ON Semiconductors On Time With Q3 Results Shares of ON Semiconductors (NASDAQ: ON) are breaking out to new highs following the Q3 earnings report. The company, as an American-based manufacturer of semiconductor solutions, was expected to report...

ON Semiconductors Breaks Out To New Highs

Shares of ON Semiconductors (NASDAQ: ON) are breaking out to new highs following the Q3 earnings report. The company, as an American-based manufacturer of semiconductor solutions, was expected to report strong numbers and it did. More importantly, the company effected margin expansion in a world plagued by rising inflation and guided the market above consensus. In our view, the semiconductor industry as a whole is set up to excel over the next several years and ON Semiconductor is a leader in the group.

"We continue to execute our margin expansions plans which drove 310 basis points of non-GAAP gross margin improvement quarter-over-quarter. With a rapidly expanding design-win funnel for disruptive applications such as electric vehicles, ADAS, industrial automation, and alternative energy, coupled with ongoing transformational changes, we are making sustainable progress towards our target financial model."

On Semiconductor Beats And Raises

On Semiconductor had a record-setting quarter in which revenue, margins, and earnings all hit new highs. The company reported $1.74 billion in consolidated revenue driven by gains in all segments. The revenue is up 31.8% from last year and beat the Marketbeat.com consensus by 175 basis points as well. On a segment basis, the ISG segment led with growth of 38% over last year but all segments exhibited high double-digit gains. The strength also helped the company leverage its fixed costs and drive a significant improvement in margins.

Both the gross and operating margins, on both a GAAP and adjusted basis, expanded to set company records. The adjusted gross margin widened 310 points sequentially and 800 basis points over last year to 42.5% while the operating margin widened 490 basis points sequentially and over 1200 points from last year. This drove record-setting GAAP and adjusted earnings that also both beat the consensus estimates. The GAAP $0.70 is up nearly double from last year's $0.38 and beat by $0.11 while the adjusted $0.87 is up nearly 200% and beat by $0.13.

The company is expecting the strength to continue for the foreseeable future and raised the guidance in response to the Q3 results. Management is expecting revenue in a range of $1.74 to $1.84 billion compared to the consensus $1.72 billion and margins are expected to hold up. The new EPS guidance is a range of $0.89 to $1.01 versus the consensus of $0.75 and we see upside risk in the numbers. The semiconductor sector is seeing record demand and demand is growing while capacity is ramping.

"Semiconductor shipments reached all-time highs in the third quarter of 2021, demonstrating both the ongoing high global demand for chips and the industry's extraordinary efforts to ramp up production to meet that demand," says John Neuffer, Semiconductor Industry Association president and CEO.

The Technica Outlook: ON Semiconductor Sets New High

Shares of ON Semiconductor are up more than 10% in the wake of the Q3 earnings report and are trading at a new all-time high. The indicators are strongly bullish and convergent with the new highs so we do expect them to stock. Price action may move lower in the near-term, testing support within and possibly closing the gap that just formed, but new highs are likely on a regular basis over the next several quarters at least.