Truist cuts estimates on ON Semiconductor (ON) following weak 4Q guidance
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, 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 Truist analysts 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 Tuesday morning.
By Michael Elkins | [email protected]