© Reuters. FILE PHOTO: Semiconductor chips are seen on a circuit board of a computer in this illustration picture taken February 25, 2022. REUTERS/Florence Lo/Illustration/File Photo
By Zaheer Kachwala and Stephen Nellis
(Reuters) -Chipmaker ON Semiconductor Corp on Monday forecast third-quarter revenue above market estimates on optimism that strong demand from the automotive sector will offset broader weakness in the semiconductor industry.
Shares of the Arizona-based company were up more than 3.4% to $108.68 by midday after gaining 68.5% so far this year.
The rising adoption of electric vehicles has been a boon for chipmakers like Onsemi and NXP Semiconductors (NASDAQ:). Onsemi said in May it was considering investing over $2 billion to boost the production of silicon carbide chips used to extend the range of EVs.
Onsemi is considering existing sites in Korea, the United States and the Czech Republic for the new factory.
Hassane El-Khoury, the chipmaker’s chief executive, told Reuters that the company is open to building brand new factories if demand continues to rise. But in the meantime, using an existing site will help bring the silicon carbide business’s profit margins in line with the broader company’s margins, even after accounting for spending money to expand production.
“At this at this point (an existing site) is the way to go, and we pay for it with operating cash flow,” El-Khoury told Reuters.
Automotive chipmaker NXP last week forecast a strong third-quarter revenue and profit, exuding confidence over a steady automotive demand.
Onsemi, which makes sensors and supplies chips to companies like Volkswagen (ETR:), expects revenue between $2.10 billion to $2.20 billion in the third quarter. Analysts on average expect revenue of $2.07 billion, according to Refinitiv IBES data.
Its forecast for adjusted earnings of $1.27 to $1.41 per share, was also above estimates of $1.21 per share.
For the second quarter ended June 30, the company’s revenue rose to $2.09 billion, ahead of analysts’ expectations of $2.02 billion. The revenue was boosted by Onsemi’s power solutions group, which provides power management chips, making up about 53% of total quarterly revenue.
On an adjusted basis, the company earned $1.33 per share in the reported quarter, compared with estimates of $1.21 per share, according to Refinitiv.