Semiconductor company On Semiconductor (ON), referred to commonly as onsemi, has had a challenging start to 2025. The stock is down roughly 40% year-to-date, reflecting waning demand across its end markets and growing concerns over margin pressures. Despite beating Wall Street’s expectations in the first quarter, its revenue continues to decline, underlining the headwinds the semiconductor maker is facing. Moreover, its margins are under pressure, taking a toll on its bottom line.

For the first quarter, onsemi posted revenue of $1.45 billion, down 22% compared to the same period last year. Automotive and industrial markets, which together contribute roughly 80% of total revenue, were once again weak. Automotive revenue dropped 26% sequentially, though consistent with management’s guidance. Industrial revenue held up slightly better, down just 4%, with some encouraging signs of stabilization emerging in traditional sectors like medical and aerospace. Meanwhile, AI data center revenue has more than doubled year-over-year, highlighting pockets of growth within an otherwise soft demand environment.

Segment Insights and Financial Metrics

Performance across business segments also reflected softness. The Power Solutions Group (PSG) generated $645 million, down 26% year-over-year. The Analog and Mixed Signal Group (AMG) saw a 19% decline to $566 million, while the Intelligent Sensing Group (ISG) brought in $234 million, a 20% drop. These declines reflect a broader cyclical downturn in the semiconductor space, compounded by inventory digestion among customers and slower-than-expected demand recovery.

Margins took a significant hit. onsemi’s adjusted gross margin fell to 40%, a sharp 530 basis point sequential drop, driven by under-absorption in its manufacturing network and lower pricing. Utilization ticked up slightly from 59% to 60% during the quarter but remains well below optimal levels.

Looking ahead, management forecasts Q2 revenue between $1.4 billion and $1.5 billion, a 17% to 19% decline from the $1.74 billion reported in the same quarter last year. Gross margins are expected to remain pressured, falling between 36.5% and 38.5%, mainly due to unfavorable pricing trends and continued under-utilization of manufacturing capacity.

What’s Ahead for onsemi?

Despite the cyclical downturn, near-term inventory challenges, and cautious customer behavior, some stabilization is underway. The company is reshaping its operations by emphasizing higher-value products, streamlining manufacturing, and investing in R&D to expand its differentiated offerings. Its geographically diversified manufacturing network offers a key advantage in managing tariff risks and maintaining supply continuity.

Further, encouraging booking trends in parts of the industrial sector and its strategic pricing to defend market share are positives. While inventory issues remain in the automotive space, there's growing momentum around onsemi’s silicon carbide technology, which is adopted by leading OEMs for enhanced vehicle performance and extended range capabilities.

Beyond power components, onsemi is also strengthening its position in automotive image sensing. Further, the AI data center market represents another bright spot. Here, onsemi is capitalizing on the transition to high-efficiency modular power systems.

Complementing these efforts is the Treo platform, introduced last November. With a growing suite of products designed for applications across automotive, industrial, and medical verticals, Treo has already begun generating production revenue. The company aims to double its product count through this platform and ultimately drive $1 billion in revenue by 2030.

Conclusion: A Turnaround Opportunity?

While the current operating environment is tough, onsemi’s long-term prospects look solid. The sharp decline in stock reflects near-term realities, but its focus on high-growth markets, especially EVs, industrial automation, and AI infrastructure, could provide a strong foundation for recovery.

Wall Street remains cautiously optimistic, with analysts maintaining a “Moderate Buy” consensus. For investors with a long time horizon, the significant correction in onsemi stock may represent a compelling opportunity amid the cyclical downturn.

Analysts’ average price target of $54.44 represents upside potential of about 42% over the next 12 months.