ON Semiconductor ON shares have lost 20.2% over the trailing 12 months against the Zacks Computer & Technology sector’s return of 34.8%.

The underperformance can be attributed to the overall muted demand due to ongoing inventory digestion and sluggish end markets, particularly in North America and Europe.

However, ON’s prospects are expected to ride on strong growth in silicon carbide, particularly in utility-scale solar and China BEVs, along with increased demand for intelligent sensing solutions and power delivery for AI data centers.

Hence, investors should ask this question — is the dip the right time to invest in ON stock?

Expanding Clientele Aids ON’s Prospects

ON’s dominant position in silicon carbide has been a major factor in its strong partner base, which includes Volkswagen VWAGY, thereby driving growth.

In July, the company announced a multi-year deal with Volkswagen Group to supply a complete power box solution featuring silicon carbide-based technologies for its next-generation traction inverter, enhancing EV efficiency and performance.

In December, ON and tier-one automotive supplier DENSO Corporation DNZOY announced the strengthening of its long-term partnership to advance the procurement of autonomous driving and advanced driver assistance systems technologies. 

For over a decade, ON has supplied DENSO with intelligent automotive sensors to enhance vehicle intelligence and connectivity, aiming to reduce traffic accident fatalities.

ON Buys SiC JFET Tech to Boost Power Solutions

Acquisitions have also played an important role in expanding ON’s portfolio, particularly in the field of energy-efficient power solutions. This month, the company has agreed to acquire the Silicon Carbide Junction Field-Effect Transistor (SiC JFET) technology, including the United Silicon Carbide subsidiary from Qorvo QRVO, for $115 million. 

The acquisition from QRVO enhances ON’s EliteSiC power portfolio, supporting energy-efficient power supply solutions for AI data centers and accelerating advancements in EV battery disconnects and solid-state circuit breakers.

ON Suffers From Soft Demand and Macroeconomic Uncertainty

Despite expanding portfolio, acquisitions and strong partner base, soft demand across automotive and industrial markets, inventory digestion, and weaker-than-expected growth in key sectors are expected to hurt ON’s top line.

The company is also suffering from macroeconomic uncertainty, which has impacted investors’ confidence and is likely to weigh on the company’s performance. 

While ON’s frequent buyouts benefit the company by expanding its capabilities, they introduce integration risks that could complicate future growth.

ON’s Earnings Estimate Revision Shows Downward Trend

For the fourth quarter of 2024, ON expects revenues between $1.71 billion and $1.81 billion. The Zacks Consensus Estimate is currently pegged at $1.76 billion, indicating a year-over-year decline of 12.73%.

Non-GAAP earnings are expected to be between 92 cents per share and 1.04 cents for the fourth quarter. The Zacks Consensus Estimate for the same is currently pegged at 99 cents per share, unchanged in the past 30 days. The estimate indicates a year-over-year decline of 20.8%.

For 2024, the Zacks Consensus Estimate for revenues is pegged at $7.12 billion, indicating a year-over-year decline of 13.70%. The consensus mark for earnings is pegged at $4 per share, unchanged in the past 30 days. The metric indicates a 22.48% decline year over year.

Find the latest EPS estimates and surprises on Zacks Earnings Calendar.

ON’s Shares: Buy, Sell or Hold?

We point out that ON stock is not so cheap, as the Value Score of C suggests a stretched valuation at this moment.

ON carries a Zacks Rank #3 (Hold), which implies investors should wait for a more favorable entry point to accumulate the stock. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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Denso Corp. (DNZOY) : Free Stock Analysis Report

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