12:29 PM EDT, 07/30/2024 (MT Newswires) -- ON Semiconductor (ON) has managed the auto semiconductor downturn "better than feared," Morgan Stanley said in a note emailed Tuesday.

Given recent weak guidance from peers, expectations for ON Semiconductor had softened, Morgan Stanley said, adding that "ON emerged better than feared with automotive in June [quarter] coming in 1% weaker than Morgan Stanley estimate and guided for [September quarter] to be up quarter-over-quarter."

The company's decision to invest in a vertically integrated silicon carbide, or SiC, manufacturing facility in the Czech Republic, despite not disclosing SiC revenue, addressed concerns about scaling back their SiC ambitions, according to the note.

"While the company has guided for every 1% of utilization improvement to contribute 15-20 [basis points] to gross margin, the company will be coming out of an auto semi downturn with 84 days more inventory than Sep [quarter] 2020, suggesting that unless end demand dramatically improves, we shouldn't necessarily anticipate a rapid increase in utilization," Morgan Stanley said.

ON Semiconductors' June quarter results matched estimates with about $1.74 billion in revenue, more than 45% gross margin, and $0.96 earnings per share, while September quarter guidance aligns with expectations, Morgan Stanley said, adding that it has adjusted the company's 2024 and 2025 forecasts slightly upwards.

Morgan Stanley maintained an underweight rating on ON Semiconductor and raised its price target slightly to $66 from $65.

Price: 74.26, Change: -4.02, Percent Change: -5.13