- The Next Generation of the GLP-1 Revolution Is Already Underway
May 11, 2026
AUSTIN, Texas, May 11, 2026 (GLOBE NEWSWIRE) -- BioMedWire Editorial Coverage: Obesity and type 2 diabetes mellitus (T2DM) have become two of the most pressing healthcare challenges worldwide, driving rising rates of cardiovascular disease, fatty liver disease, kidney complications and escalating healthcare costs. What began as a niche class of diabetes medications has evolved into one of the most transformative therapeutic categories in modern medicine, with GLP-1 receptor agonists now reshaping obesity treatment, metabolic care and potentially even neurodegenerative disease management. Against this backdrop, SureNano Science Ltd. (CSE: SURE) (OTCQB: SURNF), (profile) through its subsidiary GlucaPharm Inc., is advancing a differentiated next-generation GLP-1 platform centered on GEP-44, a novel triple agonist peptide designed to improve efficacy, tolerability and delivery flexibility in one of the fastest-growing pharmaceutical markets in history. SureNano is one of the emerging microcap companies operating in the GLP space, forming part of a group of companies leading the way in the GLP-1 space, including Eli Lilly and Company (NYSE: LLY), Novo Nordisk A/S (NYSE: NVO), Amgen Inc. (NASDAQ: AMGN) and Pfizer Inc. (NYSE: PFE).
As the global obesity crisis continues, GLP-1 receptor agonists have rapidly emerged as one of the most important therapeutic breakthroughs in metabolic medicine. SureNano Science is advancing GEP-44 as a next-generation metabolic therapy intended to improve upon limitations associated with first-generation GLP-1 drugs.The global GLP-1 market could total more than $200 billion by 2035 as patient adoption expands and broader therapeutic applications emerge.Beyond therapeutic innovation itself, SureNano Science is also pursuing differentiated drug-delivery technologies designed to improve patient accessibility and adherence.SureNano Science is also evaluating early-stage opportunities that could broaden the long-term scope of its therapeutic and delivery technology portfolio, including exposure to Ibogaine.
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GLP-1 Therapies Reshape Global Healthcare
The global obesity crisis continues to intensify. According to the World Health Organization, an estimated one billion people worldwide are living with obesity, while rates of type 2 diabetes continue to rise across both developed and emerging economies. The WHO further notes that obesity significantly increases the risk of cardiovascular disease, stroke and type 2 diabetes, while additional research has linked excess weight to chronic kidney disease and rising healthcare expenditures, creating substantial pressure on healthcare systems globally.
GLP-1 receptor agonists have rapidly emerged as one of the most important therapeutic breakthroughs in metabolic medicine. Originally developed for blood glucose regulation in diabetes patients, these therapies are now widely recognized for their ability to produce meaningful weight loss and improve broader metabolic outcomes. Industry leaders Novo Nordisk A/S and Eli Lilly and Company currently dominate the market through blockbuster injectable products including Ozempic(R), Wegovy(R), Mounjaro(R) and Zepbound(R).
Commercial expectations surrounding this sector continue to accelerate. JPMorgan Chase & Co. projects the broader obesity drug market could approach $200 billion by 2030 as adoption expands globally and indications broaden beyond diabetes and weight management. Additional industry forecasts suggest GLP-1 therapies could become one of the most commercially successful pharmaceutical categories in history, with annual sales projections reaching $150 billion or more by the end of the decade.
At the same time, the industry is already shifting toward next-generation incretin therapies focused on improving efficacy, tolerability and convenience. Oral formulations, expanded indications and combination metabolic therapies are becoming major priorities across the pharmaceutical sector. Within this evolving landscape, SureNano Science is positioning itself as an agile entrant pursuing differentiated innovation through GEP-44, a patented triple agonist peptide licensed from Syracuse University and designed to advance through the U.S. Food and Drug Administration (FDA) regulatory pathway.
A Differentiated Next-Generation GLP Candidate
SureNano Science is advancing GEP-44 as a patented, next-generation metabolic therapy intended to improve upon limitations associated with first-generation GLP-1 drugs, positioning this emerging microcap as a minnow among giants quickly transitioning through the FDA pathway. Unlike conventional GLP-1 agonists that primarily target a single receptor pathway, GEP-44 functions as a triple agonist targeting GLP-1 and peptide YY receptors Y1 and Y2. This integrated mechanism is designed to simultaneously regulate glucose metabolism, suppress appetite and improve tolerability within a single molecule.
The compound was developed at Syracuse University and has demonstrated encouraging preclinical results. According to the company, GEP-44 produced meaningful reductions in food intake and body weight while also improving glycemic control in preclinical studies. Importantly, the compound reportedly avoided the nausea and gastrointestinal side effects commonly associated with many first-generation GLP-1 therapies, a factor that could become increasingly important as patient adoption expands.
The broader pharmaceutical industry is aggressively pursuing differentiated incretin therapies capable of addressing patient tolerability and adherence challenges. PwC notes that the next phase of the obesity drug market will likely be defined by expanded indications, improved delivery methods and therapies offering better long-term patient adherence. This creates a favorable backdrop for companies pursuing second-generation GLP innovation.
While smaller than major pharmaceutical incumbents, SureNano Science operates with a lean development structure and cost-efficient strategy designed to maximize flexibility and accelerate development timelines. The company conducts significant research activities in Australia, where government incentives may provide research tax credits of up to 43.5% on eligible expenditures. If GEP-44 continues to demonstrate positive outcomes through future clinical development, the company could position itself as a potential acquisition, licensing or partnership candidate within the rapidly expanding GLP ecosystem.
Positioned Within Massive Market Expansion
The commercial opportunity surrounding GLP-1 therapies continues to grow rapidly. According to Morgan Stanley, the global GLP-1 market could approach $190 billion by 2035 as patient adoption expands and broader therapeutic applications emerge. Industry forecasts from BCC Research similarly projects substantial long-term growth — $268.4 billion by 2030 — in the GLP-1 analogue market through the end of the decade.
Patient adoption is also accelerating. Estimates suggest that anywhere from 25 to 30 million Americans could be using GLP-1 therapies by 2030, compared with approximately 10 million users in 2026. Expanding insurance coverage, rising obesity prevalence and broader physician adoption are all contributing to the rapid mainstream acceptance of these therapies.
The competitive landscape is simultaneously evolving toward next-generation products. IQVIA describes 2026 as potentially becoming the “year of the orals,” with oral GLP-1 formulations expected to significantly improve accessibility, adherence and long-term maintenance therapy adoption. Off-patent semaglutide expansion across major global markets is also expected to increase competition and broaden overall patient access.
As GEP-44 advances through IND-enabling studies and toward eventual phase I trials, SureNano Science represents one of the relatively few microcap public companies providing direct exposure to the rapidly expanding GLP-1 market. This creates a potential valuation disconnect compared with large-cap pharmaceutical incumbents and later-stage obesity therapy developers, particularly if the company successfully achieves meaningful clinical and regulatory milestones.
Advanced Delivery Technologies Expand Opportunity
Beyond therapeutic innovation itself, SureNano Science is also pursuing differentiated drug-delivery technologies designed to improve patient accessibility and adherence. The company’s platform strategy includes evaluating oral, sublingual and intranasal delivery approaches that could eventually reduce dependence on injectable therapies.
Convenience and adherence are becoming increasingly important competitive factors within the GLP-1 market. Current market-leading therapies are primarily injectable, which can create barriers for some patients due to administration complexity, refrigeration requirements and long-term compliance challenges. Oral and noninvasive alternatives are widely viewed as one of the next major commercial opportunities within obesity and diabetes therapeutics.
Industry analysts increasingly believe delivery innovation could become just as important as efficacy itself. IQVIA notes that oral obesity therapies could dramatically improve long-term maintenance adoption while simplifying distribution logistics by eliminating cold-chain requirements. This could significantly expand patient accessibility across international markets.
By combining therapeutic development with delivery innovation, SureNano Science is building a vertically integrated metabolic disease platform rather than focusing solely on a single injectable drug candidate. This broader platform strategy may create additional long-term optionality and commercial flexibility as the obesity treatment market continues evolving.
Preclinical Results Highlight Competitive Potential
Preclinical data released by SureNano Science suggest that GEP-44 may offer meaningful differentiation compared with earlier-generation GLP therapies, positioning the company for meaningful upside as it progresses through its development phases of the FDA approval pathway. According to the company, the compound demonstrated approximately 15% weight loss in preclinical testing compared with roughly 9% observed with liraglutide, while food intake reductions approached 39% versus approximately 20% for the comparator.
In addition to weight reduction, GEP-44 also demonstrated improved glycemic control while reportedly avoiding nausea and vomiting during testing. Gastrointestinal side effects remain one of the most significant challenges associated with many currently marketed GLP-1 therapies and are a major factor affecting long-term patient adherence. Improved tolerability could therefore become an important competitive advantage if these findings translate successfully into clinical studies.
The pharmaceutical industry continues investing heavily into next-generation obesity therapies capable of improving efficacy and patient experience. The Pharma Letter reports that obesity drug pipelines are increasingly focused on differentiation through combination pathways, enhanced tolerability and expanded delivery approaches as competition intensifies.
While GEP-44 remains in preclinical development, these early findings position SureNano Science within a highly strategic segment of the obesity treatment landscape. If future studies continue validating these results, the company could emerge as a differentiated participant in one of the largest and fastest-growing therapeutic categories in modern healthcare.
Strategic Expansion Creates Future Optionality
In addition to advancing its core GLP-1 metabolic disease platform, SureNano Science is also evaluating early-stage opportunities that could broaden the long-term scope of its therapeutic and delivery technology portfolio. These discussions include nonbinding opportunities involving ibogaine-related intellectual property focused on formulation and delivery technologies.
While still exploratory and not considered a core asset at this stage, the initiative reflects a broader strategy aimed at building diversified platform capabilities across multiple high-growth therapeutic areas. Interest in ibogaine and related psychedelic-based therapeutics has increased significantly in recent years as researchers investigate their potential applications in addiction treatment, mental health disorders and neurological conditions.
CNN recently reported growing scientific and regulatory attention surrounding ibogaine research, particularly in areas involving opioid addiction and treatment-resistant mental health conditions. At the same time, the U.S. Food and Drug Administration has signaled increasing interest in accelerating development pathways for treatments targeting serious mental illnesses and unmet medical needs.
SureNano’s interest in formulation and delivery technologies within these emerging areas aligns with the company’s broader emphasis on drug-delivery innovation and platform flexibility. Rather than positioning ibogaine-related opportunities as a standalone commercial focus, the company appears to be evaluating how specialized delivery technologies and intellectual property could complement its existing expertise in metabolic therapeutics and nontraditional administration approaches. This type of optionality may provide additional long-term strategic value if regulatory environments surrounding psychedelic-based therapies continue to evolve favorably.
These initiatives remain early stage and subject to substantial scientific, clinical and regulatory uncertainty. However, by evaluating selective expansion opportunities alongside its primary GLP-1 development efforts, SureNano Science is positioning itself within a broader trend toward diversified therapeutic platforms capable of addressing multiple large and evolving healthcare markets. As pharmaceutical innovation increasingly converges around metabolic health, neuroscience and advanced delivery technologies, strategic flexibility could become an increasingly valuable differentiator for emerging biotechnology companies.
GLP-1 Market Enters New Phase
The GLP-1 sector continues to evolve rapidly as pharmaceutical developers expand treatment options for obesity, diabetes and related metabolic conditions. Recent advancements across the space highlight growing momentum behind next-generation oral therapies, long-acting injectable formulations and reduced-frequency dosing approaches designed to improve patient convenience, broaden access and enhance long-term treatment outcomes in one of healthcare’s fastest-growing therapeutic markets.
Eli Lilly and Company (NYSE: LLY) announced that the U.S. Food and Drug Administration (FDA) approved Foundayo(TM) (orforglipron) for adults with obesity or who are overweight with weight-related medical problems. When used alongside a reduced-calorie diet and increased physical activity, Foundayo helps individuals lose excess body weight and keep the weight off. Foundayo will be available via LillyDirect(R), with prescriptions accepted immediately and shipping beginning April 6, followed shortly after with broad availability through U.S. retail pharmacies and telehealth providers.
Novo Nordisk A/S (NYSE: NVO) announced that Ozempic(R) (semaglutide) tablets 1.5 mg, 4 mg and 9 mg will be available for adults with type 2 diabetes in the United States. Ozempic is the only FDA-approved oral peptide GLP-1 medication for adults with type 2 diabetes indicated not only to improve blood sugar, along with diet and exercise, but also to reduce the risk of major cardiovascular events (MACE) such as heart attack, stroke or death in those who are also at high risk for these events.
Amgen Inc. (NASDAQ: AMGN) is reporting full results from part 1 of the phase 2 study of MariTide (maridebart cafraglutide, formerly AMG 133), a long-acting, peptide-antibody conjugate subcutaneously administered monthly or less frequently. In addition to these data, complete results from the primary analysis of the phase 1 pharmacokinetics low-dose initiation (PK-LDI) study evaluating lower starting doses of MariTide were presented as part of an expert-led symposium at the 85th American Diabetes Association (ADA) Scientific Sessions and simultaneously published in “TheNew England Journal of Medicine.”
Pfizer Inc. (NYSE: PFE) announced positive topline results from the phase 2b VESPER-3 study investigating monthly maintenance dosing of its fully-biased, ultra-long-acting, injectable GLP-1 receptor agonist (RA) PF’3944 (MET-097i) in adults with obesity or overweight without type 2 diabetes. The study had two objectives: to demonstrate PF’3944 could achieve continued weight loss when switching from weekly to monthly subcutaneous injections and maintain its efficacy while reducing the dosing frequency four-fold and to demonstrate PF’3944 could switch to a four-fold equivalent monthly dose while maintaining a well-tolerated and favorable safety profile.
These key announcements underscore the continued transformation of the metabolic disease landscape, where innovation is increasingly focused on efficacy, accessibility and patient adherence. As competition intensifies and new formulations move through regulatory and clinical milestones, the GLP-1 market is poised to remain a major driver of growth and innovation across the broader pharmaceutical industry.
For more information, visit SureNano Science.
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- Why ON Semiconductor Corporation (ON) is One of the Top Semiconductor Stocks in Our Ranking of the Top 10 Chip Stocks by YTD Performance
May 7, 2026
ON Semiconductor Corporation (NASDAQ:ON) is one of the top semiconductor stocks in our ranking of the top 10 chip stocks by YTD performance. Morgan Stanley lifted the price target on ON Semiconductor Corporation (NASDAQ:ON) to $85 from $64, reaffirming an Equal Weight rating on the shares. The firm stated that although it anticipates a “a beat and raise” from the company when it reports its financial results after market close on Monday, May 4, it also believes that “the bar is quite high.”ON Semiconductor (ON) Jumps 19% on Automotive Production Ramp-Up
In a separate development, ON Semiconductor Corporation (NASDAQ:ON) announced on April 28 an expanded global strategic collaboration with Geely Auto Group to develop next-generation electric and hybrid vehicles. Management stated that the partnership strengthens system-level integration of ON Semiconductor Corporation’s (NASDAQ:ON) advanced silicon carbide (SiC) technologies across vehicles built on Geely’s SEA-S, the Super Hybrid variant of Geely’s Sustainable Experience Architecture. It further stated that the technologies allow higher-voltage 900V architectures that reduce charging times, extend driving range, and improve efficiency, delivering a driving experience with increased convenience, reliability, and speed to customers across the globe.
ON Semiconductor Corporation (NASDAQ:ON) provides intelligent power and sensing solutions with a primary focus on automotive and industrial markets. The company’s operations are divided into the following segments: Power Solutions Group (PSG), Analog and Mixed-Signal Group (AMG), and Intelligent Sensing Group (ISG).
While we acknowledge the potential of ON as an investment, we believe certain AI stocks offer greater upside potential and carry less downside risk. If you're looking for an extremely undervalued AI stock that also stands to benefit significantly from Trump-era tariffs and the onshoring trend, see our free report on the best short-term AI stock.
READ NEXT: 15 Stocks That Will Make You Rich in 10 Years AND 12 Best Stocks That Will Always Grow.
Disclosure: None. Follow Insider Monkey on Google News.
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- AMG Announces Results of its 2026 Annual General Meeting
May 7, 2026
Amsterdam, 7 May 2026(Regulated Information) --- AMG Critical Materials N.V. (“AMG”, EURONEXT AMSTERDAM: “AMG”) is pleased to announce that during its Annual General Meeting (“AGM”) held on May 7, 2026, shareholders approved all agenda items presented, including amendments to the Remuneration Policy for the Supervisory Board and the Remuneration Policy for the Management Board.
Dr. Donatella Ceccarelli has served on AMG’s Supervisory Board for 12 years and, given the term limits for Supervisory Directors under the Dutch Corporate Governance Code, she retired from her position on AMG’s Supervisory Board at the close of today’s AGM. The Supervisory Board is very grateful for Dr. Ceccarelli’s 12 years of service and her contributions as a member of the Audit & Risk Management Committee and the Selection & Appointment Committee and wishes her well in her future endeavors.
With respect to the vacancy created by Dr. Ceccarelli’s retirement, the Supervisory Board welcomes its newest member, Mr. Frank Loehner, who was appointed during today’s AGM as an independent member for a term of four years beginning May 7, 2026. Mr. Loehner is a financial expert, former investment banker, and accountant.
This press release contains inside information within the meaning of Article 7(1) of the EU Market Abuse Regulation.
This press release contains regulated information as defined in the Dutch Financial Markets Supervision Act (Wet op het financieel toezicht).
About AMG
AMG's mission is to provide critical materials and related process technologies to advance a less carbon-intensive world. To this end, AMG is focused on the production and development of energy storage materials such as lithium, vanadium, and tantalum. In addition, AMG's products include highly engineered systems to reduce CO2 in aerospace engines, as well as critical materials addressing CO2 reduction in a variety of other end use markets.
AMG’s Lithium segment spans the lithium value chain, reducing the CO2 footprint of both suppliers and customers. AMG’s Vanadium segment is the world’s market leader in recycling vanadium from oil refining residues, spanning the Company’s vanadium, titanium, and chrome businesses. AMG’s Technologies segment is the established world market leader in advanced metallurgy and provides equipment engineering to the aerospace engine sector globally. It serves as the engineering home for the Company’s fast-growing LIVA batteries, NewMOX SAS formed to span the nuclear fuel market, and spans AMG’s mineral processing operations in graphite and antimony.
With approximately 3,600 employees, AMG operates globally with production facilities in Germany, the United Kingdom, France, the United States, China, Mexico, Brazil, India, and Sri Lanka, and has sales and customer service offices in Japan (www.amg-nv.com).
For further information, please contact:
AMG Critical Materials N.V. +49 176 1000 73 14
Thomas Swoboda
tswoboda@amg-nv.com
Disclaimer
Certain statements in this press release are not historical facts and are “forward looking.” Forward looking statements include statements concerning AMG’s plans, expectations, projections, objectives, targets, goals, strategies, future events, future revenues or performance, capital expenditures, financing needs, plans and intentions relating to acquisitions, AMG’s competitive strengths and weaknesses, plans or goals relating to forecasted production, reserves, financial position and future operations and development, AMG’s business strategy and the trends AMG anticipates in the industries and the political and legal environment in which it operates and other information that is not historical information. When used in this press release, the words “expects,” “believes,” “anticipates,” “plans,” “may,” “will,” “should,” and similar expressions, and the negatives thereof, are intended to identify forward looking statements. By their very nature, forward-looking statements involve inherent risks and uncertainties, both general and specific, and risks exist that the predictions, forecasts, projections and other forward-looking statements will not be achieved. These forward-looking statements speak only as of the date of this press release. AMG expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statement contained herein to reflect any change in AMG's expectations with regard thereto or any change in events, conditions, or circumstances on which any forward-looking statement is based.
Attachment
Results of the 2026 AGM
- Thursday 5/7 Insider Buying Report: NSP, AMG
May 7, 2026
As the saying goes, there are many possible reasons for an insider to sell a stock, but only one reason to buy -- they expect to make money. So let's look at two noteworthy recent insider buys.
On Tuesday, Insperity's CEO, Paul J. Sarvadi, made a $2.87M buy of NSP, purchasing 100,000 shares at a cost of $28.73 a piece. Sarvadi was up about 12.2% on the buy at the high point of today's trading session, with NSP trading as high as $32.25 at last check today. Insperity is trading up about 9.2% on the day Thursday. Before this latest buy, Sarvadi made one other purchase in the past year, buying $4.69M shares for a cost of $23.21 each.
And on Wednesday, Director G. Staley Cates purchased $458,745 worth of Affiliated Managers Group, purchasing 1,500 shares at a cost of $305.83 a piece. Affiliated Managers Group is trading down about 0.7% on the day Thursday.
VIDEO: Thursday 5/7 Insider Buying Report: NSP, AMG
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
- Tweedy Browne's Strategic Moves: Ionis Pharmaceuticals Inc. Sees Significant Reduction
May 6, 2026
This article first appeared on GuruFocus.
Analyzing the Impact of Tweedy Browne (Trades, Portfolio)'s Recent 13F Filing
Warning! GuruFocus has detected 5 Warning Signs with CNH. Is CNH fairly valued? Test your thesis with our free DCF calculator.
Tweedy Browne (Trades, Portfolio) recently submitted the 13F filing for the first quarter of 2026, providing insights into its investment moves during this period. Tweedy Browne (Trades, Portfolio)'s operations are managed by its Management Committee, which consists of Jay Hill, Thomas H. Shrager, John D. Spears, and Robert Q. Wyckoff, Jr., who have been with the firm for tenures ranging from 18 to 47 years. Tweedy Browne (Trades, Portfolio) is owned by its Managing Directors and certain other employees and by a wholly-owned subsidiary of Affiliated Managers Group, Inc. ("AMG"), which owns a majority interest in the firm. AMG provides the Firm with operational autonomy and a seamless mechanism for ownership transfer and succession. Benjamin Graham, through his investment firm Graham-Newman Corp., was one of the firm's primary brokerage clients in the 1930s, 1940s, and 1950s. The Tweedy Browne (Trades, Portfolio) Value Fund seeks long-term growth of capital by investing primarily in U.S. and foreign equity securities that the Adviser believes are undervalued. Investments are focused in developed markets. The fund seeks to reduce currency risk by hedging its perceived foreign currency exposure back into the U.S. dollar where practicable.
Summary of New Buy
Tweedy Browne (Trades, Portfolio) added a total of 6 stocks, among them:
The most significant addition was Jazz Pharmaceuticals PLC (NASDAQ:JAZZ), with 60,209 shares, accounting for 0.9% of the portfolio and a total value of $11.38 million. The second largest addition to the portfolio was Asbury Automotive Group Inc (NYSE:ABG), consisting of 7,253 shares, representing approximately 0.11% of the portfolio, with a total value of $1.42 million. The third largest addition was The Cigna Group (NYSE:CI), with 5,375 shares, accounting for 0.11% of the portfolio and a total value of $1.43 million.
Key Position Increases
Tweedy Browne (Trades, Portfolio) also increased stakes in a total of 46 stocks, among them:
The most notable increase was KT Corp (NYSE:KT), with an additional 79,772 shares, bringing the total to 167,181 shares. This adjustment represents a significant 91.26% increase in share count, a 0.13% impact on the current portfolio, with a total value of $3.59 million. The second largest increase was StoneX Group Inc (NASDAQ:SNEX), with an additional 20,021 shares, bringing the total to 54,035. This adjustment represents a significant 58.86% increase in share count, with a total value of $4.36 million.
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Summary of Sold Out
Tweedy Browne (Trades, Portfolio) completely exited 9 of the holdings in the first quarter of 2026, as detailed below:
General Motors Co (NYSE:GM): Tweedy Browne (Trades, Portfolio) sold all 25,695 shares, resulting in a -0.17% impact on the portfolio. Atmus Filtration Technologies Inc (NYSE:ATMU): Tweedy Browne (Trades, Portfolio) liquidated all 40,550 shares, causing a -0.17% impact on the portfolio.
Key Position Reduces
Tweedy Browne (Trades, Portfolio) also reduced positions in 29 stocks. The most significant changes include:
Reduced Ionis Pharmaceuticals Inc (NASDAQ:IONS) by 189,305 shares, resulting in a -7.68% decrease in shares and a -1.21% impact on the portfolio. The stock traded at an average price of $78.92 during the quarter and has returned -11.16% over the past 3 months and -2.86% year-to-date. Reduced FedEx Corp (NYSE:FDX) by 38,712 shares, resulting in a -34.34% reduction in shares and a -0.9% impact on the portfolio. The stock traded at an average price of $347.13 during the quarter and has returned 2.57% over the past 3 months and 31.11% year-to-date.
Portfolio Overview
At the first quarter of 2026, Tweedy Browne (Trades, Portfolio)'s portfolio included 93 stocks, with top holdings including 17.61% in CNH Industrial NV (NYSE:CNH), 13.57% in Ionis Pharmaceuticals Inc (NASDAQ:IONS), 9.07% in Coca-Cola Femsa SAB de CV (NYSE:KOF), 8.22% in Berkshire Hathaway Inc (NYSE:BRK.A), and 4.53% in Alphabet Inc (NASDAQ:GOOGL).
The holdings are mainly concentrated in 9 of all the 11 industries: Healthcare, Industrials, Financial Services, Consumer Defensive, Consumer Cyclical, Communication Services, Energy, Technology, and Basic Materials.
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- Amwell (AMWL) Q1 2026 Earnings Transcript
May 6, 2026
Image source: The Motley Fool.
Date
Tuesday, May 5, 2026 at 5 p.m. ET
Call participants
Chairman & Chief Executive Officer — Ido Schoenberg President & Chief Financial Officer — Mark Hirschhorn
Full Conference Call Transcript
Ido Schoenberg: Thank you, operator. Good evening, everyone. Over the past 12 months, we focus on what matters most, solving clear urgent customer needs. We deliver dependable, unified platform, and the market is responding. Elevance renewed for 3 years. DHA deployed globally. Our pipeline is growing. CMS is increasingly making telehealth flexibilities permanent. And in 2025, we reduced losses by $100 million. We also significantly grew our subscription revenue mix. We have ample cash, no debt and a clear path to cash flow breakeven in Q4 with real confidence in multiyear growth beyond it. Amwell entered 2026 with one focus, consolidate our platform and deliver what payer and provider customers need most today and in the future.
The market opportunity is real and urgent. Payers are under serious margin pressure. Premiums are not keeping pace with the total cost of care. Technology-enabled care and AI-powered clinical programs, in particular, are now one of the most critical levers payers have. They help control costs. They help improve outcomes. They help payers compete for members and sponsors. This is no longer speculative. It is a survival imperative, but adoption remains hard. Despite strong demand, customers are struggling. Vendor sprawl is a real burden. Legacy tech stacks and internal silos make it expensive to integrate point solutions. The result, fragmented member experiences and very limited visibility into what actually works. Customers cannot easily measure performance across their programs.
Switching between them or optimizing member attribution is slow, expensive and painful. That is exactly where we step in. Amwell solves this. We offer a trusted, proven technology-enabled care infrastructure, a unified digital stack that lets health care sponsors act as their own system integrators. Customers white label and embed the clinical programs their members need directly within their own digital front door. They control navigation, they monitor results. And those results go to the heart of their business, lower costs, better outcomes and stronger market share. With Amwell, customers get one unified engagement and navigation platform. It reduces acquisition and retention costs. It matches each patient with the most effective program based on client-defined rules.
And it aims to deliver unified analytics across every program, so clients can see what works, document outcomes and adjust quickly. Clients can adjust service attribution by member, group or cohort. They can add Amwell native clinical programs, third-party programs or their own preferred programs. That level of control and agility is highly valued and desired. The Amwell platform is built for where AI is going next. The industry is moving fast from generative AI to agentic AI. These are systems that don't just create content. They execute tasks autonomously across complex workflows. Our customers are preparing for this shift. The Amwell platform is positioned to be the governed environment where these agents operate safely, effectively and at scale.
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We are not positioning Amwell as an AI feature. We are the infrastructure layer where AI-powered care becomes operational and measurable. A critical enabler of effective AI is data. Because our platform serves as a common infrastructure across all programs, we aim to maintain a unified data structure that is unique in our industry. Before care begins, we look to share relevant member information with clinical programs, which the patient has selected so they can engage effectively from the first interaction. After care is delivered, we aim to collect and consolidate outcomes data across all programs. That data improves attribution, drives personalization and makes every AI-driven program more effective over time.
This unified data foundation may create a significant and durable competitive advantage for us. We also have powerful validation at scale. Elevance Health, one of the largest payers in the country, has renewed with Amwell for 3 more years. That is a strong vote of confidence in our platform and the value we deliver in one of the most sophisticated operating environments in the market. We also have powerful validation on the government side. The military health system contract extension in August 2025 put our platform in front of 9.6 million military beneficiaries across the globe, connecting deployed units in and outside combat zones with military hospitals.
That level of security, scale and mission-critical reliability is exactly what other government entities, payer and health system clients are looking for. The regulatory environment is now working in our favor. CMS has made telehealth permanently accessible. Rural geographic restrictions are gone. Home-based telehealth is extended through at least 2027. Virtual behavioral health is now a permanent part of Medicare. New reimbursement code for advanced primary care management and behavioral health integration are creating further incentives to shift care into virtual and community-based settings. This is a direct tailwind for our platform. We have also transformed how we operate. Alongside strengthening our platform, we made meaningful operational improvements, sharper focus, significant organizational changes and more efficient ways of working.
In 2025, we reduced net loss and adjusted EBITDA losses by approximately $100 million. Subscription revenue grew to 53% of total revenue, a recurring stable income stream. And the market is responding. Renewals are strong, pipeline growth is significant. Our offering is resonating with existing customers and new ones alike. We enter this next phase with $182 million in cash, no debt, a clear path to cash flow breakeven in Q4 of this year and a view towards multiyear growth beyond that milestone. We have a clear strategy, a mature and highly relevant platform, an efficient operation and financial stability that gives us the runway to execute. We are excited about what is ahead.
And now I would like to turn to Mark for a closer review of our performance. Mark?
Mark Hirschhorn: Thanks, Ido, and good afternoon, everyone. On today's call, I'll start with a few highlights from the first quarter, walk through our financial results in detail and close with an update on our second quarter and full year 2026 outlook. In the first quarter, we delivered strong results across revenue, gross margin and adjusted EBITDA. The outperformance was driven by strong visit volumes in urgent care and clinical programs with continued cost discipline. These results demonstrate continued progress on our path toward profitability and reinforce our confidence in the trajectory of our business. Total revenue for the first quarter was $54.9 million, down approximately 18% year-over-year.
Subscription revenue was $24.9 million, down approximately 23% year-over-year, driven primarily by previously disclosed churn. Encouragingly, renewals and retention were higher than budgeted in the first quarter, providing greater confidence in the stability of our subscription base going forward. Amwell Medical Group, or AMG visit revenue was $28.9 million, up approximately 9% year-over-year. AMG paid visits totaled approximately 382,000 visits, up slightly year-over-year with revenue per visit of approximately $76 up approximately $5 per visit year-over-year, reflecting the growing contribution of our clinical programs and the broader shift in our visit mix toward higher acuity, higher-value care.
Virtual primary care continued its strong growth trajectory with visits up approximately 57% year-over-year, underscoring the increasing adoption of our VPC offering across our client base. Total platform visits were 1 million visits, down approximately 19% year-over-year, which is in line with the portfolio changes we have previously discussed. Gross profit was $28 million with a gross margin of 51%, down approximately 180 basis points year-over-year from 52.8% in the first quarter of 2025. Near term, our existing revenue mix will likely generate a margin profile similar to what we just generated.
We continue to see our projected revenue mix shifting toward higher-margin SaaS offerings, which we believe will support margin expansion over the next several years as our scale improves. Total operating expenses were $45.4 million, down approximately 31% year-over-year. As a percentage of revenue, operating expenses improved to 82.6% from 98.3% in Q1 of 2025, reflecting the benefits of our transformation actions and continued cost discipline. Adjusted EBITDA for the first quarter was a loss of $3.1 million compared to a loss of $12.2 million in Q1 of 2025, representing a $9.1 million improvement. Operating loss was $17.4 million compared to $30.4 million in Q1 of 2025, an improvement of approximately 43% year-over-year. Now turning to the balance sheet.
We reported cash burn of approximately $3.1 million, down from $19 million last quarter. We ended the quarter with $179 million in cash and investments with 0 debt. Now turning to guidance. For the second quarter of 2026, we expect revenue in the range of $48 million to $52 million and an adjusted EBITDA loss in the range of negative $4 million to negative $2 million. This Q2 outlook reflects normal seasonality in visit volumes and the continued step down in subscription revenue impacted by previously discussed churn. Additionally, for the full year, we are reiterating our revenue outlook and updating our expectations for adjusted EBITDA.
The revised adjusted EBITDA range reflects the progress we've made in the first quarter and that which we expect to continue throughout 2026. We now expect full year 2026 to generate revenue in the range of $195 million to $205 million and adjusted EBITDA loss of $16 million to $12 million compared to our previous range of a loss of $24 million to $18 million. The strength of Q1 gives us increased confidence in our goal of achieving positive cash flow from operations in the fourth quarter of this year. In summary, Q1 was a promising start to the year.
Visit volume momentum, stable subscription revenue and a leaner cost structure give us confidence that we are on the right path. I want to thank the entire Amwell team for their hard work and dedication. These results reflect their efforts. With that, I'll turn it back to Ido.
Ido Schoenberg: Thank you, Mark. We are encouraged by our progress. It was made possible by the amazing team at Amwell. We feel privileged to help improve care for millions of patients and especially for the men and women in our military and their families around the globe. Amwell is playing an important role in transforming health care. What we do matters, and we believe it will only become more valuable going forward. We are proud of what we've accomplished, and we are truly excited about the road ahead. With that, I'd like to open the call for questions. Operator, please go ahead.
Operator:[Operator Instructions] Our first question comes from the line of John Park of Morgan Stanley.
John Park: On the DHA relationships, could you remind us or help us understand if there's any dependencies on the broader DHA's GENESIS or partners like Leidos and if that ecosystem dynamic would influence any renewal decision in the near future?
Mark Hirschhorn: I believe, Ido, may be having some tech problems.
Ido Schoenberg: I'm sorry, I'm back, I apologize for this. Can you hear me now?
John Park: Loud and clear.
Ido Schoenberg: Okay. So essentially, when we take this incredibly important customer, the DHA, we really focused on delivering on their very specific and high expectations. We are privileged to have many other players involved, but our focus remains on making sure that first and fore, we put the customer first. There are many changes happening in different areas, but the service that we are providing and the integration into the backbone of the DHA remains constant.
From where we sit and we strongly believe that based on our performance and relationship, we would likely hope and believe we are going to renew and continue to serve this customer for many years, recognizing that not all the players -- other players may or may not continue in the same format, but we are fairly confident and hopeful that we will, although we can never take it for granted and we work every day to continue and justify their trust.
John Park: Got it. My just follow-up would be, you talked about perhaps the broader pipeline. I remember perhaps the broader government pipeline you talked in the past. When you think about the rural health transformation initiative, I was wondering if you see any opportunities that this program could serve as a diversification lever relative to the broader government portfolio?
Ido Schoenberg: You're absolutely correct, John. In general, as we focus our efforts on our single platform and related products, I mentioned in my prepared remarks that people have great clarity. about the value that we bring and see the urgency in fulfilling that value that we believe we provide fairly uniquely. That's true for health system. It's certainly very true for commercial payers. And now that we have demonstrated in very large scale in a very unique and challenging environment of the GovCloud, our ability to operate there, that's not lost on government entities.
From where we see it, we certainly believe that we are going to continue to grow in the commercial space, but also in the government space going forward. We are trying to submit RFPs to many of the opportunities that you mentioned in rural health. This is a long process. We believe we are well positioned, but the jury is still out as to the results, and we'll just have to wait patiently with everybody else. That's not the only opportunity in government that we are pursuing. We're pursuing other opportunities as well. And that's certainly part of the pipeline I talked about and Mark mentioned as well.
Operator: Our next question comes from the line of Corey DeVito of Wells Fargo.
Corey DeVito: This is Corey on for Stan Berenshteyn. Two questions on my end. One, any update on upselling the scope of the current DHA contract? And then the second one, what's the driver of the sequential increase in deferred revenue? I believe it's up $7 million quarter-over-quarter.
Ido Schoenberg: I'll take the first, and Mark will answer the second part of your question, Corey. Thank you. As it relates to the DHA, we are laser focused, as I mentioned earlier, on renewing our agreement for the current scope, and we are hopeful that, that's going to be the case. As it relates to further expansion, especially behavioral health, what we know is that we did deploy that successfully in the past, quite significantly in different demonstrative regions. And we know that it delivered on the value. The decision, of course, lies with the customer, and we hope they will expand at some point, but we don't have any specific information as to if and when at this point.
And with that, I'll turn to Mark for the second part of your question.
Mark Hirschhorn: Yes. The deferred revenue is purely a result of timing based on the renewals of some of our largest clients, those which took place in the first quarter as compared to prior year, which took place at the end of the calendar year.
Operator: Our next question comes from the line of Charles Rhyee of TD Cowen.
Charles Rhyee: Congrats on all the progress that you've made so far. Ido, you made the comment earlier that the pipeline is growing and obviously, where subs and renewal and retention better than expected. So kind of giving you confidence in sort of the model as it goes forward. But maybe to dive into the pipeline a little bit more. Can you give us a sense on the mix of what that pipeline is maybe from a -- maybe a dollar standpoint to think through how much is health plans, health systems, government? Because when we look at 2025 revenues, Elevance obviously, is your largest customer, a fairly significant mix. DHA is not too far behind.
And then there's a decent concentration in the top 10 as well. So just trying to understand, as we think forward, as we get through this period and we think about where growth is coming from, if you could help us understand where the opportunities you think are sort of the easiest to go after and sort of what that -- and how does that pipeline kind of reflect that?
Ido Schoenberg: Absolutely, Charles, and thank you for joining. Good to hear your voice. As it relates to the pipeline, as we mentioned earlier, it is significant and very different from the past years. I'll talk about it a little bit qualitatively. Essentially, the exciting news is that our new platform, the Amwell platform resonates really, really well across the market. And that's a tool that allows us not only to have subscription revenues, but also to grow the related clinical services, Amwell and non-Amwell services that we also generate revenue from when we do that.
I mentioned earlier that while this technology and these services are relevant to health systems, to payers and to government entities across the board, we really believe that the most pressing need, obviously, is with large payers. They clearly need an infrastructure like that. And when that happens, 2 things happen.
One, we have some new logos, but much more importantly, as they deploy our platform, it contributes to same-store growth, as it becomes more and more efficient in creating engagement with more members, and it is built to increase same user utilization of the clinical programs I discussed, encouraging the sponsors to continue and finance both engagement and coverage as we are able to demonstrate and prove outcomes, financial and clinical outcomes that also drive success in open enrollment and market expansion.
So I believe that it's very refreshing for us to see a product mix that used to be many, many products across vast markets narrowed down to essentially one platform and related services and still generates a very healthy growth in pipeline and a healthy level of enthusiasm by existing in a new potential customers.
Charles Rhyee: Is there any way -- can you share maybe sort of what that kind of growth looks like? Are we talking double-digit growth in the pipeline maybe since last year? Or anything you can share in terms of sort of the growth outlook?
Mark Hirschhorn: Charles, I would just jump in and suggest that the pipeline is a multiple of what it had been last year. So it would be closer to triple digit as a result of those opportunities that Ido addressed. And again, primarily, it falls in line with what we believe will be principally components of government opportunities.
Charles Rhyee: Okay. And maybe just one more, if I may. I think to a previous question, getting an update on DHA. Can you remind us the time lines of when you would expect to get a decision on, a, the renewal? And remind us in the off chance that there isn't a renewal, what is the fallback for the government? Because the DoD because my understanding is they don't really have one. And then lastly, can you kind of remind us what the opportunities are for expansion with this renewal? Would they come together? Or would those be 2 separate decisions?
Mark Hirschhorn: Yes, Charles. So the renewal, we think, is going to be very straightforward. We believe that will be completed at the end of the quarter, start of the third quarter, perhaps July. We also believe that the opportunity to expand that will take place after the initial renewal. And as Ido alluded to earlier, whether that's a direct contract, whether we continue to work with our Leidos partners, irrespective of who ends up being the contracting party, we feel very confident that, that renewal is going to commence within that time frame I just spoke to.
Operator: Our next question comes from the line of Jailendra Singh of Truist Securities.
Jailendra Singh: My first question is around the visit volume in the quarter, around 1.1 million. How did that track compared to your internal expectations? And what's driving the full year guidance of $1.3 million to $1.37 million? Some providers have talked about soft volume trend. They saw soft flu season, some weather disruption, which might have been a tailwind for you. Just curious like puts and takes you saw in Q1 and how we think about the trends for the rest of the year?
Mark Hirschhorn: Hi, Jailendra, it's Mark. The trends were positive in both regards to premium-priced visits. So those that represented more higher-priced care specifically those clinical programs and virtual primary care as opposed to what had been the vast majority of our revenue-producing visits coming from urgent care in prior periods. We've also seen a nice high single-digit growth in volume. So we did not experience what some others may have told you was soft. We actually saw a nice seasonal boost that brought us through to the end of the quarter. And now we're obviously seeing the expected seasonality set in. So it was a nice surprise.
It was one that I think was supported by the fact that we've got some additional ASO clients participating in the offerings that we've introduced. So the trend is positive, and we expect it to continue throughout the year.
Jailendra Singh: Great. And then my follow-up, your comments around a number of meaningful renewals and strong pipeline. How often do AI capabilities come up in your client discussions now? And is the behavior different when you're talking to a health plan versus health system? And related to that, when clients evaluate your AI capabilities, are they willing to pay explicitly for those? Or they're saying like they should be bundled in your current platform and pricing? Just how are those conversations evolving?
Ido Schoenberg: Hi, Jailendra, that's a great question. So essentially, the answer is a little bit complex in this -- when people buy the platform, some of the AI capabilities that we use directly relate to things like consumer experience, streamlining navigation, providing sophisticated analytics and things of -- such things. Interestingly enough, not all our customers are ready to accept those modules. Some of them actually are very cautious about those models and really focus on the reoccurring, stable, proven parts of our platform as their main interest. However, all our customers, without exceptions, are eager and ready to test AI-driven clinical programs on our platform.
And the reason is that we built the platform such that integration is very fast and the integration and replacement is even faster without changing many things like the consumer experience or the analytics. So there is a general recognition that AI clinical programs are necessary in order to achieve improved clinical and financial outcomes and they prove them. But that does not necessarily need to be expressed in the risks related to the actual platform, but rather more to the different programs that people test.
So while we have a healthy bit of AI in our own offering, which we deploy to customers who are ready to benefit from it, the most important value that we bring is the safe, reproducible, scalable way for our customers to test different options. Most of them are AI-driven, not necessarily for a full cohort, but rather to certain ASOs versus others and so on and so forth and then really manage risk while having access to all the opportunities that all those innovations bring to them.
Operator: Our next question comes from the line of David Larsen of BTIG.
David Larsen: Can you talk a little bit more about the Defense Health Agency contract? I think there was a component in there. I think it was mental health that didn't renew, that might renew in the future and expand. What is the annual dollar value amount of that, please?
Mark Hirschhorn: David, we can't speak to the exact dollar value of that, but we would expect it to represent in excess of 15% to 20% of the total value of the platform today. That's based on the experience that we had at the beginning of 2025 when the DHA was actively using those services. We are fully engaged in the discussion around reintroducing those services. However, we believe that will likely take place after the effective renewal of the base services earlier this summer.
David Larsen: And can you please talk about the nature of those services? Is it mental health? Is that correct? And I would think there's no greater need that the military has the mental health services given sort of the nature of their roles and their jobs. And I would think that the federal government would be very sympathetic towards supplying whatever support they can to serve our men and women in uniform.
Ido Schoenberg: David, this is Ido. Obviously, I totally agree with you, and we are very hopeful that's going to happen. The sequence is as follows: we are very grateful to be in a position to be the backbone and the infrastructure for technology-enabled care for the U.S. military. That relates to the core connection between any member of this wonderful family and their doctors, wherever they are. So that's Amwell. In addition to that, one of the clinical programs that fits, obviously, as a native solution, totally integrated in our solution is our behavioral -- automated behavioral health program that one of its main benefits is that it allows for a handful of therapies to reach dramatically more patients.
So -- and that's a giant problem. There is a giant supply and demand in behavioral health in general, and that also includes an environment like this environment. And this is not theoretical. I mean we've tried it in this environment. We integrated it and it works and it's needed. The customer decided because of their own reasons to defer that deployment after we've proven that it works well and fully integrated, and that's perfectly fine. Should the client decide to add that again, the speed is going to be very, very quick. We believe it's going to be very helpful, and it does make sense. But these are totally the decisions of the customer, not our decisions.
We know that it worked really well, not only in places like the DHA, but for example, in the National Health Service, the NHS in the U.K. where studies proven that we could dramatically change the ratio between therapists and patients. And that's obviously a wonderful thing, both in way of cost, but more importantly, in way of accelerating access that is such a pain point for everybody.
David Larsen: And then for 2027, would you expect revenue to grow on a year-over-year basis? And I understand there's been some churn. I guess, any more color around the churn that has already occurred? Why has it occurred? Is it maybe 1 or 2 clients? And then would you expect revenue to grow in '27 relative to '26?
Mark Hirschhorn: Sure. 2026 churn has been immaterial. We would always expect low single-digit churn as we would in any business in a competitive market. We do have significant expectations for revenue growth. I had alluded to that even at the end of last year that even if a part of our pipeline converts this year, we expect to have meaningful revenue improvement in 2027 coming from these new government contracts.
David Larsen: And one more quick one. Mark, fantastic job getting a lot of these costs under control. Just are you sort of there? Or how much more in incremental annualized cost can you pull out of the business and nice work, by the way.
Mark Hirschhorn: I appreciate that. Of course, I speak on behalf of all my colleagues as well because, as you know, it takes teams, essentially a village to get there. People have done much more with far less in this company over the past 18 months. We are all very pleased with where we are. However, everybody understands that the job is not finished yet. We have the next couple of quarters to ensure that we complete some of the initiatives that we've invested in over the past several quarters, but we do have a step down of costs, which means a lower operating cost basis coming out of the third quarter. So we are well on our way.
You could probably tell that we're very optimistic and excited about achieving that milestone, but we're also very excited about what we believe is going to be meaningful growth next year.
Operator:[Operator Instructions] I'm showing no further questions at this time. So I would like to return it to Ido for closing remarks.
Ido Schoenberg: Thank you, Ari, and thank you, everyone, for joining. We truly appreciate your many years of support in Amwell and look forward to talking with you all soon. Take care.
Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
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- onsemi Reports First Quarter 2026 Results
May 4, 2026
Year-over-year operating income growth outpaces revenue growth by 2x
SCOTTSDALE, Ariz., May 04, 2026 (GLOBE NEWSWIRE) -- onsemi (the “Company”) (Nasdaq: ON) today announced its first quarter 2026 results with the following highlights:
Revenue of $1,513 million, exceeding the midpoint of our guidance GAAP and non-GAAP gross margin of 38.5% GAAP operating margin of (3.5)% and non-GAAP operating margin 19.1% GAAP diluted loss per share of ($0.08) and non-GAAP diluted earnings per share $0.64 Share repurchases of $346 million, representing approximately 160% of free cash flow
“We exceeded expectations as demand strengthened through the quarter and we have moved beyond the cyclical trough on a path to recovery. Our AI data center business accelerated, growing more than 30% sequentially.” said Hassane El‑Khoury, President and CEO of onsemi. “Looking ahead, we are encouraged by the underlying health of the business and the long‑term opportunities driven by increasing semiconductor content in automotive, industrial and AI data center applications.”
“With our operational improvements, we delivered strong operating leverage in our business with a 10% year-over-year increase in operating income, outpacing revenue growth by 2x. The strength of our portfolio and optimized cost structure position us to accelerate margins and earnings as market conditions continue to improve,” said Thad Trent, EVP and CFO of onsemi. “We continue to generate strong free cash flow and return capital to shareholders. With our disciplined approach, we remain focused on sustaining long-term value creation for shareholders.”
Business Highlights:
AI data center revenue more than doubled year-over-year due to broader adoption across the power tree with multiple chip vendors and leading hyperscalers. Leading in the transition to 900V EV architectures with onsemi EliteSiC, enabling extended range and flash charging, including expanded collaborations with Geely and NIO. Increasing software-defined vehicle momentum with initial production shipments of Treo-based 10BASE-T1S Ethernet solutions, supporting the next-generation zonal architecture at a leading North American OEM. Announced new design win with Sineng Electric to power its 430kW liquid-cooled energy storage systems and 320 kW solar inverter.
Selected financial results for the quarter are shown below with comparable periods (unaudited):
GAAP Non-GAAP (Revenue and Net Income in millions) Q1 2026 Q4 2025 Q1 2025 Q1 2026 Q4 2025 Q1 2025 Revenue $ 1,513.3 $ 1,530.1 $ 1,445.7 $ 1,513.3 $ 1,530.1 $ 1,445.7 Gross Margin 38.5 % 36.0 % 20.3 % 38.5 % 38.2 % 40.0 % Operating Margin (3.5 )% 13.1 % (39.7 )% 19.1 % 19.8 % 18.3 % Net Income (loss) attributable to ON Semiconductor Corporation $ (33.4 ) $ 181.8 $ (486.1 ) $ 253.1 $ 257.2 $ 231.6 Diluted Earnings (loss) Per Share $ (0.08 ) $ 0.45 $ (1.15 ) $ 0.64 $ 0.64 $ 0.55
Revenue Summary
(in millions)
(Unaudited)
Quarters Ended Business Segment Q1 2026 Q4 2025 Q1 2025 Sequential
Change Year-over-
Year Change PSG $ 736.6 $ 724.2 $ 645.1 2 % 14 % AMG 540.4 556.3 566.4 (3 )% (5 )% ISG 236.3 249.6 234.2 (5 )% 1 % Total $ 1,513.3 $ 1,530.1 $ 1,445.7 (1 )% 5 %
SECOND QUARTER 2026 OUTLOOK
The following table outlines onsemi’s projected second quarter of 2026 GAAP and non-GAAP outlook.
Story Continues
Total onsemi
GAAP Special
Items ** Total onsemi
Non-GAAP*** Revenue $1,535 to $1,635 million - $1,535 to $1,635 million Gross Margin 37.9% to 39.9% 0.1% 38.0% to 40.0% Operating Expenses $302 to $317 million $15 million $287 to $302 million Other Income and Expense (including interest), net ($6 million) - ($6 million) Diluted Earnings Per Share $0.60 to $0.72 $0.05 $0.65 to $0.77 Diluted Shares Outstanding * 401 million 7 million 394 million
* Diluted shares outstanding can vary as a result of, among other things, the vesting of restricted stock units, the incremental dilutive shares from the convertible notes, and the repurchase or the issuance of stock or convertible notes or the sale of treasury shares. In periods when the quarterly average stock price per share exceeds $52.97 for the 0% Notes, and $103.87 for the 0.50% Notes, the non-GAAP diluted share count and non-GAAP net income per share include the anti-dilutive impact of the hedge transactions entered concurrently with the 0% Notes, and the 0.50% Notes, respectively. At an average stock price per share between $52.97 and $74.34 for the 0% Notes, and $103.87 and $156.78 for the 0.50% Notes, the hedging activity offsets the potentially dilutive effect of the 0% Notes, and the 0.50% Notes, respectively. In periods when the quarterly average stock price exceeds $74.34 for the 0% Notes, and $156.78 for the 0.50% Notes, the dilutive impact of the warrants issued concurrently with such notes is included in the diluted shares outstanding. GAAP and non-GAAP diluted share counts are based on either the previous quarter's average stock price or the stock price as of the last day of the previous quarter, whichever is higher.
** Special items may include: amortization of acquisition-related intangibles; expensing of appraised inventory fair market value step-up; restructuring-related cost of revenue charges; non-recurring facility costs; in-process research and development expenses; restructuring, asset impairments and other, net; goodwill impairment charges; gains and losses on debt prepayment; actuarial (gains) losses on pension plans and other pension benefits; and certain other special items, as necessary. These special items are out of our control and could change significantly from period to period. As a result, we are not able to reasonably estimate and separately present the individual impact or probable significance of these special items, and we are similarly unable to provide a reconciliation of the non-GAAP measures. The reconciliation that is unavailable would include a forward-looking income statement, balance sheet and statement of cash flows in accordance with GAAP. For this reason, we use a projected range of the aggregate amount of special items in order to calculate our projected non-GAAP operating expense outlook.
*** We believe these non-GAAP measures provide important supplemental information to investors. We use these measures, together with GAAP measures, for internal managerial purposes and as a means to evaluate period-to-period comparisons. However, we do not, and you should not, rely on non-GAAP financial measures alone as measures of our performance. We believe that non-GAAP financial measures reflect an additional way of viewing aspects of our operations that, when taken together with GAAP results and the reconciliations to corresponding GAAP financial measures that we also provide in our releases, provide a more complete understanding of factors and trends affecting our business. Because non-GAAP financial measures are not standardized, it may not be possible to compare these financial measures with other companies’ non-GAAP financial measures, even if they have similar names.
TELECONFERENCE
onsemi will host a conference call for the financial community at 5 p.m. Eastern Time (ET) on May 4, 2026 to discuss this announcement and onsemi’s first quarter 2026 results. The Company will also provide a real-time audio webcast of the teleconference on the Investor Relations page of its website at http://www.onsemi.com. The webcast replay will be available at this site approximately one hour following the live broadcast and will continue to be available for approximately 30 days following the conference call. Investors and interested parties can also access the conference call by pre-registering here.
About onsemi
onsemi (Nasdaq: ON) delivers intelligent power and sensing technologies that enable electrification, energy efficiency, safety, and automation across automotive, industrial, and AI data center end-markets. With a highly differentiated and innovative product portfolio, onsemi helps customers solve complex challenges to achieve higher efficiency, improved performance, and lower system cost, while supporting a safer, cleaner, and more energy-efficient world. onsemi is included in the S&P 500® index. Learn more about onsemi at www.onsemi.com.
onsemi and the onsemi logo are trademarks of Semiconductor Components Industries, LLC. All other brand and product names appearing in this document are registered trademarks or trademarks of their respective holders. Although the Company references its website in this news release, information on the website is not to be incorporated herein.
Krystal Heaton Parag Agarwal Director, Head of Public Relations Vice President - Investor Relations & Corporate Development onsemi onsemi (480) 242-6943 (602) 244-3437 Krystal.Heaton@onsemi.com investor@onsemi.com
This document includes “forward-looking statements,” as that term is defined in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements, other than statements of historical facts, included or incorporated in this document could be deemed forward-looking statements, particularly statements about the future financial performance of onsemi, including financial guidance for the second quarter of 2026. Forward-looking statements are often characterized by the use of words such as “believes,” “estimates,” “expects,” “projects,” “may,” “will,” “intends,” “plans,” “anticipates,” “should” or similar expressions or by discussions of strategy, plans or intentions. All forward-looking statements in this document are made based on our current expectations, forecasts, estimates and assumptions and involve risks, uncertainties and other factors that could cause results or events to differ materially from those expressed in the forward-looking statements. Certain factors that could affect our future results or events are described under Part I, Item 1A “Risk Factors” in the 2025 Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on February 9, 2026 (the “2025 Form 10-K”) and from time to time in our other SEC reports. Readers are cautioned not to place undue reliance on forward-looking statements. We assume no obligation to update such information, which speaks only as of the date made, except as may be required by law. Investing in our securities involves a high degree of risk and uncertainty, and you should carefully consider the trends, risks and uncertainties described in this document, our 2025 Form 10-K and other reports filed with or furnished to the SEC before making any investment decision with respect to our securities. If any of these trends, risks or uncertainties actually occurs or continues, our business, financial condition or operating results could be materially adversely affected, the trading prices of our securities could decline, and you could lose all or part of your investment. All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by this cautionary statement.
ON SEMICONDUCTOR CORPORATION
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions, except per share and percentage data)
Quarters Ended April 3, 2026 December 31, 2025 April 4, 2025 Revenue $ 1,513.3 $ 1,530.1 $ 1,445.7 Cost of revenue 930.2 979.1 1,151.9 Gross profit 583.1 551.0 293.8 Gross margin 38.5 % 36.0 % 20.3 % Operating expenses: Research and development 144.3 133.8 164.1 Selling and marketing 63.0 61.5 68.3 General and administrative 89.4 86.0 84.4 Amortization of intangible assets 10.5 10.8 11.4 Restructuring, asset impairments and other, net 329.3 58.8 539.3 Total operating expenses 636.5 350.9 867.5 Operating income (loss) (53.4 ) 200.1 (573.7 ) Other income (expense), net: Interest expense (12.7 ) (17.3 ) (18.0 ) Interest income 17.7 20.6 26.6 Other income 3.8 13.7 4.1 Other income (expense), net 8.8 17.0 12.7 Income (loss) before income taxes (44.6 ) 217.1 (561.0 ) Income tax (provision) benefit 11.7 (35.3 ) 75.8 Net income (loss) (32.9 ) 181.8 (485.2 ) Less: Net income attributable to non-controlling interest (0.5 ) — (0.9 ) Net income (loss) attributable to ON Semiconductor Corporation $ (33.4 ) $ 181.8 $ (486.1 ) Net income (loss) per share of common stock attributable to ON Semiconductor Corporation: Basic $ (0.08 ) $ 0.45 $ (1.15 ) Diluted $ (0.08 ) $ 0.45 $ (1.15 ) Weighted average common shares outstanding: Basic 394.1 400.8 421.3 Diluted 394.1 402.3 421.3
ON SEMICONDUCTOR CORPORATION
UNAUDITED CONSOLIDATED BALANCE SHEETS
(in millions)
April 3, 2026 December 31, 2025 April 4, 2025 Assets Cash and cash equivalents $ 2,003.6 $ 2,147.6 $ 2,762.5 Short-term investments 400.0 400.0 250.0 Receivables, net 862.8 908.0 825.0 Inventories 2,049.2 1,989.6 2,078.2 Assets held-for-sale 40.4 25.0 45.7 Other current assets 419.6 352.9 365.1 Total current assets 5,775.6 5,823.1 6,326.5 Property, plant and equipment, net 3,035.6 3,369.0 3,840.5 Goodwill 1,679.9 1,679.9 1,641.6 Intangible assets, net 332.2 343.9 309.2 Deferred tax assets 933.2 929.1 745.5 ROU financing lease assets — 23.1 39.9 Other assets 254.3 356.0 350.7 Total assets $ 12,010.8 $ 12,524.1 $ 13,253.9 Liabilities and Stockholders’ Equity Accounts payable $ 486.1 $ 572.3 $ 496.6 Accrued expenses and other current liabilities 698.7 714.9 781.3 Current portion of financing lease liabilities 0.5 0.5 0.4 Total current liabilities 1,185.3 1,287.7 1,278.3 Long-term debt 2,982.9 2,980.5 3,348.3 Deferred tax liabilities 46.5 41.7 45.6 Long-term financing lease liabilities 23.1 23.8 21.6 Other long-term liabilities 452.2 498.5 511.2 Total liabilities 4,690.0 4,832.2 5,205.0 ON Semiconductor Corporation stockholders’ equity: Common stock 6.3 6.2 6.2 Additional paid-in capital 5,582.5 5,538.6 5,411.4 Accumulated other comprehensive loss (61.7 ) (55.5 ) (56.5 ) Accumulated earnings 8,208.5 8,241.9 7,634.8 Less: Treasury stock, at cost (6,433.9 ) (6,057.9 ) (4,966.0 ) Total ON Semiconductor Corporation stockholders’ equity 7,301.7 7,673.3 8,029.9 Non-controlling interest 19.1 18.6 19.0 Total stockholders’ equity 7,320.8 7,691.9 8,048.9 Total liabilities and stockholders’ equity $ 12,010.8 $ 12,524.1 $ 13,253.9
ON SEMICONDUCTOR CORPORATION
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
Quarters Ended April 3, 2026 December 31, 2025 April 4, 2025 Cash flows from operating activities: Net income (loss) $ (32.9 ) $ 181.8 $ (485.2 ) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 286.7 214.9 168.2 (Gain) loss on sale and disposal of fixed assets (1.1 ) 7.9 0.2 Amortization of debt discount and issuance costs 2.9 2.8 2.9 Share-based compensation 37.3 37.8 33.9 Non-cash asset impairment charges 147.0 8.1 431.5 Change in deferred tax balances 2.7 (80.6 ) (13.7 ) Other (2.2 ) (2.8 ) 1.6 Changes in assets and liabilities (201.3 ) 184.6 462.9 Net cash provided by operating activities 239.1 554.5 602.3 Cash flows from investing activities: Payments for acquisition of property, plant, and equipment (21.9 ) (69.1 ) (147.6 ) Proceeds from sale of property, plant and equipment 1.0 25.4 0.2 Purchase of short-term investments (300.0 ) (250.0 ) (250.0 ) Proceeds from the maturity of short-term investments 300.0 250.0 300.0 Payments for acquisition of a business, net of cash acquired — (7.0 ) (117.5 ) Other 4.2 — — Net cash used in investing activities (16.7 ) (50.7 ) (214.9 ) Cash flows from financing activities: Proceeds for the issuance of common stock under the ESPP 6.7 5.5 5.3 Payment of tax withholding for RSUs (26.9 ) (1.6 ) (22.4 ) Repurchase of common stock (345.7 ) (450.2 ) (300.1 ) Repayment of borrowings under debt agreements — (375.0 ) — Payment of finance lease obligations (0.1 ) (0.5 ) (0.4 ) Other — (2.1 ) — Net cash used in financing activities (366.0 ) (823.9 ) (317.6 ) Effect of exchange rate changes on cash, cash equivalents and restricted cash (0.3 ) (4.9 ) 2.0 Net increase (decrease) in cash, cash equivalents and restricted cash (143.9 ) (325.0 ) 71.8 Beginning cash, cash equivalents and restricted cash 2,149.0 2,474.0 2,693.4 Ending cash, cash equivalents and restricted cash $ 2,005.1 $ 2,149.0 $ 2,765.2
ON SEMICONDUCTOR CORPORATION
RECONCILIATION OF GAAP VERSUS NON-GAAP DISCLOSURES
(in millions, except per share and percentage data)
Quarters Ended April 3, 2026 December 31, 2025 April 4, 2025 Reconciliation of GAAP to non-GAAP gross profit: GAAP gross profit $ 583.1 $ 551.0 $ 293.8 Special items: a) Restructuring-related inventory and other charges (1.0 ) 32.1 283.4 b) Amortization of intangible assets 1.2 1.2 1.3 c) Amortization of fair market value step-up of inventory — 0.6 — Total special items 0.2 33.9 284.7 Non-GAAP gross profit $ 583.3 $ 584.9 $ 578.5 Reconciliation of GAAP to non-GAAP gross margin: GAAP gross margin 38.5 % 36.0 % 20.3 % Special items: a) Restructuring-related inventory and other charges (0.1 )% 2.1 % 19.6 % b) Amortization of intangible assets 0.1 % 0.1 % 0.1 % Total special items — % 2.2 % 19.7 % Non-GAAP gross margin 38.5 % 38.2 % 40.0 % Reconciliation of GAAP to non-GAAP operating expenses: GAAP operating expenses $ 636.5 $ 350.9 $ 867.5 Special items: a) Amortization of intangible assets (10.5 ) (10.8 ) (11.4 ) b) Restructuring, asset impairments and other charges, net (329.3 ) (58.8 ) (539.3 ) c) Third-party acquisition and divestiture-related costs (1.4 ) (0.6 ) (2.3 ) d) Adjustments to contingent consideration (1.6 ) 1.3 — Total special items (342.8 ) (68.9 ) (553.0 ) Non-GAAP operating expenses $ 293.7 $ 282.0 $ 314.5 Reconciliation of GAAP to non-GAAP operating income: GAAP operating income (loss) $ (53.4 ) $ 200.1 $ (573.7 ) Special items: a) Restructuring-related inventory and other charges (1.0 ) 32.1 283.4 b) Amortization of intangible assets 11.7 12.0 12.7 c) Restructuring, asset impairments and other charges, net 329.3 58.8 539.3 d) Third-party acquisition and divestiture-related costs 1.4 0.6 2.3 e) Amortization of fair market value step-up of inventory — 0.6 — f) Adjustments to contingent consideration 1.6 (1.3 ) — Total special items 343.0 102.8 837.7 Non-GAAP operating income $ 289.6 $ 302.9 $ 264.0 Reconciliation of GAAP to non-GAAP operating margin (operating income / revenue): GAAP operating margin (3.5 )% 13.1 % (39.7 )% Special items: a) Restructuring related inventory and other charges (0.1 )% 2.1 % 19.6 % b) Amortization of intangible assets 0.8 % 0.8 % 0.9 % c) Restructuring, asset impairments and other charges, net 21.8 % 3.8 % 37.3 % d) Third-party acquisition and divestiture-related costs 0.1 % — % 0.2 % e) Amortization of fair market value step-up of inventory — % — % — % f) Adjustments to contingent consideration 0.1 % — % — % Total special items 22.7 % 6.7 % 58.0 % Non-GAAP operating margin 19.1 % 19.8 % 18.3 % Reconciliation of GAAP to non-GAAP income before income taxes: GAAP income (loss) before income taxes $ (44.6 ) $ 217.1 $ (561.0 ) Special items: a) Restructuring-related inventory and other charges (1.0 ) 32.1 283.4 b) Amortization of intangible assets 11.7 12.0 12.7 c) Restructuring, asset impairments and other charges, net 329.3 58.8 539.3 d) Third-party acquisition and divestiture-related costs 1.4 0.6 2.3 e) Amortization of fair market value step-up of inventory — 0.6 — f) Adjustments to contingent consideration 1.6 (1.3 ) — g) Actuarial gains on pension plans and other pension benefits — (12.9 ) — Total special items 343.0 89.9 837.7 Non-GAAP income before income taxes $ 298.4 $ 307.0 $ 276.7 Reconciliation of GAAP to non-GAAP net income attributable to ON Semiconductor Corporation: GAAP net income (loss) attributable to ON Semiconductor Corporation $ (33.4 ) $ 181.8 $ (486.1 ) Special items: a) Restructuring-related inventory and other charges (1.0 ) 32.1 283.4 b) Amortization of intangible assets 11.7 12.0 12.7 c) Restructuring, asset impairments and other charges, net 329.3 58.8 539.3 d) Third-party acquisition and divestiture-related costs 1.4 0.6 2.3 e) Amortization of fair market value step-up of inventory — 0.6 — f) Adjustments to contingent consideration 1.6 (1.3 ) — g) Actuarial gains on pension plans and other pension benefits — (12.9 ) — h) Adjustment to Income taxes (56.5 ) (14.5 ) (120.0 ) Total special items 286.5 75.4 717.7 Non-GAAP net income attributable to ON Semiconductor Corporation $ 253.1 $ 257.2 $ 231.6 Reconciliation of GAAP to non-GAAP diluted shares outstanding: GAAP diluted shares outstanding 394.1 402.3 421.3 Special items: a) Add: dilutive shares attributable to share-based awards 1.9 — 0.4 Total special items 1.9 — 0.4 Non-GAAP diluted shares outstanding 396.0 402.3 421.7 Non-GAAP diluted earnings per share: Non-GAAP net income attributable to ON Semiconductor Corporation $ 253.1 $ 257.2 $ 231.6 Non-GAAP diluted shares outstanding 396.0 402.3 421.7 Non-GAAP diluted earnings per share $ 0.64 $ 0.64 $ 0.55 Reconciliation of net cash provided by operating activities to free cash flow: Net cash provided by operating activities $ 239.1 $ 554.5 $ 602.3 Special items: a) Payments for acquisition of property, plant and equipment (21.9 ) (69.1 ) (147.6 ) Total special items (21.9 ) (69.1 ) (147.6 ) Free cash flow $ 217.2 $ 485.4 $ 454.7
Certain of the amounts in the above tables may not total due to rounding of individual amounts.
ON SEMICONDUCTOR CORPORATION
RECONCILIATION OF GAAP VERSUS NON-GAAP DISCLOSURES
(in millions, except per share and percentage data)
FREE CASH FLOW
Quarters Ended July 4, 2024 October 3, 2025 December 31, 2025 April 3, 2026 Last Twelve
Months Net cash provided by operating activities $ 184.3 $ 418.7 $ 554.5 $ 239.1 $ 1,396.6 Payments for acquisition of property, plant and equipment (78.2 ) (46.3 ) (69.1 ) (21.9 ) (215.5 ) Free cash flow $ 106.1 $ 372.4 $ 485.4 $ 217.2 $ 1,181.1 Revenue $ 1,468.7 $ 1,550.9 $ 1,530.1 $ 1,513.3 $ 6,063.0
SHARE-BASED COMPENSATION
Total share-based compensation related to restricted stock units, stock grant awards and the employee stock purchase plan was as follows:
Quarters Ended April 3, 2026 December 31, 2025 April 4, 2025 Cost of revenue $ 6.4 $ 7.1 $ 6.0 Research and development 7.3 7.6 6.3 Selling and marketing 5.1 5.5 4.7 General and administrative 18.5 17.6 16.9 Total share-based compensation $ 37.3 $ 37.8 $ 33.9
SUPPLEMENTAL FINANCIAL DATA
Quarters Ended April 3, 2026 December 31, 2025 April 4, 2025 Net cash provided by operating activities $ 239.1 $ 554.5 $ 602.3 Free cash flow $ 217.2 $ 485.4 $ 454.7 Cash paid for income taxes $ 46.6 $ 63.7 $ 21.5 Depreciation and amortization (1) $ 286.7 $ 214.9 $ 168.2 Less: Amortization of intangible assets 11.7 12.0 12.7 Depreciation and amortization (excl. amortization of intangible assets) (1) $ 275.0 $ 202.9 $ 155.5
(1) Includes $136.5 million, $70.6 million and $12.5 million of accelerated depreciation of PP&E and accelerated amortization of ROU assets related to Restructuring programs for the quarters ended April 3, 2026, December 31, 2025 and April 4, 2025, respectively.
To supplement the consolidated financial results prepared in accordance with GAAP, onsemi uses certain non-GAAP measures, which are adjusted from the most directly comparable GAAP measures to exclude items related to the amortization of acquisition-related intangibles, restructuring-related cost of revenue charges, expensing of appraised inventory fair market value step-up, inventory valuation adjustments, in-process research and development expenses, restructuring, asset impairments and other, net, goodwill impairment charges, gains and losses on debt prepayment, non-cash interest expense, actuarial (gains) losses on pension plans and other pension benefits, third party acquisition and divestiture-related costs, tax impact of these items and certain other non-recurring items, as necessary. Management does not consider the effects of these items in evaluating the core operational activities of onsemi. Management uses these non-GAAP measures internally to make strategic decisions, forecast future results and evaluate onsemi’s current performance. In addition, the Company believes that most analysts covering onsemi use the non-GAAP measures to evaluate onsemi’s performance. Given management’s and other relevant parties’ use of these non-GAAP measures, onsemi believes these measures are important to investors in understanding onsemi’s current and future operating results as seen through the eyes of management. In addition, management believes these non-GAAP measures are useful to investors in enabling them to better assess changes in onsemi’s core business across different time periods. These non-GAAP measures are not prepared in accordance with, and should not be considered alternatives or necessarily superior to, GAAP financial data and may be different from non-GAAP measures used by other companies. Because non-GAAP financial measures are not standardized, it may not be possible to compare these financial measures with other companies’ non-GAAP financial measures, even if they have similar names.
Non-GAAP Gross Profit and Gross Margin
The use of non-GAAP gross profit and gross margin allows management to evaluate, among other things, the gross profit and gross margin of the Company’s core businesses and trends across different reporting periods on a consistent basis, independent of non-cash and non-recurring items including, generally speaking, restructuring-related cost of revenue charges, amortization of intangible assets, amortization of appraised inventory fair market value step-up, impact of business wind down and non-recurring facility costs. In addition, it is an important component of management’s internal performance measurement and incentive and reward process as it is used to assess the current and historical financial results of the business and for strategic decision making, preparing budgets, obtaining targets and forecasting future results. Management presents this non-GAAP financial measure to enable investors and analysts to evaluate our operating performance independent of certain non-cash items and the effects of certain variables unrelated to our overall operating performance.
Non-GAAP Operating Income and Operating Margin
The use of non-GAAP operating income and operating margin allows management to evaluate, among other things, the operating income and operating margin of the Company’s core businesses and trends across different reporting periods on a consistent basis, independent of non-cash and non-recurring items including, generally speaking, restructuring-related cost of revenue charges, expensing of appraised inventory fair market value step-up, impact of business wind down, non-recurring facility costs, amortization and impairments of intangible assets, third party acquisition and divestiture-related costs, restructuring charges, asset impairments and certain other special items as necessary. In addition, it is an important component of management’s internal performance measurement and incentive and reward process as it is used to assess the current and historical financial results of the business and for strategic decision making, preparing budgets, obtaining targets and forecasting future results. Management presents this non-GAAP financial measure to enable investors and analysts to evaluate our operating performance independent of certain non-cash items and the effects of certain variables unrelated to our overall operating performance.
Non-GAAP Net Income Attributable to ON Semiconductor Corporation and Non-GAAP Diluted Earnings Per Share
The use of non-GAAP net income attributable to ON Semiconductor Corporation and non-GAAP diluted earnings per share allows management to evaluate the operating results of onsemi’s core businesses and trends across different reporting periods on a consistent basis, independent of non-cash and non-recurring items including, generally, the restructuring related cost of revenue charges, amortization and impairments of intangible assets, expensing of appraised inventory fair market value step-up, impact of business wind down, non-recurring facility costs, restructuring, asset impairments, gains and losses on debt prepayment, actuarial (gains) losses on pension plans and other pension benefits, third party acquisition and divestiture-related costs, discrete tax items and other non-GAAP tax adjustments and certain other special items, as necessary. In addition, these measures are important components of management’s internal performance measurement and incentive and reward process, as they are used to assess the current and historical financial results of the business and for strategic decision making, preparing budgets, setting targets and forecasting future results. For our non-GAAP reporting we apply a projected, normalized non-GAAP effective tax rate of 15% for 2026 and 16% for 2024 and 2025. We calculate this non-GAAP effective tax rate on an annual basis. We may update this non-GAAP effective tax rate at any time for a variety of reasons, including, but not limited to, the rapidly evolving global tax environment, significant changes in our geographic earnings mix or changes to our strategy or business operations. Management presents these non-GAAP financial measures to enable investors and analysts to understand the results of operations of onsemi’s core businesses and, to the extent comparable, to compare our results of operations on a more consistent basis against those of other companies in our industry.
Free Cash Flow
The use of free cash flow allows management to evaluate, among other things, the ability of the Company to make interest or principal payments on its debt. Free cash flow is defined as the difference between cash flow from operating activities and capital expenditures disclosed under investing activities in the consolidated statement of cash flows. Free cash flow is not an alternative to cash flow from operating activities as a measure of liquidity. It is an important component of management’s internal performance measurement and incentive and reward process as it is used to assess the current and historical financial results of the business and for strategic decision making, preparing budgets, obtaining targets and forecasting future results. Management presents this non-GAAP financial measure to enable investors and analysts to evaluate our financial performance independent of the cash capital expenditures.
Non-GAAP Diluted Share Count
The use of non-GAAP diluted share count allows management to evaluate, among other things, the potential dilution due to the outstanding restricted stock units excluding the dilution from the convertible notes that is covered by hedging activity up to a certain threshold. In periods when the quarterly average stock price per share exceeds $52.97 for the 0% Notes and $103.87 for the 0.50% Notes, the non-GAAP diluted share count includes the anti-dilutive impact of the Company’s hedge transactions issued concurrently with the 0% Notes and the 0.50% Notes, respectively. At an average stock price per share between $52.97 and $74.34 for the 0% Notes and $103.87 and $156.78 for the 0.50% Notes, the hedging activity offsets the potentially dilutive effect of the 0% Notes and the 0.50% Notes, respectively. In periods when the quarterly average stock price exceeds $74.34 for the 0% Notes and $156.78 for the 0.50% Notes, the dilutive impact of the warrants issued concurrently with such notes are included in the diluted shares outstanding.
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- ON (ON) Q2 2025 Earnings Call Transcript
May 4, 2026
Image source: The Motley Fool.
DATE
Monday, August 4, 2025 at 9 a.m. ET
CALL PARTICIPANTS
President and Chief Executive Officer — Hassane S. El-Khoury Chief Financial Officer — Thad Trent
Full Conference Call Transcript
Hassane El-Khoury, our President and CEO, and Thad Trent, our CFO. This call is being webcast on the Investor Relations section of our website at www.onsemi.com. A replay of this webcast, along with our second quarter earnings release, will be available on our website approximately 1 hour following this conference call and the recorded webcast will be available for approximately 30 days following this conference call. Additional information is posted on the Investor Relations section of our website. Our earnings release and this presentation include certain non-GAAP financial measures.
Reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures and a discussion of certain limitations when using non-GAAP financial measures are included in our earnings release, which is posted separately on our website in the Investor Relations section. During the course of this conference call, we will make projections or other forward-looking statements regarding the future events or future financial performance of the company. We wish to caution that such statements are subject to risks and uncertainties that could cause actual events or results to differ materially from projections.
Important factors that can affect our business including factors that could cause actual results to differ materially from our forward- looking statements are described in the most recent Form 10-K, from 10-Qs and other filings with the Securities and Exchange Commission and in our earnings release for the second quarter. Our estimates or other forward-looking statements might change, and the company assumes no obligation to update forward-looking statements to reflect actual results, change assumptions or other events that may occur except as required by law. Now let me hand it over to Hassane. Hassane?
Hassane S. El-Khoury: Thank you, Parag. Good morning, and thank you all for joining us. In the second quarter, we made meaningful progress across our strategic priorities and advanced critical initiatives in Automotive, Industrial and AI Data Center. In Automotive, we're helping customers like Xiaomi improve range and enhance the driving experience and we're expanding our engagement with more global OEMs and Tier 1s, including our collaboration with Schaeffler. In AI Data Centers, we are enabling next-generation power architectures that drive efficiency and performance at scale through collaboration with market leaders like NVIDIA to accelerate the shift to 800-volt DC power architecture. We remain focused on making strategic investments to extend our competitive edge and deepen customer relationships to build long-term value.
Story Continues
At the same time, we are making structural improvements across the business to enhance efficiency. This, combined with disciplined cost management, creates significant leverage in our model as we prepare to capitalize on a market recovery. On the financial side, we delivered Q2 revenue of $1.47 billion, exceeding the midpoint of our guidance and non-GAAP gross margin and EPS of 37.6% and $0.53, respectively. Turning to the demand environment. We are seeing signs of stabilization across our end markets. We have not seen any pull-ins to date due to tariffs and our diversified manufacturing footprint remains a competitive advantage, providing sourcing options to our customers as they work on optimizing their supply chains.
By market, Automotive revenue in Q2 was down 4%, performing better than anticipated and is expected to grow in the third quarter with continued EV ramps. In China, select Xiaomi YU7 electric SUV models integrate our 1,200-volt EliteSiC M3e, enabling better performance and the longest range in this class. China remains a growth driver for onsemi with strong traction in both BEV and PHEV platforms. China revenue in Q2 grew 23% sequentially, driven by silicon carbide with the new EV ramps, I mentioned last quarter. We also expanded our collaboration with Schaeffler to deliver our next-generation traction inverter for a global OEMs PHEV platform using our latest EliteSiC M4T trench technology to unlock higher energy efficiency and reliability.
We expect adoption to continue to expand and our customer engagement to continue to diversify as OEMs redesign hybrid architectures to meet the emissions target and extend range. Industrial revenue increased 2% quarter-over-quarter. Revenue for AI data center, which we report as part of our other bucket, nearly doubled again in Q2 over the same quarter last year. As outlined in the President's AI action plan, AI infrastructure has become a focus of national priority in the United States. AI growth will be limited by power delivery rather than compute alone and onsemi is the only broad-based U.S. power semiconductor supplier addressing this challenge with our intelligent power semiconductors, dramatically increasing power density and reducing energy loss.
We are actively working with leading XPU providers on smart power stages that address the power requirements of current and next-generation platforms. We're in production on single SPS products in an industry standard 5x5 package and began sampling a dual SPS in the same footprint. As part of our ongoing transformation, we will continue investing in next-generation technologies where we have clear competitive advantages while reducing our exposure to areas with limited differentiation. This includes end- of-life of legacy products, exiting noncore businesses and repositioning our image sensing portfolio toward higher value segments such as ADAS and machine vision.
These actions are reshaping onsemi into a company with a distinct value proposition, powered by leadership in intelligent power, sensing and analog mixed signal technologies. A strong example of the strategy in action is Treo. Momentum continues to build around our Treo platform with a design funnel that has more than doubled quarter-over-quarter as we progress towards our $1 billion revenue target. We are on track to doubling the number of products sampling from last year. Treo's differentiated technology, modular SoC-like design and ability to integrate high and low voltage domains are driving strong customer engagement across all our end markets.
An example in Automotive is 10BASE- T1S, where we sampled over 10 customers as they work on their zonal architecture. After delivering our first Treo revenue in Q1, we've also reached an important milestone. We've now shipped over 5 million units from our East Fishkill facility this year. These milestones reflect the strength of our innovation engine and the strategic investments we've made to support long-term growth. By reducing complexity, sharpening our operational focus and allocating capital more efficiently, we are building a more resilient and higher-quality business for the long term.
As the global economy accelerates to electrification and intelligent automation, next-generation vehicles, sustainable energy systems and AI data centers are converging around a shared need for a new era of power solutions. Beyond silicon carbide, our strategic investments in next-generation wide band gap semiconductors have delivered transformative gains in power density, thermal performance and energy efficiency. We started sampling customers on these new breakthrough technologies, and I will talk more about it soon. Let me now turn it over to Thad to give you more detail on our results and guidance for the third quarter.
Thad Trent: Thanks, Hassane. Through our ongoing transformation, we remain dedicated to building sustainable long-term value for our shareholders. We have progressively rationalized our portfolio and manufacturing footprint to expand gross and operating margins at scale. These efforts will continue in future quarters, and we are committed to extracting value through our Fab Right initiative. Investments in next-generation technologies across the portfolio will continue to expand our position as a leader in power and sensing and drive the shift in our portfolio mix to move onsemi up the value chain with our customers. As a reminder, in Q1, we took aggressive action to reduce our manufacturing capacity and restructure our workforce to continue driving long-term operational efficiencies.
In the second quarter, we began to see the benefits of those structural changes with a substantial reduction in operating expenses. In parallel, we increased our 2025 targeted share repurchase to 100% of free cash flow. We are executing to that target and after repurchasing an additional $300 million of shares in the second quarter, we have returned 107% of our free cash flow to shareholders on a year-to-date basis. Turning to the second quarter financial results. We exceeded the midpoint of our guidance with revenue of $1.47 billion, increasing 1.6% over Q1. Automotive revenue was $733 million, which decreased 4% sequentially, driven by weakness in America and Europe and offset by continued strength in China.
Revenue for Industrial was $406 million, up 2% sequentially. While our medical and aerospace and defense businesses continue to grow, traditional industrial declined slightly in Q2 versus Q1. Outside of Auto and Industrial, our Other businesses increased 16% quarter-over-quarter with AI data center being one of the significant contributors. Looking at the quarter between -- the split between the business units. Revenue for the Power Solutions Group, or PSG, was $698 million, an increase of 8% quarter-over-quarter and a decrease of 16% year-over-year. Revenue for the Analog and Mixed-Signal Group, or AMG was $556 million, a decrease of 2% quarter-over-quarter and 14% year-over-year.
Revenue for the Intelligent Sensing Group, or ISG, was $215 million, an 8% decrease quarter-over-quarter and 15% over the same quarter last year. Turning to gross margin in the second quarter. GAAP and non-GAAP gross margin was 37.6%, above the midpoint of our non-GAAP guidance. Manufacturing utilization was flat compared to Q1. Accounting for the capacity impairment completed in Q1, utilization is now 68% based on a reduced manufacturing capacity. We expect to see approximately $5 million reduction in depreciation on the income statement starting in Q4. Now let me give you some additional numbers for your models. GAAP operating expenses for the second quarter were $359 million as compared to $396 million in the second quarter of 2024.
GAAP operating expenses decreased sequentially in Q1 -- as Q1 included restructuring charges of $539 million. Non-GAAP operating expenses were $298 million compared to $308 million in the quarter a year ago. Non-GAAP operating expenses decreased $17 million sequentially. And were above the midpoint of our guidance. This was due to delays in realizing the full benefit of our restructuring activities in the quarter, which we expect to recognize fully in the third quarter. GAAP operating margin for the quarter was 13.2% and non-GAAP operating margin was 17.3%. Our GAAP tax rate was 12.6% and non-GAAP tax rate was 16%.
Looking forward, we expect no material change in 2025 due to the one big beautiful bill, while we see a positive impact in 2026 and beyond, reducing our non-GAAP tax rate to approximately 15% from our previous expectation of 19%. Diluted GAAP earnings per share for the second quarter was $0.41 as compared to $0.78 in the quarter a year ago. Non-GAAP earnings per share was $0.53 as compared to $0.96 in Q2 of 2024. GAAP and non-GAAP diluted share count was 415 million shares. Turning to the balance sheet. Cash and short-term investments was $2.8 billion with total liquidity of $4 billion, including $1.1 billion undrawn on our revolver.
Cash from operations was $184 million, and free cash flow was $106 million. The sequential decline in free cash flow was driven by timing of working capital, which created lumpiness between quarters. Our year-to-date free cash flow is 19% of revenue, and we remain on track to deliver 25% free cash flow margin for the full year. Capital expenditures during Q2 were $78 million or 5% of revenue. Inventory was up quarter-over-quarter on a dollar basis by $9 million and decreased by 11 days to 208 days. This includes 87 days of bridge inventory to support fab transitions in silicon carbide, down from 100 days in Q1. Excluding the strategic builds, our base inventory is healthy at 121 days.
Distribution inventory was 10.8% versus 10.1 weeks in Q1 and within our target range of 9 to 11 weeks. Looking forward, let me provide you the key elements of our non-GAAP guidance for the third quarter. As a reminder, today's press release contains a table detailing our GAAP and non-GAAP guidance. First, our guidance is inclusive of our current expectations that there is no material direct impact of tariffs announced as of today. Given our current visibility, we anticipate Q3 revenue will be in the range of $1.465 billion to $1.565 billion. Our non-GAAP gross margin is expected to be between 36.5% and 38.5%, which includes share-based compensation of $6 million.
Our third quarter guidance includes 900 basis points of noncash under-absorption charges, and we expect utilization to be flat to up slightly in Q3. Moving on to non-GAAP operating expenses. We expect OpEx to be in the range of $280 million to $295 million, including share- based compensation of $32 million. We anticipate our non-GAAP other income to be a net benefit of $8 million with our interest income exceeding interest expense. We expect our non-GAAP tax rate to be approximately 16% and our non-GAAP diluted share count is expected to be approximately 410 million shares. This results in non-GAAP earnings per share to be in the range of $0.54 to $0.64.
We expect capital expenditures in the range of $35 million to $50 million. As we look forward, we continue to rationalize our product portfolio to force the shift towards higher value and higher-margin products. In 2026, we expect that approximately 5% of our 2025 revenue will not repeat. This includes the end of life of certain legacy products, ongoing noncore exits and the repositioning of ISG that Hassane talked about. We've also been executing our Fab Right strategy to align capacity with this shift as we drive to a higher quality of revenue and long-term earnings power. To wrap up, we continue to operate with financial discipline and a clear focus on shareholder value.
By taking decisive action to streamline our portfolio and align operations, we are well positioned for a recovery. We continue to invest in next-generation technologies and capabilities that will strengthen our competitive advantage and support our transformation. With our focus on intelligent power and sensing, we are reshaping onsemi into a more focused and differentiated company. With that, I'd like to turn the call back over to Kevin to open up the line for Q&A.
Operator:[Operator Instructions] Our first question comes from Ross Seymore with Deutsche Bank .
Ross Clark Seymore: Hassane, the first one's for you. And I guess just kind of 2 parts to it. You sound better cyclically than you have in a while. So the first part is what are you seeing cyclically? And where are there still headwinds? Where are you seeing mainly the tailwinds? And perhaps more importantly, when we move to the secular side, you talked about the AI data center side, the Treo side of things, but we still have the offsets of businesses you're exiting, like Thad just mentioned probably a 5% headwind. Can you talk a little bit about the traction in those secular drivers and when the good ones are going to offset the exits?
Hassane S. El-Khoury: Yes. Ross, thanks. That's a great segue into what really the call is about. So as far as what we're seeing, we're seeing stabilization relative to where we have been over, call it, the last 3, 4, 5 quarters, that is a positive development. We talked about Automotive hitting the low end in the second quarter. Thad talked about also expecting -- we expect Automotive to be up in the third quarter. So you're starting to see that stabilization. I'm not there calling a recovery. There's still a lot of uncertainty and customers are being cautious. But relatively speaking, I do have more, I guess, positively optimistic looking forward.
But I remain cautious in the way we run the company until we see that stabilization turn into a better foundation for a recovery. We're controlling everything we can from what Thad mentioned from an OpEx perspective, we're being very disciplined in investments that will turn the company into the high-value products and revenue that we want. So those are the second part of your question. When we talk about AI data center, we've said we've started introducing products. Those products are gaining traction, not just from our analog mixed-signal, but also we talked about the silicon carbide JFET.
So a lot of foundational technologies that we have in the company, we have been moving that into the AI data center and that business has doubled year-on-year from the quarter a year ago. That's the second quarter we doubled from last year as well. So that's getting the traction that we are expecting. Treo as a broad-based product, it is differentiated. We hit a very important milestone last quarter. I talked about we already recognized revenue a few quarters ahead of what we described prior to that. We expected the revenue in the second half of this year, but we posted the first revenue in Q1 of '25.
And the second milestone is really the volume, and that tells you a little bit on the breadth and the traction that we're seeing with customers. All of these investments that we've been making over the last few years are what's driving our longer-term view and why it's important for us to start focusing on really reshaping the company into the high-value product company that we want and really a much better revenue quality from a margin perspective and from a capital allocation perspective.
So all of these pieces of the puzzle that we've been investing in and putting in place, now they're starting to come together with traction in the market that we are able to use as a foundation for where we go next.
Ross Clark Seymore: I guess as my follow-up, one for Thad, on the gross margin side, again, a little bit of a near-term long-term balance. In the near term, why is it flat to slightly down if your revenues are up? And then longer term, especially given the changes in mix that you're talking about, what are the key levers you think you can pull to get to the 53% long-term target, if indeed, that is still the target?
Thad Trent: Yes. Ross, I mean, the key to margin expansion for us is all about utilization, right? It's -- we've been saying that for a few quarters here. As we see a recovery, utilization will improve, and that will fall through on a gross margin line a couple of quarters later as you think about burning through that inventory. In the short term, look, we're being cautious right now, right? We've got inventory on the balance sheet, we're going to burn through. We're lean there. We're lean in the distribution channel. We're in a good spot that when the market does turn, we take utilization up. But we're being cautious here.
So we think it's flat to slightly up here in Q3 as we get better visibility into Q4 and to early next year, we'll think about taking utilization up, and that will give us a nice tailwind as you go into 2026. In terms of the march to the target of 53%, you've got about 900 basis points of underutilization charges in our Q3 guide. That's consistent with Q2. That, obviously, every point of utilization is 25 to 30 basis points of gross margin improvement. That math still holds. So as you see the utilization coming up, you'll see us get that 900 basis points back.
We also have the monetization of the divested fabs as we moved that production back in-house. And we're continuing to do more work on our Fab Right initiative, which will give us another 200 basis points kind of in that neighborhood. And then as Hassane talked about, as we ramp these new products, they are at favorable margins. So I think when you start to add that up, you can start to get within kind of a pretty tight range of getting to that 53% long-term target. But like I said, in the short term, it's all about utilization. That's the #1 driver.
Operator: Our next question comes from Vivek Arya with Bank of America Securities.
Vivek Arya: For the first one, I just wanted to go back to Q2 results. So Industrial was a bit softer than I think you had thought before. So what drove that? And then the Other was much stronger. Is it really the data center part of that Other? And if that is the case, how large is the data center part of your Other business right now?
Thad Trent: Yes. On the Industrial, it wasn't up as much as we were expecting. That's primarily because of what we call the traditional industrial. It was down just slightly. When we look at our traditional industrial, I would say it's kind of bouncing across the bottom. We think we've stabilized, but there's going to be some ups and downs here. It was down slightly and down more than we thought it was going to be. So that's the primary driver on the industrial. On the other market, yes, it's the AI data center and the opportunity that we have there. We talked about year-over-year that, that business has doubled. So still a small piece of the overall company, but growing nicely.
Vivek Arya: Okay. And for my follow-up, Hassane, where are we in the automotive recovery cycle for ON? I think you mentioned China appears to be strong for you. Is it really the weakness outside of China, especially at the North American EV OEM? Because I'm trying to contrast what you're seeing versus what several of your analog peers are seeing. Some of them are within, I think, 4%, 5% of their prior automotive peaks, whereas ON's auto business is still, I think, 30% of your prior peak. So why is the automotive recovery so slow for ON? And when do you think that your Auto business could start to regrow year-on-year?
Hassane S. El-Khoury: Yes. So I think the Automotive specifically, the regions other than China, both Europe and North America are weak. I think there's a lot of uncertainty in the automotive market. I don't think we're any -- I guess, any different other than the portfolio rationalization that we've been doing, those obviously will not repeat moving forward. But where we are in the EV ramps continue to happen, of course, not at the same rate that we all expected. I think the unit volume is not where it needs to be. And the rest is just purely on the mix and exposure versus our peers. I can't really comment what our peers are seeing in automotive.
But from our side, we hit the bottom in the second quarter. We're starting to post growth. Our expectation in Q3 will be growth. And then we'll see, based on the visibility we get over the next few quarters, where that's going to lead.
Operator: Our next question comes from Blayne Curtis with Jefferies.
Blayne Peter Curtis: I actually wanted to ask you about the ISG repositioning. And I thought you said the 5% was the end-of-life products, and that's what you've been saying for a while. So maybe you could just walk me through, I guess, what are you repositioning? Why? And is there a revenue number tied to that repositioning in ISG?
Hassane S. El-Khoury: Yes. From a repositioning -- the strategic repositioning, I've talked about it at a high level in prior quarters is really our focus on the machine vision part of it. As we see some of the competition coming in, we've always said we're going to focus on value and we're going to focus on high-quality revenue based on the technology and the differentiation we bring. That differentiation locks with vision product or machine vision product rather than the human vision product. To give you an example that I've always -- that I've given in the past, reverse parking. It doesn't matter how good your camera is, there's always dirt on the lens because it's outside. The quality doesn't matter.
That's where we're not going to be engaging on these designs. When it comes to proper ADAS, where the CPU or the SoC, the central SoC needs clarity and the best image quality for safety, that's where we bring -- that's where we add value with our vision products. That's the difference between where the company used to tackle, which is a lot of the volume aiming for #1 market share at -- across all markets to a very focused value-driven approach, which we've been on for a few years. That's really the difference that I talked about here. It's no different than the strategy we've been implementing.
But right now, we're very confident in the approach that we want and the strategy we're going to move forward with and followed with the investments that we are making in order to maintain that differentiation in the markets we want.
Thad Trent: And Blayne, to answer the second part of your question in terms of the revenue impact, we think for 2026, it's about $50 million to $100 million that doesn't repeat from the 2025 baseline.
Blayne Peter Curtis: [ Is that ] incremental to the 5% from the end of life stuff?
Thad Trent: That's inclusive of 5%.
Blayne Peter Curtis: Got you. And then maybe, Thad, just on just the [ disti ] inventories, I guess, it kind of came in the high end of the range in June, kind of what's your expectation for [ disti ] in the September guide?
Thad Trent: Yes. I think it's going to be right in this range, let's call it 10 weeks plus or minus, right? We came in at 10.8%. It's in our sweet spot of 9% to 11%. So we don't expect any material change one way or another.
Hassane S. El-Khoury: And obviously, we talked -- so Blayne, just from a quarter-on-quarter, we don't really look at it quarter-on-quarter at that level of detail as long as it remains within the range because as you understand, there's ramps that we have in the third quarter. Those ramps kind of we get through in the second quarter, then you drain and you then get to a steady state. So that difference between quarter-on- quarter as long as it's within the range, for us, it's not something that we want to control at that level as long as we maintain a customer ramp strategy.
Operator: Our next question comes from Chris Danley with Citi.
Christopher Brett Danely: Just a couple of questions digging on the gross margins. Is the 5% of business that's going away next year? Is that going to be gross margin accretive? And if so, how much? And then how does the silicon carbide business fit into the overall gross margin ledger? Are those gross margins lower than the corporate average now? And then how do we get those back to the 53% target?
Thad Trent: Yes, Chris. So the silicon carbide gross margin today is below the corporate average, primarily because of underutilization. The key to getting those back to the corporate average is obviously volume and leveraging that manufacturing footprint that we have, which we will do over time as that business continues to ramp. In terms of the exits, long term, that is going to be dilutive to margins. Currently, it's somewhere around the corporate average. But when you think about our aspirations to get to a 50% plus gross margin, that business is not going to support that aspiration. So that's the reason to exit it now.
We've said that -- and we've undercalled this for a few years here or maybe overcalled it, expecting to exit it faster. But long term, it will be dilutive. Short term, it will be neutral just given the fact that it's around the corporate average today. Now we will be rightsizing manufacturing as we go through this as well. That's what I said in my prepared remarks. So we are matching the Fab Right capacity with these planned exits.
Christopher Brett Danely: Okay. And for my follow-up, just real quick. What percentage of your auto business is China? And then how would you expect that to trend over the next couple of years?
Hassane S. El-Khoury: Yes. We don't -- look, we don't break Auto of China. We're disclosing Auto as a whole and China as a whole. We're not getting into that level of detail from the revenue cut. But we expect China to be a target market for us. We have a 50% share. That will continue to grow as revenue grows and as the number of units keeps growing. We're very happy with our position in China. Just to remind everybody, our focus in China is really where we add on the efficiency and the range. Every win that we have in China is tied to the quality and the performance of the products.
And that's how we differentiate not just against some of our Western peers, but how we differentiate against some of the local peers. We will maintain that level of differentiation. I talked about we introduced our Trench silicon carbide already with some wins behind it. That is the way we're going to keep and stay ahead of everybody from a competition perspective. And that's the reason we're winning in China and really outside of China.
Operator: Our next question comes from Jim Schneider with Goldman Sachs.
James Edward Schneider: I was wondering with respect to the Q3 guidance, you talked about Automotive being up in the quarter. I'm assuming that given your commentary, you're less sure about Industrial and Other being up. I was wondering if you could maybe give us a little bit of color on what you'd expect going into Q3 for there? I'm assuming that data center piece of Other would be much stronger. Maybe just kind of clarify where you expect to be auto -- excuse me, Industrial will be up, flat or down.
Hassane S. El-Khoury: Yes. So the comment I made on Automotive is exactly that, but I made it specifically on Automotive relative to the second quarter being the kind of the trough as we ramp. But just to clarify my comments, we expect every end market, Auto, Industrial and Other to be up in the third quarter. Other will be up higher driven by the ramps that we see in these markets that we put under Other, which includes AI, of course.
Thad Trent: Yes. And to give you a little more specific expectations there, we expect Auto and Industrial to be up low single-digit percentages. We think Other is going to exceed that will be up in the mid- to high single-digit range.
James Edward Schneider: That's very helpful. And then maybe if you could give us any kind of color on within Auto, you talked about the U.S. and Europe being a little bit weaker. I don't think that's particularly surprising to anybody. But can you maybe talk about the reasons for that? Is it purely tariff-based uncertainty in terms of their end market uncertainty? Or do you think there's a little bit of excess inventory or buffer stock still trying to work down internally?
Hassane S. El-Khoury: I would say it's all of the above. I mean I don't know what to point specifically at. It's not an industry or a market. Every customer has their pain points. Some have some inventory. We don't believe that's a broad statement from an inventory perspective. You have the tariff and you have just the general uncertainty of end market demand. So you see customers waiting to the last minute to place an order and [ an end ]. That's the cautious approach that we're taking. We've been more right than wrong in our approach. So we're going to continue to manage to the visibility into what we can see.
But what you think about auto and -- or sorry, in general, Europe and North America is really all of the above that we all read in the headlines.
Operator: Our next question comes from Quinn Bolton with Needham & Company.
Nathaniel Quinn Bolton: I just wanted to come back on that utilization impact. I think you said each point of utilization is 25 to 30 basis points. But you said there's kind of 100 basis points of underutilization charges included in the guidance. And so it kind of implies you need to get to 98% utilization to get that full 900 basis points. And I thought you guys in the past had said full utilization was more low to mid-80s. So can you just clarify kind of what -- where do you see full utilization?
Thad Trent: Yes. Good question. So previously, we had said fully utilized for us was kind of in that mid-80% range. Post the impairment that we've done in Q1, that is now kind of in the low 90s, call it, somewhere around 92%, right? So if you do that math on the 25 to 30 basis points for every point of utilization, you get to somewhere around 700 points of improvement. There's also another 200 basis points of Fab Right initiatives that we're still taking. That will get you to that 900 between the 2 combinations. But yes, there's -- our expectation now is on the lower footprint, our fully utilized is now kind of in that low 90% range.
So it's improved.
Nathaniel Quinn Bolton: Got it. And then the rest sort of from the 46 or so percent to 53%, that would all be mix and new products?
Thad Trent: Yes. Yes, exactly. Exactly.
Nathaniel Quinn Bolton: And then...
Thad Trent: Sorry, one more thing. As well as the fab divestitures, right? So you got another 200 basis points of the fab divestitures that we'll recognize.
Nathaniel Quinn Bolton: Got it. Okay. And then Hassane, you'd mentioned the smart power stages, both single and dual phase that I think you said you're sampling now. Wondering if you could give us -- is that sort of about a year-long qualification timing? Do you think you could ramp faster? And maybe a similar question just on the 800-volt rack opportunity. Would you expect that to sort of ramp in the 2027 time frame given, I think, what NVIDIA has stated about its 800-volt rack time line?
Hassane S. El-Khoury: Look, given the sensitivity with mentioning customers, whatever we have specifically on that opportunity is listed in the press release.
Nathaniel Quinn Bolton: Okay. How about just the power stages then?
Hassane S. El-Khoury: The power stages is really a standard design cycle. So we're expecting anywhere -- you can think about it as the 12 to 18 months qual cycle in production. Of course, we're -- that depends on end adoption as far as if there's any change in the road map. The most important thing is we're tied up with the -- on a road map specific with the XPU suppliers. So as they ramp and deploy their new platforms, we will be ramping with them. But obviously, we are in production on ours. So that -- the single SPS is ahead as we sample, our qual happens with the customer. So they're kind of different stages.
But that's just to highlight, we have a road map, and we have a good cadence of new products now starting to get into that AI data center space across the whole power tree from high-power JFETs to really SPS close to the GPU or XPU. We've talked about it the last few years that we needed the new product engine to kick up. That's happening, and those are kind of the proof points that I'd like to highlight.
Operator: Our next question comes from Joshua Buchalter with TD Cowen.
Joshua Louis Buchalter: I wanted to ask about inventory levels. I believe last quarter, you mentioned that you were expecting them to peak in 2Q and then decline through the rest of the year. Is that still the right way to think about inventories for the year? And any amount that you expect to take out through the balance of 2025? Like how should we think about utilization rates? I guess I'm a bit surprised to see them up when you're trying to bleed inventory given revenue was up modestly in the guidance for the third quarter.
Thad Trent: Yes. Now keep in mind, the utilization is flat quarter-on-quarter. The calculation now is 68%. But if you normalize to pre-impairment, it's 60%, right? So it's flat quarter-on-quarter. The new calculation gets you to 68% utilized given that we have a smaller footprint and less capacity. First part of your question...
Hassane S. El-Khoury: Inventory.
Thad Trent: Yes. So inventory, yes, we're still on track here. We think we're peaking in inventory in Q2. We think it will be down slightly here in Q3. And I would expect in Q4, we continue to see that trend as we burn through that strategic inventory. That's always been our path. Our path is that we'll bridge -- that was bridge inventory for the fab transitions in silicon carbide, but we will be burning through that. So that's a nice tailwind to cash flow.
Joshua Louis Buchalter: Okay. I appreciate the color there. And I'm sorry to keep picking on gross margins. But I wanted to ask about pricing. I think last quarter, you mentioned pricing a bit more aggressively to defend market share. How did that develop in the quarter? And any changes in the pricing environment that you've seen over the last 90 days?
Hassane S. El-Khoury: Yes. No, no change to the pricing environment. It's actually stable, within our expectations. So there's nothing new here.
Operator: Our next question comes from Gary Mobley with Loop Capital.
Gary Wade Mobley: I believe you said roughly a $300 million revenue headwind in fiscal year '26 or roughly 5% of revenue as you exit noncore business. How much of a headwind is it for fiscal year '25? And should we think about it as spread over 8 quarters, roughly $30 million to $40 million per quarter headwind? Or is it linear like that? Or is there any sort of [ step ] function?
Thad Trent: Yes. For 2025, it's roughly -- we're expecting about $200 million of exits. Year-to-date, we're on track through Q2 of $100 million. Like I said earlier, we've continued to overcall this, we think we're going to exit it faster. So that pushes $100 million out into next year in terms of the exit. So that is the impact of 2025.
Gary Wade Mobley: Appreciate that. I was hoping you can give us an update on the East Fishkill bring up sort of where you're at and looking forward what the impact to gross margin might be?
Hassane S. El-Khoury: Yes. So from East Fishkill, obviously, it's the utilization impact overall that Thad mentioned from our fab network. East Fishkill is part of that fab network. So it comes with utilization. The important thing is we already have our power products, our silicon power products qualified and shipping from there, high voltage and medium to low voltage. Our image sensor qualification is on track as expected. And the Treo has started, I wouldn't call it a soft ramp at 5 million units already, but that's, again, a brand-new product that we ramped up with a brand-new technology in East Fishkill. So the fab is running and qualified where we want to qualify. And right now, it's primarily driven by utilization.
But from a technology perspective, we're pretty happy with the performance.
Operator: Our next question comes from Vijay Rakesh from Mizuho.
Vijay Raghavan Rakesh: Just a quick question on the Section 232, 301. Obviously, a lot of noise around that. How are you guys preparing for that? What are you expecting in terms of when this happens? And I have a follow-up.
Hassane S. El-Khoury: I mean, I don't know, Vijay if anybody told you I have a crystal ball better than my peers. But I think the way we prepare for it is we remain focused on what we can control. We're talking about our footprint, our fab footprint, our manufacturing footprint as a competitive advantage. That has been recognized by customers, especially as the whole tariff talk has been for a few quarters now. The 232, I believe, will be very similar to the changes that we have to go through with customers.
The thing is there's no planning to be done here because we don't know where it's going to land on either side, except the fact that we need to maintain flexibility, and we need to maintain the focus on what we can control.
Vijay Raghavan Rakesh: Got it. And then in terms of silicon carbide, obviously, good to see you guys picking up some share there. One of your peers declared bankruptcy. Just wondering how that's playing out from a business risk perspective, obviously, people might be moving or reallocating. But just wondering how that's kind of playing out on the road map.
Hassane S. El-Khoury: Yes. Look, from a road map perspective, that doesn't have an impact. I've always maintained my focus on we're going to win. We're going to win because of our own products and because of our own investment, not because one of our peers are struggling. So we're going to win because of things we are doing. Having said that, the changes in one of our peers with the bankruptcy, obviously, that is not the trigger that force customers to think otherwise. We all know they struggled way before the bankruptcy filing. I think a lot of road map changes from our customer, a lot of sourcing decisions have already been made.
So that to me is all, I would say, part of the baseline, part of the funnel, part of the ramps. I wouldn't call the bankruptcy as a trigger.
Operator: Our next question comes from William Stein with Truist Securities.
William Stein: I'd like to also dig into silicon carbide for a moment. I think one of the things that came out in the last quarter or so, Hassane, is that perhaps for some of your customers, there's been an interest in purchasing chips instead of modules. Modules had been the story. Now we're hearing more about Trench and some other maybe aspects of the individual chip design. Can you comment on that change? And if customers continue to choose chips over modules, does that influence your long-term thinking about the attractiveness of this market for you?
Hassane S. El-Khoury: Yes. So that -- by the way, I guess, the shift or the change in mix between modules and what we call die is not new. That's been happening for a few years. That's already part of our baseline. As far as your reference to Trench, that's totally independent of die versus module. Trench is another step in device design. It was planar with our M3. Our planar performed better than everybody else's trench. We introduced and we have been winning with our new trench, which is our latest generation and we're winning because of the performance.
Whether we put it in -- whether we sell it to a customer as die or we sell it to customers as a module, and we do provide both, still we win because of the performance of that die and we win more when we put it in our own module because we know how to design a module that fits our die specifically. A lot of our designs that are ramping, for example, even in China are a mix of die sales or module sales. We maintain the flexibility for what the customer supply chain wants to do and what they feel their core competencies are.
Some customers have core competencies to make a module, some do not, and they prefer to buy our modules. We're here to offer flexibility. We've always said our intent is always to provide the most optimal solution to solve the customer problem and bring value. Value is in range of efficiency, and that comes on the die side with our trench technology. It does not change our view of the market. Obviously, from our results and the market share that we have been gaining and ramping, we've shown success no matter what the mix is, and we'll continue to do that.
But the name of the game here is maintain R&D, maintain investment in key areas to provide differentiation, and that's the markets we're in.
William Stein: If I can follow up in a similar area. One of the big consumers in silicon carbide has discussed a migration to hybrid inverter from silicon carbide to silicon carbide combined with IGBT. I think they said that they intend to reduce SiC by 75% in that traction inverter. But I think they haven't done it yet. I wonder if you're seeing that influence your go-forward view of this market, if it changes anything for you?
Hassane S. El-Khoury: No change. This is not -- again, it's not the commentary from one customer. If you go back 2 years ago, in our Analyst Day, Simon already showed how the migration or the mix is going to be for higher end, higher range, higher performance will be silicon carbide. And as you go to more mainstream, you'll end up with a hybrid all the way down to there's still life in IGBT. So those commentaries are nothing new. I've addressed them multiple times. That doesn't change our view of the market.
Our competitiveness in the market is to be able to provide a slew of technologies from silicon carbide, trench planar all the way to highly differentiated IGBTs because some vehicles still have IGBT on one axle, silicon carbide on another axle or full IGBT. It does not change the view of the market. We will continue to win based on the performance of the products specifically.
Operator: Our next question comes from Harsh Kumar with Piper Sandler.
Harsh V. Kumar: Question for maybe Hassane. Hassane, as you think about the recovery and maybe the fuel for recovery, you talked about 900 basis points underutilization. Can I ask if there's an element of written-off inventory here as well that might come into play as you look at recovery?
Hassane S. El-Khoury: No, no. When you talk about like reserve inventory or written off inventory, no, because we have a very disciplined approach on what you reserve and what inventory you write off. Inventory write-off does not have demand. So it cannot be part of the recovery. So when we talk about purely the 900 basis point being on utilization, it is purely demand driven that will drive utilization with healthy inventory that we build and ship to customers. If you recall, we saw the shift in market before a lot of our peers. So we took down our utilization ahead of most of our peers and ahead of the market really softening.
So that puts us in a much better position from the inventory we have. We are already draining our inventory. And as demand picks up, we can pick up more utilization on the fab that will help the margin, help cash flow when we shift the bridge inventory. So everything we've done and the discipline we've shown all the way here is what's going to drive that healthy recovery without any kind of side notes.
Thad Trent: Yes. And Harsh, we've got -- if you go back to our base inventory, take out the strategic, it's 121 days, right, in our sweet spot, right? So it's very healthy. We don't see an inventory risk on that and the strategic is just a matter of time of burning that through as demand comes back. Those are products that typically have long lives to them. So we don't see -- as we sit here today, we don't see a significant risk to any write-off of inventory.
Harsh V. Kumar: Understood. And then as my follow-up, can I ask. You've got the legacy piece that you mentioned, I think, $50 million to $100 million, you'll peel off this year. You've also got some growth areas, which you called as other that are showing outsized growth. I was curious if you can help us understand what are the major components of the other outside of the AI data center piece and then maybe how big it is?
Hassane S. El-Khoury: Yes. Look, the primary focus for the others bucket that I will talk about is really the AI data center. We have some client in computing, they're a very small part of our business. That's why we put it in Other. We're not breaking those out. As far as AI data center, it's still showing a lot of growth. It's showing per expectations because we're investing in that business. As we get more and more into that business and it becomes sizable, we may talk about it in more detail. But for now, we're just keeping it in Other, and that's really the driver for the growth you're seeing there.
Operator: Ladies and gentlemen, this does conclude the Q&A portion of today's conference. I will now turn the call back over to Hassane El- Khoury, President and CEO, for any closing remarks.
Hassane S. El-Khoury: Thank you all for joining us. I want to take a moment to thank our global teams for their relentless execution, our customers for their continued partnership and our shareholders for their ongoing support. Together, we are building a more resilient and higher-quality business and I'm confident that the strategic progress we've made this quarter positions onsemi for long-term success. Thank you.
Operator: Ladies and gentlemen, this does conclude today's presentation. You may now disconnect, and have a wonderful day.
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- ON (ON) Q2 2025 Earnings Call Transcript
May 4, 2026
Image source: The Motley Fool.
DATE
Monday, August 4, 2025 at 9 a.m. ET
CALL PARTICIPANTS
President and Chief Executive Officer — Hassane S. El-KhouryChief Financial Officer — Thad Trent
TAKEAWAYS
Revenue -- $1.47 billion, up 1.6% sequentially, and above the midpoint of guidance.Non-GAAP Gross Margin -- 37.6%, above the midpoint of non-GAAP guidance.Non-GAAP EPS -- $0.53, compared to $0.96 in the comparable quarter last year.Automotive Revenue -- $733 million, down 4% sequentially, with relative weakness in America and Europe, offset by strength in China.China Revenue -- Grew 23% sequentially, driven by silicon carbide and new electric vehicle ramps.Industrial Revenue -- $406 million, up 2% quarter over quarter, with traditional industrial down slightly.Other Businesses Revenue -- Increased 16% sequentially, primarily from AI data center growth.Power Solutions Group (PSG) Revenue -- $698 million, up 8% quarter over quarter, and down 16% year over year.Analog and Mixed-Signal Group (AMG) Revenue -- $556 million, down 2% quarter over quarter, and 14% year over year.Intelligent Sensing Group (ISG) Revenue -- $215 million, down 8% quarter over quarter, and 15% year over year.Utilization Rate -- 68% on a reduced manufacturing capacity, flat compared to prior quarter due to capacity impairment completed in Q1.Inventory -- Increased by $9 million sequentially, with inventory days down 11 days to 208, including 87 days of bridge inventory for silicon carbide transitions (down from 100 in Q1).Distribution Inventory -- 10.8 weeks, within the company’s 9-11 week target range.Operating Expenses (Non-GAAP) -- $298 million, down $17 million sequentially; above midpoint of guidance due to delayed restructuring benefits expected to be realized in the following quarter.Share Repurchase -- $300 million repurchased in the quarter, resulting in 107% of year-to-date free cash flow returned to shareholders.Free Cash Flow Margin (Year-to-Date) -- 19% of revenue; company maintains target of 25% for the full year.Capital Expenditures -- $78 million in the quarter, representing 5% of revenue.Guidance for Next Quarter -- Revenue between $1.465 billion-$1.565 billion; non-GAAP gross margin 36.5%-38.5%; non-GAAP EPS $0.54-$0.64; non-GAAP operating expenses $280 million-$295 million.Product Portfolio Rationalization -- Management projects that approximately 5% of 2025 revenue will not recur in 2026 due to legacy product end-of-life, noncore business exits, and the repositioning of ISG.Treo Platform Milestone -- Over 5 million units shipped year-to-date from the East Fishkill facility, with the design funnel more than doubling sequentially.AI Data Center Revenue -- Nearly doubled year over year for the second consecutive quarter, with products now being sampled and in production with leading XPU providers.Utilization-Related Margin Impact -- Guidance includes 900 basis points of under-absorption charges in Q3; every point of utilization equates to 25-30 basis points gross margin improvement.Non-GAAP Tax Rate -- Expected to be 16% for the next quarter; company forecasts reduction to 15% from previous expectation of 19% in 2026 and beyond due to U.S. legislative changes.
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RISKS
Trent stated, "In 2026, we expect that approximately 5% of our 2025 revenue will not repeat," reflecting explicit revenue contraction risk due to legacy product phase-outs, and portfolio exits.El-Khoury said, "I remain cautious in the way we run the company until we see that stabilization turn into a better foundation for a recovery," indicating ongoing market demand uncertainty.Trent stated, "silicon carbide gross margin today is below the corporate average, primarily because of underutilization," confirming that this key growth area is currently dilutive to overall margins.El-Khoury described persistent weakness in Automotive revenue from Europe and North America, combined with customer unwillingness to commit orders far in advance due to industry and tariff uncertainty.
SUMMARY
Management delivered sequential revenue growth and exceeded internal guidance targets while actively advancing product portfolio rationalization and structural cost reductions. Guidance signals anticipated growth across all major end markets in the coming quarter, with stronger sequential expansion forecasted in the “Other” segment, and continued focus on operational leverage. Free cash flow generation remains a core discipline, evidenced by returning capital to shareholders at levels surpassing free cash flow for the year to date, and targeting improvement in full-year free cash flow margin. Management is implementing decisive changes to reduce lower-value revenue streams, forecasted to reduce 2026 top-line by approximately 5%, while investments in AI data center, silicon carbide, and the Treo platform are driving product innovation and diversification. The company maintains a cautious stance on end-market recovery despite near-term stabilization, proactively aligning Fab Right capacity and cost structure to maximize margin recovery as demand returns.
Trent said, "We expect OpEx to be in the range of $280 million to $295 million, including share-based compensation of $32 million," setting a disciplined operating expense target for the next quarter.Non-GAAP guidance for the next quarter incorporates "900 basis points of noncash under-absorption charges," underlining the persistent impact of utilization drag on margins.El-Khoury emphasized that product wins in China are "tied to the quality and the performance of the products," and supported by new EliteSiC trench technology adoption in electric vehicles.Trent clarified that "fully utilized is now kind of in that low 90% range" post-impairment, raising the threshold for margin recapture through increased utilization rates.Management confirmed there is “no change to the pricing environment,” indicating stable ASPs within their current expectations.The Treo platform reached a new volume milestone, and will continue to expand its product sampling pipeline and design wins, supporting long-term diversification.El-Khoury noted, "We are actively working with leading XPU providers on smart power stages," confirming strategic R&D alignment with next-generation AI and data center demand drivers.Combined cash and short-term investments total $2.8 billion, with aggregate liquidity of $4 billion, including undrawn credit lines, reflecting balance sheet strength.
INDUSTRY GLOSSARY
EliteSiC: ON Semiconductor(NASDAQ:ON)’s proprietary silicon carbide power semiconductor technology, used to improve EV range and efficiency.Treo platform: ON Semiconductor(NASDAQ:ON)’s modular mixed-signal and power SoC platform, aimed at integrating high and low voltage domains for automotive, and industrial applications.Fab Right: ON Semiconductor(NASDAQ:ON)’s strategy to rationalize and align manufacturing capacity with evolving product mix, and margin targets.SPS (Smart Power Stage): Integrated power management device used to efficiently deliver power to next-generation compute platforms, especially in AI data centers.XPU: A collective term for advanced processing units (e.g., CPU, GPU, or AI accelerators) relevant to data center and AI infrastructure.ISG (Intelligent Sensing Group): A business segment responsible for CMOS image sensors and related products targeting ADAS and machine vision applications.AMG (Analog and Mixed-Signal Group): A business segment providing analog and mixed-signal semiconductor solutions.PSG (Power Solutions Group): A business segment focused on power semiconductor products including analog, discrete, and integrated power solutions.Bridge Inventory: Inventory built up to facilitate manufacturing transitions, particularly supporting fab transfers in silicon carbide.ADAS: Advanced Driver-Assistance Systems, automated vehicle safety and functionality technologies requiring high-quality image sensing.Non-GAAP: Financial metrics that exclude certain items or adjustments from generally accepted accounting principles, such as share-based compensation or restructuring charges.
Full Conference Call Transcript
Hassane El-Khoury, our President and CEO, and Thad Trent, our CFO. This call is being webcast on the Investor Relations section of our website at www.onsemi.com. A replay of this webcast, along with our second quarter earnings release, will be available on our website approximately 1 hour following this conference call and the recorded webcast will be available for approximately 30 days following this conference call. Additional information is posted on the Investor Relations section of our website. Our earnings release and this presentation include certain non-GAAP financial measures.
Reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures and a discussion of certain limitations when using non-GAAP financial measures are included in our earnings release, which is posted separately on our website in the Investor Relations section. During the course of this conference call, we will make projections or other forward-looking statements regarding the future events or future financial performance of the company. We wish to caution that such statements are subject to risks and uncertainties that could cause actual events or results to differ materially from projections.
Important factors that can affect our business including factors that could cause actual results to differ materially from our forward- looking statements are described in the most recent Form 10-K, from 10-Qs and other filings with the Securities and Exchange Commission and in our earnings release for the second quarter. Our estimates or other forward-looking statements might change, and the company assumes no obligation to update forward-looking statements to reflect actual results, change assumptions or other events that may occur except as required by law. Now let me hand it over to Hassane. Hassane?
Hassane S. El-Khoury: Thank you, Parag. Good morning, and thank you all for joining us. In the second quarter, we made meaningful progress across our strategic priorities and advanced critical initiatives in Automotive, Industrial and AI Data Center. In Automotive, we're helping customers like Xiaomi improve range and enhance the driving experience and we're expanding our engagement with more global OEMs and Tier 1s, including our collaboration with Schaeffler. In AI Data Centers, we are enabling next-generation power architectures that drive efficiency and performance at scale through collaboration with market leaders like NVIDIA to accelerate the shift to 800-volt DC power architecture. We remain focused on making strategic investments to extend our competitive edge and deepen customer relationships to build long-term value.
At the same time, we are making structural improvements across the business to enhance efficiency. This, combined with disciplined cost management, creates significant leverage in our model as we prepare to capitalize on a market recovery. On the financial side, we delivered Q2 revenue of $1.47 billion, exceeding the midpoint of our guidance and non-GAAP gross margin and EPS of 37.6% and $0.53, respectively. Turning to the demand environment. We are seeing signs of stabilization across our end markets. We have not seen any pull-ins to date due to tariffs and our diversified manufacturing footprint remains a competitive advantage, providing sourcing options to our customers as they work on optimizing their supply chains.
By market, Automotive revenue in Q2 was down 4%, performing better than anticipated and is expected to grow in the third quarter with continued EV ramps. In China, select Xiaomi YU7 electric SUV models integrate our 1,200-volt EliteSiC M3e, enabling better performance and the longest range in this class. China remains a growth driver for onsemi with strong traction in both BEV and PHEV platforms. China revenue in Q2 grew 23% sequentially, driven by silicon carbide with the new EV ramps, I mentioned last quarter. We also expanded our collaboration with Schaeffler to deliver our next-generation traction inverter for a global OEMs PHEV platform using our latest EliteSiC M4T trench technology to unlock higher energy efficiency and reliability.
We expect adoption to continue to expand and our customer engagement to continue to diversify as OEMs redesign hybrid architectures to meet the emissions target and extend range. Industrial revenue increased 2% quarter-over-quarter. Revenue for AI data center, which we report as part of our other bucket, nearly doubled again in Q2 over the same quarter last year. As outlined in the President's AI action plan, AI infrastructure has become a focus of national priority in the United States. AI growth will be limited by power delivery rather than compute alone and onsemi is the only broad-based U.S. power semiconductor supplier addressing this challenge with our intelligent power semiconductors, dramatically increasing power density and reducing energy loss.
We are actively working with leading XPU providers on smart power stages that address the power requirements of current and next-generation platforms. We're in production on single SPS products in an industry standard 5x5 package and began sampling a dual SPS in the same footprint. As part of our ongoing transformation, we will continue investing in next-generation technologies where we have clear competitive advantages while reducing our exposure to areas with limited differentiation. This includes end- of-life of legacy products, exiting noncore businesses and repositioning our image sensing portfolio toward higher value segments such as ADAS and machine vision.
These actions are reshaping onsemi into a company with a distinct value proposition, powered by leadership in intelligent power, sensing and analog mixed signal technologies. A strong example of the strategy in action is Treo. Momentum continues to build around our Treo platform with a design funnel that has more than doubled quarter-over-quarter as we progress towards our $1 billion revenue target. We are on track to doubling the number of products sampling from last year. Treo's differentiated technology, modular SoC-like design and ability to integrate high and low voltage domains are driving strong customer engagement across all our end markets.
An example in Automotive is 10BASE- T1S, where we sampled over 10 customers as they work on their zonal architecture. After delivering our first Treo revenue in Q1, we've also reached an important milestone. We've now shipped over 5 million units from our East Fishkill facility this year. These milestones reflect the strength of our innovation engine and the strategic investments we've made to support long-term growth. By reducing complexity, sharpening our operational focus and allocating capital more efficiently, we are building a more resilient and higher-quality business for the long term.
As the global economy accelerates to electrification and intelligent automation, next-generation vehicles, sustainable energy systems and AI data centers are converging around a shared need for a new era of power solutions. Beyond silicon carbide, our strategic investments in next-generation wide band gap semiconductors have delivered transformative gains in power density, thermal performance and energy efficiency. We started sampling customers on these new breakthrough technologies, and I will talk more about it soon. Let me now turn it over to Thad to give you more detail on our results and guidance for the third quarter.
Thad Trent: Thanks, Hassane. Through our ongoing transformation, we remain dedicated to building sustainable long-term value for our shareholders. We have progressively rationalized our portfolio and manufacturing footprint to expand gross and operating margins at scale. These efforts will continue in future quarters, and we are committed to extracting value through our Fab Right initiative. Investments in next-generation technologies across the portfolio will continue to expand our position as a leader in power and sensing and drive the shift in our portfolio mix to move onsemi up the value chain with our customers. As a reminder, in Q1, we took aggressive action to reduce our manufacturing capacity and restructure our workforce to continue driving long-term operational efficiencies.
In the second quarter, we began to see the benefits of those structural changes with a substantial reduction in operating expenses. In parallel, we increased our 2025 targeted share repurchase to 100% of free cash flow. We are executing to that target and after repurchasing an additional $300 million of shares in the second quarter, we have returned 107% of our free cash flow to shareholders on a year-to-date basis. Turning to the second quarter financial results. We exceeded the midpoint of our guidance with revenue of $1.47 billion, increasing 1.6% over Q1. Automotive revenue was $733 million, which decreased 4% sequentially, driven by weakness in America and Europe and offset by continued strength in China.
Revenue for Industrial was $406 million, up 2% sequentially. While our medical and aerospace and defense businesses continue to grow, traditional industrial declined slightly in Q2 versus Q1. Outside of Auto and Industrial, our Other businesses increased 16% quarter-over-quarter with AI data center being one of the significant contributors. Looking at the quarter between -- the split between the business units. Revenue for the Power Solutions Group, or PSG, was $698 million, an increase of 8% quarter-over-quarter and a decrease of 16% year-over-year. Revenue for the Analog and Mixed-Signal Group, or AMG was $556 million, a decrease of 2% quarter-over-quarter and 14% year-over-year.
Revenue for the Intelligent Sensing Group, or ISG, was $215 million, an 8% decrease quarter-over-quarter and 15% over the same quarter last year. Turning to gross margin in the second quarter. GAAP and non-GAAP gross margin was 37.6%, above the midpoint of our non-GAAP guidance. Manufacturing utilization was flat compared to Q1. Accounting for the capacity impairment completed in Q1, utilization is now 68% based on a reduced manufacturing capacity. We expect to see approximately $5 million reduction in depreciation on the income statement starting in Q4. Now let me give you some additional numbers for your models. GAAP operating expenses for the second quarter were $359 million as compared to $396 million in the second quarter of 2024.
GAAP operating expenses decreased sequentially in Q1 -- as Q1 included restructuring charges of $539 million. Non-GAAP operating expenses were $298 million compared to $308 million in the quarter a year ago. Non-GAAP operating expenses decreased $17 million sequentially. And were above the midpoint of our guidance. This was due to delays in realizing the full benefit of our restructuring activities in the quarter, which we expect to recognize fully in the third quarter. GAAP operating margin for the quarter was 13.2% and non-GAAP operating margin was 17.3%. Our GAAP tax rate was 12.6% and non-GAAP tax rate was 16%.
Looking forward, we expect no material change in 2025 due to the one big beautiful bill, while we see a positive impact in 2026 and beyond, reducing our non-GAAP tax rate to approximately 15% from our previous expectation of 19%. Diluted GAAP earnings per share for the second quarter was $0.41 as compared to $0.78 in the quarter a year ago. Non-GAAP earnings per share was $0.53 as compared to $0.96 in Q2 of 2024. GAAP and non-GAAP diluted share count was 415 million shares. Turning to the balance sheet. Cash and short-term investments was $2.8 billion with total liquidity of $4 billion, including $1.1 billion undrawn on our revolver.
Cash from operations was $184 million, and free cash flow was $106 million. The sequential decline in free cash flow was driven by timing of working capital, which created lumpiness between quarters. Our year-to-date free cash flow is 19% of revenue, and we remain on track to deliver 25% free cash flow margin for the full year. Capital expenditures during Q2 were $78 million or 5% of revenue. Inventory was up quarter-over-quarter on a dollar basis by $9 million and decreased by 11 days to 208 days. This includes 87 days of bridge inventory to support fab transitions in silicon carbide, down from 100 days in Q1. Excluding the strategic builds, our base inventory is healthy at 121 days.
Distribution inventory was 10.8% versus 10.1 weeks in Q1 and within our target range of 9 to 11 weeks. Looking forward, let me provide you the key elements of our non-GAAP guidance for the third quarter. As a reminder, today's press release contains a table detailing our GAAP and non-GAAP guidance. First, our guidance is inclusive of our current expectations that there is no material direct impact of tariffs announced as of today. Given our current visibility, we anticipate Q3 revenue will be in the range of $1.465 billion to $1.565 billion. Our non-GAAP gross margin is expected to be between 36.5% and 38.5%, which includes share-based compensation of $6 million.
Our third quarter guidance includes 900 basis points of noncash under-absorption charges, and we expect utilization to be flat to up slightly in Q3. Moving on to non-GAAP operating expenses. We expect OpEx to be in the range of $280 million to $295 million, including share- based compensation of $32 million. We anticipate our non-GAAP other income to be a net benefit of $8 million with our interest income exceeding interest expense. We expect our non-GAAP tax rate to be approximately 16% and our non-GAAP diluted share count is expected to be approximately 410 million shares. This results in non-GAAP earnings per share to be in the range of $0.54 to $0.64.
We expect capital expenditures in the range of $35 million to $50 million. As we look forward, we continue to rationalize our product portfolio to force the shift towards higher value and higher-margin products. In 2026, we expect that approximately 5% of our 2025 revenue will not repeat. This includes the end of life of certain legacy products, ongoing noncore exits and the repositioning of ISG that Hassane talked about. We've also been executing our Fab Right strategy to align capacity with this shift as we drive to a higher quality of revenue and long-term earnings power. To wrap up, we continue to operate with financial discipline and a clear focus on shareholder value.
By taking decisive action to streamline our portfolio and align operations, we are well positioned for a recovery. We continue to invest in next-generation technologies and capabilities that will strengthen our competitive advantage and support our transformation. With our focus on intelligent power and sensing, we are reshaping onsemi into a more focused and differentiated company. With that, I'd like to turn the call back over to Kevin to open up the line for Q&A.
Operator:[Operator Instructions] Our first question comes from Ross Seymore with Deutsche Bank .
Ross Clark Seymore: Hassane, the first one's for you. And I guess just kind of 2 parts to it. You sound better cyclically than you have in a while. So the first part is what are you seeing cyclically? And where are there still headwinds? Where are you seeing mainly the tailwinds? And perhaps more importantly, when we move to the secular side, you talked about the AI data center side, the Treo side of things, but we still have the offsets of businesses you're exiting, like Thad just mentioned probably a 5% headwind. Can you talk a little bit about the traction in those secular drivers and when the good ones are going to offset the exits?
Hassane S. El-Khoury: Yes. Ross, thanks. That's a great segue into what really the call is about. So as far as what we're seeing, we're seeing stabilization relative to where we have been over, call it, the last 3, 4, 5 quarters, that is a positive development. We talked about Automotive hitting the low end in the second quarter. Thad talked about also expecting -- we expect Automotive to be up in the third quarter. So you're starting to see that stabilization. I'm not there calling a recovery. There's still a lot of uncertainty and customers are being cautious. But relatively speaking, I do have more, I guess, positively optimistic looking forward.
But I remain cautious in the way we run the company until we see that stabilization turn into a better foundation for a recovery. We're controlling everything we can from what Thad mentioned from an OpEx perspective, we're being very disciplined in investments that will turn the company into the high-value products and revenue that we want. So those are the second part of your question. When we talk about AI data center, we've said we've started introducing products. Those products are gaining traction, not just from our analog mixed-signal, but also we talked about the silicon carbide JFET.
So a lot of foundational technologies that we have in the company, we have been moving that into the AI data center and that business has doubled year-on-year from the quarter a year ago. That's the second quarter we doubled from last year as well. So that's getting the traction that we are expecting. Treo as a broad-based product, it is differentiated. We hit a very important milestone last quarter. I talked about we already recognized revenue a few quarters ahead of what we described prior to that. We expected the revenue in the second half of this year, but we posted the first revenue in Q1 of '25.
And the second milestone is really the volume, and that tells you a little bit on the breadth and the traction that we're seeing with customers. All of these investments that we've been making over the last few years are what's driving our longer-term view and why it's important for us to start focusing on really reshaping the company into the high-value product company that we want and really a much better revenue quality from a margin perspective and from a capital allocation perspective.
So all of these pieces of the puzzle that we've been investing in and putting in place, now they're starting to come together with traction in the market that we are able to use as a foundation for where we go next.
Ross Clark Seymore: I guess as my follow-up, one for Thad, on the gross margin side, again, a little bit of a near-term long-term balance. In the near term, why is it flat to slightly down if your revenues are up? And then longer term, especially given the changes in mix that you're talking about, what are the key levers you think you can pull to get to the 53% long-term target, if indeed, that is still the target?
Thad Trent: Yes. Ross, I mean, the key to margin expansion for us is all about utilization, right? It's -- we've been saying that for a few quarters here. As we see a recovery, utilization will improve, and that will fall through on a gross margin line a couple of quarters later as you think about burning through that inventory. In the short term, look, we're being cautious right now, right? We've got inventory on the balance sheet, we're going to burn through. We're lean there. We're lean in the distribution channel. We're in a good spot that when the market does turn, we take utilization up. But we're being cautious here.
So we think it's flat to slightly up here in Q3 as we get better visibility into Q4 and to early next year, we'll think about taking utilization up, and that will give us a nice tailwind as you go into 2026. In terms of the march to the target of 53%, you've got about 900 basis points of underutilization charges in our Q3 guide. That's consistent with Q2. That, obviously, every point of utilization is 25 to 30 basis points of gross margin improvement. That math still holds. So as you see the utilization coming up, you'll see us get that 900 basis points back.
We also have the monetization of the divested fabs as we moved that production back in-house. And we're continuing to do more work on our Fab Right initiative, which will give us another 200 basis points kind of in that neighborhood. And then as Hassane talked about, as we ramp these new products, they are at favorable margins. So I think when you start to add that up, you can start to get within kind of a pretty tight range of getting to that 53% long-term target. But like I said, in the short term, it's all about utilization. That's the #1 driver.
Operator: Our next question comes from Vivek Arya with Bank of America Securities.
Vivek Arya: For the first one, I just wanted to go back to Q2 results. So Industrial was a bit softer than I think you had thought before. So what drove that? And then the Other was much stronger. Is it really the data center part of that Other? And if that is the case, how large is the data center part of your Other business right now?
Thad Trent: Yes. On the Industrial, it wasn't up as much as we were expecting. That's primarily because of what we call the traditional industrial. It was down just slightly. When we look at our traditional industrial, I would say it's kind of bouncing across the bottom. We think we've stabilized, but there's going to be some ups and downs here. It was down slightly and down more than we thought it was going to be. So that's the primary driver on the industrial. On the other market, yes, it's the AI data center and the opportunity that we have there. We talked about year-over-year that, that business has doubled. So still a small piece of the overall company, but growing nicely.
Vivek Arya: Okay. And for my follow-up, Hassane, where are we in the automotive recovery cycle for ON? I think you mentioned China appears to be strong for you. Is it really the weakness outside of China, especially at the North American EV OEM? Because I'm trying to contrast what you're seeing versus what several of your analog peers are seeing. Some of them are within, I think, 4%, 5% of their prior automotive peaks, whereas ON's auto business is still, I think, 30% of your prior peak. So why is the automotive recovery so slow for ON? And when do you think that your Auto business could start to regrow year-on-year?
Hassane S. El-Khoury: Yes. So I think the Automotive specifically, the regions other than China, both Europe and North America are weak. I think there's a lot of uncertainty in the automotive market. I don't think we're any -- I guess, any different other than the portfolio rationalization that we've been doing, those obviously will not repeat moving forward. But where we are in the EV ramps continue to happen, of course, not at the same rate that we all expected. I think the unit volume is not where it needs to be. And the rest is just purely on the mix and exposure versus our peers. I can't really comment what our peers are seeing in automotive.
But from our side, we hit the bottom in the second quarter. We're starting to post growth. Our expectation in Q3 will be growth. And then we'll see, based on the visibility we get over the next few quarters, where that's going to lead.
Operator: Our next question comes from Blayne Curtis with Jefferies.
Blayne Peter Curtis: I actually wanted to ask you about the ISG repositioning. And I thought you said the 5% was the end-of-life products, and that's what you've been saying for a while. So maybe you could just walk me through, I guess, what are you repositioning? Why? And is there a revenue number tied to that repositioning in ISG?
Hassane S. El-Khoury: Yes. From a repositioning -- the strategic repositioning, I've talked about it at a high level in prior quarters is really our focus on the machine vision part of it. As we see some of the competition coming in, we've always said we're going to focus on value and we're going to focus on high-quality revenue based on the technology and the differentiation we bring. That differentiation locks with vision product or machine vision product rather than the human vision product. To give you an example that I've always -- that I've given in the past, reverse parking. It doesn't matter how good your camera is, there's always dirt on the lens because it's outside. The quality doesn't matter.
That's where we're not going to be engaging on these designs. When it comes to proper ADAS, where the CPU or the SoC, the central SoC needs clarity and the best image quality for safety, that's where we bring -- that's where we add value with our vision products. That's the difference between where the company used to tackle, which is a lot of the volume aiming for #1 market share at -- across all markets to a very focused value-driven approach, which we've been on for a few years. That's really the difference that I talked about here. It's no different than the strategy we've been implementing.
But right now, we're very confident in the approach that we want and the strategy we're going to move forward with and followed with the investments that we are making in order to maintain that differentiation in the markets we want.
Thad Trent: And Blayne, to answer the second part of your question in terms of the revenue impact, we think for 2026, it's about $50 million to $100 million that doesn't repeat from the 2025 baseline.
Blayne Peter Curtis: [ Is that ] incremental to the 5% from the end of life stuff?
Thad Trent: That's inclusive of 5%.
Blayne Peter Curtis: Got you. And then maybe, Thad, just on just the [ disti ] inventories, I guess, it kind of came in the high end of the range in June, kind of what's your expectation for [ disti ] in the September guide?
Thad Trent: Yes. I think it's going to be right in this range, let's call it 10 weeks plus or minus, right? We came in at 10.8%. It's in our sweet spot of 9% to 11%. So we don't expect any material change one way or another.
Hassane S. El-Khoury: And obviously, we talked -- so Blayne, just from a quarter-on-quarter, we don't really look at it quarter-on-quarter at that level of detail as long as it remains within the range because as you understand, there's ramps that we have in the third quarter. Those ramps kind of we get through in the second quarter, then you drain and you then get to a steady state. So that difference between quarter-on- quarter as long as it's within the range, for us, it's not something that we want to control at that level as long as we maintain a customer ramp strategy.
Operator: Our next question comes from Chris Danley with Citi.
Christopher Brett Danely: Just a couple of questions digging on the gross margins. Is the 5% of business that's going away next year? Is that going to be gross margin accretive? And if so, how much? And then how does the silicon carbide business fit into the overall gross margin ledger? Are those gross margins lower than the corporate average now? And then how do we get those back to the 53% target?
Thad Trent: Yes, Chris. So the silicon carbide gross margin today is below the corporate average, primarily because of underutilization. The key to getting those back to the corporate average is obviously volume and leveraging that manufacturing footprint that we have, which we will do over time as that business continues to ramp. In terms of the exits, long term, that is going to be dilutive to margins. Currently, it's somewhere around the corporate average. But when you think about our aspirations to get to a 50% plus gross margin, that business is not going to support that aspiration. So that's the reason to exit it now.
We've said that -- and we've undercalled this for a few years here or maybe overcalled it, expecting to exit it faster. But long term, it will be dilutive. Short term, it will be neutral just given the fact that it's around the corporate average today. Now we will be rightsizing manufacturing as we go through this as well. That's what I said in my prepared remarks. So we are matching the Fab Right capacity with these planned exits.
Christopher Brett Danely: Okay. And for my follow-up, just real quick. What percentage of your auto business is China? And then how would you expect that to trend over the next couple of years?
Hassane S. El-Khoury: Yes. We don't -- look, we don't break Auto of China. We're disclosing Auto as a whole and China as a whole. We're not getting into that level of detail from the revenue cut. But we expect China to be a target market for us. We have a 50% share. That will continue to grow as revenue grows and as the number of units keeps growing. We're very happy with our position in China. Just to remind everybody, our focus in China is really where we add on the efficiency and the range. Every win that we have in China is tied to the quality and the performance of the products.
And that's how we differentiate not just against some of our Western peers, but how we differentiate against some of the local peers. We will maintain that level of differentiation. I talked about we introduced our Trench silicon carbide already with some wins behind it. That is the way we're going to keep and stay ahead of everybody from a competition perspective. And that's the reason we're winning in China and really outside of China.
Operator: Our next question comes from Jim Schneider with Goldman Sachs.
James Edward Schneider: I was wondering with respect to the Q3 guidance, you talked about Automotive being up in the quarter. I'm assuming that given your commentary, you're less sure about Industrial and Other being up. I was wondering if you could maybe give us a little bit of color on what you'd expect going into Q3 for there? I'm assuming that data center piece of Other would be much stronger. Maybe just kind of clarify where you expect to be auto -- excuse me, Industrial will be up, flat or down.
Hassane S. El-Khoury: Yes. So the comment I made on Automotive is exactly that, but I made it specifically on Automotive relative to the second quarter being the kind of the trough as we ramp. But just to clarify my comments, we expect every end market, Auto, Industrial and Other to be up in the third quarter. Other will be up higher driven by the ramps that we see in these markets that we put under Other, which includes AI, of course.
Thad Trent: Yes. And to give you a little more specific expectations there, we expect Auto and Industrial to be up low single-digit percentages. We think Other is going to exceed that will be up in the mid- to high single-digit range.
James Edward Schneider: That's very helpful. And then maybe if you could give us any kind of color on within Auto, you talked about the U.S. and Europe being a little bit weaker. I don't think that's particularly surprising to anybody. But can you maybe talk about the reasons for that? Is it purely tariff-based uncertainty in terms of their end market uncertainty? Or do you think there's a little bit of excess inventory or buffer stock still trying to work down internally?
Hassane S. El-Khoury: I would say it's all of the above. I mean I don't know what to point specifically at. It's not an industry or a market. Every customer has their pain points. Some have some inventory. We don't believe that's a broad statement from an inventory perspective. You have the tariff and you have just the general uncertainty of end market demand. So you see customers waiting to the last minute to place an order and [ an end ]. That's the cautious approach that we're taking. We've been more right than wrong in our approach. So we're going to continue to manage to the visibility into what we can see.
But what you think about auto and -- or sorry, in general, Europe and North America is really all of the above that we all read in the headlines.
Operator: Our next question comes from Quinn Bolton with Needham & Company.
Nathaniel Quinn Bolton: I just wanted to come back on that utilization impact. I think you said each point of utilization is 25 to 30 basis points. But you said there's kind of 100 basis points of underutilization charges included in the guidance. And so it kind of implies you need to get to 98% utilization to get that full 900 basis points. And I thought you guys in the past had said full utilization was more low to mid-80s. So can you just clarify kind of what -- where do you see full utilization?
Thad Trent: Yes. Good question. So previously, we had said fully utilized for us was kind of in that mid-80% range. Post the impairment that we've done in Q1, that is now kind of in the low 90s, call it, somewhere around 92%, right? So if you do that math on the 25 to 30 basis points for every point of utilization, you get to somewhere around 700 points of improvement. There's also another 200 basis points of Fab Right initiatives that we're still taking. That will get you to that 900 between the 2 combinations. But yes, there's -- our expectation now is on the lower footprint, our fully utilized is now kind of in that low 90% range.
So it's improved.
Nathaniel Quinn Bolton: Got it. And then the rest sort of from the 46 or so percent to 53%, that would all be mix and new products?
Thad Trent: Yes. Yes, exactly. Exactly.
Nathaniel Quinn Bolton: And then...
Thad Trent: Sorry, one more thing. As well as the fab divestitures, right? So you got another 200 basis points of the fab divestitures that we'll recognize.
Nathaniel Quinn Bolton: Got it. Okay. And then Hassane, you'd mentioned the smart power stages, both single and dual phase that I think you said you're sampling now. Wondering if you could give us -- is that sort of about a year-long qualification timing? Do you think you could ramp faster? And maybe a similar question just on the 800-volt rack opportunity. Would you expect that to sort of ramp in the 2027 time frame given, I think, what NVIDIA has stated about its 800-volt rack time line?
Hassane S. El-Khoury: Look, given the sensitivity with mentioning customers, whatever we have specifically on that opportunity is listed in the press release.
Nathaniel Quinn Bolton: Okay. How about just the power stages then?
Hassane S. El-Khoury: The power stages is really a standard design cycle. So we're expecting anywhere -- you can think about it as the 12 to 18 months qual cycle in production. Of course, we're -- that depends on end adoption as far as if there's any change in the road map. The most important thing is we're tied up with the -- on a road map specific with the XPU suppliers. So as they ramp and deploy their new platforms, we will be ramping with them. But obviously, we are in production on ours. So that -- the single SPS is ahead as we sample, our qual happens with the customer. So they're kind of different stages.
But that's just to highlight, we have a road map, and we have a good cadence of new products now starting to get into that AI data center space across the whole power tree from high-power JFETs to really SPS close to the GPU or XPU. We've talked about it the last few years that we needed the new product engine to kick up. That's happening, and those are kind of the proof points that I'd like to highlight.
Operator: Our next question comes from Joshua Buchalter with TD Cowen.
Joshua Louis Buchalter: I wanted to ask about inventory levels. I believe last quarter, you mentioned that you were expecting them to peak in 2Q and then decline through the rest of the year. Is that still the right way to think about inventories for the year? And any amount that you expect to take out through the balance of 2025? Like how should we think about utilization rates? I guess I'm a bit surprised to see them up when you're trying to bleed inventory given revenue was up modestly in the guidance for the third quarter.
Thad Trent: Yes. Now keep in mind, the utilization is flat quarter-on-quarter. The calculation now is 68%. But if you normalize to pre-impairment, it's 60%, right? So it's flat quarter-on-quarter. The new calculation gets you to 68% utilized given that we have a smaller footprint and less capacity. First part of your question...
Hassane S. El-Khoury: Inventory.
Thad Trent: Yes. So inventory, yes, we're still on track here. We think we're peaking in inventory in Q2. We think it will be down slightly here in Q3. And I would expect in Q4, we continue to see that trend as we burn through that strategic inventory. That's always been our path. Our path is that we'll bridge -- that was bridge inventory for the fab transitions in silicon carbide, but we will be burning through that. So that's a nice tailwind to cash flow.
Joshua Louis Buchalter: Okay. I appreciate the color there. And I'm sorry to keep picking on gross margins. But I wanted to ask about pricing. I think last quarter, you mentioned pricing a bit more aggressively to defend market share. How did that develop in the quarter? And any changes in the pricing environment that you've seen over the last 90 days?
Hassane S. El-Khoury: Yes. No, no change to the pricing environment. It's actually stable, within our expectations. So there's nothing new here.
Operator: Our next question comes from Gary Mobley with Loop Capital.
Gary Wade Mobley: I believe you said roughly a $300 million revenue headwind in fiscal year '26 or roughly 5% of revenue as you exit noncore business. How much of a headwind is it for fiscal year '25? And should we think about it as spread over 8 quarters, roughly $30 million to $40 million per quarter headwind? Or is it linear like that? Or is there any sort of [ step ] function?
Thad Trent: Yes. For 2025, it's roughly -- we're expecting about $200 million of exits. Year-to-date, we're on track through Q2 of $100 million. Like I said earlier, we've continued to overcall this, we think we're going to exit it faster. So that pushes $100 million out into next year in terms of the exit. So that is the impact of 2025.
Gary Wade Mobley: Appreciate that. I was hoping you can give us an update on the East Fishkill bring up sort of where you're at and looking forward what the impact to gross margin might be?
Hassane S. El-Khoury: Yes. So from East Fishkill, obviously, it's the utilization impact overall that Thad mentioned from our fab network. East Fishkill is part of that fab network. So it comes with utilization. The important thing is we already have our power products, our silicon power products qualified and shipping from there, high voltage and medium to low voltage. Our image sensor qualification is on track as expected. And the Treo has started, I wouldn't call it a soft ramp at 5 million units already, but that's, again, a brand-new product that we ramped up with a brand-new technology in East Fishkill. So the fab is running and qualified where we want to qualify. And right now, it's primarily driven by utilization.
But from a technology perspective, we're pretty happy with the performance.
Operator: Our next question comes from Vijay Rakesh from Mizuho.
Vijay Raghavan Rakesh: Just a quick question on the Section 232, 301. Obviously, a lot of noise around that. How are you guys preparing for that? What are you expecting in terms of when this happens? And I have a follow-up.
Hassane S. El-Khoury: I mean, I don't know, Vijay if anybody told you I have a crystal ball better than my peers. But I think the way we prepare for it is we remain focused on what we can control. We're talking about our footprint, our fab footprint, our manufacturing footprint as a competitive advantage. That has been recognized by customers, especially as the whole tariff talk has been for a few quarters now. The 232, I believe, will be very similar to the changes that we have to go through with customers.
The thing is there's no planning to be done here because we don't know where it's going to land on either side, except the fact that we need to maintain flexibility, and we need to maintain the focus on what we can control.
Vijay Raghavan Rakesh: Got it. And then in terms of silicon carbide, obviously, good to see you guys picking up some share there. One of your peers declared bankruptcy. Just wondering how that's playing out from a business risk perspective, obviously, people might be moving or reallocating. But just wondering how that's kind of playing out on the road map.
Hassane S. El-Khoury: Yes. Look, from a road map perspective, that doesn't have an impact. I've always maintained my focus on we're going to win. We're going to win because of our own products and because of our own investment, not because one of our peers are struggling. So we're going to win because of things we are doing. Having said that, the changes in one of our peers with the bankruptcy, obviously, that is not the trigger that force customers to think otherwise. We all know they struggled way before the bankruptcy filing. I think a lot of road map changes from our customer, a lot of sourcing decisions have already been made.
So that to me is all, I would say, part of the baseline, part of the funnel, part of the ramps. I wouldn't call the bankruptcy as a trigger.
Operator: Our next question comes from William Stein with Truist Securities.
William Stein: I'd like to also dig into silicon carbide for a moment. I think one of the things that came out in the last quarter or so, Hassane, is that perhaps for some of your customers, there's been an interest in purchasing chips instead of modules. Modules had been the story. Now we're hearing more about Trench and some other maybe aspects of the individual chip design. Can you comment on that change? And if customers continue to choose chips over modules, does that influence your long-term thinking about the attractiveness of this market for you?
Hassane S. El-Khoury: Yes. So that -- by the way, I guess, the shift or the change in mix between modules and what we call die is not new. That's been happening for a few years. That's already part of our baseline. As far as your reference to Trench, that's totally independent of die versus module. Trench is another step in device design. It was planar with our M3. Our planar performed better than everybody else's trench. We introduced and we have been winning with our new trench, which is our latest generation and we're winning because of the performance.
Whether we put it in -- whether we sell it to a customer as die or we sell it to customers as a module, and we do provide both, still we win because of the performance of that die and we win more when we put it in our own module because we know how to design a module that fits our die specifically. A lot of our designs that are ramping, for example, even in China are a mix of die sales or module sales. We maintain the flexibility for what the customer supply chain wants to do and what they feel their core competencies are.
Some customers have core competencies to make a module, some do not, and they prefer to buy our modules. We're here to offer flexibility. We've always said our intent is always to provide the most optimal solution to solve the customer problem and bring value. Value is in range of efficiency, and that comes on the die side with our trench technology. It does not change our view of the market. Obviously, from our results and the market share that we have been gaining and ramping, we've shown success no matter what the mix is, and we'll continue to do that.
But the name of the game here is maintain R&D, maintain investment in key areas to provide differentiation, and that's the markets we're in.
William Stein: If I can follow up in a similar area. One of the big consumers in silicon carbide has discussed a migration to hybrid inverter from silicon carbide to silicon carbide combined with IGBT. I think they said that they intend to reduce SiC by 75% in that traction inverter. But I think they haven't done it yet. I wonder if you're seeing that influence your go-forward view of this market, if it changes anything for you?
Hassane S. El-Khoury: No change. This is not -- again, it's not the commentary from one customer. If you go back 2 years ago, in our Analyst Day, Simon already showed how the migration or the mix is going to be for higher end, higher range, higher performance will be silicon carbide. And as you go to more mainstream, you'll end up with a hybrid all the way down to there's still life in IGBT. So those commentaries are nothing new. I've addressed them multiple times. That doesn't change our view of the market.
Our competitiveness in the market is to be able to provide a slew of technologies from silicon carbide, trench planar all the way to highly differentiated IGBTs because some vehicles still have IGBT on one axle, silicon carbide on another axle or full IGBT. It does not change the view of the market. We will continue to win based on the performance of the products specifically.
Operator: Our next question comes from Harsh Kumar with Piper Sandler.
Harsh V. Kumar: Question for maybe Hassane. Hassane, as you think about the recovery and maybe the fuel for recovery, you talked about 900 basis points underutilization. Can I ask if there's an element of written-off inventory here as well that might come into play as you look at recovery?
Hassane S. El-Khoury: No, no. When you talk about like reserve inventory or written off inventory, no, because we have a very disciplined approach on what you reserve and what inventory you write off. Inventory write-off does not have demand. So it cannot be part of the recovery. So when we talk about purely the 900 basis point being on utilization, it is purely demand driven that will drive utilization with healthy inventory that we build and ship to customers. If you recall, we saw the shift in market before a lot of our peers. So we took down our utilization ahead of most of our peers and ahead of the market really softening.
So that puts us in a much better position from the inventory we have. We are already draining our inventory. And as demand picks up, we can pick up more utilization on the fab that will help the margin, help cash flow when we shift the bridge inventory. So everything we've done and the discipline we've shown all the way here is what's going to drive that healthy recovery without any kind of side notes.
Thad Trent: Yes. And Harsh, we've got -- if you go back to our base inventory, take out the strategic, it's 121 days, right, in our sweet spot, right? So it's very healthy. We don't see an inventory risk on that and the strategic is just a matter of time of burning that through as demand comes back. Those are products that typically have long lives to them. So we don't see -- as we sit here today, we don't see a significant risk to any write-off of inventory.
Harsh V. Kumar: Understood. And then as my follow-up, can I ask. You've got the legacy piece that you mentioned, I think, $50 million to $100 million, you'll peel off this year. You've also got some growth areas, which you called as other that are showing outsized growth. I was curious if you can help us understand what are the major components of the other outside of the AI data center piece and then maybe how big it is?
Hassane S. El-Khoury: Yes. Look, the primary focus for the others bucket that I will talk about is really the AI data center. We have some client in computing, they're a very small part of our business. That's why we put it in Other. We're not breaking those out. As far as AI data center, it's still showing a lot of growth. It's showing per expectations because we're investing in that business. As we get more and more into that business and it becomes sizable, we may talk about it in more detail. But for now, we're just keeping it in Other, and that's really the driver for the growth you're seeing there.
Operator: Ladies and gentlemen, this does conclude the Q&A portion of today's conference. I will now turn the call back over to Hassane El- Khoury, President and CEO, for any closing remarks.
Hassane S. El-Khoury: Thank you all for joining us. I want to take a moment to thank our global teams for their relentless execution, our customers for their continued partnership and our shareholders for their ongoing support. Together, we are building a more resilient and higher-quality business and I'm confident that the strategic progress we've made this quarter positions onsemi for long-term success. Thank you.
Operator: Ladies and gentlemen, this does conclude today's presentation. You may now disconnect, and have a wonderful day.
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- Tax-Managed Long-Short Strategies Gain Traction. Are They Worth the Risk?
May 4, 2026
You can find original article here WealthManagement. Subscribe to our free daily WealthManagement newsletters.
As the S&P 500 continues its bumpy ride through the Iran war, asset managers are promoting an investing strategy that might help advisors capitalize on market swings and stock dispersion—tax-managed long-short equities.
The strategy involves placing bets on both long equity positions and shorting underperforming stocks, potentially limiting losses during down markets and providing tax benefits for investors who need to offset capital gains elsewhere in their portfolio. However, investing in long-short equities is not without its downsides, including higher-than-average fees, lack of participation in market upside, the added risk of using leverage for short positions and potential for tracking errors that rise with market volatility.
The short positions used in these strategies typically involve borrowing overvalued stocks from an asset manager, then selling them just before their price is expected to decline. The investor can then buy the stocks back at the lower price and return them to the original owner, profiting from the price difference, with the money often reinvested in remaining positions. According to a paper by Boston Partners, long-short strategies tend to perform well during periods of high interest rates, due to greater dispersion across stocks. They also make more sense when equities are overvalued, with little room for further price gains.
When to Use a Long-Short Strategy
Tax-aware long-short strategies are particularly well-suited for investors who want to sell out of their concentrated stock positions or face another one-time profit-generating event where they would benefit from offsetting capital gains with losses, according to experts.
“It can be extremely helpful for folks who have a large or maybe an unexpected capital gains event,” according to Greg Kanarian, direct investing strategist at Natixis Investment Managers. “For example, if I run a small business and somebody buys my business. I’ve got a big capital gains event that, let’s say, closes in June. Now I’ve got six months to harvest as many losses as possible. It’s going to be a very slow process using direct indexing. But if I do a tax-aware long-short strategy, and I add a lot of leverage, I am able to harvest losses very quickly.”
Natixis launched a new long-short strategy, the Gateway Long/Short Extension Strategy, in September 2024. The strategy, which focuses on large cap stocks and aims to build a core exposure with a customizable benchmark and a default ratio of 130/30—meaning for every $100 investment, the manager borrows $30 to invest in more long bets and another $30 for short stocks that will be sold when their price drops. Since its inception through year-end 2025, the strategy delivered a total return 18.69%, compared to the S&P 500’s 17.82%. Natixis shorted stocks including Marsh & McLennan, PG&E Corp. and Ingersoll Rand, while going long on the Magnificent Seven, Berkshire Hathaway and JPMorgan Chase.
Story Continues
Long-short strategies can be a good fit for investors “who want to sell out of an appreciated position and offset that with losses,” said David Stubbs, chief investment strategist at AlphaCore Wealth Advisory, a La Jolla, Calif.-based RIA with $8.6 in assets under management. “I think this strategy is very interesting and can be part of responsible wealth management, but advisors should understand the broader risks and the implications for the portfolio.”
This is particularly true if, in an effort to generate losses quickly, advisors agree to ratchet up leverage.
In recent months, managers that have launched long-short equity strategies included J.P. Morgan Asset Management, Neuberger Berman, WisdomTree Asset Management, NEOS and QuantumStreet AI, among others. Morningstar data shows nine funds focusing on long-short strategies launched in 2025 and two year-to-date in 2026.
“We are definitely seeing more and more appetite for these types of strategies. Less than 18 months ago, there were still a lot of advisors and firms that were just learning about this. Last year was definitely the year when we started to see more of these early adopters, and I don’t really see it slowing down this year,” said Josh Rogers, senior client portfolio manager at Invesco. “There is lots of interest, lots of use cases. There are so many things happening in the market—the volatility of some of the stock positions; there are a lot of clients planning for capital gains events. And we are starting to hear about the SpaceX IPO.”
Long-Short Strategies Don’t Always Deliver
Invesco launched a tax-optimized long-short SMA four years ago, requiring a minimum investment of $500,000 to $1 million. Rogers described tax-optimized long-short strategies as an evolution in how tax advantages have evolved from mutual funds to ETFs to direct indexing, and now extending to long-short SMAs.
However, long-short strategies are not well-suited for every client and don’t always deliver on their promise.
“We believe that people should do significant due diligence on these strategies,” said Stubbs. “They obviously have the ability to be very tax-efficient. But we are fully aware that these strategies have tracking errors relative to their underlying benchmark, whether the benchmark is equity markets or cash, and that tracking error rises significantly when the growth exposure rises. Under certain scenarios, scenarios that should be taken very seriously, there is potential for that tracking error to impact overall returns and volatility of the client portfolio.”
Long-short strategies are also not particularly cheap. Rogers estimates that long-short SMA clients pay fees starting in the 40 to 50 basis points range. On top of that are financing costs that add another 25 to 30 basis points.
Meanwhile, custodial giants Fidelity and Charles Schwab have both tried to limit advisor access to long-short strategies in recent months. Fidelity stopped opening new long-short accounts last December and raised financing fees for some existing clients. Charles Schwab has limited the share of an RIA’s assets in its account that can be allocated to long-short strategies to 30%.
Among the long-short funds tracked by Morningstar, only Gotham Total Return Institutional, launched in 2015, earned a Gold Medalist rating. Meanwhile, Morningstar data shows that one of the oldest-running funds in the category, AMG Veritas Global Return (BLUEX), which goes back to 1991, has consistently underperformed its broader index. Year-to-date, BLUEX’s annual return declined by 5.26, while the index gained 3.36%.
A bear market is when the payoff for long-short strategies “tends to come with any magnitude,” according to Chris Tate, senior managing research analyst at Morningstar. Most asset managers that specialize in long-short strategies, however, prefer markets with high volatility and dispersion in returns, he said. And the more fundamentals-driven managers might rely on a time horizon for their short stocks to go down that can be a year away, or longer. That might make the strategy a better fit for investors with a higher tolerance for illiquidity and volatility and a longer investment timeline.
Unnecessary Costs
According to a paper by Jeremy Milleson and Jeff Wagner of Parametric, proponents of the strategy often assume that the investor will have unlimited gains and that the leverage they undertake for short positions in a long-short strategy will serve only to help them realize greater losses for tax management purposes. In reality, Milleson and Wagner note, most investors don’t have unlimited gains, and their advisors would have to carefully manage the strategy to generate just enough losses to benefit the overall portfolio without incurring unnecessary costs through greater leverage. In those cases, investors would actually benefit more from a long-only strategy.
In addition, investors who only need the long-short strategy to offset gains from a one-time capital gain event won’t benefit from remaining committed to the strategy for the long haul, according to Milleson and Wagner. Continuing to allocate to a leveraged strategy would create unnecessary costs for them without an obvious benefit.
Both Stubbs and Rogers stress that advisors should consider clients’ long-term needs when deciding whether to allocate to long-term strategies. These strategies cannot be unwound instantly, Stubbs warned, and liquidating them creates a substantial tax event. And while using these strategies to defer taxes can help some investors achieve their objectives, those taxes will still have to be paid eventually, Rogers noted.
“The first thing I tell advisors is it should be a portfolio that, agnostic of the tax benefits, you would want to invest in,” Rogers said. “Most clients and, candidly, most advisors have probably never had short positions in a client’s portfolio and maybe never used leverage before. We have built out a lot of end-client-approved content and are spending time with advisors to ensure they feel comfortable and confident with it. But I think there is a lot more room for education across the entire industry.”
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