Analog chips maker onsemi (NASDAQ:ON) reported Q2 CY2025 results exceeding the market’s revenue expectations, but sales fell by 15.4% year on year to $1.47 billion. Guidance for next quarter’s revenue was better than expected at $1.52 billion at the midpoint, 1.3% above analysts’ estimates. Its non-GAAP profit of $0.53 per share was in line with analysts’ consensus estimates.
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onsemi (ON) Q2 CY2025 Highlights:
- Revenue: $1.47 billion vs analyst estimates of $1.45 billion (15.4% year-on-year decline, 1.2% beat)
- Adjusted EPS: $0.53 vs analyst estimates of $0.53 (in line)
- Adjusted Operating Income: $254.8 million vs analyst estimates of $254.4 million (17.3% margin, in line)
- Revenue Guidance for Q3 CY2025 is $1.52 billion at the midpoint, above analyst estimates of $1.50 billion
- Adjusted EPS guidance for Q3 CY2025 is $0.59 at the midpoint, above analyst estimates of $0.58
- Operating Margin: 13.2%, down from 22.4% in the same quarter last year
- Free Cash Flow Margin: 7.2%, down from 12% in the same quarter last year
- Inventory Days Outstanding: 207, up from 164 in the previous quarter
- Market Capitalization: $23.74 billion
“Our ongoing transformation is resulting in a more predictable business model, reflecting the strength of our strategy and our commitment to long-term value creation. We are beginning to see signs of stabilization across our end markets, and we remain well-positioned to benefit from a market recovery,” said Hassane El-Khoury, president and CEO, onsemi.
Company Overview
Spun out of Motorola in 1999 and built through a series of acquisitions, onsemi (NASDAQ:ON) is a global provider of analog chips specializing in autos, industrial applications, and power management in cloud data centers.
Revenue Growth
Examining a company’s long-term performance can provide clues about its quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Unfortunately, onsemi’s 3.9% annualized revenue growth over the last five years was sluggish. This fell short of our benchmark for the semiconductor sector and is a tough starting point for our analysis. Semiconductors are a cyclical industry, and long-term investors should be prepared for periods of high growth followed by periods of revenue contractions.
Long-term growth is the most important, but short-term results matter for semiconductors because the rapid pace of technological innovation (Moore's Law) could make yesterday's hit product obsolete today. onsemi’s performance shows it grew in the past but relinquished its gains over the last two years, as its revenue fell by 12.5% annually. 
This quarter, onsemi’s revenue fell by 15.4% year on year to $1.47 billion but beat Wall Street’s estimates by 1.2%. Despite the beat, the drop in sales could mean that the current downcycle is deepening. Company management is currently guiding for a 14% year-on-year decline in sales next quarter.
Looking further ahead, sell-side analysts expect revenue to decline by 3.6% over the next 12 months. While this projection is better than its two-year trend, it’s tough to feel optimistic about a company facing demand difficulties.
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Product Demand & Outstanding Inventory
Days Inventory Outstanding (DIO) is an important metric for chipmakers, as it reflects a business’ capital intensity and the cyclical nature of semiconductor supply and demand. In a tight supply environment, inventories tend to be stable, allowing chipmakers to exert pricing power. Steadily increasing DIO can be a warning sign that demand is weak, and if inventories continue to rise, the company may have to downsize production.
This quarter, onsemi’s DIO came in at 207, which is 50 days above its five-year average, suggesting that the company’s inventory has grown to higher levels than we’ve seen in the past.
Key Takeaways from onsemi’s Q2 Results
It was good to see onsemi provide revenue guidance for next quarter that slightly beat analysts’ expectations. We were also happy its revenue narrowly outperformed Wall Street’s estimates. On the other hand, its inventory levels materially increased and its EPS was in line with Wall Street’s estimates. Overall, this quarter was mixed. The stock traded down 5.6% to $53.63 immediately after reporting.
Big picture, is onsemi a buy here and now? What happened in the latest quarter matters, but not as much as longer-term business quality and valuation, when deciding whether to invest in this stock. We cover that in our actionable full research report which you can read here, it’s free.