ON Semiconductor (NASDAQ:ON) executives said the company closed 2025 with results that exceeded the midpoint of guidance and pointed to improving order trends across its core markets, while also laying out cost actions and portfolio changes aimed at supporting margin expansion as demand recovers.
Full-year 2025 highlights and strategic focus
CEO Hassane El-Khoury said ON Semiconductor delivered $6.0 billion of revenue in 2025 with non-GAAP gross margin of 38.4% despite what he described as a challenging demand environment. El-Khoury and CFO Thad Trent emphasized a continued focus on differentiated products in intelligent power and sensing, alongside manufacturing and cost initiatives under the company’s FabRight program.
- Launch of the company’s Treo Platform as a “multi-market growth engine,” with the number of products sampling doubling year-over-year.
- A new design funnel that management said is now over $1 billion.
- More than $250 million in AI data center revenue in 2025 “across the power tree.”
- Automotive efforts tied to the industry’s shift to zonal architecture, including an automotive zonal design funnel that management said has already exceeded $400 million for products such as SmartFETs, eFuses, and 10BASE-T1S Ethernet transceivers.
- Wide-bandgap roadmap updates, including plans to sample more than 30 new GaN devices in 2026 across 40 to 1,200 volts, as well as a new foundry partnership to broaden supply options for lateral GaN (with revenue beginning in 2026). Management also said it expects first V-GaN revenue in 2027.
Fourth-quarter results: margins and end-market trends
For the fourth quarter, management reported revenue of $1.53 billion, non-GAAP gross margin of 38.2%, and non-GAAP EPS of $0.64, with El-Khoury noting both gross margin and EPS exceeded the midpoint of guidance. Trent said revenue was “in line with normal seasonality.”
By end market, Trent reported:
- Automotive revenue of $798 million, up about 1% quarter-over-quarter, with management stating inventory digestion is largely behind the industry. For Q1 2026, management expects automotive to be roughly flat sequentially, citing a Chinese New Year headwind.
- Industrial revenue of $442 million, up about 4% quarter-over-quarter. Trent said Q4 marked the first quarter of year-over-year growth in industrial revenue after eight quarters of declines, with industrial up 6% versus Q4 2024.
- The “other” category declined 14% quarter-over-quarter due to seasonality and soft demand conditions outside of AI data center, along with non-core exits. In Q&A, executives referenced approximately $40 million of exits affecting the “other” category.
By business unit, the company reported Q4 revenue of $724 million for PSG, $556 million for AMG, and $250 million for ISG.
On profitability, Trent reported GAAP gross margin of 36% and non-GAAP gross margin of 38.2%. He said Q4 gross margin included approximately 700 basis points of underutilization charges. Utilization was 68% in Q4, and management said that underutilization impact should dissipate as utilization increases with improving demand conditions.
FabRight actions, utilization, and long-term margin targets
Trent said the company reduced fab capacity in 2025 by 12% under FabRight and announced additional footprint measures in Q4. These actions are expected to reduce 2026 depreciation by approximately $45 million to $50 million, with management expecting the gross margin impact to be more visible in the second half of 2026.
During Q&A, management discussed utilization expectations and how they may translate into margin improvement. For Q1 2026, the company expects utilization in the low 70% range, with management suggesting utilization could move to the mid-70s for Q2 and beyond, depending on the recovery. In response to questions about the company’s long-term model (including a previously communicated 53% gross margin target), management outlined drivers that could contribute to that bridge, including utilization improvement, ongoing FabRight efficiencies, internalization of fixed costs from prior fab divestitures, and mix benefits from new products.
Asked what level of utilization would eliminate the underutilization headwind, management said moving into the low 90% utilization range would dissipate the 700 basis-point impact, and that reaching that level would imply roughly 25% higher revenue versus current levels under a consistent mix.
AI data center: 2025 performance and product positioning
Executives repeatedly highlighted AI data center as a key growth area. El-Khoury said ON Semiconductor’s AI opportunity spans from utility-scale energy storage and UPS systems down to rack and XPU board-level power, and described the company’s portfolio as spanning silicon, silicon carbide, SiC JFET, GaN, and recently acquired VCore assets.
Among specific AI-related comments, management said:
- AI data center revenue exceeded $250 million in 2025.
- The company is sampling a 1,200-volt ultra-low RDS SiC JFET for AI platforms, and said AI architectures are moving toward higher-voltage bus approaches.
- At the UPS stage, management expects production volumes for a design with a U.S. power supplier to begin “this quarter,” describing a system footprint reduction of about 50% using ON Semiconductor’s SiC power module.
- For Q1 2026, management said it expects AI data center revenue to grow high teens percent year-over-year, while declining demand in non-AI areas of the “other” category and non-core exits remain offsets.
In response to investor questions about how large AI data center could become as a portion of company revenue, El-Khoury described it as “a matter of when, not the if,” but did not provide explicit revenue guidance for 2026 for the segment.
Cash flow, repurchases, and Q1 2026 guidance
Trent said the company delivered a record free cash flow margin of 24% in 2025, with free cash flow up 17% year-over-year to $1.4 billion, citing tight expense control and lower capital expenditures. Management said it returned approximately 100% of free cash flow to shareholders through share repurchases in 2025 and announced a new $6 billion share repurchase program in November after completing the prior program.
For Q4, the company reported $2.5 billion in cash and short-term investments and total liquidity of $4.0 billion including an undrawn revolver. Q4 cash from operations was $555 million and free cash flow was $485 million. The company repurchased $450 million of shares in Q4.
For the first quarter of 2026, ON Semiconductor guided (non-GAAP):
- Revenue: $1.44 billion to $1.54 billion (management noted this is the first quarter with expected year-over-year growth since the downturn began over three years ago)
- Non-core exits: approximately $50 million in Q1 (with management indicating total exits of roughly $300 million for 2026 and higher exit levels in Q2 and Q3)
- Gross margin: 37.5% to 39.5%
- Operating expenses: $285 million to $300 million
- EPS: $0.56 to $0.66
- CapEx: $35 million to $45 million
Management also provided a Q1 end-market outlook in Q&A, indicating automotive would be roughly flat sequentially, industrial down low teens (seasonality and energy infrastructure), and the “other” category up low single digits, driven by AI data center growth while offset by seasonality and non-core exits.
About ON Semiconductor (NASDAQ:ON)
ON Semiconductor, which operates under the onsemi brand, is a global supplier of semiconductor components and related solutions. The company designs, manufactures and sells a broad portfolio that includes power and analog devices, discrete components, sensors and custom mixed-signal products. Its offerings are used to manage, convert and sense electrical power and signals across a wide range of electronic systems.
ON Semiconductor serves customers in key end markets such as automotive, industrial, cloud power and communications, as well as consumer and computing applications.
