Experts believe that global semiconductor industry is all set for the decade of growth and should be a trillion-dollar industry by 2030. Semiconductor industry, that develops vital components for technologies we are dependent on, made headlines in past year. Shortages about supply resulted in the bottlenecks in production of everything starting from cars to computers. This highlighted that how tiny chips are important for smooth running of the global economy. Therefore, this entire world is built on semiconductors. Since chip demand is expected to increase in the coming decade, semiconductor manufacturing and design companies are expected to benefit from deep analysis of where the market is going and what will stem demand in long term.
Since impact of digital on lives and businesses continues to increase, semiconductor markets have seen a significant growth trend, with sales increasing by over 20% to ~$600 billion in 2021. Experts believe this industry’s aggregate annual growth is expected to average from 6% – 8% a year up to 2030. As a result of this, a $1 trillion dollar industry might be in the offing by the end of decade. This assumes average price increases of ~2% a year and return to balanced supply and demand post this current volatility.
Given megatrends including remote working, growth of AI, and increased demand for electric vehicles, it is advised that manufacturers and designers should stock up and make sure that they are well-placed to capitalize on the opportunity. Strongest-growing segment might be automotive, and experts believe that they might see tripling of demand. This significant growth is expected to stem from applications including autonomous driving and e-mobility.
Outlook for semiconductor industry appears to be strong, while there are certain short-term volatility as a result of supply–demand mismatches and changing global economic outlook. Given that growth is expected to continue, industry leaders should focus on R&D, factories, and sourcing.
With this in mind, let us have a look at one stock which should outpace average growth of semiconductor industry.
ON Semiconductor Corporation
The company supplies power semiconductors and sensors which are focused on automotive and industrial markets. It has been categorised as second-largest power chipmaker globally and leading supplier of image sensors to automotive market.
ON Semiconductor Corporation has announced results for 2Q23, revenues coming at $2,094.4 million. GAAP and non-GAAP gross margin was 47.4% and the company saw record automotive revenue which exceeded $1 billion, increasing 35% year-over-year. Industrial revenue of the company was $609.3 million, exhibiting 5% rise year-over-year. The company posted excellent quarter as it was able to post revenue and EPS ahead of guidance. This was supported by growth in automotive and industrial.
Operational excellence and winning formula proved to the right strategy in sustaining financial performance, while the macroeconomic environment remains soft. Brownfield capacity expansion continues to create opportunity for the company to gain share in silicon carbide by capitalizing on increased demand for electrification and renewable energy.
ON Semiconductor Corporationand Magna announced long-term supply agreement (LTSA). This relates to Magna integrating the company’s EliteSiC intelligent power solutions into its eDrive systems. By integrating ON Semiconductor’s industry-leading EliteSiC MOSFET technology, Magna eDrive systems will have the ability to provide better cooling performance and rapid acceleration and charging rates. This should help improve efficiency and increase range of electric vehicles.
Apart from this, ON Semiconductor Corporation’s end-to-end silicon carbide (SiC) manufacturing capability and its ability to increase production quickly, improves Magna’s vertical integration and simplifies supply chain to address increasing demand for SiC-based products for EVs.
ON Semiconductor Corporation views that, because range anxiety is a top deterrent for adoption of EV, the company’s technology allows Magna to go further. This helps in easing transition to electrified future. The company’s latest EliteSiC MOSFET technology helps in increasing power density and higher efficiency in traction inverters. This results in improved gas-equivalent miles per gallon. In doing this, driving dynamics and safety does not get compromised. Apart from signing LTSA, the companies have entered separate agreement which focuses that Magna will invest ~$40 million for procurement of new SiC equipment at ON Semiconductor’s New Hampshire and Czech Republic facilities so that access to future supply is ensured. Magna highlighted that secure supply of silicon carbide chips should be important to its ability to continue providing innovative and efficient eDrive systems for customers.
The company has announced that it has secured $1.95 billion in long-term supply agreements (LTSAs) for intelligent power technologies. These agreements have been secured with leading global manufacturers of solar inverters. This should help contribute to the company’s position as the leader in power semiconductor supplier in significantly growing market.
Through providing superior die technology having optimized and customized module design and packaging, the company allows providers of solar inverter to compete on time-to-market, developments related to product, supply resilience and strong quality assurance. Given such benefits, it has signed LTSAs with 8 of the top 10 solar inverter suppliers, further improving the reputation it has earned as trusted industry partner.
The company views that solar power has emerged as one of the leading markets and provides most cost-competitive source for huge renewable energy installations. With the company’s intelligent power technologies, customers will be able to achieve increased efficiency and power density to capture and save as much energy from the sun as possible. Solar inverters help in converting Direct Current (DC) electricity which is generated by solar panels to grid-compatible Alternating Current (AC). Because of this conversion process, some energy is lost as heat. The company’s technology allows solar inverters – ranging from utility to residential – applications to be smaller, and more efficient, which helps in minimizing loss of energy and can reduce overall system cost.
For 3Q, the company expects GAAP revenues in the range of $2,095 million – $2,195 million, with gross margin expected to come between 45.9% to 47.9% and non-GAAP gross margin to be in the range of 46.0% to 48.0%. On the GAAP basis, the company projects operating expenses of between $314 million to $329 million and diluted EPS of $1.21 to $1.35.
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