The Business Model (How They Make Money)

ON Semiconductor Corporation, which operates under the brand "onsemi," makes its money by designing and manufacturing specialized electronic components called semiconductors. These aren't just any chips; onsemi focuses on "intelligent power" and "intelligent sensing" solutions. Think of intelligent power as the brains that make electronic devices use electricity super efficiently, and intelligent sensing as the eyes and ears that allow devices to understand their surroundings.

Their main customers are in the automotive industry, where their chips are crucial for things like electric vehicles (EVs) and advanced driver-assistance systems (the technology that helps cars drive themselves safely). They also sell to industrial customers for various applications and are rapidly growing their business in chips for artificial intelligence (AI) data centers.

onsemi organizes its business into three main groups:

• Power Solutions Group (PSG): This group makes up the largest part of their business, accounting for 46.8% of their total revenue in 2025. In the first quarter of 2026, this segment generated $736.6 million in revenue, showing a 14% increase compared to the same period last year.
• Analog and Mixed-Signal Group (AMG): This segment contributed 37.7% of their revenue in 2025. For the first quarter of 2026, its revenue was $540.4 million.
• Intelligent Sensing Group (ISG): This group made up 15.5% of their revenue in 2025. In the first quarter of 2026, this segment brought in $236.3 million in revenue.

A significant portion of onsemi's revenue, approximately 80%, comes from the automotive and industrial sectors. They are also seeing strong growth in their AI data center business, which more than doubled its revenue year-over-year in the first quarter of 2026 and is expected to double for the full year 2026 compared to 2025. To ensure they have a reliable supply of key components and to control quality, onsemi uses a "Fab-Right" manufacturing approach, which means they own and operate some of their own factories, especially for advanced technologies like Silicon Carbide (SiC), while also working with outside manufacturers.

The Metrics That Matter Most

For onsemi, a company deeply involved in manufacturing advanced technology, these 3 to 5 metrics are particularly important:

1. Revenue: This is the total amount of money onsemi brings in from selling its products and services. It's like the company's top-line sales figure. For onsemi, tracking revenue is crucial because it shows if they are successfully selling more of their intelligent power and sensing solutions, especially in their key growth areas like automotive, industrial, and AI data centers. In the first quarter of 2026, onsemi reported revenue of $1.51 billion, an increase of 4.7% year-over-year. For the full year 2025, their revenue was $5.995 billion.

2. Gross Margin: This metric tells you how much profit onsemi makes from each dollar of sales after covering the direct costs of making their chips (like materials and factory labor). For a manufacturing company like onsemi, a healthy and improving gross margin indicates that they are efficiently producing their specialized chips and that their products are valued by customers. It's especially important as they focus on higher-margin products like Silicon Carbide. onsemi's GAAP and non-GAAP gross margin was 38.5% in the first quarter of 2026.

3. Free Cash Flow: This is the cash a company has left over after paying for its day-to-day operations and all the necessary investments in its business, like building or upgrading factories. For onsemi, which invests heavily in manufacturing and new technologies, strong free cash flow shows they have enough money to fund future growth, pay down debt, or return money to shareholders. In the first quarter of 2026, onsemi generated $217 million in free cash flow.

4. R&D Expenses (Research & Development Expenses): This metric represents the money onsemi spends on creating new technologies and improving existing products. For a semiconductor company, innovation is the lifeblood of the business. High and consistent R&D spending indicates that onsemi is investing in staying ahead of the curve, developing the next generation of chips for EVs, industrial automation, and AI, which are critical for their long-term success and competitive edge.

How to Value This Company

For onsemi, the most relevant valuation metric is the P/E ratio (Price-to-Earnings ratio).

The P/E ratio is a straightforward way to understand if a company's stock price is considered cheap or expensive compared to how much profit it makes. You calculate it by taking the current stock price and dividing it by the company's earnings per share (EPS).

Here's why it's the best choice for onsemi:

• Profitability Focus: While onsemi had a GAAP loss in Q1 2026, its non-GAAP diluted earnings per share (EPS) was positive at $0.64, and analysts expect positive EPS for the full year 2026. Since onsemi is a mature company with a clear path to profitability, its earnings are a good indicator of its value-generating ability.
• Ease of Understanding: For everyday investors, the P/E ratio is one of the most commonly used and easily understood valuation metrics. It gives a quick snapshot of how much investors are willing to pay for each dollar of the company's earnings.
• Comparison Tool: You can compare onsemi's P/E ratio to its historical P/E, or to the P/E ratios of similar semiconductor companies, to get a sense of whether its stock is currently trading at a premium or a discount. If onsemi's P/E is higher than its competitors, it might suggest investors expect faster growth from onsemi, or it could mean the stock is relatively more expensive.

To use it, you would look at onsemi's current stock price and its latest annual or forward-looking earnings per share. If the P/E ratio seems high compared to its industry peers or its own history, the stock might be considered expensive. If it's low, it might be seen as a good value.