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ON Semiconductor Beats Street Estimates

Power and data management component provider ON Semiconductor Corp. (NASDAQ: ON – $14.62) announced that total revenue in the third quarter was $1.54 billion up approximately 11% compared to revenue in third quarter of 2017 and about 6% from this year’s second quarter. Adjusted earnings per share were seven cents ahead of Street estimates to $0.57 and 30% above last year’s tally. The key driver to ON’s business is significant content increase in several applications in automotive, industrial and cloud power end-markets, as opposed to underlying unit growth. Based on product booking trends and backlog levels, the company anticipates revenue in fourth quarter to be about $1.48 to $1.53 billion. The revenue outlook for fourth quarter includes revenue of about $20 million from manufacturing services provided by Aizu Co., a Japanese joint venture. Gross margin for the next quarter is expected to be in range of 37.1% to 38.1%, which includes negative impact of 50 basis points from manufacturing services provided by Aizu.

       Despite the presence of tight supply conditions and growing demand for the company’s image sensors, power management products and automotive electrical systems, shares of ON have fallen some 32% in value dating back to its entry in the portfolio along with the entire semiconductor sector. The Phoenix-based company should earn north of $1.85/share for the full year, placing a valuation on the shares of 8 times earnings and $2.00 per share is in the cards for next year. Hence, this presents an interesting entry point for aggressive investors seeking long-term positions and willing to accept the inherent risks of the volatile semiconductor industry.

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