Sharp Q2 Inventory Correction Sends ON Semiconductor Shares Tumbling 10%
Geopolitical and macroeconomic factors slammed ON Semiconductor’s Q2 revenue, said Chief Financial Officer Bernard Gutmann on a Monday earnings call. A “sharper-than-expected” broad-based inventory correction, largely in the automotive market, drove revenue lower in the quarter, he said.
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The temporary need to halt shipments of 5G-related revenue “to a major customer to comply with U.S. law” led to weakness in communications sales, Gutmann said, in reference to Huawei. Q2 revenue fell 7 percent to $1.35 billion, said the company. Shares fell 10.7 percent Monday to close at $17.85.
Partial shipments of 5G products have resumed in accordance with U.S. law, said CEO Keith Jackson. In Q&A, Gutmann said the company's still feeling an impact from its business' 5G portion, “but the handset business seems to be an area that can be shipped.” There's “more clarity on Huawei” now, and ON's applying for “further exemptions as you would expect” from the most recent round of announced tariffs.
Commenting in Q&A on President Donald Trump’s recent tweets imposing the 10 percent List 4 Section 301 tariffs on $300 billion of goods from China (see 1908020010) Jackson said: “We saw the tweets as well and the reactions to it." The "tariffs themselves have not been the issue for our revenues so far," Jackson said. "What we expect to see is, potentially some market share changes from our customers as a result of this, but the overall end markets, I would not expect significant destabilization."
ON’s communications end-market revenue grew 7 percent in Q2 to $248 million, said Jackson, or 18 percent of quarterly revenue, and smartphone revenue was also up, he said. Despite near term uncertainty, current engagement with customers points to “meaningful deployment rates for 5G systems in the near to mid-term,” he said. Revenue in Q3 is expected to be up year on year due to the launch of new smartphone platforms and the inclusion of Quantenna's results for a full quarter. ON bought Quantenna in June for $1.1 billion (see 1906190006).
ON’s consumer end-market, at $164 million, dropped 21 percent in Q2 due to “continuing broad-based weakness in consumer electronics and white-goods markets,” Jackson said, with revenue expected to be down in Q3, also.