ON Semiconductor (ON): Net Margin Falls to 7.3%, Undercutting Bullish Narratives on Quality of Earnings
ON Semiconductor (ON) reported net profit margins of 7.3% for the twelve months ending July 2025, marking a significant drop from last year’s 24.8%. Earnings growth turned negative over the past year, impacted by a substantial one-off loss of $634.2 million, even though the company achieved a robust 21.7% average annual earnings growth over the last five years. Looking forward, the company’s forecasted 39% annual earnings growth stands out and may set the stage for a compelling investment debate as margin compression and slower top-line trends continue to emerge.
See our full analysis for ON Semiconductor.
Now, let’s see how these latest figures stack up against the prevailing market narratives and where the consensus could be shifting.
See what the community is saying about ON Semiconductor
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With current net profit margins at 7.3% and analyst forecasts projecting a rebound to 25.6% within three years, a dramatic swing in profitability is expected if manufacturing efficiency and demand recover.
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According to the analysts’ consensus view, ON Semiconductor’s Fab Right initiative and selective capacity reductions are setting up the company for meaningful operational leverage, but there’s tension around persistent underutilization:
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Gross margin expansion will depend on raising capacity utilization rates above the high-60% range, as gross margins have been capped by underused production lines.
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Consensus notes that ongoing transitions in the automotive and AI segments are critical, since these areas could accelerate utilization and drive sustained cash flow if demand materializes as projected.
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Analysts expect shares outstanding to decline by nearly 4% per year in the next three years, contributing to potential earnings-per-share growth on top of margin improvements.
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Consensus narrative holds that portfolio streamlining into higher-margin, differentiated offerings like silicon carbide and advanced sensing will boost average company margins, but execution risk remains around timely growth in new markets.
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While rationalization is meant to shed $200 to $300 million in legacy revenue, consensus recognizes that replacing it with growth from new segments is crucial to realizing the margin rebound.
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Ongoing manufacturing efficiency gains are viewed as a lever, yet the path to consistently high utilization and mix remains dependent on strong, sustained end-market demand.
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Analysts forecast ON Semiconductor’s revenue to grow at 4.7% per year, meaningfully slower than the 10.5% projected growth for the overall US market.
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The analysts’ consensus view underscores that, despite segment wins in automotive and AI, high exposure to cyclical demand and slower EV ramps outside China remain overhangs:
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ON’s leadership in next-generation power solutions signals long-term opportunity, but the consensus notes a near-term drag from exiting legacy lines and regional market dependence.
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If new design wins and product launches in silicon carbide or ADAS outpace the shortfall, consensus suggests annualized revenue growth could accelerate, but the base expectation is subdued versus broader market trends.
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Shares trade at $50.46, which is roughly 13% below the DCF fair value of $59.80 and 12.6% below the analyst consensus price target of $57.77, but with a 44.3x PE that sits above the industry average of 36.1x.
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Analysts’ consensus view highlights that the valuation gap may reflect both future growth optimism and real operational risks:
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While ON’s price-to-earnings ratio is lower than the peer group average (51.1x), the stock’s premium to the industry on a PE basis points to heightened expectations for margin and earnings growth.
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The consensus draws attention to the fact that for the expected earnings ramp by 2028 to justify these multiples and close the valuation gap, portfolio shifts and manufacturing improvements must translate into actual sustained profitability gains.
To see how analysts are reconciling ON’s valuation gap with its future growth story, read the full consensus view on valuation and strategy. 📊 Read the full ON Semiconductor Consensus Narrative.
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To see how these results tie into long-term growth, risks, and valuation, check out the full range of community narratives for ON Semiconductor on Simply Wall St. Add the company to your watchlist or portfolio so you’ll be alerted when the story evolves.
Looking at the numbers from another angle? In just a few minutes, you can craft your own perspective and add to the discussion. Do it your way.
A great starting point for your ON Semiconductor research is our analysis highlighting 2 key rewards and 2 important warning signs that could impact your investment decision.
ON Semiconductor’s revenue outlook trails the broader market, with ongoing concerns about relying on cyclical demand and achieving sustainable top-line growth.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
Companies discussed in this article include ON.
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