Onsemi Plans Workforce Cut, Anticipates Weak Q4 EV Demand

In a recent report by Reuters, Onsemi, a prominent chip manufacturer, has projected a relatively underwhelming performance for the fourth quarter of the year. Alongside this outlook, the company has announced plans to trim its workforce by approximately 900 employees. This development has stirred industry-wide concerns, hinting at a potential deceleration in the demand for electric vehicle (EV) components and Onsemi's chips' relevance within the automotive sector.

Onsemi is a key provider of semiconductor solutions for electric vehicle propulsion systems and crucial driver assistance systems such as cameras and sensors. Among its clientele are major players in the European automotive industry, including Volkswagen.

Hassane El-Khoury, CEO of Onsemi, noted during a post-earnings conference call, "We are beginning to observe a degree of softness in the market, with European Tier 1 customers managing their inventory and an elevated risk to car demand due to rising interest rates." Worth noting is that over 50% of Onsemi's total revenue is derived from its automotive chip segment.

Even industry leader Elon Musk, CEO of Tesla, the world's most valuable car manufacturer and a trailblazer in the electric vehicle sector, has expressed apprehension regarding the influence of elevated interest rates on the purchasing behavior of car buyers, as Tesla's revenue has fallen short of expectations.

Notably, Onsemi has undertaken a workforce reduction, having already laid off 1,360 employees this year. The company anticipates a revenue range between $1.95 billion and $2.05 billion for the current fiscal year, falling below market expectations of $2.18 billion. El-Khoury stated in an interview that the company retains optimism about the growth in EV demand, albeit at a somewhat diminished pace. The recent layoffs form part of a broader strategic transformation aimed at in-house production of higher-margin chips and cost-saving by outsourcing other chip manufacturing.

El-Khoury further remarked, "This timing seems to be in response to the macroeconomic climate, but timing has always been an integral element of our strategic planning."

In its guidance for the fourth quarter, Onsemi anticipates adjusted diluted earnings per share to range from $1.13 to $1.27, which falls short of the average analyst expectation of $1.36, according to LSEG data. During the third quarter, the company reported revenue of $2.18 billion, slightly exceeding the anticipated $2.15 billion, with adjusted earnings per share at $1.39, surpassing the forecasted $1.34.

Summit Insights Group analyst Kinngai Chan has downgraded Onsemi's stock rating from "buy" to "hold."

"According to our industry analysis, order rates for the automotive and industrial end markets continue to deteriorate," Chan stated.

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