ON Q2 earnings decline but the stock is surging, here’s why

ON Semiconductor Corp pulled in $1735.2 million in revenue for the second quarter, achieving a net income of $338.2 million that translated into a diluted EPS of $0.78. The share price of the company is up 12% in the first hour of trading.

The reported revenue beat analysts’ expectations of $1729.12 million but constituted a 17% dip from the previous year. The diluted EPS also missed the target by $0.11.

Despite a declining earnings trend, the share price surged 12% at the market open. Why are investors so interested in the stock?

A promising future

While the numbers tell a disappointing story, the reason for the surge in price can be explained by the CEO’s comments.

We remain dedicated to driving growth through market share gains, doubling down on investments in strategic markets, and expanding the breadth of our portfolio of industry-leading products with analog and mixed-signal solutions.

As the world’s second-largest power chipmaker, Onsemi enjoys its reputation as a big player in the market for power semiconductors and sensors.

The company has a reputation to protect and one year of sideways trading when semi-stock prices are going through the roof had investors worried. But not anymore after the CEO’s upbeat comments.

From the leading supplier of image sensors for the automotive industry to stepping up the game in emerging applications including electric vehicles, autonomous vehicles, and renewable energy, Onsemi intends to cash in on the recent trends.

The uptick in free cash flow is another indicator of the financial health and operational prowess of the company that has impressed investors.

Considering the fact that the company intends to grow aggressively on the back of emerging market trends, this improved cash flow will come in handy.

Partnership with Volkswagen

Just last week the company signed a deal with the German automaker Volkswagen.

It will supply a full stack of silicon carbide tech which itself will be part of an integrated module solution that will work across all power platforms. The CEO added:

By offering a complete power system solution that encompasses the entire power sub-assembly, we provide Volkswagen Group with a single, simplified modular and scalable platform that maximizes efficiency and performance for their vehicle lineup.

Onsemi intends to expand its manufacturing vase in Europe and Volkswagen can become a direct beneficiary of that. This facility will be located in the Czech Republic where Volkswagen already has a presence.

This deal therefore works well for both companies and Onsemi can use it to catapult its way to improved operations in Europe.

For those who missed the Nvidia and Broadcom rally, ON offers an enticing opportunity.

The stock has been trading sideways for a year and that might not be the case any longer after this earnings report. Investors may want to get in on the action quickly.

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