onsemi (NASDAQ:ON) executives said demand conditions have improved across the company’s end markets, with automotive appearing to have reached a bottom in the first quarter and artificial intelligence data-center demand providing a significant source of growth.
Speaking at the Deutsche Bank Technology Conference, Chief Executive Officer Hassane El-Khoury said the company is now shipping to “natural demand” across its markets, which he characterized as an equilibrium rather than necessarily strong demand. He cited book-to-bill above parity, longer visibility into 2027 and, in some cases, 2028, and extending lead times as signs of improving market conditions.
“If we get orders today and they need them in October, November, and you get a snapback of orders,” El-Khoury said, lead times could extend and allocation could return. He said such a scenario could be more challenging than the COVID-era shortage environment because AI data centers are now a major consumer of manufacturing capacity.
Utilization, inventory and pricing
Chief Financial Officer Thad Trent said onsemi’s factory utilization rose to 83% in the most recent quarter from 68% at the end of last year. He said fully utilized operations would be in the 92% to 93% range. The company’s wafer-to-finished-product cycle time is typically four to six months, while inventory held in die banks can be launched into back-end production on a roughly two-week cycle.
Trent said channel inventory is within onsemi’s targeted range of 10 to 11 weeks. He added that automotive customers generally appear to have worked through inventory digestion, though some remain “dangerously low” on inventory. The company also described its balance-sheet inventory as healthy.
On pricing, Trent said onsemi implemented a first price action in April and is undertaking another round. He said the moves are primarily intended to pass through inflation-related input costs that have already affected the company’s profit and loss statement. The company is also selectively raising prices on constrained products and supply lanes.
AI data center and power infrastructure
El-Khoury said onsemi’s AI data-center revenue is generated across the “power tree,” from high-voltage power products closer to the electrical plug through smart power stages near XPUs. The company raised its 2026 outlook for the business from doubling revenue year over year to more than doubling it, after the first two quarters exceeded its prior expectations.
The CEO said the business is diversified across customers and regions, while the company’s go-to-market strategy varies by the location of its products in the data-center power architecture. Products placed directly on boards generally involve engagements with hyperscalers or GPU and XPU vendors, while other power-conversion products are sold through power-system providers.
El-Khoury also highlighted a prospective transition to 800-volt architecture in data centers beginning around late 2027 or early 2028. He said onsemi has more than five years of experience with 800-volt systems in automotive and is sampling vertical gallium nitride, or GaN, products for both AI data-center and automotive uses.
According to El-Khoury, onsemi’s vertical GaN development was primarily organic, supplemented by a small tuck-in acquisition that added intellectual property. Its vertical GaN manufacturing facility is located in Syracuse, New York. The company also works with Innoscience and GlobalFoundries on lateral GaN, while developing controls and drivers internally through its Treo platform.
Beyond data-center walls, El-Khoury said energy infrastructure is benefiting from an “AI halo” tied to the buildout of AI computing infrastructure. He said onsemi’s energy-infrastructure business is growing 40% year over year and that secular applications represent about 60% of its industrial business. Areas cited included energy storage systems and solid-state transformers, which could gain electronics content as the industry moves toward 800-volt systems.
Automotive, robotics and Synaptics
In automotive, El-Khoury said onsemi expects roughly 6% year-over-year growth despite vehicle production, or SAAR, being flat to slightly down. The company continues to target high-single-digit growth above SAAR through increased semiconductor content. He pointed to electrification, including plug-in hybrids using silicon carbide, as well as software-defined vehicle architectures and zonal systems.
The company said its Treo 65-nanometer mixed-signal analog platform supports products including automotive Ethernet connectivity, smart-power devices and controllers. El-Khoury said Treo-based products carry gross margins in the 60% to 70% range and that onsemi has discussed a $1 billion revenue target for the platform by 2030.
El-Khoury also described robotics as an existing growth area within physical AI, particularly factory automation and autonomous mobile robots. onsemi supplies power, sensing and control products, including ultrasonic, inductive and image sensors. He said humanoid robotics could see volume growth in one to two years, but is not expected to immediately outweigh existing robotics segments.
Regarding Synaptics, El-Khoury said the planned combination would add connected-compute capabilities to onsemi’s power, sensing and control portfolio. He said the companies expect the transaction to close in mid-2027 and that Synaptics also offers tactile-sensing technology relevant to robotics.
Margin outlook and capital spending
Trent said onsemi’s near-term gross-margin recovery is expected to be driven chiefly by higher utilization. He estimated that each percentage point of utilization improvement contributes roughly 25 to 30 basis points of gross margin, and said under-absorption represented a 650-basis-point headwind in the second quarter.
He also cited approximately 200 basis points of potential benefit from manufacturing-footprint initiatives, 200 basis points from a favorable product mix including Treo-based products, and about 200 basis points as bridge inventory associated with prior fab divestitures is depleted and production is brought into onsemi’s own footprint.
The company said it completed its planned exit from $900 million of annualized low-margin business at the end of the second quarter. Trent said onsemi is now in maintenance mode for capital spending, with CapEx expected to remain at a mid-single-digit percentage of revenue for several years. He said revenue would need to increase about 30% from current levels before the company would need to consider adding manufacturing capacity.
About onsemi (NASDAQ:ON)
onsemi is engaged in disruptive innovations and also a supplier of power and analog semiconductors. The firm offers vehicle electrification and safety, sustainable energy grids, industrial automation, and 5G and cloud infrastructure, with a focus on automotive and industrial end-markets. It operates through the following segments: Power Solutions Group, Advanced Solutions Group, and Intelligent Sensing Group. The Power Solutions Group segment offers discrete, module, and semiconductor products that perform multiple application functions, including power switching, power conversion, signal conditioning, circuit protection, signal amplification, and voltage reference functions.
