ON’s growth deterrents
Previously in this series, we looked at ON Semiconductor’s (ON) three fast-growing end markets of automotive, industrial, and communications and how the integration of Fairchild Semiconductor would drive growth in these markets. These three markets together accounted for 74.2% of the company’s revenues.
ON earns the remaining 25.8% of its revenues from the slowing consumer and computing markets. Although these are not the focus areas of ON’s growth strategy, the company looks to grow by gaining market share in these areas.
Revenues from the consumer market
In 4Q16, ON’s revenues from the consumer market rose 53% sequentially to $178.6 million, accounting for 14.2% of the company’s revenues. Respectively, rivals Maxim Integrated (MXIM) and Analog Devices (ADI) reported 1.8% and 8% sequential declines in consumer revenues during the same quarter. It can be inferred that the sequential growth in ON’s consumer revenues is largely due to the integration of Fairchild Semiconductor’s consumer portfolio.
ON expects consumer demand to fall sequentially in 1Q17 as seasonal demand slows. If the compahy’s Consumer segment repeats its 12.3% sequential decline it reported in 1Q16, it may earn revenues of $161 million in 1Q17.
Revenues from the computing market
The computing end market comprises PCs, servers, and cloud services. The PC market has been declining to such an extent that the PC chip leader Intel (INTC) also shifted its focus away from PCs to the data center and IoT (Internet of Things).
In 4Q16, ON’s revenues from its Computing segment rose 27.2% sequentially to $147 million, accounting for 11.7% of the company’s revenues. Rival Maxim Integrated reported a 1.8% sequential decline in its Computing revenues during the same quarter. ON expects its Computing revenues to fall sequentially in 1Q17 as seasonal demand slows.
Key growth drivers in the computing market
ON expects to leverage Fairchild Semiconductor’s server and cloud portfolios in order to grow in this market. ON sees an opportunity of ~$25–$30 in content per server.
Given the strong competition in this market, ON could look to cross-sell Fairchild Semiconductor’s products to its Computing segment customers and increase its revenues. The only way to grow in a competitive market is through volume sales and share gains. ON expects to sell large volumes in its Server segment.
ON made some organizational changes to integrate Fairchild Semiconductor’s complementary product portfolio. Next, we’ll look at the combined company’s new structure.