onsemi Uses Aggressive Buybacks to Buffer EV Market Slowdown
The semiconductor firm is returning over half of its free cash flow to shareholders as industrial and automotive demand craters.
ON Semiconductor (onsemi) is deploying an aggressive capital return strategy to support its valuation amid a significant downturn in the electric vehicle (EV) and industrial sectors. The company is betting that deep undervaluation and a strong balance sheet will sustain investor confidence until market demand stabilizes.
To offset institutional selling and operational headwinds, onsemi returned more than 50% of its 2024 free cash flow to shareholders through share buybacks. This program reduced the company's total share count by 2.25% over the year. Despite these efforts, the stock plummeted to multi-year lows near $47.25 following the release of its FQ4 2024 earnings. The most recent quarterly report revealed significant pressure on profitability, with adjusted gross margins contracting by 140 basis points and operating margins dropping by 490 basis points.
The Industrial Lull
The current volatility is rooted in onsemi's heavy exposure to Silicon Carbide (SiC) technology, a critical component for EV power trains. The broader semiconductor industry has entered a period of stagnation characterized by a lull in industrial demand and a decelerating pace of EV adoption globally. This shift has led to a drastic revision of financial expectations; the consensus earnings figure for 2025 has fallen by more than 30% from its peak in 2023.
This environment has triggered a retreat by major stakeholders. Institutional investors, who own more than 97% of the stock, remained net sellers throughout 2024 and into the first quarter of 2025, contributing to the downward pressure on the share price.
The Bull Case
Despite the operational slump, a bull case is emerging based on current pricing. The stock is trading at roughly 12x its earnings outlook, a level some analysts view as profoundly oversold. The central thesis for a rebound rests on the company's "fortress balance sheet," which allows it to continue aggressive buybacks even while margins are compressed.
If onsemi can maintain these capital returns while successfully ramping up its SiC production capacity—specifically at its facilities in Bucheon and Roznov—it stands to capture significant upside. The company is positioning itself to be a primary beneficiary of the eventual recovery in the automotive sector.
Outlook for 2025
Investors are now watching to see if the current valuation floor holds and if institutional selling finally exhausts itself. While the company has stabilized its capital return mechanism, the timing of a recovery depends on external macroeconomic factors and the stabilization of the EV market. The primary remaining question is whether internal cost-cutting and capacity expansions will be enough to reverse the margin contraction seen in the most recent quarter.