onsemi's Divestitures Strengthen Fab Right Strategy: Here's How
ON Semiconductor ON or onsemi recently announced an agreement to divest its Tarlac, Philippines, manufacturing facility to Greatek Electronics and its Mountain Top, PA, facility to Silex Microsystems. Management said these actions are designed to optimize onsemi’s manufacturing footprint, direct investments toward the most scalable and competitive fabs, and improve long-term manufacturing economics. Importantly, both transactions include structured transition plans and long-term supply agreements, ensuring uninterrupted customer deliveries while production is gradually transferred across onsemi's remaining network. ON expects these divestitures to generate approximately $35 million in annual cost savings, with benefits beginning in 2027 and fully realized in 2028.
onsemi’s latest divestitures reinforce the company’s Fab Right manufacturing strategy by reducing exposure to less competitive manufacturing assets and concentrating production in higher-efficiency, technology-aligned facilities. Rather than simply shrinking its footprint, onsemi is reshaping its manufacturing network to improve utilization, lower structural costs and support higher-margin products in AI data centers, automotive and industrial markets. Combined with rising AI-related demand and a richer product mix, these initiatives should support more durable gross-margin expansion and stronger long-term profitability.
The latest divestitures are a natural extension of the Fab Right strategy that ON management has emphasized throughout 2026. On the first-quarter earnings call, onsemi highlighted that structural manufacturing changes have already contributed to three consecutive quarters of gross-margin expansion, with non-GAAP gross margin improving to 38.5% despite a challenging demand environment. The company guided for sequential gross-margin expansion through the remainder of 2026, citing ongoing Fab Right initiatives, improved factory utilization and a leaner manufacturing model.
The strategy also complements onsemi’s portfolio transformation. The company has been exiting lower-value products, prioritizing differentiated power and sensing solutions and investing in AI data center power, silicon carbide, gallium nitride, automotive electrification and intelligent sensing. The company’s management has noted that improving backlog visibility, healthier bookings and expanding AI data center demand are allowing onsemi to better leverage its manufacturing base. In the first quarter of 2026, AI data center revenues grew more than 30% sequentially, which the company expects to double year over year in 2026.
ON Faces Tough Competition
onsemi is facing significant competition from the likes of Texas Instruments TXN and Navitas Semiconductor NVTS.
Texas Instruments challenges onsemi primarily through scale and manufacturing efficiency. TXN’s $20 billion-plus 300mm capacity buildout, internalization of wafers, shutdown of older 6-inch fabs and rising utilization give it a structurally lower-cost model. Texas Instruments said first-quarter gross margin reached 58%, up 210 basis points (bps) sequentially and 120 bps year over year and implied further improvement as revenue growth, lower capital expenditure intensity and internal wafer production flow through. These factors allow TXN to compete aggressively in analog, embedded, power and data-center sockets while still operating at a far higher margin base.
Navitas is targeting high-power GaN and high-voltage SiC in AI data centers, grid infrastructure, performance computing and industrial electrification. Management said high-power revenues grew strongly, mix is shifting away from mobile, and gross margin improved to 39% (90 bps year over year and 30 bps sequentially) in the first quarter of 2026, with further gradual expansion expected through 2026. Navitas believes that focusing on high-power applications can gradually improve profitability over time because these markets typically carry better pricing and stronger long-term demand visibility.
ON’s Share Price Performance, Valuation & Estimates
Shares of onsemi have appreciated 68.2% year to date, outperforming the broader Zacks Computer and Technology sector’s rise of 16.6%.
ON Stock Outperforms Sector
Image Source: Zacks Investment Research
The ON Semiconductor stock is trading at a premium, with a forward 12-month price/earnings of 24.32X, higher than the median of 19.6X. ON has a Value Score of D.
ON’s Valuation
Image Source: Zacks Investment Research
The Zacks Consensus Estimate for ON’s 2026 earnings is currently pegged at $3.09 per share, unchanged over the past 30 days, suggesting 31.5% growth from the 2025 reported figure.
ON Semiconductor Corporation Price and Consensus
ON Semiconductor Corporation price-consensus-chart | ON Semiconductor Corporation Quote
On Semiconductor currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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