ON Semiconductor Corp. (NASDAQ:ON)

The financial performance, as measured by economic profit, exhibits a fluctuating pattern over the five-year period. While net operating profit after taxes (NOPAT) generally increased, economic profit remained negative throughout, indicating that the company’s returns did not exceed its cost of capital until recently, and even then, only marginally.

NOPAT Trend

Net operating profit after taxes demonstrated a decline from 2019 to 2020, followed by substantial growth in 2021 and 2022. This growth continued, albeit at a slower pace, into 2023. The largest increase occurred between 2020 and 2021, suggesting a significant operational improvement or market shift during that period.

Cost of Capital Trend

The cost of capital consistently increased from 2019 to 2022, peaking at 21.62%. A slight decrease was observed in 2023, to 21.21%, but it remained elevated compared to earlier years. This increasing cost of capital presented a challenge to achieving positive economic profit.

Invested Capital Trend

Invested capital showed a steady increase throughout the period, rising from US$6,857,500 in 2019 to US$10,925,400 in 2023. This growth in invested capital, coupled with the increasing cost of capital, contributed to the sustained negative economic profit in the earlier years.

Economic Profit Trend

Economic profit was negative in all years examined, although the magnitude of the loss decreased over time. The largest losses occurred in 2019 and 2020. While the losses diminished in 2021 and 2022, they remained substantial. In 2023, the economic profit loss was the lowest of the period, at -US$243,444, indicating a narrowing gap between returns and the cost of capital. The trend suggests improving efficiency or profitability relative to capital employed, but the company still did not generate returns exceeding its cost of capital.

The consistent negative economic profit highlights a potential need to evaluate capital allocation strategies and operational efficiency. While NOPAT has increased, the rising cost of capital and growing invested capital base have offset these gains. The slight improvement in economic profit in 2023 warrants further investigation to determine if this trend will continue.

Net income attributable to ON Semiconductor Corporation

The net income shows a consistent upward trend over the five-year period. Starting from approximately 211.7 million US dollars in 2019, it increased modestly to 234.2 million in 2020. A significant jump occurred in 2021, with net income more than quadrupling to around 1.009 billion. This strong growth continued through 2022 and 2023, reaching about 1.902 billion and 2.184 billion US dollars respectively, indicating robust profitability improvement and operational performance over time.

Net operating profit after taxes (NOPAT)

NOPAT values display some fluctuations initially but then show a marked increase from 2021 onward. In 2019, NOPAT was approximately 340.6 million US dollars but declined to 262.8 million in 2020. Starting 2021, there was a substantial rise to around 1.214 billion US dollars. The upward trajectory continued into 2022 and 2023 with NOPAT reaching roughly 1.992 billion and 2.074 billion US dollars respectively. This pattern suggests improved operational efficiency and effective tax management contributing to growing operating profitability.

The financial data reveals notable fluctuations in both the provision for income taxes and cash operating taxes over the five-year period ending December 31, 2023.

Provision (benefit) for income taxes

This item shows significant volatility throughout the periods. In 2019, the provision was a positive value of 62,700 thousand US dollars, indicating income tax expense recognition for that year. In 2020, there was a reversal to a tax benefit of 59,800 thousand US dollars, suggesting the company recognized a tax benefit rather than an expense. Following this, 2021 experienced a sharp increase in tax provision to 146,600 thousand US dollars, more than doubling the 2019 figure. The upward trend continued markedly in 2022, reaching 458,400 thousand US dollars, the highest in the period under review. In 2023, the provision decreased somewhat to 350,200 thousand US dollars, although it remained substantially higher than the values reported in 2019 through 2021.

Cash operating taxes

Cash operating taxes demonstrate an overall increasing trend over the five years. Beginning at 79,994 thousand US dollars in 2019, the amount increased modestly to 90,557 thousand US dollars in 2020. In 2021, there was a slight decline to 84,769 thousand US dollars. However, a pronounced upward shift occurred in 2022, with cash operating taxes escalating dramatically to 457,073 thousand US dollars. This elevated level sustained into 2023 with a further slight increase to 470,018 thousand US dollars.

In summary, both the provision for income taxes and cash operating taxes experienced considerable growth from 2021 onwards, with particularly sharp increases in 2022 and 2023. The provision for income taxes fluctuated between an expense and a benefit in the early years but settled into a notably higher expense level in later years. The cash operating taxes overall trend upward, with a pronounced rise starting in 2022, possibly aligning with the increases in the provision for income taxes, indicating higher taxable income or changes in tax positions and payments during those years.

Total Reported Debt & Leases

The total reported debt and leases showed a decreasing trend from 3,726,500 thousand USD at the end of 2019 to 3,272,400 thousand USD at the end of 2021. However, this downward trend reversed in the subsequent years, increasing to 3,512,400 thousand USD in 2022 and further to 3,623,800 thousand USD in 2023. Overall, the debt levels exhibit a moderate fluctuation with a reduction phase followed by a gradual increase.

Total ON Semiconductor Corporation Stockholders’ Equity

Stockholders' equity demonstrated consistent and considerable growth over the five-year period. Starting at 3,301,700 thousand USD in 2019, equity increased steadily each year, reaching 7,782,600 thousand USD by 2023. This reflects strong capital accumulation and possibly retained earnings or equity issuances that enhanced the company's net worth significantly over time.

Invested Capital

Invested capital showed a gradual upward trajectory throughout the period. Beginning at 6,857,500 thousand USD in 2019, it remained relatively stable through 2020 but increased notably to 7,560,500 thousand USD in 2021, followed by a sharper rise to 9,371,400 thousand USD in 2022 and 10,925,400 thousand USD in 2023. This trend indicates increasing investment in the company's operational assets, which may support business growth and expansion activities.

The economic spread ratio exhibited a notable improvement over the observed period, though remained negative throughout. Initially, the ratio demonstrated a substantial decline, followed by a period of stabilization and then a gradual worsening trend towards the end of the period.

Economic Spread Ratio Trend

In 2019, the economic spread ratio was -11.89%. This figure deteriorated to -15.76% in 2020, representing the lowest point in the observed timeframe. A significant positive shift occurred in 2021, with the ratio improving to -4.60%. The improvement continued in 2022, reaching -0.37%, the closest the ratio came to positive territory. However, in 2023, the ratio moved back towards negative values, settling at -2.23%.

The invested capital consistently increased throughout the period. This growth in invested capital occurred alongside fluctuating economic profit, ultimately influencing the economic spread ratio.

Invested Capital Trend

Invested capital began at US$6,857,500 thousand in 2019 and experienced modest growth to US$6,889,500 thousand in 2020. A more substantial increase was observed in 2021, reaching US$7,560,500 thousand. Further growth continued in 2022 and 2023, with invested capital reaching US$9,371,400 thousand and US$10,925,400 thousand respectively.

Economic profit, while remaining negative across all years, showed a pattern of improvement followed by a return to negative performance. The magnitude of the negative economic profit decreased significantly between 2020 and 2022, before increasing again in 2023.

Economic Profit Trend

Economic profit started at -US$815,582 thousand in 2019 and worsened to -US$1,085,941 thousand in 2020. A considerable improvement was seen in 2021, with economic profit reaching -US$347,804 thousand. This positive trend continued in 2022, with economic profit at -US$34,296 thousand. However, in 2023, economic profit decreased to -US$243,444 thousand.

The interplay between increasing invested capital and fluctuating economic profit resulted in the observed trend in the economic spread ratio. While the ratio improved significantly from 2020 to 2022, the return to negative economic profit in 2023 caused a corresponding decline in the ratio.

The economic profit margin exhibited a consistent, though moderating, negative trend over the five-year period. Initially, substantial economic losses were recorded, which diminished in magnitude over time, though remaining negative throughout the analyzed timeframe.

Economic Profit Margin Trend

In 2019, the economic profit margin stood at -14.78%. This represented the most substantial negative margin observed during the period. A worsening of economic performance is indicated by the decline to -20.66% in 2020. A significant improvement occurred in 2021, with the margin increasing to -5.16%, suggesting a reduction in the scale of economic loss. The margin continued to improve in 2022, reaching -0.41%, indicating near break-even economic performance. However, the margin slightly deteriorated in 2023, settling at -2.95%, suggesting a modest return to economic loss.

The economic profit itself mirrored this trend. While the absolute value of the economic loss decreased from 2020 to 2023, it remained a negative figure, indicating that the company’s returns did not exceed its cost of capital throughout the period. The largest economic loss occurred in 2020, at -1,085,941 US$ in thousands, while the smallest occurred in 2023, at -243,444 US$ in thousands.

Revenue Relationship

Revenue increased from 2019 to 2022, rising from 5,517,900 US$ in thousands to 8,326,200 US$ in thousands. This revenue growth coincided with the improvement in the economic profit margin. However, revenue experienced a slight decrease in 2023, falling to 8,253,000 US$ in thousands, which corresponded with a slight worsening of the economic profit margin.

The observed pattern suggests a correlation between revenue growth and economic profit margin improvement. While the company has not yet achieved positive economic profit, the trend indicates a move in that direction, although the 2023 results suggest this improvement may be sensitive to revenue fluctuations.