ON Semiconductor Quickly Clearing Away Doubts About Execution

It has been a good year for ON Semiconductor (ON), and the shares are up over 50% in what has admittedly been a strong market for chip stocks. The Fairchild acquisition is looking like the right deal at the right time, and management has done a lot in just a year to clear up concerns about their ability to execute. Better still, markets like auto and industrial offer good long-term potential, as do entries into markets like servers/datacenters where ON hasn't historically had a big role.

At this point, most of my concerns are about valuation and the overall health of the semiconductor market. Lead times have been growing, and recent industry unit shipments have been well ahead of long-term averages – suggesting the cycle is closer to the peak. With close to half of ON's mix consisting of more volatile product types, some of the company's margin leverage could be at risk if and when the cycle slows. While ON shares don't look overpriced, I would note the risk that even strong individual stories can get dragged down when the wider industry slows.

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ON Semiconductor Quickly Clearing Away Doubts About Execution