uploads///A_Semiconductors_ON_Q Automotive R evenue

Automotive Market Could Be a Growth Catalyst for ON Semiconductor

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Feb. 23 2017, Updated 7:40 a.m. ET

Revenue from the automotive market

ON Semiconductor (ON) reported better-than-expected earnings in 4Q16, driven by the accelerated integration of Fairchild Semiconductor and improving demand from end markets. Automotive is the company’s biggest end market, accounting for 30% of its revenues. It’s also the fastest-growing end market.

In 4Q16, automotive revenues rose 19.7% sequentially to $378.1 million and could grow by mid-single digits in 1Q17 as well. Rival Maxim Integrated (MXIM) reported 3.7% sequential growth in automotive revenues during the same quarter. If ON’s Automotive segment repeats its 7.5% sequential growth it reported in 1Q16, it may earn revenues of $406 million in 1Q17.

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How could Fairchild integration impact ON in the automotive market?

The addition of Fairchild Semiconductor has increased ON’s offerings for EVs (electric vehicles) and HEVs (hybrid electric vehicles). Fairchild Semiconductor’s medium-voltage and high-voltage MOSFETs[1. metal-oxide-semiconductor field-effect transistor] and ON’s power management solutions make the combined company a leading supplier of power solutions for internal combustion engine vehicles as well as EVs and HEVs.

The combination of Fairchild Semiconductor’s 1200V silicon carbide power devices and ON’s 650V gallium nitride power devices could help improve power density and efficiency in EVs and HEVs.

Key growth drivers in automotive

The automotive market is the most lucrative market for semiconductor companies. Increasing safety requirements and STAR ratings require car manufacturers to install some ADAS[2. advanced driver assistance systems] applications in all cars, as they had previously been limited to high-end cars.

The increasing adoption of ADAS could increase the demand for ON’s image sensors, integrated co-processors, and cameras. ON believes that it has secured design wins for about 70% of the ADAS cameras being produced for the new platforms. Looking at the current market trends, the company expects the market for ADAS cameras to grow more than 25% per year.

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Needham & Company analyst Rajvindra Gill expects ADAS to boost the sensor market threefold, with camera-based systems growing at a faster rate. He expects future autonomous cars to be equipped with six to ten cameras at an average price of $8 per camera. The strong adoption of ADAS has attracted semiconductor giants like Texas Instruments (TXN), Intel (INTC), and Qualcomm (QCOM) to the automotive market.

Apart from ADAS cameras, the increasing adoption of LED lighting in mid-range cars presents another growth opportunity for ON Semiconductor (ON), which supplies front and rear LED lighting driver solutions. According to Gill, ON supplies $32 worth of content per car through its LED lighting solutions.

Next, we’ll look at ON’s industrial end market.

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