Monty Rakusen
On Semiconductor (NASDAQ:ON) held onto modest gains on Tuesday after the semiconductor firm issued first-quarter results and an outlook for the coming quarter that could result in an “L-shaped recovery,” investment firm Baird said.
“Better inventory management than peers, yet overall including bridge [silicon carbide] inventories are very high and ultimately need to be absorbed by rebounding demand,” analyst Tristan Gerra wrote in a note. “[Excluding silicon carbide] bridge inventories, ON’s inventory days increased modestly sequentially to 109 days from 105 days, below peers. We praise management to say it the way it is, which is the outlook for an L-shaped recovery.”
Gerra has a Neutral rating and $60 price target for On Semiconductor.
On Semiconductor’s management has said it expects silicon carbide revenue to increase in the back half of the year, targeting twice the growth of the industry due in part to higher performance in their offerings compared to their competitors. However, Asia still accounts for roughly half of the company’s silicon carbide revenue and any further cuts coming from customers could result in higher inventories and weaker pricing, Gerra added.
“Business is running at a high-40%s gross margin profile with current under-utilization removing 300-400bp (vs. 85% normalized utilization rates),” Gerra wrote. “The question is when ON Semi can raise utilization rates again given structural industry-wide oversupply and current internal inventory levels.”
