ON Semiconductor (ON.O): "Beat & Raise" as AI Data Center Revenue Accelerates

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ON Semiconductor (ON.O): "Beat & Raise" as AI Data Center Revenue Accelerates

ON Semiconductor (ON.O)

04 August 2026 Citi Research

2Q26 Earnings Review

4Q outlook above seasonal norms - Management expects 4Q revenue to grow 1-

2%, above the typical flat to down 2% seasonal pattern. This outlook assumes

utilization remains flat.

No inventory replenishment in Industrial/Auto yet – Management reiterated that

they are currently shipping to demand and are not seeing evidence of restocking.

Roughly 50% of industrial businesses had more secular tailwinds (energy storage,

and infrastructure) was up 25% QoQ.

Utilization stable through year-end - After a step-up utilization rates,

management expects utilization to be roughly flat to slightly higher in 3Q and

generally stable through year-end. They indicated utilization would likely only

move higher if 4Q revenue is up by more than 2% QoQ, and such a demand signal

would need to emerge relatively quickly as cycle times are ~4-6 months.

Gross margin dynamics - Utilization changes affect gross margins with roughly a

two-quarter lag. 2Q margins had a ~650 bp utilization-related headwind that was

partially offset by favorable mix. Margins should continue to expand through fixed-

cost leverage as revenue grows, even if utilization remains unchanged, with the

benefit moderating only as utilization approaches the 92-93% range. 1 point

increase in utilization leads to 20-30 bps increase in gross margins.

ON data center portfolio – ON data center business is balanced across high-

voltage and low-voltage sockets. High-voltage design wins are concentrated in

PSU applications with AWS and other hyperscalers, while low-voltage products

address opportunities across both GPU vendors and cloud customers. ON is