ON Semiconductor Corp. (NASDAQ:ON)

Inventory Turnover

Inventory turnover exhibited a gradual decline over the analyzed period, starting at 2.83 and decreasing steadily to 2.02 by the last reported quarter. This downward trend indicates a slower rate of inventory movement, suggesting potential challenges in inventory management or shifting demand patterns.

Receivables Turnover

Receivables turnover showed fluctuations throughout the period but remained generally stable, beginning at 8.3 and ending higher at 9.34. Peaks and troughs were observed with a notable dip to 6.69 mid-period and recovery afterward, suggesting variable efficiency in collection practices but an overall improvement towards the end.

Payables Turnover

Payables turnover demonstrated a decline initially from 7.04 to a low of 4.41, indicating increased payment periods to suppliers or extended credit terms. However, a rebound was apparent in the final quarters, rising to 6.51, which reflects a normalization or potential tightening of payment policies.

Working Capital Turnover

Working capital turnover peaked early in the observed timeline, reaching 3.75, but gradually declined to 2.03 at the end of the period. This trend suggests diminishing efficiency in using working capital to generate sales or revenue-generating activities over time.

Average Inventory Processing Period

The average inventory processing period lengthened significantly from 129 days to 181 days, indicating a slowdown in inventory clearance and possibly increased holding costs. The trend aligns with the decrease in inventory turnover ratio and points to potential excess inventory or slower sales.

Average Receivable Collection Period

The average receivable collection period fluctuated moderately between 39 and 55 days, ending closer to 39 days. Despite some volatility, the near-term reduction indicates improved efficiency in collecting receivables compared to earlier quarters.

Operating Cycle

The operating cycle extended from 173 days to 220 days, reflecting an overall lengthening of the time taken to convert inventory and receivables into cash. This increase is attributable to slower inventory movement combined with variable receivable periods.

Average Payables Payment Period

The average payables payment period increased from 52 to a peak of 83 days, before declining again to 56 days toward the end. Extending payables payment period early on may have been a strategic move to improve cash flow, with subsequent reduction indicating a shift toward quicker payments.

Cash Conversion Cycle

The cash conversion cycle fluctuated but showed an increasing trend from 121 days to 164 days, indicating a lengthening time between cash outflow for inventory and cash inflow from receivables. This lengthening may point to increased working capital requirements and potential liquidity impacts.

The analysis of the quarterly financial data reveals several significant trends and shifts in key operational metrics over the observed periods.

Cost of Revenue

The cost of revenue exhibits fluctuations within a relatively stable range throughout the quarters. Starting from approximately 875 million USD in early 2020, the cost increases toward the end of 2020 and early 2021, peaking around the first quarter of 2022 with values exceeding 1.13 billion USD. Following this peak, the cost of revenue shows a cyclical pattern with moderate decreases and subsequent increases, reaching just above 1.15 billion USD by late 2023 before declining again to around 1.01 billion USD in early 2024. This pattern suggests operational adjustments or varying production costs aligned with market demand or supply chain factors.

Inventories

Inventories show a consistent upward trajectory throughout the examined periods. Beginning at approximately 1.25 billion USD in early 2020, the inventory levels steadily increase each quarter, reaching over 2.1 billion USD by early 2024. This sustained rise in inventory indicates an accumulation of stock, which may reflect anticipation of increased sales, slower inventory turnover, or challenges in inventory management.

Inventory Turnover

The inventory turnover ratio demonstrates a declining trend over time. Initially, the ratio fluctuated around 2.7 to 2.9 in 2020 and 2021, suggesting relatively efficient inventory management with the inventory turning over almost three times a year. However, starting in 2022, the ratio gradually decreases from approximately 2.7 to 2.6 and continues downward, reaching near 2.0 by early 2024. This decline in turnover ratio indicates that inventory is being held longer before sale, potentially due to slower sales velocity or increased stock levels outpacing sales growth.

Overall, the trends illustrate a scenario where the company’s cost base related to revenue remains somewhat variable but within a set range, while inventory levels grow substantially. The declining inventory turnover ratio raises considerations on inventory management efficiency and possible impacts on working capital. These patterns may necessitate a review of inventory procurement and sales strategies to optimize asset utilization and reduce holding costs.

Revenue Trends

Over the analyzed periods, the revenue shows an overall upward trend from early 2020 to the end of 2022, increasing from approximately $1.28 billion in April 2020 to a peak of over $2.19 billion in September 2022. Following this peak, there is a noticeable decline through to March 2024, with revenue decreasing to approximately $1.86 billion. The growth phase encompasses gradual increases that accelerate during 2021 and early 2022. The subsequent decline starting late 2022 and continuing into 2023 and early 2024 suggests a possible market contraction or other adverse factors affecting sales.

Receivables, Net

Net receivables have exhibited a general rising trend from $652 million in April 2020 to a high of about $1.14 billion in July 2022, reflecting increased credit sales or extended payment terms coinciding with the revenue growth. After this peak, net receivables decreased, reaching approximately $873 million by March 2024. This pattern aligns somewhat with the revenue trend, suggesting a correlation between sales volumes and receivables balances.

Receivables Turnover Ratio

The receivables turnover ratio displays some variability across the periods. Initially, it declined from 8.3 in April 2020 to a low of 6.69 in July 2022, indicating slower collection efficiency or longer credit terms despite growing receivables and revenues. Subsequently, the ratio improved markedly, peaking at around 9.89 in December 2022 and remaining relatively stable near this level through March 2024. This improvement in turnover ratio amidst declining revenue and receivables suggests enhanced collection efforts or stricter credit policies during the later periods.

Summary

The data reflect a growth phase in revenue and net receivables through 2021 and into 2022, followed by a contraction starting late 2022. Receivables turnover initially worsened during revenue growth but improved substantially after mid-2022, indicating operational adjustments in credit management or cash collection. Overall, the patterns suggest the company experienced expanding sales and resulting credit exposure, followed by strategic measures to improve receivables management in a period of declining sales.

Cost of Revenue

The cost of revenue exhibits a fluctuating pattern with an overall increasing trend from April 2020 to the end of June 2023, peaking multiple times and showing some variability each quarter. Initially, costs rose steadily from approximately $875 million in April 2020 to over $1 billion by mid-2021. Subsequently, the cost figures remained roughly within a range between $980 million and $1.15 billion until end of 2023, before declining slightly to about $1.01 billion in March 2024. This suggests periods of cost pressure but with some moderation in recent quarters.

Accounts Payable

Accounts payable values demonstrate a generally increasing trend from April 2020 through March 2023, rising from roughly $504 million to nearly $1 billion. This growth indicates an expansion in trade credit or suppliers' financing over this period. However, starting from the quarter ending December 2023, accounts payable significantly declined to approximately $666 million by March 2024. This sharp decrease could denote improved payment cycles or reduced procurement activity in recent quarters.

Payables Turnover Ratio

The payables turnover ratio declined steadily from a high of 7.04 in April 2020 to a low of 4.41 in March 2023, reflecting a slower rate of settling payables relative to cost of goods sold. This reduction indicates a lengthening in the payment period, possibly reflecting more favorable credit terms or cash management strategies. However, from March 2023 onwards, the ratio reversed course and rose markedly to 6.51 by March 2024. This improvement points to faster payment to suppliers in the latest quarters, aligning with the observed drop in accounts payable balances.

Overall Analysis

The interplay between cost of revenue, accounts payable, and payables turnover reveals shifts in the company’s working capital management and cost structure. While costs fluctuated, accounts payable increased substantially for several years before declining sharply in the last few quarters. Correspondingly, the payables turnover ratio's recent increase confirms a shift towards quicker payments. This may signify enhanced liquidity management or changes in supplier agreements. The data suggests a strategic adjustment in financial policies affecting supplier payments and inventory purchasing over time.

The analysis of the quarterly financial data reveals several noteworthy trends in working capital, revenue, and working capital turnover over the period presented.

Working Capital

Working capital showed an initial decline from approximately 2.3 billion to 1.5 billion US dollars between early 2020 and the end of 2020. Starting in 2021, working capital increased steadily, reaching a peak of about 3.7 billion at the end of 2023 and further rising to about 4.0 billion by the first quarter of 2024. This upward trend indicates an improving liquidity position over the later periods.

Revenue

Revenue exhibited some fluctuations within the timeframe. Early 2020 to early 2021 saw moderate growth, peaking near 1.85 billion in the fourth quarter of 2021. Subsequent quarters into 2022 experienced further revenue growth, reaching a high of around 2.2 billion in the third quarter of 2022. However, from late 2022 through the first quarter of 2024, revenue showed variability and a general decline, falling to approximately 1.86 billion by the last quarter reported. This pattern suggests challenges in sustaining revenue growth during the recent quarters despite earlier increases.

Working Capital Turnover

The working capital turnover ratio, reflecting how efficiently working capital is used to generate sales, displayed notable volatility. It peaked at 3.75 in early 2021, indicating efficient use of working capital at that time. Following this, there was a gradual decline to near 2.0 by the first quarter of 2024, reflecting decreased efficiency in converting working capital into revenue. The declining ratio alongside increasing working capital suggests that the company held more capital relative to the revenue generated, possibly indicating a buildup in inventory, receivables, or other working capital components.

Overall, there is a clear improvement in working capital levels over the period, but revenue growth has been uneven with a recent downward trend. The decreasing working capital turnover ratio in recent quarters points to a reduction in operational efficiency regarding the deployment of working capital in generating revenue. Management may need to investigate the components of working capital to identify potential inefficiencies or changes in operational strategy impacting financial performance.

The company’s inventory management metrics demonstrate notable trends over the observed periods. The inventory turnover ratio, which indicates how frequently inventory is sold and replaced over a period, exhibits a declining trajectory. Starting at 2.83 in early April 2020, the ratio experienced slight fluctuations but generally trended downward to reach 2.02 by the end of March 2024. This reduction signifies a slower rate of inventory turnover, potentially implying increased inventory levels relative to sales or slower sales velocity.

Correspondingly, the average inventory processing period, which reflects the average number of days inventory is held before being sold, shows a clear rising trend over the same timeframe. Initially at 129 days in April 2020, the processing period saw some variability but increased steadily, especially from early 2022 onward, culminating at 181 days by March 2024. This increase indicates that inventory items are being held for longer durations before sale, reinforcing the observation of reduced inventory turnover.

The inverse relationship between these two key indicators is consistent with typical inventory dynamics; as the turnover ratio decreases, the days inventory remains on hand increases. The extended processing period could point to various underlying factors such as changes in demand, supply chain disruptions, altered production schedules, or strategic shifts in inventory policy.

Overall, the data suggests a gradual decline in inventory efficiency. This trend should be further investigated to identify drivers behind slower inventory movement and longer holding periods, as these factors can impact working capital requirements and operational liquidity.

Receivables Turnover Ratio

The receivables turnover ratio shows a fluctuation over the observed periods. It started at 8.3 and generally decreased to a low point of 6.69 by July 1, 2022, indicating a slower collection of receivables during that time. After this decline, the ratio improved significantly, reaching 9.89 by December 31, 2022. Subsequently, it experienced a slight decline but remained relatively high, ending at 9.34 by March 29, 2024. This pattern suggests variability in the efficiency of the company’s credit and collection processes, with a notable recovery in turnover during late 2022 and stabilization at a higher level through early 2024.

Average Receivable Collection Period

The average receivable collection period generally exhibits an inverse relationship with the receivables turnover ratio, as expected. It began at 44 days and increased gradually, peaking at 55 days by July 1, 2022. This increase reflects slower collection of accounts receivable, implying potential challenges in cash flow management during that period. Following this peak, the collection period shortened sharply to 37 days by September 30, 2022, aligning with the improvement in the turnover ratio. The collection period then fluctuated slightly but remained below the earlier peak, ending at 39 days by March 29, 2024. This trend indicates an overall improvement in the company's receivables management and collection efficiency in recent quarters.

Overall Analysis

The data reveals that the company experienced some efficiency challenges in managing its accounts receivable, particularly around mid-2022, as evidenced by a reduced receivables turnover ratio and increased collection period. However, from late 2022 onward, the company improved its collections process, resulting in better turnover ratios and shorter collection periods. This improvement likely contributed positively to working capital management and cash flow. The fluctuations suggest that while the company has made progress, ongoing attention to receivables management is important to maintain the efficiency gains achieved.

The analysis of the quarterly financial data reveals several key trends relating to the company's working capital management over the observed periods.

Average Inventory Processing Period

The average inventory processing period exhibits a general upward trend. Starting at 129 days in early April 2020, it shows minor fluctuations initially but gradually increases overall. By March 2024, the period reaches 181 days, indicating that inventory is being held longer over time. This trend may suggest either slower inventory turnover or strategic stockpiling, necessitating a closer review of inventory management efficiency and demand forecasting.

Average Receivable Collection Period

The average receivable collection period remains relatively stable with some variability across quarters. It began near 44 days in April 2020, peaked at 55 days in July 2022, and subsequently trended slightly downward to 39 days by March 2024. This fluctuation suggests some challenges in collections during mid-2022 but an improvement in the subsequent quarters, reflecting potentially enhanced credit control practices or changes in customer payment behaviors.

Operating Cycle

The operating cycle, which combines inventory processing and receivables collection periods, shows an increasing trajectory. From 173 days in April 2020, it increases with fluctuations to reach 220 days by March 2024. The growth in the operating cycle, driven primarily by the lengthening inventory processing period, indicates a longer cash conversion cycle. This could affect the company's liquidity and working capital requirements, signaling a need for management to focus on reducing cycle duration to optimize cash flow.

Payables Turnover

The payables turnover ratio shows a general declining trend from April 2020 through December 2022, decreasing from 7.04 to a low of 4.99. This indicates that the company was paying its suppliers less frequently over this period. However, starting in March 2023, the ratio shows some recovery, increasing from 4.41 to 6.51 by March 2024, suggesting an improvement in the frequency of payables turnover.

Average Payables Payment Period

Conversely, the average payables payment period has generally increased over the same duration from 52 days in April 2020 to a peak of 83 days in March 2023. This trend implies that the company was taking more time to settle its payables. After reaching this peak, the payment period shortened significantly to 56 days by March 2024, aligning with the improved payables turnover ratio.

Overall Insights

The trends in these two metrics are inversely related, which is typical given their mathematical relationship. The initial trend from 2020 through early 2023 suggests a strategic decision or operational reality whereby the company extended its payment terms, potentially to preserve cash or manage working capital more conservatively. The reversal starting in 2023 signals a shift toward faster payment cycles, which could reflect changes in supplier relationships, cash flow improvements, or shifts in company policy toward managing its payables.

Inventory Processing Period

The average inventory processing period generally increased over the observed time frame. Starting at 129 days in early April 2020, it fluctuated slightly around the low 130s until early 2022. Thereafter, a noticeable upward trend occurred, reaching a peak of 181 days by late March 2024. This indicates a lengthening of the time inventory remains on hand before processing, potentially reflecting slower inventory turnover or changes in production and supply chain dynamics.

Receivable Collection Period

The average receivable collection period exhibited variability but remained within a relatively narrow range. Beginning at 44 days in April 2020, it peaked at 55 days in mid-2022, indicating a temporary slowdown in the collection of receivables. However, since then, the period shortened slightly, falling to 39 days by March 2024. This suggests some improvement in the efficiency of collecting customer payments in the most recent quarters.

Payables Payment Period

The average payables payment period showed significant fluctuations. Starting at 52 days in April 2020, it generally increased, peaking midway through 2023 at 83 days, indicating that the company took longer to pay its suppliers during that period. Towards the end of the series, the payment period contracted notably to 56 days by March 2024, reflecting a quicker settlement of payables in the final quarter compared to the peak period.

Cash Conversion Cycle

The cash conversion cycle (CCC), representing the net days to convert inventory and receivables into cash while accounting for payables, exhibited a dynamic pattern. Initially around 121 days in April 2020, the CCC saw a decline to approximately 103 days by the end of 2022, implying improved working capital efficiency. However, starting in early 2023, the cycle lengthened considerably, reaching 164 days by March 2024. This elongation is largely attributable to the rising inventory processing period and a slight increase in receivable days, partially offset by a reduction in payables payment days.

Overall Insights

The data reflect shifts in working capital management over the analyzed quarters. The increasing inventory processing period toward the end suggests potential challenges in inventory turnover or shifts in demand and supply conditions. Receivable collection efficiency appears relatively stable with minor recent improvements. The payables payment period showed strategic lengthening mid-term, possibly to conserve cash, followed by more prompt payments later. The combined effect on the cash conversion cycle indicates an initial improvement until late 2022, followed by a deterioration linked mainly to inventory and receivables trends, which may warrant attention to improve liquidity management.