onsemi NASDAQ: ON executives struck an optimistic tone on the company’s first quarter 2026 earnings call, pointing to improving demand signals, accelerating AI data center growth, and continued gross margin expansion as evidence the company has moved past the low point of the current cycle.
President and CEO Hassane El-Khoury said the quarter “marks a clear inflection point” as order patterns improved through the period and short lead time orders increased. “Taken together, these signals give us confidence that this cycle has found its low point, and we are now on a path to recovery,” El-Khoury told investors.
Quarterly results and margin performance
CFO Thad Trent said the company delivered first-quarter revenue of $1.51 billion and non-GAAP diluted EPS of $0.64, both above the midpoint of guidance. Revenue was down 1% sequentially but up 5% year over year, which Trent said included roughly $50 million of planned non-core exits.
Gross margin was a central theme. The company posted GAAP and non-GAAP gross margin of 38.5%, its third consecutive quarter of sequential expansion despite what management described as a seasonally down quarter. Trent attributed the improvement to “structural changes” that improved manufacturing performance and said manufacturing utilization increased sequentially to 77% as onsemi “ramped production quickly to respond to stronger demand signals.” For the second quarter, Trent said utilization is expected to be flat to up slightly.
On profitability, Trent reported GAAP operating expenses of $637 million, including $329 million in restructuring expenses, and non-GAAP operating expenses of $294 million, down 7% from Q1 2025. GAAP operating margin was negative 3.5%, while non-GAAP operating margin was 19.1%. GAAP loss per share was $0.08.
End-market trends: automotive stabilization, AI acceleration
In automotive, Trent said Q1 revenue was $797 million, roughly flat sequentially and up nearly 5% year over year, which he said marked the first year-over-year growth after seven quarters of decline. Management emphasized stabilization and a shift toward “natural demand” shipments rather than inventory digestion. El-Khoury said regional health was strongest in China, followed by North America, then Europe.
El-Khoury also highlighted content gains, saying onsemi is “more leveraged to content than SAR,” citing China as an example: China passenger vehicle units were down 6% seasonally, while onsemi’s China automotive revenue grew year over year in Q1. He added that new technologies, such as 10BASE-T1S Ethernet for zonal architectures, represent “net new content” in vehicles transitioning to software-defined designs.
In industrial, Trent reported revenue of $417 million, down 6% sequentially but ahead of expectations, with strength across traditional industrial markets offset by typical Chinese New Year seasonality. El-Khoury pointed to an “AI halo effect” supporting adjacent infrastructure markets such as energy storage systems and microgrids.
AI data centers were the standout. El-Khoury said AI data center revenue grew more than 30% quarter over quarter, and Trent said it doubled year over year in Q1. Looking forward, both executives said they expect onsemi’s AI data center revenue to double year over year in 2026. In Q&A, El-Khoury referenced prior commentary that AI revenue was about $250 million last year and reiterated the expectation to double that this year.
Product and technology updates: Treo and GaN pipeline
El-Khoury said execution on the company’s Treo platform is “moving from product proliferation into ramping revenue and design wins,” with first-quarter Treo revenue increasing “more than 2.5 times sequentially.” He described programs in the funnel spanning automotive (including zonal architectures built on 10BASE-T1S paired with SmartFETs), industrial automation, AI client power management, and inductive position sensing for robotics and humanoid applications.
He also said onsemi began production shipments in Q1 of Treo-based and 10BASE-T1S Ethernet solutions for a “leading North American customer’s next-generation zonal architecture,” integrating more than 30 Treo devices.
On gallium nitride, El-Khoury said the company’s overall GaN solutions design funnel, including vertical GaN, now exceeds $1.5 billion, spanning 40 to 1,200 volts. He said 10 products are already sampling, with another 20 expected to sample in the second half of 2026, and that the roadmap positions onsemi to begin ramping with revenue starting in 2027.
Guidance and capital allocation
For the second quarter of 2026, Trent guided to revenue of $1.535 billion to $1.635 billion, including $30 million to $40 million of additional non-core exits. Excluding those exits, he said revenue is expected to increase about 7% at the midpoint and be above seasonal patterns.
- Non-GAAP gross margin: 38% to 40% (including $6 million of share-based compensation)
- Non-GAAP operating expenses: $287 million to $302 million (including $28 million of share-based compensation)
- Non-GAAP EPS: $0.65 to $0.77
- Capital expenditures: $25 million to $35 million
Trent said onsemi returned $346 million to shareholders through “opportunistic share repurchases,” representing nearly 160% of free cash flow for the quarter. The company purchased shares at an average price of $60.54. Cash from operations was $239 million, free cash flow was $217 million, and capital expenditures were $22 million, or 1.4% of revenue.
On the balance sheet, onsemi ended the quarter with about $2.4 billion in cash and short-term investments and $3.9 billion in total liquidity, including $1.5 billion undrawn on its revolver. Inventory increased by $60 million to 201 days, which Trent said reflected higher internal loadings and customer commitments; it included 75 days of strategic inventory.
Looking ahead, both executives reiterated expectations for sequential margin expansion through 2026. Asked about the cadence of gross margin improvement, Trent said management expects expansion “throughout the remainder of this year” and “probably larger step functions than what you saw here in the first quarter,” driven by utilization, fab-right initiatives, and mix, with pricing actions expected to offset higher input costs later in the year.
About onsemi NASDAQ: ON
onsemi is engaged in disruptive innovations and also a supplier of power and analog semiconductors. The firm offers vehicle electrification and safety, sustainable energy grids, industrial automation, and 5G and cloud infrastructure, with a focus on automotive and industrial end-markets. It operates through the following segments: Power Solutions Group, Advanced Solutions Group, and Intelligent Sensing Group. The Power Solutions Group segment offers discrete, module, and semiconductor products that perform multiple application functions, including power switching, power conversion, signal conditioning, circuit protection, signal amplification, and voltage reference functions.
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