I've had an odd "relationship" with ON Semiconductor (ON) over the years, with management's inability to hit margin targets (and inability to drive margin leverage) and questionable M&A decisions factoring prominently into the negative side. On the other hand, I've always liked the potential of what ON could be under the right circumstances, and the shares have done pretty well since my last two positive write-ups (in a strong market for chip stocks, I'll note).
With the CEO on his way out, I think ON Semiconductor's capacity for change is higher now than ever before, and apparently I'm not the only one who sees upside in a differently-run ON, as Starboard has also gotten involved as an investor. On top of all that, guidance updates from companies including Sensata (ST), STMicro (STM), and NXP (NXPI) have all confirmed an improving environment for the key auto end-market.
At today's price, there's still some upside in ON, but the story is transitioning from undervalued on the basis of what it is to maybe undervalued on the basis of what it can become. Successful turnarounds can unlock a lot of value (often a lot more than seems apparent in the early stages), but I'd be careful about putting the cart too far ahead of the horse, as ON still has a host of significant issues to navigate.
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Improving Auto Demand And Increased Likelihood Of Change Driving New Interest In ON Semiconductor
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