ON Semiconductor Stock Forecast: ON Semiconductor Could Also Be A Takeover Target

motek 1The article was written by Motek Moyen Research Seeking Alpha’s #1 Writer on Long Ideas and #2 in Technology  – Senior Analyst at I Know First

ON Semiconductor Stock Forecast


  • On Semiconductor is the no. 7 supplier of automotive chips in the world. It is predicted that this industry will grow from $29 billion last year to
  • After Qualcomm’s $39 billion buyout of NXP, On Semiconductor could also be an acquisition target.
  • Like NXP, On Semiconductor derives a large portion of its annual revenue from the auto industry.  It obviously has a list of loyal customers.
  • Institutional investors own more than 96.5% of ON shares. Interested parties with a good offer will easily be able to buy On Semiconductor.
  • Based on the positive near and long-term algorithmic forecasts from I Know First, it could be profitable to go long ON right now.

I argued for Intel (INTC) to buy On Semiconductor (ON) to address the threat from Qualcomm’s (QCOM) $39 billion takeover of NXP Semiconductors (NXPI). Intel, Sony (SNE), or Samsung (SSNLF) could gain a foothold in the $29 billion/year automotive chip industry if they acquire On.

Unlike the declining PC business, car-related semiconductor products are predicted to enjoy a Compound Annual Growth Rate of 5.8% until 2022. Six years from now the business of supplying chips and sensors to car manufacturers will be a $48.78 billion industry.

On’s comprehensive product portfolio means it could be an important asset to any firm interested in competing with the combined might of Qualcomm and NXP. Yes, NXP is the number one supplier in automotive semiconductor products. However, seventh-ranked On Semiconductor could be a top-3 contender within five years if it has a parent company like Intel or Samsung.

On Semiconductor Stock Forecast

On Semiconductor’s revenue last year from automotive-related products was $1.14 billion, up 6.8% year-over-year. On Semiconductor obviously has list of loyal customers and it is also attracting new clients. One look at the screenshot below should convince investors that On Semiconductor is a ripe for a takeover. It can supply almost all silicon-related components/solutions that car builders need.


(Source: On Semi)

Long-term investors know that the age of connected cars has arrived. On Semiconductor’s long-term viability is easy to assess when we take into account that 50 million connected/smart cars will ship out by 2018. Car vendors will need sensors, processors, and power management chips from On Semiconductors to help build their intelligent cars.on2

Unlike the PC market, the overall global car industry is also still a growing business. On Semiconductor is therefore assured of growth with or without the connected car revolution. Regular cars will still need semiconductors to function.


My Recommendation

Is endorse a Buy rating for ON. Go long on this stock because I expect this company to eventually get taken over by a bigger firm. Consolidation in the automotive semiconductor segment will likely intensify after Qualcomm’s takeover of NXP.

It is not only Qualcomm who is in need of diversification from mobile and PC application processors. Intel, which already owns Altera, Wind River, and Movidius, needs to become a top 10 supplier in car processors/sensors to offset its declining PC processor business.

If Intel doesn’t heed my suggestion to buy ON Semiconductor, I expect NXP’s rivals like Renesas (RNECY) and Infineon Technologies (IFNNY) to do so. It makes sense for NXP’s rivals to team-up to better compete. In the semiconductor arena, size matters.

Margins-pressured car manufacturers will want the cheapest silicon components. Synergy and economy-of-scale savings could be accomplished through mergers & acquisitions. For example, buying On Semiconductor will help Infineon almost equal the market share of industry leader NXP.

Buying On Semiconductor is also not going to be difficult. Institutional investors own more than 96% of ON shares. Intel or Infineon could just sweet-talk the ten largest institutional investors of On to seal a takeover deal.


(Source: Nasdaq.com)


Any rumor of On Semiconductor being taken over could send the stock to $15. Intel or Samsung will miss a great opportunity if they do not consider adding ON to their Internet of Things strategy. Connected cars will play a big role in the future. It would be a shame if Qualcomm/NXP remains unchallenged in automotive semiconductors.

Nevertheless, even without being bought by a larger firm, On Semiconductor is still a great long-term bet. I repeat, this company is involved in a growing business. Yes, it will be harder to grow without a mega-cap parent company. However, I still believe On Semiconductor can post 5-10% year-over-year growth in automotive chips.

On Semiconductor is also a well-diversified company. Aside from Automotive chips, it also supplies image sensors/processors and wireless modems. On also has products for medical and military applications. A profitable, well-diversified firm like On Semiconductor is a good long-term investment.


(Source: On Semiconductor)

On Semiconductor will report its Q3 earnings and revenue next week. It might be smart to bet on this stock now pre-earnings. The short and long-term algorithmic forecasts from I Know First endorsed a Buy rating for ON.


Even before Qualcomm’s takeover of NXP, hedge fund managers’ consensus sentiment was already favorable for ON. As per TipRanks, hedge fund managers have been increasing their holdings of ON since Q2 2016. Small retail investors should always try to profit from the emotions of hedge fund managers. on7