ON Semiconductor Corp 2026 Q2 Earnings Call

Thank you, Josh. Good afternoon, and thank you for joining ON Semi second quarter results conference call. I am joined today by Hassane El-Khoury, our President and CEO, and Thad Trent, our CFO. This call is being webcast in the investor relations section of our website at www.onsemi.com. A replay of this webcast, along with our second quarter earnings release, will be available on our website approximately one hour following this conference call, and the recorded webcast will be available for approximately 30 days following this conference call. Additional information is posted on the investor relations section of our website. Our earnings release and this presentation includes certain non-GAAP financial measures.

Reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures and a discussion of certain limitations when using non-GAAP financial measures are included in our earnings release, which is posted separately on our website in the investor relations section. During the course of this conference call, we'll make projections or other forward-looking statements regarding future events or the future financial performance of the company. We wish to caution that such statements are subject to risks and uncertainties that could cause actual events or results to differ materially from projections. Important factors that can affect our business, including factors that could cause actual results to differ materially from our forward-looking statements, are described in our most recent Form 10-Ks, Form 10-Qs, and other filings with the Securities and Exchange Commission, and in our earnings release for the second quarter.

Our estimate or other forward-looking statements might change, the company assumes no obligation to update forward-looking statements to reflect actual results, changed assumptions, or other events that may occur, except as required by law. Now, let me turn it over to Hassan.

Hassan? Thank you, Parag. Good afternoon, and thank you for joining us on the call.

Our second quarter results reflect the progress we have made in reshaping the business and our technology portfolio over the past several years and the strengthening demand environment. As we anticipated, the recovery continued to take shape during the quarter with continued strength in our AI data center business. We also saw multiple indicators of strengthening demand with China, BEVs, and automotive, for example, and energy infrastructure and medical and industrial already showing over-market growth. Supply is tightening in several growth areas, lead times are extending, and we are seeing increases in both orders placed within lead time and customer escalations, all signs of a healthy recovery across the board.

In Q2, we delivered $1.6 billion of revenue, non-GAAP gross margin of 39.3%, and non-GAAP diluted earnings per share of $0.74, all above the midpoint of our guidance. These results reflect the operating leverage in our model with recovering demand driving accelerated margin expansion and earnings growth. AI data center remains our fastest-growing market. We now expect AI data center revenue to more than double in 2026, driven by stronger demand, further accelerated by broader customer wins and expanding content across the entire power tree. We have expanded our role in the Nvidia MGX ecosystem to supply advanced power systems designed to support the next generation of AI data centers, broadening the number of platforms where our intelligent power solutions are designed in.

In addition, we secured two power supply platform wins with Great Wall, a leading provider of power solutions for China's cloud and AI infrastructure market. In parallel, we continue to add content in U.S. hyperscalers AI deployments with design wins supporting AWS power supply and battery backup systems. These wins create additional content opportunities for our differentiated high voltage power portfolio, including silicon carbide solutions, and reflect the value of our higher power efficiency and superior power density in next generation AI power architectures. In 2026, we expect our silicon carbide revenue in AI data center applications to grow nearly 60% year-over-year. We expect our high voltage revenue to accelerate as power requirements continue to rise and system architectures evolve towards 800 volt DC distribution, driving greater adoption of our intelligent power solutions from high voltage infrastructure through low voltage power delivery.

As the only broad-based U.S. power semiconductor supplier with technologies spanning the full AI power tree, we are uniquely positioned to support this transition from the grid all the way to the processor. Importantly, this is not a position we earned overnight. It is the results of years of investment in solving complex power challenges, particularly in automotive, where power efficiency, thermal management, reliability, and system integration have long been critical design requirements. Our opportunity extends beyond the data center into the power infrastructure required to support AI deployments. In our industrial business, we are increasingly seeing the benefits of the AI halo effect, where AI growth is driving demand across the power infrastructure required to support it, including energy storage systems, or ESS. We expect our ESS revenue to grow approximately 40% year-over-year in 2026, driven by higher year-over-year growth in North America with microgrid customers.

During the quarter, we released our next generation EliteSiC hybrid ESS module, delivering industry-leading 99.3% efficiency. We also began sampling our industry first and the world's highest power density hybrid module platform at 500 kilowatts, which increases power density by 20% compared to our previous platform, delivering growth at accretive gross margins. Growth in AI workloads and increasing grid reliability and resilience requirements are expanding our industrial portfolio into higher value infrastructure markets with greater semiconductor content. Turning to automotive, we continue to expand our content per vehicle through a growing portfolio of differentiated power, sensing, and connectivity solutions. In China, our automotive revenue increased 13% in the first half of 2026 over the same period last year, against a total vehicle sales number that was down 4%, supported by expanding content per vehicle with customers like Geely, Zeekr, and Xiaomi.

With our market share gains in China EVs, we now expect silicon carbide revenue in that market to increase between 60% and 70% year-over-year, as our market share gains continue and programs ramp across existing platforms and newer vehicle launches. In the U.S., we continue to gain share across EV disruptors with a recent example of our power content on Rivian's R2 platform, where our MOSFETs support power distribution throughout the vehicle's zonal controller architecture, while our silicon carbide solutions are deployed in the onboard charging system. These wins highlight our ability to participate across multiple vehicle domains as EV architectures continue to evolve. The demands of next generation vehicle architecture around efficiency, power density, and reliability increasingly mirror the challenges being addressed in AI infrastructure and energy systems, enabling onsemi to leverage decades of power expertise across multiple growth markets.

A growing share of our recent design wins are coming from products introduced over the last two years, including our 10BASE-T1S Ethernet offering and our inductive and ultrasonic sensing products, reflecting the increasing contribution of Treo, our analog mixed-signal platform at favorable margins. By leveraging common technology building blocks across automotive, industrial, and AI infrastructure applications, Treo enables faster innovation cycles and more efficient product development. We remain on track to double the number of products sampling this year, further strengthening our pipeline and positioning us to capture additional content opportunities as vehicle architectures evolve. Over a multi-year period, we expect to outgrow underlying vehicle production through content expansion, technology leadership, and share gains.

More broadly across automotive, industrial, and AI data center, the industry is moving toward architectures requiring higher level of power efficiency, power density, and system intelligence, all of which place greater demands on power conversion, delivery, and management. This is what we do. As we look ahead, our confidence in the second half is grounded in the momentum we are seeing across our key growth drivers. We now expect AI data center revenue to more than double for the year. At the same time, the AI halo effect continues to create incremental growth opportunities across energy infrastructure, where we expect ESS revenue to grow by approximately 40% this year. In automotive, we continue to gain content and share, particularly in China, where automotive silicon carbide revenue is expected to grow between 60% and 70%. As I wrap up, I want to highlight our announced agreement to acquire Synaptics.

Beyond the compelling strategic and financial rationale, we are excited about the opportunities this combination creates for all shareholders. Synaptics' market-leading connected compute capabilities complement our strength in power, sensing, and control at accretive gross margins. Our combination would leverage our manufacturing scale, global sales channel, and mass market engine to drive growth across our highly complementary portfolio. We expect the transaction to close in mid-2027, subject to customary approvals. Let me now turn the call over to Thad to provide more details on our results and guidance for the third quarter.