onsemi Q3 Revenue Rises 7% as AI Sales Jump

onsemi (ON) reported stronger sequential revenue and profitability for the third quarter of 2026, led by rapid growth in its AI data center business and further gross-margin expansion. Revenue rose 7% from the prior quarter to $1.72 billion, while non-GAAP diluted earnings per share increased by $0.16 to $0.90.

The semiconductor company said third-quarter revenue, non-GAAP gross margin and earnings per share exceeded the midpoints of its guidance. It also recorded a fifth consecutive quarter of non-GAAP gross-margin expansion.

Non-GAAP gross margin reached 41.2%, up 190 basis points sequentially, while non-GAAP operating margin increased 240 basis points to 23.2%. Non-GAAP operating income was $399.8 million, compared with $334.1 million in the second quarter, as operating expenses rose to $309.5 million from $296.8 million.

On a GAAP basis, gross margin was 41.4%, operating margin was 22.0% and operating income totaled $378.3 million. GAAP net income attributable to ON Semiconductor was $313.9 million.

Trailing-12-month free cash flow increased to $1.62 billion, representing 25.4% of revenue. That margin was 350 basis points higher than a year earlier. Capital expenditure was $27.8 million during the quarter.

AI data center sales lead end-market growth

AI data center revenue reached $180 million, rising 39% sequentially and 175% year over year. Management expects the business to more than double in 2026 and double again in 2027, supported by the increasing power requirements of AI computing infrastructure.

The company estimates its potential content per AI data center rack could increase from about $15,000 in current 120-kilowatt systems to approximately $115,000 in 600-kilowatt to 1-megawatt racks by 2030. Those estimates are based on current market projections and depend on the industry’s transition toward higher-voltage power architectures.

Industrial revenue rose 10% from the second quarter to $467 million, while revenue from other markets increased 11% to $299 million. Automotive remained onsemi’s largest end market at $777 million but declined 1% sequentially.

The company introduced its Embedded Power Platform during the quarter. The platform embeds different types of semiconductor dies within a silicon wafer and is designed to provide three to five times greater power density. Subaru plans to evaluate the platform for future electric vehicles, according to the presentation.

onsemi is also sampling 700-volt and 1,200-volt vertical gallium nitride devices to early-access customers. Volume production is targeted for late 2026, with potential applications spanning AI data centers, electric vehicles, renewable energy, and aerospace and defense systems.

Fourth-quarter outlook points to additional margin expansion

For the fourth quarter of 2026, onsemi expects revenue of $1.715 billion to $1.815 billion, with a midpoint of $1.765 billion. The company projects a non-GAAP gross margin of 41.5% to 43.5%, including a midpoint of 42.5%, and non-GAAP operating expenses of $303 million to $318 million.

Non-GAAP diluted earnings per share are expected to range from $0.95 to $1.07, with a midpoint of $1.01. GAAP diluted EPS is forecast at $0.88 to $1.00, while GAAP gross margin is expected to be 41.4% to 43.4%. Fourth-quarter capital spending is projected at $40 million to $50 million.

The company maintained long-term non-GAAP targets that include revenue growth of 12% to 14% annually through 2030 from a 2025 base of about $6.0 billion. It is targeting a 53% gross margin, a 38% operating margin and a free-cash-flow margin of 30% to 35% by 2030. These figures are targets rather than forecasts of assured performance.

onsemi also said revised terms for its proposed Synaptics merger reduced the purchase price to $5.7 billion from $7 billion. The company expects the transaction to be accretive to earnings per share immediately upon closing.

Capital-allocation priorities include reinvestment in differentiated products, selective acquisitions and returning 100% of free cash flow through share repurchases. The company had $5.3 billion remaining under its existing repurchase authorization as of the third quarter.

The fourth-quarter guidance and longer-term targets remain subject to demand conditions, execution risks and other uncertainties. The company also noted that special items and diluted share counts can vary between periods, while its non-GAAP measures may not be directly comparable with similarly named measures reported by other companies.