onsemi 2025 Annual Results: Revenue Down 15%, Margins Compress Amid Manufacturing Realignment and Demand Softness

What happened

onsemi's revenue declined 15.3% to $5,995.4 million in 2025 from $7,082.3 million in 2024, driven by decreased demand across automotive and industrial end-markets. Net income attributable to onsemi fell sharply from $1,572.8 million to $121.0 million, representing a decline of $1,451.8 million. The company recorded $666.9 million in restructuring, asset impairments and other charges under the 2025 Manufacturing Realignment Program, up from $133.9 million in 2024. Gross margin contracted from 45.4% to 33.1%, a decline of 1,230 basis points, reflecting manufacturing underutilization, unfavorable product mix, and $268.2 million in excess and obsolete inventory charges primarily within the ISG segment. Of these inventory charges, $230.3 million related to work in progress deemed obsolete due to strategic changes under the realignment program. The company also wrote off $43.9 million in consumables and manufacturing supplies associated with capacity reduction actions in PSG. Operating expenses declined modestly, with research and development down 5%, selling and marketing down 6%, and general and administrative expenses down 7% as restructuring actions took effect. Capital expenditures decreased significantly from $694.0 million in 2024 to $341.2 million in 2025, representing approximately 6% of revenue. Despite lower profitability, operating cash flow remained resilient at $1,759.8 million, down only 7.7% from $1,906.4 million in 2024, supporting $1,375 million in share repurchases and debt reduction of $375.0 million on the Revolving Credit Facility.

Why it matters for investors

The results signal a business under substantial cyclical and structural pressure. The 1,230 basis point gross margin compression reflects a combination of volume deleverage, manufacturing inefficiency, and strategic portfolio rationalization. The substantial restructuring charges and inventory write-downs indicate management is proactively addressing capacity and product mix misalignment, but these actions also highlight the severity of demand deterioration in core automotive and industrial markets, which collectively represent approximately 79% of revenue. The PSG segment's gross margin erosion from 41.3% to 24.5% is particularly concerning, reflecting both volume decline and underutilization in a capital-intensive business. ISG's gross margin collapse from 46.7% to 15.1% was driven primarily by the $230.3 million inventory obsolescence charge tied to strategy changes. Conversely, AMG's gross margin improved slightly to 51.1% from 50.1%, primarily due to reduced lower-margin manufacturing services revenue at the EFK location. The resilience of operating cash flow at $1,759.8 million demonstrates the company's ability to manage working capital and preserve liquidity despite profitability pressures. Management's decision to reduce capital intensity from 10% to 6% of revenue aligns spending with softer demand, with 2026 capex projected at approximately 5% of revenue. The company maintains substantial financial flexibility with $2,547.6 million in cash and short-term investments and approximately $1.5 billion available under the Revolving Credit Facility. However, the company carries $3,004.9 million in total debt, and compliance with financial covenants will depend on sustained cash generation. The Board approved a new $6.0 billion share repurchase program for 2026-2028, signaling confidence in long-term value despite near-term headwinds.

Key highlights

onsemi operates in a highly cyclical semiconductor industry with significant exposure to automotive and industrial end-markets, which represented approximately 51% and 28% of revenue in 2025, respectively. The company reported one distributor customer representing approximately 11% of total revenue. Geographic revenue concentration includes Hong Kong at 27.3%, United Kingdom at 22.5%, Singapore at 20.9%, and the United States at 20.5% of total revenue. The company executed the 2025 Manufacturing Realignment Program involving capacity reductions, product line exits, and operational realignment, resulting in $666.9 million in charges including severance, asset impairments, and inventory obsolescence. Manufacturing operations include multiple owned and third-party facilities with interdependent processes, creating both efficiency opportunities and concentration risk. The company has an assembly and test facility in Leshan, China, through an 80%-owned joint venture, which may face additional regulatory or tariff pressures due to U.S.-China geopolitical tensions. The company is subject to various regulatory compliance requirements including export controls, environmental regulations, anti-corruption laws, and evolving AI-related regulations. onsemi is developing power technologies for AI data centers, representing a growth opportunity but also subject to execution risk and competitive intensity. The company had $3,004.9 million in total debt as of December 31, 2025, including $804.9 million in 0% Notes due 2027, $1,500.0 million in 0.50% Notes due 2029, and $700.0 million in 3.875% Notes due 2028.

Management commentary

Management stated: 'During 2025, the semiconductor industry continued to experience a softening demand and uncertainty due to macroeconomic factors and the geopolitical environment. In this environment, we have focused on operational excellence and cash flow generation. Given the conditions, we are actively managing and have taken corrective actions in our manufacturing capacity and spending to align with the forecasted demand. We intend to continue these actions during 2026.' Management further noted: 'We continue to implement cost-saving initiatives to be able to align our overall cost structure, capital investments and other expenditures with our expected revenue, spending and capacity levels to help offset softening demand and increased manufacturing and operating costs. We have taken, and continue to take actions, including but not limited to, exiting product lines that do not enhance gross margin or satisfy strategic objectives. We made meaningful progress in aligning internal manufacturing capacity and resources to external demand.' Regarding future capital allocation, management stated: 'In 2026, based on current plans, we expect capital expenditures to be approximately 5% of revenue.' On liquidity and capital deployment, management indicated the company 'repurchased approximately 27.9 million shares of common stock for an aggregate purchase price of approximately $1,375 million' during 2025 and that 'through February 4, 2026, we acquired 2.9 million shares for $175.6 million under the New Share Repurchase Program.'

What to watch next

Investors should monitor:

• Recovery trajectory in automotive and industrial end-markets, which collectively represent approximately 79% of revenue, and management's ability to regain volume and pricing power as demand stabilizes.

• Execution on the 2025 Manufacturing Realignment Program, including the realization of expected cost savings, manufacturing efficiency improvements, and whether additional restructuring charges are required.

• Gross margin recovery from the depressed 33.1% level as manufacturing utilization improves and the effects of inventory write-downs and consumables write-offs do not recur in future periods.

• Capital expenditure discipline at the targeted 5% of revenue level in 2026 and whether management adjusts investment levels based on demand visibility and strategic opportunities in AI data centers.

• Pace of share repurchases under the new $6.0 billion program covering 2026-2028 and the balance between capital returns and maintaining financial flexibility given cyclical uncertainty.

• Potential impacts from U.S.-China geopolitical tensions on the Leshan, China assembly and test facility, including additional tariffs, export controls, or licensing requirements that could affect operations or costs.

• Adoption and revenue contribution from power technologies designed for AI data centers, and whether this emerging opportunity offsets ongoing weakness in traditional automotive and industrial markets.

This summary is based solely on excerpts from the company's Form 10-K filing.