ON Semiconductor (ON, Financial), a key player in the analog chip market with strong ties to automotive and industrial sectors, has faced macroeconomic challenges like high interest rates and cautious consumer behavior. These factors led to five consecutive quarters of year-over-year sales declines. However, in 3Q24, ON exceeded expectations in both revenue and earnings, marking a 1.5% sequential revenue increase for the first time since 3Q23.

Despite these achievements, ON's stock has dropped 15% year-to-date, reflecting the company's struggles and muted expectations before the Q3 report. These low expectations were partly due to competitor Texas Instruments (TXN, Financial) reporting weaker Q3 earnings on October 22, with a cautious outlook for Q4, especially in the automotive sector outside China.

• The electric vehicle (EV) market, notably in China, has seen a boost from government subsidies and OEM price cuts. ON's Power Solutions Group (PSG), which focuses on semiconductors for the EV industry and accounts for 47% of Q3 revenue, reported only a 1% quarter-over-quarter revenue decline, an improvement from the previous quarter's 4% drop.
• ON's other segments, Advanced Solutions (AMG) and Intelligent Sensing Group (ISG), showed stronger performance. AMG's revenue grew by 1% quarter-over-quarter to $653.7 million, reversing last quarter's 7% decline. ISG benefited from a rebound in consumer electronics demand, with an 11% revenue increase compared to a 13% drop in Q2.
• Looking forward, ON is optimistic about growth in the AI data center market, where power consumption is rapidly increasing. The company sees a $4.4 billion total addressable market in AI data centers, with an expected CAGR of nearly 19% from 2024-2028.
• ON's Q4 guidance was somewhat conservative, with EPS projected between $0.92-$1.04 and revenue between $1.71-$7.8 billion, slightly below expectations. However, ON's Q3 results met the high end of its guidance, suggesting a cautious outlook. The company's long-term forecast remains strong, predicting 10-12% CAGR revenue growth through 2027 and a 53% gross margin by 2027, helping to mitigate concerns over Q4 guidance.

Overall, while ON's business isn't booming, it is showing signs of recovery, with the worst seemingly behind it. This improvement, coupled with a stock down 15% this year, may drive gains moving forward.