While ONSemi stock has seen some recent softness with investor concerns on GTAT ramps and potential share loss, the analyst believes ON might be gaining Silicon carbide (SiC) share with an increasing backlog from new Tesla Inc (NASDAQ: TSLA) orders in addition to the new Hyundai Motor Co, Ltd (OTC: HYMTF) Kia win in 2023E.
The analyst's checks indicate a faster-than-expected ramp at its brownfield Bucheon fab could help ON potentially gain share even as STMicroelectronics NV (NYSE: STM) works to ramp its greenfield SiC Bouskoura, Morocco fab.
Rakesh believes ONSemi has also been potentially raising SiC pricing.
The analyst's checks indicate no material supply issues in SiC with GTAT while ON's Bucheon, South Korea fab ramps.
ONSemi is ramping its SiC Fab at Roznov, Czech Republic, growing SiC Capacity 16x by 2024E.
Rakesh saw some competing industry supply ramping, with Bosch ramping SiC at its Reutlingen, Germany fab for global supply and complementing BYD Co, Ltd's (OTC: BYDDF) in-house supply.
ON has noted that it can achieve its $1 billion target, though it is adding the ability to achieve its $4 billion goal by ~2025E.
Rakesh believes ON is looking to move SiC to "own Epi," targeting 50% of SiC supply on Epi exiting 2023E the analyst believe is possible with Bucheon and Roznov ramping.
ON has noted that SiC GM should be at corporate average exiting 2023E as it absorbs startup costs in the initial ramp, with LT trending above corporate average.
Rakesh's current GM estimate for C23E of 46% could have an upside.
ON has potential tailwinds in Auto, Industrial, EV, and ADAS, and Rakesh believes it remains compelling given its strong GMs, Auto, Industrial, and EV portfolio and much-improved profitability.
Price Action: ON shares traded higher by 0.96% at $66.50 on the last check Wednesday.
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