ON Semiconductor dips even as Susquehanna highlights speculation about Tesla deal
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ON Semiconductor (NASDAQ:ON) shares dipped on Friday even as investment firm Susquehanna noted the growing speculation about a "long-term" deal with Tesla (NASDAQ:TSLA) to provide silicon carbide.
Analyst Christopher Rolland highlighted a report from Seoul Economic Daily that provided new details on a potential deal between ON Semiconductor (ON) and Tesla (TSLA), noting that an old plant in Bucheon, South Korea may have been selected as a new location to produce silicon carbide, or SiC, products from Tesla's (TSLA) inverters, which are currently supplied by STMicroelectronics (STM).
"While ON has previously highlighted a $1 billion annual run rate for SiC starting in 2024, this win would add credence to that expectation," Rolland wrote in a note to clients, adding that Wall Street is estimating less than $500M in incremental revenue year-over-year in 2024.
ON Semiconductor (ON) shares fell slightly less than 1.5% to $51.37 in premarket trading.
If ON Semiconductor (ON) were to generate $1B in SiC-related revenue, it could be worth an additional $1 per share in earnings for the company, Rolland explained, even if it has to share silicon carbide production for Tesla (TSLA) vehicles with another company.
Holland added that ON Semiconductor (ON) is transitioning itself from a commodity power management provider to a "value-add supplier" for high-growth markets such as automotive, industrial, 5G and servers and could actually make some strategic deals to accelerate the switch.
"New higher-margin products and improved execution by this management team should lead to multiple opportunities for organic growth and multiple expansion... driving a multiple re-rating for this traditionally inexpensive name," Holland added.
Last month, Morgan Stanley listed ON Semiconductor (ON) as one of the companies with the most revenue coming from China as the country emerges from its COVID-related lockdowns.