tapebrief

ON · Q2 2025 Earnings

Cautious

ON Semiconductor

Reported August 4, 2025

30-second summary

Revenue of $1.47B grew 1.6% QoQ but fell 15.4% YoY, with non-GAAP gross margin compressed to 37.6% on 900bps of underutilization charges. Q3 guidance ($1.465–1.565B revenue, 36.5–38.5% gross margin) implies the bottom may be in but offers no margin inflection yet. Management telegraphed a 5% portfolio exit in 2026 (~$50–100M revenue) and reiterated a 53% long-term gross margin target — execution risk shifts entirely to utilization recovery and Treo/AI data center ramps.

Headline numbers

EPS

Q2 FY2025

$0.53

Revenue

Q2 FY2025

$1.47B

-15.4% YoY

Gross margin

Q2 FY2025

37.6%

Free cash flow

Q2 FY2025

$0.11B

Operating margin

Q2 FY2025

13.2%

Key financials

Q2 FY2025
MetricQ2 FY2025YoY
Revenue$1.47B-15.4%
EPS$0.53—
Gross margin37.6%—
Operating margin13.2%—
Free cash flow$0.11B—

Guidance

Prior quarter data unavailable — comparison not possible.

Segment performance

Q2 FY2025
SegmentQ2 FY2025YoY
PSG$0.698B-16.0%
AMG$0.556B-14.2%
ISG$0.215B-14.9%

Capacity & utilization

Q2 FY2025
SegmentQ2 FY2025
YoY Revenue Decline-15.4%
Sequential Revenue Growth+1.6%

Profitability

Q2 FY2025
SegmentQ2 FY2025
Non-GAAP Gross Margin37.6%
Non-GAAP Operating Margin17.3%
Operating Cash Flow$184.3M
Free Cash Flow Conversion57.6% of operating cash flow

Other KPIs

Q2 FY2025
SegmentQ2 FY2025
Share Repurchases (YTD)$602.4M
FCF Returned to Shareholders (YTD)>100% of YTD FCF

Management tone

Insufficient transcript content was available for a multi-quarter tone arc. Based on Q&A exchanges and prepared-remarks language in the release, three signals stand out:

Management is leaning harder on the word "stabilization" than "recovery." The release states "we are beginning to see signs of stabilization across our end markets" and Hassan repeated in Q&A that automotive hit its lows in Q2. This is a calibrated downshift from optimism — they are not calling a recovery, only the end of the slide.

The portfolio rationalization narrative has firmed into a specific number. Management quantified the 2026 exit at ~5% of 2025 revenue (~$50–100M), inclusive of ISG human-vision exits (reverse parking, commodity segments). Framing this as strategic repositioning toward ADAS, machine vision, and high-value differentiation suggests leadership wants investors to model a cleaner, smaller revenue base going forward — not a return to prior peak.

The 53% gross margin target was reiterated with new specificity on the bridge: ~700bps from utilization recovery (current 68% → low-90s post-impairment "full" utilization, at 25–30bps per point), ~200bps from Fab Right, balance from mix and new products. This is the most concrete margin walk management has offered, and it places the entire near-term thesis on volume recovery.

Q&A highlights

Ross Seymour · Deutsche Bank

What cyclical headwinds and tailwinds is OnSemi seeing? When will secular growth drivers (AI data center, Treo) offset the 5% business exits planned for 2026?

Hassan indicated stabilization in the market (hitting automotive lows in Q2, expecting Q3 growth), though not yet a full recovery. AI data center business has doubled year-on-year; Treo achieved first revenue in Q1 (ahead of prior guidance) and has shipped 5M+ units. Portfolio exits are strategic to reshape toward high-value products; secular drivers are gaining traction but timing of full offset depends on continued ramps.

Automotive revenue down 4% in Q2, expected to grow in Q3AI data center revenue nearly doubled year-over-year in Q2Treo design funnel more than doubled quarter-over-quarter5M+ Treo units shipped from East Fishkill facility in 2025 YTD

Vivek Arya · Bank of America Securities

Why is industrial weaker than expected? Is the strength in 'other' primarily AI data center? How large is the data center part of the 'other' business currently?

Traditional industrial was slightly down and bouncing across the bottom; stabilization seen but volatility expected. AI data center is the primary driver of 'other' growth, doubling year-over-year. Company acknowledged it remains a small part of overall business but is growing nicely. No specific revenue size disclosed for data center segment.

Traditional industrial declined slightly in Q2 vs Q1AI data center business doubled year-over-yearOther segment grew 16% quarter-over-quarterAI data center is material growth contributor but remains small portion of total company

Chris Dainley · Citi

Is the 5% business exit gross margin accretive or dilutive? Where do silicon carbide gross margins stand relative to corporate average, and how does the company reach 53% gross margin target?

Silicon carbide gross margins are below corporate average primarily due to underutilization; volume ramps and manufacturing leverage will improve them. The exiting business is currently around corporate average but long-term dilutive to 50%+ aspirations. Margin path to 53% target includes: 900 bps from utilization recovery (25-30 bps per utilization point), ~200 bps from Fab Right, and favorable margins from new product ramps. Short-term focus is utilization recovery.

Silicon carbide gross margin currently below corporate average due to underutilizationExiting business is currently neutral to margins (corporate average), but long-term dilutive to 50%+ targets900 basis points of underutilization charges in Q3 guidanceEach utilization point improves gross margin 25-30 basis points

Blaine Curtis · Jefferies

Can you walk through the ISG repositioning strategy? What specifically are you repositioning, why, and what is the revenue impact tied to ISG?

ISG repositioning focuses on high-value machine vision (ADAS, autonomous driving) over human vision (reverse parking, commodity segments). Company exiting low-differentiation segments where product quality doesn't drive customer value. ISG repositioning accounts for $50-100M revenue impact in 2026, inclusive of the broader 5% portfolio exit (not incremental).

ISG shifting from volume/market share focus to value-driven differentiation in ADAS and machine visionExiting human vision segments (e.g., reverse parking) with no meaningful differentiation$50-100M revenue impact from ISG repositioning in 2026This is part of (not in addition to) the $50-100M total ISG/legacy product exit

Quinn Bolton · Needham & Company

How does the 900 basis points of underutilization charges reconcile with the 25-30 basis points per utilization point improvement cited? What is the definition of 'full utilization' post-fab impairment?

Post-Q1 fab impairment, full utilization is now ~92% (low 90s) versus prior mid-80s definition. At 25-30 bps improvement per utilization point, getting from current levels to ~92% utilization yields ~700 bps of gross margin benefit. The remaining 900 bps of underutilization charges includes 200 bps from Fab Right initiatives in addition to utilization recovery. Remaining margin to 53% target comes from product mix and new products.

Full utilization post-impairment: low 90s (~92%), vs. prior definition of mid-80sCurrent utilization: 68% on reduced capacity footprint25-30 basis points gross margin improvement per utilization point~700 bps improvement from utilization recovery (to ~92%)

What to watch into next quarter

Q3 revenue lands in upper vs. lower half of $1.465–1.565B guide — upper half confirms the Q2 "automotive bottom" call; lower half breaks the stabilization narrative

Gross margin direction at the Q3 print — guide midpoint is flat to Q2 (~37.5%); any tick down through 36.5% means utilization recovery is not materializing as modeled

AI data center revenue disclosure — management was asked twice and declined to size it; watch for whether they begin disclosing a specific dollar figure or growth rate to support the secular-offset thesis

Treo unit shipments and design funnel — 5M+ units YTD and design funnel doubled QoQ in Q2; sustaining that momentum is critical to the $1B Treo target

Confirmation of the $50–100M 2026 portfolio exit dollar range — and whether ISG exits accelerate beyond the disclosed scope

Buyback pace vs. FCF — YTD returns exceed 100% of FCF; watch whether management throttles back in H2 or continues drawing from balance sheet

Sources

  1. ON Semiconductor Q2 2025 Press Release, 8-K Exhibit 99.1, filed August 4, 2025 — https://www.sec.gov/Archives/edgar/data/1097864/000114036125028492/ef20053137_ex99-1.htm
  2. ON Semiconductor Q2 2025 earnings call Q&A (transcript excerpts)

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