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ON Semiconductor crushes Wall Street’s Q3 earnings expectations

November 2, 2020
Kevin Cassidy
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The Burn-In

ON Semiconductor’s recently published third-quarter financial results revealed the firm crushed Wall Street’s expectations for its earnings per share. The company also considerably improved its net income on a quarterly and annual basis.

Looking forward, it anticipates the demand that drove its growth in the September period to continue in the fourth quarter.

Macroeconomic Recovery Drives Sales

In Q3, ON Semiconductor generated $1.31 billion in sales, which is near the top end of the outlook it offered in August. Its net income for the period totaled $160 million, up 365 percent year-over-year, and 11,571 percent sequentially. The firm also earned $0.27 per share compared to the $0.07 per share market analysts predicted.

Keith Jackson, ON Semiconductor’s chief executive, said his employer reported strong results last quarter due to broad macroeconomic recovery. As it specializes in automotive components, Internet of Things (IoT) solutions, and industrial/cloud power products, its income suffered greatly following the outbreak of COVID-19. But it saw a revival in demand for its offerings as the world adjusted to the post-pandemic landscape.

Similarly, the chipmaker changed its operations to suit the “new normal” and experienced a sizeable profitability improvement. The firm deserves plaudits for having the flexibility to grow its business despite unprecedented headwinds.

Optimism for Q4

ON Semiconductor offered guidance that it would take in between $1.3 billion and $1.4 billion in Q4. If it meets the high point of its forecast, its revenue will be even year-over-year but up 6.87 percent quarter-over-quarter.

Jackson said his firm’s products are experiencing a higher level of utilization in its target markets. Accordingly, he expects its income to be above traditional seasonal levels in Q4.

Kevin Cassidy, an analyst for Rosenblatt Securities, agreed that ON Semiconductor’s near-term sales should be strong due to rising interest. He specifically highlighted the marketplace’s revived hunger for automotive electronic components as a growth driver for the company.

Cassidy also commented that the recent global spike in coronavirus cases as a risk factor for the chipmaker’s business. But the analyst stated the pandemic resurgence is unlikely to prompt another wave of widespread manufacturing shutdowns.

Firms like NXP Semiconductors and Lattice Semiconductor recently offered positive forecasts for Q4 because of strong demand for their respective automotive products. If the coronavirus pandemic causes a second global production suspension, ON Semiconductor’s outlook will probably need revising. But if the worst-case scenario does not unfold, it should end 2020 in a healthy position.

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