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ON Semiconductor CEO expects auto chip backlog to end by third quarter

ON Semiconductor, a chipmaker struggling to meet strong demand for automotive components, hopes to ease a bottleneck in automotive chip production by the second half of the year at the latest.

In an interview with CNBC’s Jim Cramer on Monday, CEO Hassane El-Khoury said the company was experiencing a rush to order its products amid a shortage of chips in the industry.

The shortage, which began when demand for electronics such as computers increased during the pandemic, has forced automakers, including General Motors and Ford, to cut back on the manufacture of some vehicles.

“The orders have been so strong that we are unable to keep pace, but we have the capacity,” El-Khoury said during an appearance on “Mad Money”. “For our chips, we’re able to sustain capacity. We’ve started the new demand, and we’re going to go through that in a quarter or two.”

Serving multiple end markets, ON Semiconductor began warning customers of tight inventory in the latter parts of the summer as home consumers loaded up electronics. Many companies at the time remained uncertain about the future due to the economic fallout from coronavirus lockdowns as executives reduced or refrained from placing orders for components.

The latest cars, increasingly equipped with connected technologies and other capabilities, need many tiny chips for functions like power management, power steering, and infotainment systems.

The automotive market is the primary driver of all of ON Semiconductor’s end markets, El-Khoury said.

“Driven mainly by the automotive industry, we are very well positioned,” he said. “We’re not just going to grow at the market level. We’re going to grow above the market, as well as the industry, the same way really through the strength of each of our end markets, which is a great place.

Of the five segments served by ON Semiconductor, the automotive industry accounts for nearly a third of revenues. The company also supplies the industrial and military, communications, IT and consumer markets.

After a decline in total revenue of around 8% in the first half of 2020 at the start of the coronavirus lockdowns, the IT segment was the first to rebound in the second quarter. Auto revenue would only increase in the fourth quarter, when the figure rose 6% from the previous year.

For the year as a whole, ON Semiconductor’s revenue declined 4.8% to about $ 5.26 billion. Revenue fell 6% to about $ 5.52 billion in 2019.

Citing trends in orders and the backlog, ON Semiconductor expects revenue in the range of $ 1.41 billion to $ 1.51 billion in the current quarter. If it meets the short range of forecasts, business would increase by at least 10% from what it reported in the first quarter of last year.

Shares of ON Semiconductor sold more than 3% on Monday, beating declines across the market. Despite a negative start to the week, the stock is up more than 23% to $ 40.44.


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