ON Semiconductor Corporation CAPEX jumped on 30.1% and Revenue increased on 6.0%

02/01/2019 • About ON Semiconductor Corporation ($ON) • By InTwits

ON Semiconductor Corporation reported 2018 financial results today. Here are the key drivers of the company's long term financial model:

• ON Semiconductor Corporation is a growth stock: 2018 revenue growth was 6.0%, 5 year revenue CAGR was 16.1% at 2018 ROIC 15.1%
• ON Semiconductor Corporation has medium CAPEX intensity: 5 year average CAPEX/Revenue was 7.1%. At the same time it's in pair with industry average of 7.6%
• CAPEX is quite volatile: $515m in 2018, $396m in 2017, $213m in 2016, $272m in 2015, $202m in 2014
• The company has highly profitable business model: ROIC is 15.1%

Below you can find a comprehensive analysis of the key data driving the company's performance and the stock price.

Revenue and profitability

The company's Revenue increased on 6.0%. Revenue growth showed acceleration in 18Q4 - it increased 9.1% YoY. Revenue decline was accompanies by EBITDA margin decline. EBITDA Margin decreased on 5.7 pp from 30.8% to 25.1% in FY2018. EBITDA Margin stuck to a growing trend at 2.2 pp per annum in the last 5 years.

Gross Margin increased slightly on 1.4 pp from 36.7% to 38.1% in 2018. During 2014-2018 Gross Margin bottomed in 2016 at 33.3% and was growing since that time. SG&A as a % of Revenue showed almost no change in 2018. Stock Based Compensation (SBC) as a % of Revenue showed almost no change in 2018.

Net Income margin decreased on 4.0 pp from 14.6% to 10.7% in 2018. The efficient tax rate was 16.6% in 2018.

Investments (CAPEX, working capital and M&A)

The company's CAPEX/Revenue was 8.8% in 2018. CAPEX/Revenue increased slightly on 0.97 pp from 7.8% in 2015 to 8.8% in 2018. Average CAPEX/Revenue for the last three years was 7.1%.

Accounts receivable as a % of Revenue decreased slightly on 0.99 pp from 12.7% to 11.7% in 2018. Inventories as a % of Revenue increased slightly on 1.2 pp from 19.7% to 20.8% in 2018. Accounts payable as a % of Revenue increased on 2.8 pp from 15.6% to 18.5% in 2018.

ON Semiconductor Corporation has spent $71m on M&A in 2018 which accounts for 1.2% of revenue.

Return on investment

The company operates at high and attractive ROE (21.1%) while ROIC is a bit lower (15.1%). ROIC increased on 2.8 pp from 12.3% to 15.1% in 2018. ROE dropped on 14.1 pp from 35.2% to 21.1% in 2018.

Leverage (Debt)

Debt level is 1.3x Net Debt / EBITDA and 2.0x Debt / EBITDA. Net Debt / EBITDA dropped on 0.5x from 1.7x to 1.3x in 2018. Debt decreased on 6.3% while cash jumped on 12.7%.

ON Semiconductor Corporation has good short term financial stability: Interest coverage ratio (ICR) is 6.6x. ON Semiconductor Corporation has no short term refinancing risk: cash is higher than short term debt (772.3%).

Average interest expence paid by the company was 4.6% in 2018.

Valuation and dividends

The company's trades at EV/EBITDA 8.0x and P/E 14.6x.

Management team

The company's CEO is Keith D Jackson. Keith D Jackson is a founder and has 16 years tenure with the company. CEO total compensation was $11,893,401 in 2018 which included $1,016,154 salary. Bernard Gutmann is a ON Semiconductor Corporation's CFO. Bernard Gutmann has spent 6 years at the company.

At the end of financial year the company had 1.8% shares owned by insiders. Insider ownership didn't change in 2018.

The company has 35,700 employees. The number of employees increased on 5%. Average revenue per employee in 2018 was $164,658 and it increased slightly on 1.00%.

Financial and operational results

FY ended 12/31/2018

ON Semiconductor Corporation ($ON) key annual financial indicators

mln. $	2014	2015	2016	2017	2018	2018/2017
P&L
Revenue	3,162	3,496	3,907	5,543	5,878	6.0%
Gross Profit	1,085	1,193	1,301	2,036	2,239	10.0%
SG&A	381	387	467	602	618	2.7%
EBITDA	429	619	611	1,164	1,356	16.5%
EBIT	161	261	247	682	847	24.3%
Interest expence	34	50	145	141	128	-9.2%
Tax	-0	11	-4	-266	125
Net Income	121	206	182	811	627	-22.6%
Stock Based Compensation	46	47	56	70	78	12.2%
Balance Sheet
Cash	512	618	1,028	949	1,070	12.7%
Accounts Receivable	418	426	630	702	686	-2.2%
Inventory	730	750	1,030	1,090	1,225	12.5%
Accounts Payable	378	338	434	548	672	22.6%
Short Term Debt	210	543	554	248	139	-44.2%
Long Term Debt	982	851	3,101	2,704	2,628	-2.8%
Cash flow
Capex	202	272	213	396	515	30.1%
Acquisitions	424	31	2,284	1	71	8,762.5%
Ratios
Revenue growth	13.6%	10.6%	11.8%	41.9%	6.0%
EBITDA growth	10.8%	44.1%	-1.3%	90.5%	16.5%
Gross Margin	34.3%	34.1%	33.3%	36.7%	38.1%	1.4%
EBITDA Margin	13.6%	17.7%	15.6%	21.0%	23.1%	2.1%
EBIT Margin	5.1%	7.5%	6.3%	12.3%	14.4%	2.1%
SG&A, % of revenue	12.0%	11.1%	11.9%	10.9%	10.5%	-0.3%
SBC, % of revenue	1.4%	1.3%	1.4%	1.3%	1.3%	0.1%
Net Income Margin	3.8%	5.9%	4.7%	14.6%	10.7%	-4.0%
CAPEX, % of revenue	6.4%	7.8%	5.4%	7.1%	8.8%	1.6%
ROIC	6.0%	8.9%	5.7%	12.3%	15.1%	2.8%
ROE	7.8%	12.7%	10.6%	35.2%	21.1%	-14.1%
Net Debt/EBITDA	1.6x	1.3x	4.3x	1.7x	1.3x	-0.5x
Interest coverage ratio (ICR)	4.7x	5.3x	1.7x	4.8x	6.6x	1.8x
Interest expence / Average debt	2.9%	3.8%	5.8%	4.3%	4.6%	0.4%
People
Insider ownership	1.8%	1.8%	1.8%	1.8%	1.8%	0.0%
Employees	24,500	24,500	32,000	34,000	35,700	5.0%
Revenue/Employee, th. $	129	143	122	163	165	1.0%

ON Semiconductor Corporation ($ON) key quoterly financial indicators

mln. $	18Q1	18Q2	18Q3	18Q4		YoY change
P&L
Revenue	1,378	1,456	1,542	1,503		-4.1%	8.8%	10.8%	9.1%
EBITDA	306	323	369	359		2.7%	19.3%	21.0%	24.0%
Net Income	140	155	167	166		78.5%	65.4%	53.5%	-68.7%
Balance Sheet
Cash	925	850	951	1,070		26.9%	-2.5%	5.5%	12.7%
Short Term Debt	747	746	99	139		173.9%	178.3%	-61.6%	-44.2%
Long Term Debt	2,084	2,020	2,616	2,628		-30.2%	-29.7%	-2.6%	-2.8%
Ratios
Gross Margin	37.6%	38.1%	38.7%	37.9%		2.5%	1.3%	1.0%	0.6%
EBITDA Margin	22.2%	22.2%	23.9%	23.9%		1.5%	1.9%	2.0%	2.9%
Net Income Margin	10.1%	10.7%	10.8%	11.0%		4.7%	3.6%	3.0%	-27.5%

Peers in Semiconductors

Below we provide ON Semiconductor Corporation benchmarking against other companies in Semiconductors industry for the last 5 years. We show data for the top-5 companies by key financial metric together with the median value for all the companies in the industry.

Top companies by Revenue growth, %

Top 5	FY2014	FY2015	FY2016	FY2017	FY2018
NanoFlex Power Corp ($OPVS)				72.5%	354.8%
MoSys, Inc. ($MOSY)		-18.4%	37.2%	46.8%	87.7%
SMART Global Holdings, Inc. ($SGH)			-16.9%	42.5%	69.3%
Micron Technology, Inc. ($MU)		-1.0%	-23.4%	63.9%	49.5%
Adesto Technologies Corporation ($IOTS)		4.3%	1.6%	27.6%	48.8%
Median (67 companies)	54.6%	8.5%	4.4%	10.9%	4.7%
ON Semiconductor Corporation ($ON)		10.6%	11.8%	41.9%	6.0%

Top companies by Gross margin, %

Top 5	FY2014	FY2015	FY2016	FY2017	FY2018
CEVA, Inc. ($CEVA)	90.2%	90.9%	91.6%	92.1%	89.8%
NVE Corporation ($NVEC)	77.9%	80.3%	76.1%	78.5%	79.0%
Rambus, Inc. ($RMBS)	85.9%	84.7%	80.1%	79.9%	76.8%
Universal Display Corporation ($OLED)	76.0%	64.2%	83.9%	80.8%	75.5%
Intermolecular, Inc. ($IMI)	48.3%	57.4%	66.5%	67.5%	70.3%
Median (65 companies)	46.4%	47.7%	48.0%	49.1%	51.0%
ON Semiconductor Corporation ($ON)	34.3%	34.1%	33.3%	36.7%	38.1%

Top companies by EBITDA margin, %

Top 5	FY2014	FY2015	FY2016	FY2017	FY2018
NVE Corporation ($NVEC)	58.8%	66.0%	61.8%	65.6%	65.1%
Micron Technology, Inc. ($MU)	31.7%	35.0%	25.4%	47.9%	65.0%
NXP Semiconductors N.V. ($NXPI)	25.7%	41.5%	21.6%	46.2%	49.9%
Texas Instruments Incorporated ($TXN)	39.7%	42.0%	43.5%	46.7%	48.6%
Intel Corp ($INTC)	42.8%	41.0%	35.2%	41.7%	45.7%
Median (66 companies)	9.6%	11.3%	9.2%	10.7%	9.8%
ON Semiconductor Corporation ($ON)	13.6%	17.7%	15.6%	21.0%	23.1%

Top companies by CAPEX/Revenue, %

Top 5	FY2014	FY2015	FY2016	FY2017	FY2018
Alpha and Omega Semiconductor Limited ($AOSL)	3.0%	6.6%	6.5%	12.2%	42.2%
Renesola Ltd. ($SOL)	3.5%	0.0%	0.0%	78.0%	41.7%
First Solar, Inc. ($FSLR)	7.6%	4.0%	7.9%	17.5%	33.0%
Sigma Designs Inc ($SIGM)	11.0%	6.5%	6.2%	14.1%	29.3%
Micron Technology, Inc. ($MU)	19.0%	24.8%	46.9%	23.3%	29.2%
Median (66 companies)	3.6%	4.0%	3.6%	4.7%	4.4%
ON Semiconductor Corporation ($ON)	6.4%	7.8%	5.4%	7.1%	8.8%

Top companies by ROIC, %

Top 5	FY2014	FY2015	FY2016	FY2017	FY2018
SMART Global Holdings, Inc. ($SGH)			2.5%	21.5%	51.7%
Texas Instruments Incorporated ($TXN)	25.1%	29.8%	34.9%	43.1%	47.5%
Micron Technology, Inc. ($MU)	18.8%	15.8%	0.8%	21.5%	42.9%
Applied Materials Inc ($AMAT)	15.8%	15.2%	19.0%	31.2%	36.4%
NVIDIA Corporation ($NVDA)	9.2%	13.3%	13.1%	27.3%	35.3%
Median (73 companies)	5.0%	3.8%	1.4%	3.2%	3.0%
ON Semiconductor Corporation ($ON)	6.0%	8.9%	5.7%	12.3%	15.1%

Top companies by Net Debt / EBITDA

Top 5	FY2014	FY2015	FY2016	FY2017	FY2018
MACOM Technology Solutions Holdings, Inc. ($MTSI)	25.4x	3.3x	3.0x	7.2x	98.6x
Inphi Corporation ($IPHI)		-6.4x	4.5x	33.7x	32.2x
JinkoSolar Holding Company Limited ($JKS)	4.2x	3.3x	4.1x	11.0x	8.2x
Lattice Semiconductor Corporation ($LSCC)	-1.8x		6.5x	19.0x	3.9x
Renesola Ltd. ($SOL)	7.0x	35.0x	123.6x	2.3x	3.3x
Median (45 companies)	-0.6x	-0.3x	-0.0x	0.4x	0.3x
ON Semiconductor Corporation ($ON)	1.6x	1.3x	4.3x	1.7x	1.3x

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