ON ON Semiconductor
Narrow, eroding moat in a commoditizing SiC market — price bakes in growth this cyclical business can't deliver.
The business
ON Semiconductor designs and manufactures power management and sensing semiconductors, with a major bet on silicon carbide (SiC) power devices for EVs, plus analog/mixed-signal chips for automotive and industrial customers. Revenue is concentrated in cyclical, capital-intensive end markets tied to auto electrification and industrial automation.
Quality gate · 79/100
Moat & management
| Moat | narrow moat |
| Source | switching costs |
| Trajectory | eroding |
| Management | adequate |
Automotive design-in cycles create multi-year customer lock-in and qualification barriers, but the SiC bet that was supposed to be the growth engine is being commoditized fast by Chinese SiC suppliers (including BYD's in-house capacity) and Wolfspeed/Infineon/ST capacity additions, driving severe ASP erosion. 37.5% gross margin is mediocre versus true wide-moat analog peers (65%+), and the 5-year revenue CAGR is negative — evidence the moat isn't pricing power today.
Buybacks have shrunk share count (-2.8% CAGR) and the balance sheet is conservative (net debt/EBITDA 0.56), but the SiC capacity build-out was poorly timed into a price collapse, and FCF conversion (0.81) is unremarkable for a capital-intensive cyclical.
Owner-earnings inputs
| Owner earnings (TTM) | 1.16B |
| Owner-earnings yield | 3.2% |
| Free-cash-flow yield | 3.3% |
| Growth used (normalized) | 6.0% |
| Market-implied growth (reverse DCF) | 25.0% |
| Terminal growth | 3.0% |
| Discount rate (hurdle) | 13.7% |
Projected owner earnings
| Yr | Owner earnings | Growth | PV |
|---|---|---|---|
| 1 | 1.23B | 6.0% | 1.08B |
| 2 | 1.30B | 5.7% | 1.01B |
| 3 | 1.37B | 5.3% | 934.31M |
| 4 | 1.44B | 5.0% | 863.14M |
| 5 | 1.51B | 4.7% | 794.87M |
| 6 | 1.57B | 4.3% | 729.66M |
| 7 | 1.64B | 4.0% | 667.66M |
| 8 | 1.70B | 3.7% | 608.98M |
| 9 | 1.75B | 3.3% | 553.66M |
| 10 | 1.80B | 3.0% | 501.75M |
Key risks
- SiC commoditization from Chinese competitors compressing pricing and share
- Cyclicality in auto/industrial demand causing multi-year revenue troughs
- Heavy capex needs for fab capacity that can strand value if demand disappoints
- Customer concentration risk in EV design wins if EV adoption slows
Catalysts
- Cyclical recovery in auto/industrial inventory destocking
- SiC content growth per vehicle as EV penetration rises globally
- Portfolio simplification toward higher-margin power/sensing mix
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⚠ maintenance capex ≈ min(capex, D&A), capped at FCF · Price pays for ~25%/yr owner-earnings growth over 10y (reverse DCF); model credits 6%. · Rich vs our conservative value, but a quality business is not a short — stance is WAIT for a better price, not sell.