non GAAP operating expenses were $294 million, a decrease of 7% from Q1 2025 driven by cost optimization actions. The GAAP operating margin for the quarter was negative 3.5% and non GAAP operating margin was 19.1%. Our The GAAP tax rate was 26.2% and non The GAAP tax rate was 15%. The diluted GAAP loss per share was $0.08 and non GAAP earnings per share was $0.64. The GAAP diluted share count was 394 million shares and non The GAAP diluted share count was 396 million shares. We opportunistically purchased $346 million of shares at an average price of $60.54. Turning to the balance sheet, cash and short term Investments was approximately $2.4 billion with total liquidity of 3.9 billion including $1.5 billion undrawn on a revolver. Cash from operations was 239 million and free cash flow was $217 million. Capital expenditures were $22 million or 1.4% of revenue. Inventory increased by $60 million to 201 days from 192 days in Q4. The sequential increase was a result of higher internal loadings and customer commitments. This includes 75 days of strategic inventory which is down from 76 days in Q4. As we continue to deplete this inventory over the next two years. Excluding the strategic builds, our base inventory Distribution inventory was flat at 10.8 weeks. Looking forward, let me provide the key elements of our non GAAP guidance for the second quarter of 2026. As a reminder, today’s press release contains a table detailing our GAAP and non-GAAP guidance. We anticipate Q2 revenue will be in the range of 1.535 billion to $1.635 billion. We expect to exit an incremental 30 million to 40 million of non core revenue in the second quarter. Excluding these exits, our revenue is expected to increase approximately 7% at the midpoint and be above seasonal. Our non-GAAP gross margin is expected to be between 38 and 40% which includes share-based compensation of $6 million. Non GAAP operating expenses are expected to be between 287 and $302 million and which includes share-based compensation of $28 million. We anticipate our non-GAAP other income to be a net benefit of $6 million. With our interest income exceeding interest expense, we expect our non-GAAP tax rate to be approximately 15% and our non-GAAP diluted share count is expected to be approximately 394 million shares. …
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