Analog chips maker ON Semiconductor (NASDAQ:ON) met Wall Street’s revenue expectations in Q3 CY2024, but sales fell 19.2% year on year to $1.76 billion. On the other hand, next quarter’s revenue guidance of $1.76 billion was less impressive, coming in 1.1% below analysts’ estimates. Its non-GAAP profit of $0.99 per share was 2.4% above analysts’ consensus estimates.

Is now the time to buy ON Semiconductor? Find out in our full research report.

ON Semiconductor (ON) Q3 CY2024 Highlights:

• Revenue: $1.76 billion vs analyst estimates of $1.75 billion (in line)

• Adjusted EPS: $0.99 vs analyst estimates of $0.97 (2.4% beat)

• Adjusted Operating Income: $496.5 million vs analyst estimates of $483.4 million (2.7% beat)

• Revenue Guidance for Q4 CY2024 is $1.76 billion at the midpoint, below analyst estimates of $1.78 billion

• Adjusted EPS guidance for Q4 CY2024 is $0.98 at the midpoint, below analyst estimates of $1.00

• Gross Margin (GAAP): 45.4%, down from 47.3% in the same quarter last year

• Inventory Days Outstanding: 212, in line with the previous quarter

• Operating Margin: 25.3%, down from 31.5% in the same quarter last year

• Free Cash Flow Margin: 16.7%, up from 6.1% in the same quarter last year

• Market Capitalization: $30.52 billion

“With third-quarter results above expectations, we remain focused on delivering consistent results in the current environment through execution and prudent financial management,” said Hassane El-Khoury, president and CEO, onsemi.

Company Overview

Spun out of Motorola in 1999 and built through a series of acquisitions, ON Semiconductor (NASDAQ:ON) is a global provider of analog chips specializing in autos, industrial applications, and power management in cloud data centers.

Analog Semiconductors

Demand for analog chips is generally linked to the overall level of economic growth, as analog chips serve as the building blocks of most electronic goods and equipment. Unlike digital chip designers, analog chip makers tend to produce the majority of their own chips, as analog chip production does not require expensive leading edge nodes. Less dependent on major secular growth drivers, analog product cycles are much longer, often 5-7 years.

Sales Growth

A company’s long-term performance is an indicator of its overall business quality. While any business can experience short-term success, top-performing ones enjoy sustained growth for multiple years. Regrettably, ON Semiconductor’s sales grew at a tepid 5.6% compounded annual growth rate over the last five years. This shows it failed to expand in any major way, a rough starting point for our analysis. Semiconductors are a cyclical industry, and long-term investors should be prepared for periods of high growth followed by periods of revenue contractions.