Episode Details

ON Semiconductor Corporation (onsemi) (ON) Q2 2026 — Reported August 3, 2026 before the open for Q2 2026 (the quarter ended July 3, 2026). Revenue $1,603.5M (+9.2% YoY, +6.0% QoQ) vs ~$1.59B expected. Non-GAAP EPS $0.74 (+39.6%) vs ~$0.715 expected; GAAP EPS $0.56. Non-GAAP gross margin 39.3% (+170bps), non-GAAP operating margin 20.8%. Free cash flow $425.4M, quadruple last year's $106.1M. $332M of buybacks. Q3 guide: revenue $1,650-1,750M, non-GAAP gross margin 40.0-42.0%, non-GAAP EPS $0.81-0.93. Shares closed the regular session at $80.40 (-1.5%) and traded up about 5% after hours to roughly $84.38. The stock is still ~40% below its June 3 close of $133.93. The line nobody printed: onsemi's nine percent revenue growth came almost entirely from one segment. Power Solutions grew 19%, but Analog and Mixed-Signal - a third of the company - SHRANK 2%, and automotive, at 49% of revenue, grew only 6.6%. Two-thirds of onsemi compounded in the mid single digits. And the free cash flow that quadrupled was made with capex of $34.3M in the quarter - $171.6M over the trailing twelve months, under 3% of revenue, for a company that owns its own fabs. Normalise capex to 8% and trailing free cash flow is ~$1.18B, not $1.50B. Meanwhile the Synaptics deal issues ~53M new shares, undoing roughly four years of buybacks. THE CALL: HOLD (3/5, AN EXCELLENT QUARTER AT A DEMANDING PRICE) — base-case value ~$68.0 vs ~$80.4 today. KEY METRICS: - CALL: HOLD 3/5 - fair value ~$68 vs the $80.40 close (-15%), and ~19% below the $84.38 after-hours print. DCF on free cash flow with capex NORMALISED: revenue $6.6B (2026E) compounding to $10.4B by 2031, FCF margin ramping 17% -> 20% as capex normalises to ~8% of revenue. FCF $1.27B (2027) rising to $2.08B (2031). At a 10% discount rate and 3% terminal growth: PV of 2027-2031 FCF $6.26B + PV of terminal value $19.04B = EV $25.30B, less ~$0.59B net debt, / 397M non-GAAP diluted shares = $62/sh. Bear $34, bull $89, prob-weighted 25/50/25 = $62. We sit at $68, above the weighted case, for AI-data-center optionality and Synaptics being modestly accretive to gross margin. - REVERSE DCF: at $80.40 the enterprise value is ~$32.5B. At a 10% discount rate with 3% terminal growth that price demands ~$2.28B of steady free cash flow starting NOW - against ~$1.18B on a normalised-capex basis today. Our base case does not reach $2.28B until after 2031. - STREET: Buy - 24 buy / 22 hold / 1 sell (47 analysts), consensus target $116.13, median $117.50, range $75-$150, about +44% vs the $80.40 close. Recent published targets: Susquehanna $150 (Positive), Wells Fargo $130 (Overweight), Mizuho $125 (Outperform), TD Cowen $95 (Hold). We DIFFER on the rating and are far more CAUTIOUS on the number. The gap is almost entirely the capex assumption and how much automotive recovery you underwrite in advance. - THE PRINT: revenue $1,603.5M (+9.2% YoY, +6.0% QoQ). GAAP gross margin 38.4% / non-GAAP 39.3% (from 37.6%). GAAP operating margin 16.1% / non-GAAP 20.8% (from 17.3%). GAAP net income $226.8M and EPS $0.56; non-GAAP net income $293.8M and EPS $0.74 (from $0.53). R&D $140.8M, essentially flat YoY. Restructuring and asset impairments $41.2M this quarter, against $329.3M in Q1 2026. Management: revenue, gross margin and EPS all above the midpoint of guidance, and 'year-over-year EPS grew four times faster than revenue'. - SEGMENTS: PSG (Power Solutions) $829.0M, +19% YoY and +13% QoQ - nearly all of the growth. AMG (Analog and Mixed-Signal) $545.7M, -2% YoY, driven by an $11.5M decline in the industrial end-market. ISG (Intelligent Sensing) $228.8M, +7% YoY but -3% QoQ. - END MARKETS (from the 10-Q): Automotive $781.3M vs $733.2M, +6.6% - 49% of revenue. Industrial $422.7M vs $406.2M, +4.1%. Other (computing incl. AI data center, consumer, networking) $399.5M vs $329.3M, +21.3%. Management now expects AI data center revenue to MORE THAN DOUBLE in 2026, but has not disclosed the dollar base. - CASH: operating cash flow $459.7M (+150%