ON Semiconductor: growth potential due to automotive industry and production expansion

ON Semiconductor Corp. $ON, a semiconductor chipmaker focused on the automotive industry, has been going through a challenging period, with shares down about 31 %. Despite the decline, however, an expected recovery in the automotive market and expansion in manufacturing promise a positive outlook for the future.

Automotive market and demand recovery

The automotive sector accounts for more than half of the company's revenue, and economic factors such as a potential Fed interest rate cut may support growth. Analysts predict a market recovery, which would increase demand for chips and have a positive impact on ON$ON 's revenue . In the third quarter of 2023, the company reported a 4.9% increase in automotive revenue to $951 million, marking a resumption of growth after a weaker second quarter.

Efficiency gains from East Fishkill plant

Another important factor is the company' s acquisition of the East Fishkillplant in New York State from GlobalFoundries. This new plant allows ON Semiconductor $ON to increase chip production capacity at a lower cost, which will help reduce production costs. The combination of savings and higher demand can boost the company's gross margins and support its goal of increasing them to 53%.

Outlook and long-term growth potential

Analysts forecast that ON $ON's total revenues could grow 10% per year to reach $9 billion by 2027. The automotive market, particularly the electric vehicle segment, remains a key growth area, as evidenced by the interest in silicon carbide chips, where ON $ON competes with companies such as STMicroelectronics. This specific growth focus supports ON Semiconductor's long-term value as an attractive investment in the semiconductor segment.

Despite current challenges, ON Semiconductor has a solid foundation for growth due to growing demand in the automotive sector and efficiencies gained from new production capacity.