ON Semiconductor Feeling The Heat From The Street

That companies like ON Semiconductor (ON) will survive the next phase of the semiconductor cycle is not in doubt to me, but what this corrective phase will look like is still very much up for debate. It’s not unreasonable to think that the adjustment from recent record highs in lead-times will lead to a more painful cycle than that seen in 2015, but then there are secular growth drivers helping ON Semiconductor that I’m not going to just dismiss out of hand.

When I last wrote about ON I said “…but the risk of near-term turbulence is something to consider …”, but I didn’t really think the shares would drop by roughly one-third in just a few months. Certainly the sector-wide declines in semiconductor stocks are being driven more by fear and momentum than truly horrible conditions (and/or outlooks), but that doesn’t make the losses sting any less. Moreover, with no real end in sight to the trade dispute between the U.S. and China, it’s tough to know whether the industry can manage a graceful dismount from the record lead-times as demand slows in markets like auto, handsets, data centers, and industrial.

I think the valuation is still quite interesting for long-term investors, but I also think the near-term still holds outsized risks. While the shares should be trading at least in the low $20’s, sentiment is poor now and semi stocks are likely to stay in the doghouse through at least the middle of 2019.

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ON Semiconductor Feeling The Heat From The Street