ON SEMICONDUCTOR CORP (ON) stock intrinsic value fair value estimate & owner earnings analysis

onsemi (ON Semiconductor) designs and manufactures power and sensing semiconductors used mainly in vehicles and industrial equipment — power management chips, image sensors, and increasingly, silicon-carbide (SiC) components for electric-vehicle powertrains. About 51% of revenue comes from automotive customers and 28% from industrial customers, so the business moves with the capital-spending and inventory cycles in those two end markets. What happened in 2025. After a strong 2021-2023 run (driven by the industry-wide chip shortage and the EV boom), automotive and industrial customers spent 2024 and 2025 working down excess inventory, and onsemi's revenue fell from $8.3 billion (2023) to $7.1 billion (2024) to $6.0 billion (2025). The company responded with a major cost-cutting and fab-consolidation effort — the 2025 Manufacturing Realignment Program — which closed and downsized manufacturing capacity. That produced a large non-cash write-down of plant and equipment ($496 million) plus severance and inventory charges, which is why reported net income cratered to $124 million in 2025 from $1.6 billion in 2024. Importantly, this was a one-time cost of resizing the factory footprint, not a sign of an ongoing decline in earning power — and it came with a real benefit: capital spending needed to run the business has dropped sharply (roughly $341 million in 2025, and lower still in the first half of 2026), and the smaller, better-utilized manufacturing base should produce fatter margins once volumes return. What we did with the numbers. We measure owner earnings — cash the business throws off after the reinvestment needed just to stay in place — rather than reported accounting profit, because reported profit was distorted this year by that one-time write-down. On that basis, 2025's owner earnings were about $1.90 per share, in line with the company's typical level across a full business cycle (2017-2025 median of $1.92/share), even though the accounting profit looked terrible. We treated the plant write-down and related restructuring charges as the kind of non-cash, cycle-related item that belongs in how we think about the future path of earnings, not as a permanent hit to today's level. The first half of 2026 matters. The most recently filed results (through the second quarter of 2026) show two straight quarters of sequential revenue and profit improvement from the 2025 low point — real, filed evidence that the destocking cycle is turning, which is why our base case assumes 2026 comes in modestly above 2025's level rather than assuming the decline continues. The three cases: Bear ($26.80/share): The 2026 recovery stalls and a further leg down follows — plausible given the customer concentration disclosed in the filings (a single customer accounts for roughly 10-11% of revenue) and the fact that onsemi has now run two restructuring programs in two years, suggesting management itself sees the downturn as deeper than first thought. Owner earnings drift down toward roughly $1.35/share at a second trough before stabilizing modestly below the long-run average for the following decade. Base ($52.00/share): The recovery already visible in the first half of 2026 continues at a measured pace, helped by $7.1 billion of contracted, multi-year customer supply commitments on the books at year-end 2025 and by the operating leverage from the smaller, right-sized factory footprint. Owner earnings grow from about $2.10/share in 2026 toward the $3.00-3.35/share range by year ten, consistent with — but not exceeding — the company's prior mid-cycle levels, with a modest cyclical dip built in along the way because this industry does not grow in a straight line. Bull ($71.10/share): The auto/industrial capital-spending cycle turns up more fully, and onsemi's SiC business (bolstered by its January 2025 acquisition of Qorvo's silicon-carbide transistor technology) scales as EV powertrain content grows. Owner earnings approach the prior 2022-2023 peak (around $4.20-4.60/share) by mid-decade and hold near that level. Beyond year ten, we assumed each case simply continues at its year-ten run rate rather than assuming further growth — onsemi's position as a qualified, multi-year supplier to automakers is a durable advantage, but we didn't have specific, dated evidence of growth drivers reaching past the current contracted horizon, so we didn't build any additional growth into the far future. What we'd want to see go right (or wrong). The base case assumes the recovery seen in the first two quarters of 2026 keeps building rather than reversing, and that the multi-year supply-agreement backlog converts into actual shipments and revenue rather than being renegotiated down (something the company's own filings note customers have sought before). A reader who wants to sanity-check this over time should watch whether revenue keeps recovering quarter over quarter and whether gross margins recover toward pre-2025 levels as the fabs run fuller. The margin-of-safety price. Given the roughly even split between what the business could be worth in a weak outcome versus the median case, the margin-of-safety price is about $34.90/share, set with the weaker outcomes in view in case the recovery disappoints.