ON Shares Pop as It Shifts Focus to Growth Categories

ON Semiconductor shares reached a 52-week high at $45.18 in morning trading Monday after the company reported record earnings above expectations for Q2 at $1.67 billion, a 38% year-on-year bump. The stock closed 11.7% higher at $43.64. CEO Hassane El-Khoury said on an earnings call he expects more supply constraints through first-half 2022. ON is seeing growing demand for its automotive and industrial market products, said El-Khoury, saying the company is focusing on gross margin improvement within a strategy of “manufacturing footprint rationalization and product portfolio rationalization.” That includes looking ahead at “which products are we going to grow in and which products are legacy where we’re not going to be investing in.” ON is shifting to high strategic products “where we want to play.” The company is looking at categories that are starting to grow and will maintain growth over five-10 years. “When you have fab-filler products, which are low-value, discrete, commoditized products, you keep shoving them in the fab and they go up and down with the market,” he said. “We’re moving away from that,” said the executive, “to strategic, high-value products that are going to grow over time, and that capacity has been taken away from the discrete, commodity products that caused that volatility.” In focusing only on products with a growth trajectory, “whatever demand does, it’s going to be growth. Maybe it’s not high growth, but it’s still growth.” Q3 revenue outlook is $1.66 billion-$1.76 billion.