ON Semi Earnings Met Expectations. The Stock Is Falling, Anyway.

ON Semiconductor beat second-quarter earnings estimates, and even provided upbeat guidance. (Courtesy Onsemi)

Shares of ON Semiconductor were falling Monday after the chip maker’s quarterly earnings and revenue met Wall Street’s expectations.

The company reported adjusted earnings per share of 53 cents for the second quarter, meeting analysts’ consensus call for 53 cents, according to FactSet. Revenue totaled $1.47 billion, down from $1.74 billion last year but narrowly above Wall Street’s estimate of $1.45 billion.

ON stock was plummeting 11% to $50.83 Monday. It was the worst performer in the S&P 500 and the Nasdaq 100 .

ON shares have fallen 10% this year and 16% over the last 12 months as of Friday’s close, due in part to a decline in demand from the auto industry, one of the company’s key end markets.

Automotive revenue totaled $733.2 million in the second quarter, surpassing the consensus estimate for $716 million. Still, that’s the company’s lowest figure since the first quarter of 2022.

“We are beginning to see signs of stabilization across our end markets, and we remain well-positioned to benefit from a market recovery,” CEO Hassane El-Khoury said in a statement.

Management is forecasting adjusted earnings per share of 54 cents to 64 cents, and revenue of $1.47 billion to $1.57 billion for the third quarter. The midpoints of both ranges were higher than the consensus estimates for adjusted earnings per share of 58 cents on revenue of $1.5 billion.

But analysts were quick to ask about the company’s margins on Monday’s post-earnings conference call.

ON expects an adjusted gross margin of 36.5% to 38.5% in the third quarter, roughly flat compared with 37.6% in the second quarter. The company is targeting 53% gross margins in 2027, which would require greater utilization rates at its facilities. Utilization remained at 68% in the second quarter, flat from the first quarter.

“The key to margin expansion for us is all about utilization,” said ON Chief Financial Officer Thad Trent on the conference call. “We’re in a good spot that when the market does turn, we take utilization up. But we’re being cautious here.”

Write to Nate Wolf at nate.wolf@barrons.com