2023-02-15-Goldman_Sachs-ON_Semiconductor_Corp._ON_Secular_growth_in_SiC_CIS_and_improved_structural_profitability_to_drive_strong_EPS_growth_in_20..._11页_590kb

Goldman Sachs' report on ON Semiconductor Corp. (ON) for February 6, 2023, highlights the company's solid fourth-quarter 2022 performance and outlook. The company reported fourth-quarter 2022 revenue of $2.1 billion, a 4% quarter-over-quarter decrease year-over-year, with non-GAAP EPS of $1.32, exceeding consensus estimates by 3% due to better-than-feared guidance for the first-quarter 2023. Revenue guidance for 1Q23 was around $1.92 billion at the midpoint, indicating a 9% sequential decline and 1% year-over-year decrease, while gross margin is expected to be 45.7%-47.7% at the midpoint.

Key positives include strong secular growth in Silicon Carbide (SiC) tied to auto electrification and image sensors driven by ADAS proliferation, with management targeting cumulative SiC revenue growth in 2023 and notes doubling efforts on high-growth applications. The company guided to improved operating performance, with non-GAAP EPS projected to be $1.08 at the midpoint, and expects long-term margin expansion from its 'fab-lite' strategy.

However, concerns persist due to macrocyclical risks, particularly in the auto sector, where over 50% of revenue is derived, and ongoing challenges with SiC ramping, noted for potential margin dilution and manufacturing complexities from the East Fishkill acquisition.

Financial estimates were updated, with 2023 non-GAAP EPS (including SBC) revised to $4.25 from $3.54 (+20%), and 2024 EPS at $5.15 from $4.66 (+10%). A 2025 non-GAAP EPS estimate of $6.02 was also introduced. The company's valuation metrics include an NTM P/E of 16x, below its 3-year median, and an EV/EBITDA of 11x, trading slightly above the median. The price target was increased to $83 from $73, based on normalized growth and margin expansion.

Key investment risks include weakness in core end-markets, margin execution challenges, and intensified competition in discrete semiconductors. Overall, ON Semiconductor is viewed as a buy, with potential for sustained outperformance through secular tailwinds and structural margin improvements.