ON Semiconductor CEO expects auto chip backlog to end by third quarter

ON Semiconductor, a chipmaker scrambling to meet the high demand for automotive components, expects to relieve a bottleneck in auto chip production by the second half of the year at the latest.

In an interview Monday with CNBC’s Jim Cramer, CEO Hassane El-Khoury said the company is experiencing a rush in orders for its products amid an industrywide shortage in chips.

The shortage, which began when demand for electronic products such as computers surged during the pandemic, has forced carmakers including General Motors and Ford to cut back on manufacturing some vehicles.

“The orders came on so strong that we’re not able to keep up, but we do have the capacity,” El-Khoury said in an appearance on “Mad Money.” “For our chips, we are able to support the capacity. We started the new demand, and we’re going to be through this in one or two quarters.”

Serving multiple end markets, ON Semiconductor began warning customers about tight inventories in the later parts of the summer as homebound consumers loaded up on electronics. Many businesses at the time remained uncertain about the future due to economic fallout from coronavirus lockdowns as executives cut back on or refrained from placing orders for components.

The latest cars, increasingly equipped with connected technologies and other capabilities, need numerous tiny chips for functions such as power management, power steering and infotainment systems.

The auto market is the biggest driver of all ON Semiconductor end markets, El-Khoury said.

“Driven primarily by the automotive industry, we’re very well positioned,” he said. “We’re not just going to grow at market. We’re going to grow above market, same with industrial, same really across the strength in every single one of our end markets, which is a great place to be.”

Among the five segments ON Semiconductor serves, automotive makes up nearly a third of revenues. The company is also a supplier to industrial and military, communications, computing and consumer markets.

After total revenues declined about 8% in the first half of 2020 at the onset of coronavirus lockdowns, the computing segment was the first to rebound in the second quarter. Automotive revenue would not increase until the fourth quarter, when the figure grew 6% from the year prior.

For the full year, ON Semiconductor revenues declined 4.8% to about $5.26 billion. Revenues fell 6% to roughly $5.52 billion in 2019.

Citing order trends and backlog, ON Semiconductor projects revenue in the range of $1.41 billion to $1.51 billion in the current quarter. If it meets the short end of guidance, business would grow at least 10% from what it reported in the first quarter last year.

ON Semiconductor shares sold off more than 3% on Monday, exceeding declines in the overall market. Despite a negative start to the week, the stock is up more than 23% to $40.44.

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