Goldman Sachs Reinstates ON Semiconductor Citing Volatility Of Semis Amid Competitive Environment

Goldman Sachs’ Mark Delaney expressed a constructive stance on the opportunity for ON Semiconductor Corp (NASDAQ: ON) from its product cycles, as well as the benefits from the Fairchild Semiconductor Intl Inc (NASDAQ: FCS) acquisition.

Delaney reinitiated coverage of ON Semiconductor with a Neutral rating and price target of $13.

Product Cycle

“The most interesting product cycle in our view is in ADAS, where ON is the market leader in image sensors and we expect ON’s sales to grow at a double digit CAGR as the camera attach rate per car rises,” the analyst mentioned.

Delaney also expects significant synergies in both COGS and opex, including shifting Fairchild to ON Semiconductor’s back-end network, and stated that ON Semiconductor had 20–25 percent cost advantage and that back-end could rise up to 50 percent of the cost of a chip.

“ON’s CEO Keith Jackson was previously EVP at Fairchild and we believe is very familiar with the asset. In addition, with Fairchild, ON has no customer at over 4 percent of sales,” the analyst noted.

Volatility And Competition

Delaney explained that the Neutral rating was based on the “reasonable” stock valuation, as well as “discrete semis are one of the most competitive and volatile areas in semis.”

The analyst expects long-term declines in computer and consumer sales, which account for about 25 percent of the company’s total revenue.