onsemi (ON) Q3 2026 earnings review
onsemi's profit jumps on AI power, while cash replaces stock for Synaptics
onsemi, a maker of power and sensing chips for cars, factories and servers, is riding AI data center demand while its other chip lines barely budge. Third-quarter revenue rose 11%, and profit per share excluding one-offs climbed 43% as fuller factories lifted gross margin for a fifth straight quarter. Chief executive Hassane El-Khoury set a fourth-quarter plan that points to 15% revenue growth at the middle of the range.
| Revenue | $1,722.3M +11.1% from a year ago |
|---|---|
| Gross margin, excluding one-offs | 41.2% +3.2 percentage points from a year ago |
| Profit per share, excluding one-offs | $0.90 +43% from a year ago |
| Q4 revenue outlook | $1,715–1,815M middle of the range: 15.4% growth |
⚖️ Verdict: 🟢 Bullish
The story got better because the chipmaker rewrote its Synaptics buyout from $7 billion in stock to $5.7 billion in cash and agreed to buy Ferric, removing a 12% share dilution overhang while expanding its AI power lineup. One caution: the company paused stock buybacks to conserve cash for the deals, and it still refuses to disclose quarterly AI data center revenue in dollars.
The question now is whether booming orders reflect genuine consumption across all markets or customers double-ordering scarce chips while car and industrial lines lag. If broad demand is real, the analog and sensing divisions will accelerate alongside power chips; if customers are hoarding, distributor inventories will swell above target. The end-market revenue table in the quarterly filing and channel inventory figures on the call will tell.
🐂 Bull Case
AI Data Center Demand Drives Power Chips
onsemi makes power and sensing semiconductors for cars, factories and servers. Chief executive Hassane El-Khoury said that "AI data center revenue grew 39% sequentially and 175% year-over-year". That demand lifted the Power Solutions Group (PSG), the division that sells power-management chips, by 20.6% from a year ago to $889.9 million.
The chipmaker also agreed to buy Ferric, a deal "establishing onsemi as a leader in next generation AI processor power delivery". With Ferric, management raised its 2030 revenue target for AI data centers by $500 million to over $3 billion. In industrial power, solar supplier Sungrow adopted onsemi's EliteSiC (silicon carbide) hybrid power modules to "meet growing electricity demand from AI, renewable energy and electrification".
What to watch: the fourth-quarter revenue figure for the "Other" end-market category in the quarterly filing. A sequential gain of at least 16% would confirm that server power shipments are meeting management's pace.
Factory Gains Lift Gross Margin Again
onsemi has been cutting fixed factory costs under a restructuring programme it calls Fab Right while filling more of its remaining chip plants. Finance chief Thad Trent noted that "Gross margin expanded for the fifth consecutive quarter, increasing 190 basis points sequentially". Excluding one-offs, gross margin reached 41.2%, up 3.2 percentage points from a year ago.
- Cost of making products, excluding one-offs: 58.8% of revenue, down 3.2 percentage points from a year ago by our math
- Operating expenses, excluding one-offs: 18.0% of revenue, down 0.8 percentage points from a year ago by our math
- Operating margin, excluding one-offs: 23.2%, up 4.0 percentage points from a year ago
This cost discipline matters because profit per share excluding one-offs rose 42.9% from a year ago to $0.90 on 11.1% revenue growth. Management's fourth-quarter outlook calls for gross margin excluding one-offs to rise again to 41.5%–43.5% as the company continues to "execute our ongoing fab right initiatives and ramp new differentiated products".
What to watch: the factory utilization rate disclosed on the conference call. A reading at or above last quarter's 83% would support gross margin expansion into early 2027 because factory output hits the income statement with a two-quarter lag.
Cash Deal For Synaptics Removes Stock Dilution
In June, onsemi agreed to buy Synaptics, a maker of chips for connected devices, in an all-stock deal that would have handed Synaptics shareholders about 12% of the combined company. This quarter, the chipmaker announced revised terms "for approximately $5.7 billion in cash compared to $7 billion in stock for the prior agreement".
Paying in cash eliminates the stock dilution and lowers the purchase price by about $1.3 billion, which management said should make the purchase "immediately accretive to non-GAAP EPS". To save cash for the deal, the company cut share buybacks to $19.9 million in the third quarter from $344.8 million in the second, lifting total cash and short-term investments to $4.37 billion by our math.
What to watch: new debt financing terms and regulatory approvals in the quarterly filing. Those disclosures will show the interest cost required to bridge the gap between onsemi's cash on hand and the $5.7 billion price.
Positives this quarter didn't test
Two positive demand and pricing trends from prior quarters got no new numbers in the earnings release because management typically discusses them on the conference call.
- Order book and lead times: Customer wait times extended to about 32 weeks last quarter with orders exceeding shipments; the conference call will show if lead times stretched further.
- Price increases to offset supplier costs: Management implemented a second round of price hikes last quarter; the call commentary will test whether customers accepted the higher prices.
🐻 Bear Case
AI Data Center Dollar Size Stays Hidden
"Increasing power requirements are driving accelerated demand in our AI data center and industrial end markets, as customers adopt and ramp our differentiated products," chief executive Hassane El-Khoury said. Management also raised its 2030 revenue target for AI data centers to more than $3 billion.
Yet onsemi still does not report how many dollars of AI data center chips it actually sells each quarter. El-Khoury gave only percentage gains of 39% from last quarter and 175% from a year ago. Moreover, the earnings release omits the end-market revenue table that separates Automotive, Industrial, and the "Other" category where AI server chips sit.
This gap cuts against management's transparency because AI data centers carry the growth story and rest on a small group of cloud customers. Without a dollar base, investors cannot verify how much of the company's $171.4 million year-over-year revenue gain came from AI servers versus traditional markets.
What to watch: the end-market breakdown in Note 2 of the third-quarter Form 10-Q filing. If the "Other" category falls short of $463 million, the dollar contribution from AI servers is smaller than the percentage growth rates suggest.
Sensing And Analog Segments Barely Grow
Outside the main power-chip division, onsemi runs two other segments: the Analog and Mixed-Signal Group (AMG), which makes signal-conditioning and power-control chips, and the Intelligent Sensing Group (ISG), which makes image sensors for cars and factories. Last quarter, management said it prioritized factory output for AI data centers over automotive and industrial orders.
In the third quarter, AMG revenue rose 9.5% from the second quarter to $597.3 million, and ISG revenue rose 2.8% to $235.1 million. Compared with a year ago, however, AMG grew 2.4% and ISG grew 2.2%, trailing the Power Solutions Group's 20.6% jump. Because both segments barely grew from a year ago, the company's recovery remains narrow.
What to watch: automotive and industrial revenue in the quarterly filing's footnotes. Flat or falling year-over-year sales in those end markets would show that factory bottlenecks or sluggish car demand still hold back the legacy business.
Risks this quarter didn't answer
Several standing risks from prior quarters could not be tested from the earnings release alone or remained unresolved.
- Distributor inventory levels: Not in the release; the conference call will show if distributor stock stayed within the 9-to-11-week target band or rose on double-ordering.
- Raw material and external foundry inflation: Not detailed in the release; the call Q&A will test whether supplier cost increases are still pressuring 2027 margins.
- Convertible debt dilution: $802.8 million of debt sits in current liabilities, and GAAP share count included 5.1 million convertible shares that management excluded from non-GAAP EPS.
- Long-term supply agreements and customer prepayments: Contracted backlog and prepayment balances live in the Form 10-Q footnotes, which will show if prepayments kept falling.
- China electric-vehicle and cloud concentration: Geographic revenue splits await the Form 10-Q filing.
- Recurring special charges: Restructuring and asset impairments dropped to $4.6 million, but $7.5 million in deal costs and $22.3 million in tax adjustments still created an 11-cent gap between GAAP and non-GAAP EPS.
👓 Other Themes
Divestiture Closes And Subaru Adopts Power Platform
onsemi collected $31.7 million in net cash from selling a business this quarter, booking a $3.1 million gain as it executes its plan to shed smaller chip plants. Separately, the company signed a technology agreement with automaker Subaru for early access to its Embedded Power Platform (EPP), which onsemi describes as "a breakthrough power architecture integrating heterogeneous technologies".
💲 Other KPIs
Free cash flow — operating cash flow minus property and equipment purchases — rose 31.2% from a year ago and 14.9% from last quarter to 28.4% of revenue. Capital spending dropped to $27.8 million, or 1.6% of revenue by our math, down from $46.3 million a year ago, keeping the chipmaker well inside its plan to spend less than 5% of revenue on factories.
Inventories rose 1.1% from last quarter and 1.1% from a year ago by our math, growing much slower than the 11.1% increase in sales. Over the past four quarters, inventory balances have stayed between $1.99 billion and $2.07 billion while revenue climbed from $1.51 billion in the first quarter to $1.72 billion.
The diluted share count excluding one-offs fell 3.9% from 408.0 million a year ago and 1.2% from 397.0 million last quarter, beating the 395 million outlook. The reduction reflects $710.4 million of share buybacks across the first nine months of 2026 and bond hedges that offset 5.1 million shares from convertible notes.
🔮 Guidance
New. The plan calls for revenue to grow 15.4% from a year ago and 2.5% from the third quarter at the $1,765 million middle of the range, by our math. That accelerates from 11.1% year-over-year growth in the third quarter. The US semiconductor company has beaten its revenue midpoint for five straight quarters by an average of 1.1%; if the pattern holds, fourth-quarter revenue would reach about $1,784 million by our math.
New. At the 42.5% middle of the range, the forecast has gross margin excluding one-offs rising 1.3 percentage points from the third quarter and 4.3 percentage points from 38.2% a year ago, by our math. GAAP gross margin is planned at 41.4%–43.4%. The step-up reflects higher factory utilization from earlier in the year flowing through to the income statement.
New. Management expects operating expenses excluding one-offs to match the $303–318 million range it set for the third quarter, when actual spending landed at $309.5 million. GAAP operating expenses are planned at $331–346 million, which includes about $29 million of acquisition amortization and restructuring charges.
New. The outlook puts profit per share excluding one-offs up 57.8% from $0.64 a year ago and 12.2% from $0.90 in the third quarter at the $1.01 middle of the range, by our math. GAAP diluted EPS is planned at $0.88–1.00 on 397 million GAAP diluted shares, compared with 392 million shares excluding one-offs.
❓ Key Questions
What is AI data center revenue in dollars?
Management reported 175% year-over-year growth and raised its 2030 AI data center target to over $3 billion, but still omits quarterly dollar revenue. Without the dollar base, investors cannot size the business or its margins against the legacy car and industrial lines.
How will onsemi fund the $5.7 billion Synaptics cash deal?
Switching the Synaptics acquisition from $7 billion in stock to $5.7 billion in cash removes share dilution, but total cash and short-term investments stand at $4.37 billion. Management has not yet detailed the new debt facilities or interest costs required to close.
Where did factory utilization and distributor inventory weeks land?
Last quarter, factory utilization reached 83% and distributor inventory sat at 10.1 weeks. Because the earnings release omits both operational metrics, the conference call must confirm whether utilization kept rising and whether channel inventory stayed within the 9-to-11-week target band.
Did supply limits still hold back automotive and industrial shipments?
In the second quarter, management prioritized AI data center orders over car and industrial customers. With Analog and Sensing segment revenues up just 2% from a year ago, investors need to know how much revenue was foregone to supply bottlenecks.