onsemi AI Data Center Revenue Doubles as Firm Prunes Legacy Portfolio

onsemi reported second-quarter 2025 results that exceeded guidance midpoints, driven largely by a surge in AI infrastructure demand. The company's AI data center revenue doubled year-over-year for the second consecutive quarter, signaling a critical shift in the firm's growth trajectory.

While the company continues to navigate softness in its industrial and automotive sectors, the AI-driven "Other" segment has emerged as a primary growth vector. For the quarter, onsemi reported a gross margin of 37.6%, which surpassed guidance. However, this figure was pressured by 900 basis points of underutilization charges, reflecting the complexities of its current manufacturing adjustments.

A Strategic Pivot to Intelligent Power

This performance comes amid a broader strategic transition. onsemi is moving away from a cyclical, legacy-heavy portfolio to focus on secular growth areas, specifically machine vision and intelligent power. As part of this shift, the company is executing the "FabRight" initiative to right-size its manufacturing footprint and prune low-value products to improve long-term margins.

This pruning comes with a calculated cost. The company expects approximately 5% of its 2025 revenue to not repeat in 2026, creating a projected headwind of $50 million to $100 million as it exits legacy low-margin products. Despite these headwinds, the company is finding success in specific high-growth regions; China remains onsemi's fastest-growing automotive market, posting 23% sequential growth in Q2 fueled by silicon carbide (SiC) design wins.

The Infrastructure Bottleneck

These results highlight a broader industry trend where power delivery, rather than just compute capacity, is becoming a primary bottleneck for AI infrastructure. By focusing on power architectures, onsemi is positioning itself as a critical supplier for the energy-intensive requirements of modern data centers.

CEO Hassan El-Khoury emphasized the importance of these partnerships, stating, "We are enabling next-generation power architectures that drive efficiency and performance at scale through collaboration with market leaders like NVIDIA to accelerate the shift to 800 volt DC power architecture."

Outlook and Long-Term Targets

Moving forward, onsemi's success depends on its ability to scale the AI data center business while successfully navigating the transition away from its legacy portfolio. The company is aiming for long-term gross margin targets of up to 53%, a goal that requires a disciplined execution of its product exits and a continued ramp-up in high-margin SiC and AI solutions.

Investors will be watching whether the momentum in AI data centers can fully offset the revenue gaps left by legacy product exits and whether the automotive recovery in China can be replicated in other global markets.