SAN FRANCISCO—JP Morgan analyst Christopher Danely Thursday (Feb. 9) raised his firm's estimates for ON Semiconductor Corp.'s 2012 sales and earnings, one day after the company reported better-than-expected results for the fourth quarter of 2011 due to lower-than-expected impact from the company closing three test and assembly facilities in Thailand in the wake of flooding there last year.
Danely reiterated JP Morgan's "overweight" rating on ON Semi's stock and raised its estimates for the company's 2012 sales to $3.15 billion from $2.98 billion. Danely also raised JP Morgan's 2013 estimate for ON Semi sales to $3.32 billion from $3.15 billion.
"The main reason we are overweight ON Semi is we believe it has the highest leverage in our coverage universe and our C13 estimates are increasing almost 100," Danely wrote in a report circulated Thursday. "We believe further upside to estimates is likely and as a result, we reiterate our overweight rating."
ON Semi (Phoenix) reported fourth quarter sales of $767.9 million, down 14 percent from the previous quarter but up 33 percent compared to the fourth quarter of 2010. The company reported a quarterly net loss of 7.4 million, compared to a net loss of $49 million in the previous quarter and a net income of $61.2 million in the fourth quarter of 2010.
The company's bottom line was impacted by a $67.2 million write down primarily due to the Thailand flood and charges associated with a convertible debt exchange. Last year, ON Semi decided not to restore production at two of its three Thai test and assembly facilities that were damaged by flooding.
"Given the severity of damage to our internal manufacturing facilities in Thailand, we made the decision to migrate our internal production out of Thailand and into other locations within our global internal and external manufacturing network," said Keith Jackson, ON Semi's president and CEO, in a conference call with analysts following ON Semi's quarterly report Wednesday. "The migration and ramping of production capacity at our other locations is progressing very well, thanks to the tremendous efforts of our team."
For the full year 2011, ON Semi reported record sales of $3.44 billion, up 49 percent from 2010. The company reported a net income for the year of $11.6 million, or 3 cents per share, which was weighted down by charges of $383.5 million.
"With the whole supply chain likely to end inventory de-stocking, and eventually transition to inventory re-stocking as lead times slowly begin to extend, we could envision this happening within two quarters' time, helping investors justify upside toward $12," said Craig Berger, an analyst with FBR Capital Markets, in a report circulated Thursday. Berger said ON Semi's customer patterns are improving, with lead times as low as six weeks, and that distribution inventory declined 6 percent in the fourth quarter compared to the third. But chip prices also fell 2 to 3 percent sequentially for the second consecutive quarter, Berger said, reflecting worse price pressure due to market softness and annual pricing resets.
Berger raised his rating on ON Semi's stock to "outperform" and the price target to $12 from $11. ON Semi's stock traded at $9.75 in early afternoon trading Thursday, up 7 percent from Wednesday's close.
Jackson described 2011 as a "transformational year" for the company, including the acquisitions of Sanyo Semiconductor and Cypress Semiconductor Corp.'s CMOS image sensor business unit. "After a challenging second half of 2011 for the industry and ON Semiconductor, we believe that the first quarter of 2012 represents the bottom of the current semiconductor cycle," Jackson said.
ON Semi said it expects first quarter sales to decline to between $720 million and $760 million. "Backlog levels for the first quarter of 2012 represent approximately 80 to 85 percent of our anticipated first quarter 2012 revenues," Jackson said. "We expect that average selling prices for the first quarter of 2012 will be down approximately two to three percent when compared to the fourth quarter of 2011."
Danely said ON Semi's fourth quarter results and first quarter guidance exceeded JP Morgan's estimates and consensus analysts' estimates.