ON Semiconductor CEO expects auto chip backlog to finish by third quarter

ON Semiconductor, a chip maker trying to meet the high demand for automotive components, expects to eliminate a bottleneck in the production of car chips by the second half of the year at the latest.

In an interview with CNBC’s Jim Cramer on Monday, CEO Hassane El-Khoury said the company is seeing a rush in orders for its products due to an industry-wide shortage of chips.

The shortage, which started when the demand for electronic products like computers increased during the pandemic, has forced automakers like General Motors and Ford to cut back on some vehicles.

“The orders were so popular that we can’t keep up, but we have the capacity,” said El-Khoury in an appearance on Mad Money. “We can support capacity for our chips. We have started the new demand and will get through this in a quarter or two.”

ON Semiconductor served multiple end markets and warned customers of low inventory levels in the later parts of the summer as consumers in their home country were laden with electronics. At the time, due to the economic consequences of coronavirus lockdowns, many companies were unsure whether executives would restrict or refrain from ordering components.

The latest cars, increasingly equipped with connected technologies and other functions, require numerous tiny chips for functions such as power management, power steering and infotainment systems.

The auto market is the biggest driver of all ON Semiconductor end markets, said El-Khoury.

“Driven mainly by the automotive industry, we are very well positioned,” he said. “We’re not just going to grow in the market. We’re going to grow above the market, just like in the industry, really across the strength in each and every one of our end markets, which is a great place.”

Of the five segments that ON Semiconductor serves, the automotive industry accounts for almost a third of sales. The company is also a supplier to industrial and military, communications, computer and consumer markets.

After total revenue declined by around 8% in the first half of 2020 at the start of the coronavirus lockdowns, the computer segment recovered for the first time in the second quarter. Auto sales wouldn’t rise until the fourth quarter, when it was up 6% year over year.

For the full year, ON Semiconductor’s revenue declined 4.8% to approximately $ 5.26 billion. Revenue declined 6% in 2019 to around $ 5.52 billion.

Based on order trends and order backlog, ON Semiconductor forecasts sales of between $ 1.41 billion and $ 1.51 billion in the current quarter. If the short end of the forecast is hit, business would grow at least 10% from the first quarter report last year.

ON Semiconductor shares sold more than 3% on Monday, outpacing declines in the overall market. Despite a negative start to the week, the stock is up more than 23% to $ 40.44.

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