Sycamine Capital Management today announced a constructive stance on Onsemi’s latest earnings release, citing stronger cash generation, tighter cost control, and a steadier near-term outlook as indicators of rising earnings quality. For Richard Kelly, Director of Private Clients at Sycamine Capital Management, the investment lens narrows to cash and mix, with “cash generation rather than top-line exuberance setting the tone for AI-linked semiconductor exposure” as the anchor for position sizing.
Revenue of $1.55 billion surpasses a $1.52 billion consensus and EPS of $0.63 clears $0.59, while free cash flow of $372 million equals 24% of revenue across the latest quarter. Management guides the current period to $1.48 billion to $1.58 billion, a corridor that balances prudence with scope for upside if supply chains continue to normalise. Profitability improves on a sequential basis, with operating margin at 19.2% and gross margin at 38%, a combination Kelly views as “evidence that pricing power and operating discipline are beginning to compound through the cycle.”
Activity linked to artificial intelligence roughly doubles over the preceding 12‑month period and shifts the earnings mix toward data‑centre power solutions where incremental efficiency translates directly into lower operating cash outlay. That dynamic strengthens the case for components tied to multi‑year infrastructure budgets rather than short‑cycle spend, with “watt‑hours converting into dollars where efficiency compounds over time” as Kelly frames the monetisation path for power semiconductors.
Transport remains the principal watchpoint as inventory digestion runs through Western channels, yet sequential stability emerges. Automotive revenue rises 7% quarter on quarter to about $864 million after converting from euro values, Japan advances 38% over the same period and Europe declines 4%. Silicon carbide provides useful context at about $877.9 million for 2023, equal to 10% of group sales, which frames exposure to electric vehicle cycles and the timing of replenishment orders in core programmes.
Capital returns underscore the durability of cash generation, with share repurchases of roughly $883 million over the preceding 12‑month period signalling a willingness to deploy surplus while preserving balance‑sheet flexibility. Portfolio breadth expands through the purchase of Vcore power management assets from Aura Semiconductor and collaboration with Nvidia on high‑voltage direct‑current topologies aligned to data‑centre capital plans. Sycamine Capital Management reads these steps as instruments that widen optionality in the model without diluting return thresholds.
Market response turns constructive with the shares up by more than 4% in pre‑market trade on the day of the release. Management sets longer‑term markers that include compound annual revenue growth of 10% to 12% through 2027, operating margin potential near 40% and free cash flow margin aims of 25% to 30%, a constellation that can lift returns on invested capital if execution stays consistent. The valuation bridge follows from “consistent conversion of operating profit into cash and a measured approach to buybacks as the cycle resets”, according to Kelly.
For asset allocators weighing cyclical risk, the near‑term read is a sturdier earnings base as data‑centre and industrial demand gain share and auto normalises, with a guidance corridor that avoids downgrades and limited execution drift; on balance, Sycamine Capital Management sets a constructive, risk‑managed stance on the power‑semiconductor theme anchored in sustained free cash flow and disciplined capital returns.
About Sycamine Capital Management
Established in 2008, Sycamine Capital Management Pte. Ltd. leverages deep analytical expertise to position investors ahead of evolving market dynamics. A forward‑looking research programme across AI and ESG helps identify potential opportunities early and guides clients through changing conditions with practical entry points. Further details and additional articles are available at https://scmgt.com/sycamine-investment-focus-articles/.
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