onsemi (NASDAQ:ON) reported second-quarter 2026 results above the midpoint of its guidance, citing recovering demand, continued growth in AI data-center applications and improving operating leverage.
The semiconductor company generated $1.6 billion in revenue, up 6% sequentially and 9% from a year earlier. Non-GAAP gross margin rose 80 basis points from the prior quarter to 39.3%, while non-GAAP diluted earnings per share reached $0.74. The company generated $425 million in free cash flow and repurchased $332 million of shares during the quarter.
AI Data Center Demand Drives Growth
AI data-center demand remained the company’s fastest-growing market and was the primary driver of growth in its “other” revenue category, which increased 34% sequentially to $400 million. The company said it now expects AI data-center revenue to more than double in 2026 compared with 2025.
El-Khoury said onsemi expanded its role in Nvidia’s MGX ecosystem, supplying advanced power systems for next-generation AI data centers. The company also secured two power-supply platform wins with Great Wall, a provider of power solutions for China’s cloud and AI-infrastructure market, and added design wins for AWS power-supply and battery-backup systems.
The company expects silicon carbide revenue in AI data-center applications to rise nearly 60% year over year in 2026. El-Khoury said the opportunity extends across the AI power chain, from high-voltage infrastructure to low-voltage delivery near processing units, rather than being limited to silicon carbide products.
Management also pointed to a transition toward 800-volt DC distribution architectures as a longer-term catalyst for higher semiconductor content. El-Khoury said the company expects that transition to begin ramping around late 2027 or early 2028, although deployments are expected to build gradually rather than create an immediate revenue step-up.
Automotive, Industrial Trends and Supply Conditions
Automotive revenue totaled $781 million, down 2% sequentially but up 7% year over year. Chief Financial Officer Thad Trent said the sequential decline reflected seasonal demand patterns among certain European customers, partially offset by China. Automotive revenue was up approximately 6% year to date compared with 2025.
In China, onsemi said automotive revenue increased 13% in the first half of 2026 from the year-earlier period, despite a 4% decline in total vehicle sales. The company attributed the performance to expanding content per vehicle at customers including Geely, Zeekr and Xiaomi. It now expects automotive silicon carbide revenue in China to grow between 60% and 70% in 2026.
El-Khoury also cited recent content wins on Rivian’s R2 platform, where onsemi MOSFETs are used in power distribution for zonal controller architecture and silicon carbide products are used in onboard charging.
Industrial revenue was $423 million, up 1% sequentially and 4% year over year. Growth in energy infrastructure, medical and factory automation was partly offset by weakness in traditional industrial markets. The company expects energy-storage-system revenue to increase approximately 40% in 2026, led by North American microgrid customers.
Management said supply is tightening in several growth areas, with lead times extending to roughly 32 weeks on average from about 27 weeks. The company has seen increased orders within lead time, customer escalations and a book-to-bill ratio that has remained significantly above one for several quarters.
To meet accelerated AI data-center demand, onsemi prioritized some shipments to that market over automotive and industrial customers during the quarter. El-Khoury said the company expects manufacturing output to catch up with demand in the third and fourth quarters and said the prioritization did not have a material near-term customer impact.
Margins, Manufacturing Actions and Outlook
Trent said the company’s manufacturing utilization rose to 83% in the second quarter from 77% in the first quarter. He said utilization changes generally take about two quarters to affect reported results and estimated that each percentage-point increase in utilization can support roughly 25 to 30 basis points of gross-margin improvement, assuming stable mix.
The company said it is implementing a second round of price increases to offset rising raw-material and external-manufacturing costs. El-Khoury said the cost increases apply across markets, including automotive, and that the company does not expect a softer pricing environment in 2027.
onsemi also announced divestitures of its Mountain Top and Philippines manufacturing facilities as part of its FabRight strategy to exit subscale legacy operations. Trent said the actions are expected to produce approximately $35 million in annualized savings, with initial benefits beginning in 2027 and full savings expected in 2028.
For the third quarter, the company forecast:
- Revenue of $1.65 billion to $1.75 billion.
- Non-GAAP gross margin of 40% to 42%.
- Non-GAAP earnings per share of $0.81 to $0.93.
- Capital expenditures of $40 million to $50 million.
By end market, management expects third-quarter automotive revenue to rise by low single digits sequentially, industrial revenue to be relatively flat, and other revenue to increase by high teens, supported by AI data-center demand.
Synaptics Deal
El-Khoury also highlighted onsemi’s proposed acquisition of Synaptics, which the company expects to close in mid-2027, subject to customary approvals. He said Synaptics’ connected-compute capabilities would complement onsemi’s power, sensing and control offerings, while the combined company could leverage onsemi’s manufacturing scale, global sales channel and mass-market operations.
About onsemi (NASDAQ:ON)
onsemi is engaged in disruptive innovations and also a supplier of power and analog semiconductors. The firm offers vehicle electrification and safety, sustainable energy grids, industrial automation, and 5G and cloud infrastructure, with a focus on automotive and industrial end-markets. It operates through the following segments: Power Solutions Group, Advanced Solutions Group, and Intelligent Sensing Group. The Power Solutions Group segment offers discrete, module, and semiconductor products that perform multiple application functions, including power switching, power conversion, signal conditioning, circuit protection, signal amplification, and voltage reference functions.
