According to Reuters, chip manufacturer ON Semiconductor expects a weak performance in the fourth quarter of this year and plans to lay off around 900 employees. This has raised concerns in the industry that the slowdown in demand for electric vehicles is beginning to impact the automotive sector's demand for ON Semiconductor's chips. On October 30th, the company's stock price plummeted by 18.3%.
The company provides chips for electric vehicle transmission systems and products for driver assistance systems like cameras and sensors, with customers including European automaker Volkswagen.
ON Semiconductor CEO Hassane El-Khoury, during a conference call after the financial report, stated, "We're beginning to see softness in some regions, with European Tier 1 suppliers working through inventory, and the risks associated with automotive demand are increasing due to higher interest rates." Elon Musk, CEO of Tesla, has also expressed concerns about the impact of higher interest rates on consumer car-buying decisions. Previously, the world's most valuable automaker failed to meet revenue expectations.
ON Semiconductor expects fourth-quarter revenue to be in the range of $1.95 billion to $2.05 billion, falling short of the expected $2.18 billion. Adjusted diluted earnings per share are projected to be between $1.13 and $1.27, below the analysts' average estimate of $1.36. In the third quarter, the company reported revenue of $2.18 billion, slightly above the expected $2.15 billion, with adjusted earnings per share of $1.39, surpassing the expected $1.34.
So far this year, the company has already laid off 1,360 employees. El-Khoury mentioned in an interview that the company still anticipates growing demand for electric vehicles but at a slower pace. The announced layoffs are part of the company's broader strategic shift to internally produce higher-margin chips and save costs by outsourcing other chips.
Summit Insights Group analyst Kinngai Chan has downgraded the company's stock rating from buy to hold. "Our industry checks show continued deterioration in order rates for the automotive and industrial end markets."
