ON • 10-Q • Q3 2025 • Positive

ON Semi's Silicon Carbide Dominance Drives Record Margins Despite Auto Slowdown

November 03, 2025 • 1 min read

TL;DR

ON Semiconductor delivered exceptional Q3 results driven by 48% growth in silicon carbide revenue, reaching $375M despite broader automotive market softness. Gross margins expanded 320bps YoY to 47.3% as manufacturing efficiencies and product mix improved. The company secured $1.2B in long-term silicon carbide contracts while expanding capacity 4x at its Bucheon facility. However, management guided Q4 revenue down 3-5% sequentially on inventory corrections, though maintained full-year margin tar

Financial Performance Overview: Revenue grew 4.3% YoY to $2.18B, with automotive revenue up 12% to $1.15B despite industry headwinds. Gross margin reached 47.3%, up 320bps YoY and 80bps QoQ, driven by improved product mix and manufacturing efficiencies. Operating margin expanded 250bps to 33.5% as OpEx remained controlled at 13.8% of revenue. Silicon carbide revenue of $375M grew 48% YoY, now representing 17% of total sales with 50%+ growth projected for 2024.
Strategic Initiatives and Operational Changes: Management accelerated silicon carbide capacity expansion, with $1B investment to quadruple output at Bucheon by 2024. Secured $1.2B in new long-term supply agreements, bringing total committed revenue to $7B through 2029. Initiated qualification of 200mm silicon carbide wafers to improve yields and cost structure. Automotive design win pipeline grew 22% QoQ to $29B with electric vehicle platforms representing 65% of opportunities.
Market Position and Competitive Dynamics: ON maintained #1 position in automotive power semiconductors with 18% market share, up 200bps YoY. Silicon carbide win rate increased to 85% of opportunities pursued, ahead of competitors at 60-70%. Customer concentration improved with top 10 accounting for 48% of revenue vs 52% year ago. New entrants struggling with yields while ON achieved 80%+ on 150mm wafers.
Operational Efficiency and Profitability: Factory utilization remained strong at 85% despite softer demand, as mix shift to higher margin products offset impact. Implemented new automated testing reducing cycle times 35%. Internal silicon carbide substrate sourcing reached 40%, ahead of 30% target. Fab-lite strategy driving $150M annual savings through optimization of legacy facilities while expanding advanced nodes.
Growth Catalysts and Material Risks: Near-term headwinds from automotive inventory correction expected to persist 1-2 quarters. However, $29B design win pipeline and electric vehicle adoption provide strong 2024 visibility. Key risks include potential silicon carbide pricing pressure as competition increases, though long-term contracts provide protection. Geographic concentration in Asia remains high at 60% of revenue.

Revenue

$2.18B (+4.3% YoY, -1.5% QoQ) with automotive 53%, industrial 31%, other 16%

Rd Spend

$165M ( YoY) representing of revenue

↑ +8%

Net Income

$582M ( YoY) with margin

↑ +15%

Gross Margin

(+320bps YoY, +80bps QoQ) driven by mix and efficiencies

↑ 47.3%

Free Cash Flow

$518M ( of revenue) enabling $300M buyback

↑ 24%

Operating Margin

(+250bps YoY) with controlled OpEx

↑ 33.5%

Growth Indicators

$29B pipeline ( QoQ) with EV exposure

↑ +22%

Factory Utilization ↑85% stable QoQ with mix optimization

Silicon Carbide Revenue ↑$375M (+48% YoY) representing 17% of total

Key Risks

Automotive inventory correction impacting near-term revenue growth
Geographic concentration with 60% revenue from Asia amid geopolitical tensions
Increasing silicon carbide competition as new capacity comes online
Execution risk around rapid capacity expansion and 200mm transition

Key Opportunities

Electric vehicle adoption driving exponential silicon carbide demand growth
Operational leverage from increasing silicon carbide mix and yield improvement
Industrial applications in renewable energy and charging infrastructure
Geographic expansion and technology-focused M&A opportunities

Bottom Line

ON Semiconductor delivered strong Q3 results that validate its strategic focus on silicon carbide power semiconductors, despite near-term automotive headwinds. The combination of expanding margins, growing design win pipeline, and accelerating silicon carbide adoption provides confidence in the growth trajectory. While Q4 guidance reflects temporary inventory correction, structural improvements in product mix and manufacturing efficiency support sustained profitability.

Key metrics to watch include silicon carbide revenue growth, design win conversion, and yield improvement on 200mm transition. The company's competitive position continues to strengthen through capacity expansion and vertical integration. However, geographic concentration and increasing competition require ongoing focus.

The contrarian insight is that temporary automotive weakness may be masking accelerating share gains in silicon carbide, setting up stronger growth in 2024 as inventory normalizes. ON's early investment and yield advantage provide sustainable competitive moat despite new entrants.