Global Trade Tensions And Regulatory Costs Will Impair Prospects

Key Takeaways

• Tightening trade barriers, evolving regulations, and tech cycles threaten ON Semiconductor's supply chain stability, cost structure, and ability to sustain growth.
  
• Dependence on volatile automotive markets and aggressive investment in new tech elevates risks of revenue swings and margin compression amid rising competition.
  
• Leading silicon carbide design wins, diversified manufacturing, and operational realignment position ON Semiconductor for strong long-term growth in automotive, industrial, and electronics markets.

Catalysts

Provides intelligent sensing and power solutions in the United States and internationally.

• Intensifying global trade tensions and deglobalization are likely to disrupt ON Semiconductor’s supply chains and raise operating costs. Although management claims minimal short-term tariff impact, a more fragmented global market and shifting trade policies could sharply reduce export opportunities and increase overhead, suppressing future revenue growth and driving up expenses.
  
• The acceleration of environmental regulations concerning manufacturing emissions could force ON Semiconductor to invest heavily in costly upgrades or face plant closures, increasing capital expenditure requirements and harming long-term net margins.
  
• Ever-faster technology cycles are making it harder for legacy players to keep pace, potentially requiring ON Semiconductor to significantly increase R&D spending without a corresponding revenue payoff, risking both market share loss and ongoing margin pressure.
  
• The company’s heightened reliance on the cyclical automotive sector (especially electric vehicles and ADAS), combined with mounting customer concentration, leaves ON Semiconductor highly exposed to downturns or disruptions in auto demand. This could drive pronounced revenue volatility, especially if global EV adoption slows or competition intensifies.
  
• The aggressive transition to silicon carbide and wide bandgap technologies necessitated heavy investment and increased manufacturing complexity. However, oversupply risks, underutilized capacity, and price competition—particularly from low-cost Asian and fabless players—may keep gross margin depressed and earnings below expectations even as addressable markets shift.

ON Semiconductor Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on ON Semiconductor compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming ON Semiconductor's revenue will decrease by 0.0% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 9.5% today to 19.4% in 3 years time.
• The bearish analysts expect earnings to reach $1.3 billion (and earnings per share of $3.44) by about July 2028, up from $633.7 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 14.2x on those 2028 earnings, down from 39.3x today. This future PE is lower than the current PE for the US Semiconductor industry at 30.9x.
• Analysts expect the number of shares outstanding to decline by 2.44% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 10.01%, as per the Simply Wall St company report.

ON Semiconductor Future Earnings Per Share Growth

Risks

• Significant long-term revenue potential exists as ON Semiconductor is achieving industry-leading design wins in silicon carbide (SiC) for both full battery electric vehicles and plug-in hybrids, with penetration in nearly 50 percent of new EV models launching in China, and a transition to SiC in PHEV platforms expected to ramp revenue further starting in late 2025.
  
• ON Semiconductor’s diversified and geographically flexible manufacturing network reduces risk from geopolitical shifts and tariffs, supporting robust supply resilience and positioning the company to maintain and expand global revenues, even in volatile trade environments.
  
• Increasing content and complexity in automotive electronics, driven by tighter global emissions standards and the ongoing electrification trend, position ON Semiconductor’s intelligent power and sensing solutions to benefit from secular growth, supporting both top-line growth and margin expansion over the long term.
  
• The company’s new Treo platform, targeting automotive, industrial, medical, and data center markets, is gaining significant design traction and is expected to double its product count year-over-year, with target gross margins of 60 to 70 percent, which could drive future earnings and bolster overall profitability.
  
• Aggressive operational realignment—including capacity reductions, cost discipline, and a fab-lite strategy—has resulted in lower fixed costs and enhanced gross margin leverage, positioning ON Semiconductor for a strong recovery in net margins and cash flow as utilization and demand recover industry-wide.

Valuation

• The assumed bearish price target for ON Semiconductor is $35.62, which represents two standard deviations below the consensus price target of $58.0. This valuation is based on what can be assumed as the expectations of ON Semiconductor's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $75.0, and the most bearish reporting a price target of just $33.0.
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be $6.7 billion, earnings will come to $1.3 billion, and it would be trading on a PE ratio of 14.2x, assuming you use a discount rate of 10.0%.
• Given the current share price of $59.61, the bearish analyst price target of $35.62 is 67.4% lower. Despite analysts expecting the underlying buisness to improve, they seem to believe the market's expectations are too high.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.