ON Semiconductor Exceeds Q4 Targets; AI Data Center Revenue Tops $250M in 2025 (ON Q4 2025 Earnings Call)

Q4 2025 Financial Results and the FabRite Strategy

For the fourth quarter, ON Semiconductor reported revenue of $1.53 billion and non-GAAP earnings per share (EPS) of $0.64, both beating the midpoint of the company's guidance. Non-GAAP gross margin stood at 38.2%, a highly resilient figure considering it absorbed approximately 700 basis points of underutilization charges.

For the full year 2025, revenue hit $6.0 billion with a non-GAAP gross margin of 38.4%. The company generated $1.4 billion in free cash flow—representing a record 24% margin—and returned approximately 100% of it to shareholders through buybacks.

A central pillar of the company's margin resilience is its "FabRite" manufacturing optimization strategy. In 2025, ON Semiconductor proactively reduced its fab capacity by 12% and consolidated its footprint. CFO Thad Trent noted that factory utilization troughed at 68% in Q4 and will ramp into the low-70% range in Q1 2026. As utilization normalizes into the 90% range, the 700-basis-point margin drag will naturally dissipate, paving the way for the company to return to its long-term 50%+ gross margin target.

End Markets: Auto Stabilizes, Industrial Grows, AI Explodes

The most encouraging element of the Q4 report was the behavioral shift in ON's critical end markets:

• Automotive: Revenue was $798 million, up ~1% sequentially. CEO Hassane El-Khoury confirmed that the brutal automotive inventory digestion cycle "is largely behind us." The company is seeing massive content expansion as OEMs migrate to zonal architectures, with a design funnel exceeding $400 million for SmartFETs, eFuses, and Ethernet transceivers.
• Industrial: Revenue was $442 million, up 4% sequentially. Notably, Q4 marked the first quarter of year-over-year industrial growth (up 6%) following eight consecutive quarters of decline, heavily supported by factory automation and aerospace/defense.
• AI Data Center: This is ON Semiconductor's fastest-growing segment. The company generated over $250 million in AI data center revenue in 2025 (up from virtually nothing previously). Management indicated that AI data center revenue will surge by a "high teens" percentage sequentially in Q1 2026 as the company supplies high-efficiency power conversion chips across the entire "PowerTree"—from the grid to the GPU board.

Technology Roadmap: Treo, GaN, and Silicon Carbide

ON Semiconductor is aggressively executing its product transition strategy:

1. Treo Platform: The company's mixed-signal Treo platform has doubled its sampling volume year-over-year and boasts a design funnel exceeding $1 billion, targeting applications from automotive sensors to medical continuous glucose monitors.
2. Gallium Nitride (GaN): ON plans to sample more than 30 new GaN devices in 2026. The company is using a foundry model (partnering with GlobalFoundries and Innoscience) for its "Lateral GaN" switches, expected to generate revenue in 2026. Furthermore, its proprietary US-manufactured "Vertical GaN" (VGaN) technology—which offers unmatched power density for high-voltage applications—is already in joint development with General Motors, targeting a 2027 revenue ramp.
3. Non-Core Exits: To relentlessly protect its gross margins, ON is actively walking away from volatile, low-margin legacy businesses. The company plans to exit roughly $300 million of non-core revenue in 2026, beginning with a $50 million walk-away in Q1.

Cautious but Optimistic Q1 2026 Guidance

For the first quarter of 2026, ON Semiconductor expects revenue between $1.44 billion and $1.54 billion. While this represents normal seasonality sequentially, it actually implies above-seasonal core growth when factoring in the deliberate $50 million non-core revenue exit.

Non-GAAP gross margin is guided to expand sequentially to a range of 37.5% to 39.5%, a testament to the FabRite structural improvements overpowering typical seasonal margin degradation. Non-GAAP EPS is projected between $0.56 and $0.66.