Truist Securities reiterated a Buy rating on ON Semiconductor Corp (NASDAQ:ON) but cut their 12-month price target on the chip maker to $81.00 (From $122.00) following 3Q results and guidance.
In the 3Q, ON reported sales of $2,180 million, surpassing the consensus of $2,148 million by 1.5%. While the GPM stood at 47.3%, exceeding the consensus by 40 bps, the OPM of 32.6% fell short of the consensus by 20 bps. Additionally, EPS amounted to $1.39, outperforming the consensus by $0.04.
ON's surprise was that instead of the expected overall industrial market weakness, they highlighted specific issues. These included low demand for SiC products from one electric vehicle customer, likely Tesla (NASDAQ:TSLA), and decreased demand from various European tier-1 suppliers, signaling a slowdown in semiconductor demand for internal combustion engine autos.
For 4Q23, ON guided to sales of $2,000m, which is 8.4% lower than the consensus estimate of $2,183m. Their GM guidance of 46.5% fell short of the consensus by 60bps. The implied OPM guidance of 31.2% is 120bps below the consensus. Additionally, EPS guidance of $1.20 is $0.16 lower than the consensus.
The primary shift in ON's outlook is a $200m decrease in expected SiC revenue for the entire year, attributed to reduced orders from a single electric vehicle client. Additionally, ON highlighted a slowdown in demand from various tier-1 customers, implying a softening demand among a broader base of ICE-vehicle customers.
Finally, the industrial sector, which analysts at Truist anticipated would be a significant concern, did exhibit some weakness, albeit only to a limited extent. This was mitigated by ON's involvement in utility-scale energy generation and storage, along with their presence in the medical products market.
Shares of ON are down 0.11% in pre-market trading Monday morning.