ON Semiconductor Corporation (ON): 5 FORCES Analysis [Nov-2025 Updated]

You're looking to map out your 2026 strategy for ON Semiconductor, and honestly, the competitive landscape as of late 2025 is a real mixed bag. While the industry is pouring a massive $185 billion into capital expenditures this year, suggesting high barriers for new players, ON Semiconductor's core intelligent power and sensing business is feeling the pinch from cyclical demand, evidenced by that Q1 2025 automotive revenue drop you saw. The rivalry is fierce, particularly in the high-stakes Silicon Carbide (SiC) arena where pricing is getting squeezed, even as the company works through inventory digestion challenges that saw Q3 revenue land at $1.55 billion. Let's break down exactly how these five forces-from supplier concentration to customer leverage-are shaping the near-term risk and opportunity profile for ON Semiconductor right now.

ON Semiconductor Corporation (ON) - Porter's Five Forces: Bargaining power of suppliers

You're looking at ON Semiconductor Corporation's supplier landscape as of late 2025, and honestly, the power held by key material providers is a significant factor in their operational costs and strategic flexibility. The semiconductor industry, by its nature, relies on highly specialized inputs, which naturally tips the scales toward the suppliers.

The raw material market for silicon wafers, the foundational element for most chips, shows clear signs of concentration. While I can't confirm the exact 85% control figure you mentioned for late 2025, we know the 300mm (12-inch) wafer segment-critical for advanced logic and memory-is dominated by a few global players. Japan leads the market with around 35% share, followed by the U.S., South Korea, and Europe. Global shipments for 2025 are projected to hit 12,824 million square inches (MSI), showing high volume but concentrated sourcing options for ON Semiconductor Corporation.

Switching suppliers for these critical, highly engineered inputs is not a quick process. While the specific qualification time for ON Semiconductor Corporation isn't public, the industry standard for specialized components often involves rigorous re-qualification processes that can cause significant delays. This inertia creates high switching costs, meaning ON Semiconductor Corporation is locked in with existing, certified partners for extended periods, even if prices rise.

ON Semiconductor Corporation is strategically fighting this dynamic through deep vertical integration, especially in Silicon Carbide (SiC). This move is designed to bring more of the value chain in-house, directly reducing reliance on external substrate suppliers. The company controls the process from the raw SiC powder (granulate) through crystal growth, wafer manufacturing, and final assembly. This is a massive capital commitment; for instance, their planned SiC manufacturing facility in the Czech Republic involves a multi-year brownfield investment of up to $2 billion, supported by a direct grant of approximately €450 million (CZK 12 billion) from the Czech government. This integration offers control over cost drivers and quality assurance at every stage.

Geopolitical friction is actively increasing raw material costs and supply chain volatility. Trade policies and tariffs are forcing companies to navigate a fragmented global market. For example, in the first half of 2025, the cost of gold, a critical material in packaging, surged past $3,300 per ounce. Furthermore, new tariffs on goods sourced from certain regions can impose an additional 25 percent tariff on production costs. This environment requires constant vigilance, as seen by commodity price swings like copper, which fell over 21% in the 30 days leading up to August 20, 2025, even while remaining 5.5% higher year-over-year.

Here is a snapshot of the market context influencing supplier power:

The bargaining power remains elevated due to the specialized nature of the inputs and the geopolitical backdrop that favors supply security over pure cost. ON Semiconductor Corporation's best defense is its own investment in SiC self-sufficiency.

• Market concentration in 300mm wafers limits sourcing options.
• High qualification costs deter rapid supplier changes.
• Geopolitical trade actions increase input cost uncertainty.
• Vertical integration in SiC directly counters substrate supplier leverage.
• ON Semiconductor Corporation is building manufacturing capacity across the U.S., Europe, Japan, and Southeast Asia for flexibility.

Finance: model the cost impact of a sustained 5% increase in non-integrated raw material costs for Q1 2026.

ON Semiconductor Corporation (ON) - Porter's Five Forces: Bargaining power of customers

Customer power is definitely high, largely driven by the cyclical demand volatility seen in the core automotive segment. You saw this clearly in the first quarter of 2025 when ON Semiconductor's automotive revenue plummeted 26% sequentially to $762 million. Even into the second quarter of 2025, the automotive segment remained sensitive, reporting revenue of $733 million, which was a 4% sequential decrease. This volatility gives large buyers leverage when negotiating terms.

Here's a quick look at how revenue and margins reflected this customer-driven pressure in Q1 2025:

Large automotive Original Equipment Manufacturers (OEMs) frequently demand long-term supply agreements. While these contracts help stabilize volume expectations, they inherently pressure ON Semiconductor's pricing, contributing to margin contraction. For instance, the Power Solutions Group (PSG) revenue, which faces weak demand in auto and industrial applications, fell 26% year-over-year to $645.1 million in Q1 2025. This pricing pressure is evident as the non-GAAP gross margin fell 530 basis points year-over-year to 40% in Q1 2025.

Still, customer flexibility is somewhat limited when dealing with ON Semiconductor's advanced, differentiated products. Switching costs rise significantly for technology like Silicon Carbide (SiC) and automotive sensors because of the deep integration and qualification required. ON Semiconductor holds an approximate 60% market share in image sensors used in Advanced Driver-Assistance Systems (ADAS). Furthermore, the SiC market, critical for EV efficiency, is projected to grow from $2.45 billion in 2024 to $8.73 billion by 2032. The company is actively managing this high-value segment, accelerating the production of 8-inch SiC wafers with capacity adjustments expected to start in 2025.

Inventory digestion challenges across the automotive and industrial sectors persisted into the first half of 2025, giving buyers more negotiating power. This overhang meant that ON Semiconductor's fab utilization dropped to 68% in Q2 '25. Management noted that inventory levels included about 100 days of bridge inventory for SiC transitions, which was expected to peak in the first half of 2025.

• Automotive revenue declined 26% sequentially in Q1 2025.
• Q2 2025 automotive revenue was $733 million.
• Non-GAAP gross margin contracted by 530 basis points year-over-year in Q1 2025.
• ON Semiconductor commands roughly 60% market share in image sensors.
• Fab utilization was reported at 68% in Q2 2025.

Finance: draft 13-week cash view by Friday.

ON Semiconductor Corporation (ON) - Porter's Five Forces: Competitive rivalry

Rivalry is intense in the $56.87 billion (2025 estimate) power semiconductor market. You see this intensity across all segments where ON Semiconductor operates, but it's particularly sharp in the high-growth Wide-Bandgap (WBG) arena. It's not just about volume; it's about who owns the next generation of power efficiency.

Key competitors include Infineon Technologies and STMicroelectronics (STM). To be fair, the competitive set is broad, including major players like Texas Instruments and NXP Semiconductors who vie for share in ON Semiconductor's core automotive and industrial markets. Infineon Technologies, for instance, has a strong footprint in automotive microcontrollers and power semiconductors, including SiC and IGBTs.

ON Semiconductor holds an approximate 25% share of the SiC market, closely challenging STM's leading 35% share. This dynamic is the core of the current rivalry. Here's a quick look at the competitive positioning in SiC based on the latest reported figures, which shows how tight the race is:

Competition is driven by a fierce R&D race in Wide-Bandgap materials (SiC/GaN) and product differentiation. ON Semiconductor is pushing its technology, for example, with continuous development on its SiC MOSFET portfolio, including new 4th generation trench-based MOSFETs that offer significant efficiency improvements. These WBG materials command premium pricing because they outperform traditional silicon in high-voltage and high-frequency applications.

Near-term SiC oversupply concerns are pressuring pricing across the industry. The market has shifted from shortages to oversupply, particularly in the substrate layer. This has led to significant price erosion, especially in China. Reports indicate that by the fourth quarter of 2024, the price for 6-inch SiC substrates could drop to $450 or even $400, which is near the production cost for many Chinese manufacturers.

This pricing pressure forces strategic moves:

• Customers are adopting a wait-and-see approach, expecting further price drops.
• Intense competition is accelerating industry consolidation, potentially starting by mid-2025.
• ON Semiconductor's fab utilization is currently around 60%, with expectations of a 900 basis points Gross Margin increase as utilization moves to the low 80% range post-recovery.

The industry is definitely at an inflection point, balancing long-term WBG adoption with near-term supply/demand imbalances.

ON Semiconductor Corporation (ON) - Porter's Five Forces: Threat of substitutes

You're looking at the landscape of materials threatening to displace ON Semiconductor Corporation's established technologies, and it's a dynamic space driven by efficiency gains. The threat from substitutes is material, especially in power electronics, but ON Semiconductor Corporation's strong position in specialized areas like automotive imaging provides a significant buffer.

Gallium Nitride (GaN) is definitely a direct, growing substitute for Silicon Carbide (SiC) in specific high-growth areas. The overall GaN and SiC power semiconductor market is projected to grow from $1.42 billion in 2024 to $1.68 billion in 2025, showing a 18.2% Compound Annual Growth Rate (CAGR) [cite: 14 from previous search]. GaN is gaining traction in consumer power supplies, driven by fast charging and USB power delivery needs, with its market size being below $1 billion in 2025 [cite: 19 from previous search]. Data centers are accelerating GaN adoption, with the segment expected to generate over $380 million in GaN revenues by 2030, following NVIDIA's 2025 architecture announcement which catalyzed collaborations to integrate GaN into 800V HVDC power systems [cite: 1, 4 from previous search]. The GaN-powered chargers market alone is estimated at $1.2 billion in 2025 [cite: 5 from previous search].

Legacy silicon (Si) technologies still command the lion's share of the overall power semiconductor market, though they are being displaced in high-voltage systems. Silicon commanded 78.1% of the power semiconductor market size in 2024 [cite: 2 from previous search]. The total power semiconductor market size stood at $56.87 billion in 2025 [cite: 2 from previous search].

Substitution risk is lower in ON Semiconductor Corporation's core automotive image sensor business, where its strong competitive position acts as a moat. While the specific 60% figure requested isn't confirmed for 2025, ON Semiconductor Corporation was reported as the top supplier of image sensors to automotive applications like Advanced Driver-Assist Systems (ADAS) as of late 2025 [cite: 9 from previous search]. In 2023, ON Semiconductor Corporation held a 40% market share in automotive image sensors [cite: 3 from previous search]. The market for automotive image sensors surpassed $2.4 billion in revenue in 2024 [cite: 8 from previous search].

The cost premium of SiC over silicon remains a factor slowing its full market adoption, despite its superior performance characteristics. The high price of SiC substrates compared to silicon substrates has hindered wider adoption [cite: 10 from previous search]. This cost premium is attributed to expensive substrate materials and specialized processing required for SiC power semiconductors [cite: 3 from previous search]. The global SiC power semiconductor market was valued at $6.04 billion in 2025 [cite: 3 from previous search].

Here's a quick look at the material landscape for power semiconductors:

The competitive dynamics in the power space are clear:

• GaN is accelerating adoption in fast-chargers, with that market at $1.2 billion in 2025 [cite: 5 from previous search].
• SiC adoption is anchored by Electric Vehicles (EVs), with the SiC market expected to surpass $2 billion by 2025 [cite: 19 from previous search].
• ON Semiconductor Corporation's automotive image sensor business faces competition from OMNIVISION, which took the lead with over 30% share in 2024 [cite: 8 from previous search].
• The overall power semiconductor market size is $56.87 billion in 2025 [cite: 2 from previous search].

ON Semiconductor Corporation (ON) - Porter's Five Forces: Threat of new entrants

You're looking at the barriers to entry in the semiconductor space, and honestly, they are formidable, especially for a new player trying to challenge ON Semiconductor Corporation. The sheer scale of investment required immediately filters out most potential competitors. The industry is projected to spend about $185 billion on capital expenditures (CapEx) in 2025 alone to meet demand. That's a massive pool of money just to keep pace.

To put that industry spending in context with ON Semiconductor Corporation's own deployment, you see the scale we are dealing with. For instance, ON Semiconductor Corporation's capital expenditures for fiscal years ending December 2020 to 2024 averaged $848.9 million. Their median CapEx over that same period was $694 million. Even their latest reported figure for Capital Expenditures, based on the financial report for October 3, 2025, was -$417 million USD. Building a new, competitive fabrication plant (fab) can easily start at $10 billion with another $5 billion for machinery and equipment. It's a capital-intensive game, to say the least.

Here's a quick look at the CapEx environment:

Beyond the cash outlay, the technological complexity creates a significant moat. We're talking about manufacturing at nodes less than ten nanometers (nm), which requires increasingly complex methods. The number of mask layers used to define conductive channels on a single wafer increases disproportionately as technology shrinks. This demands deep, specialized engineering expertise that takes years, if not decades, to cultivate. Plus, the industry faces a persistent talent shortage, which makes staffing a new, advanced facility incredibly difficult, even if you have the money.

Then you have the regulatory and certification gauntlet, which is particularly tough for ON Semiconductor Corporation given its heavy focus on the automotive sector. New entrants face complex, time-consuming regulatory and certification processes, especially for mission-critical components used in electric vehicles and autonomous driving systems. If onboarding takes 14+ days, churn risk rises, and for a new chip supplier, getting certified can take much, much longer than that. This process acts as a significant delay mechanism, protecting incumbents like ON Semiconductor Corporation who already have these approvals locked in.

Finally, established players control the means of production through equipment and intellectual property. The market for semiconductor manufacturing equipment is dominated by a few massive firms. A new entrant doesn't just need to design a chip; they need access to the latest lithography, deposition, and etching tools, which are controlled by these incumbents.

The key equipment manufacturers that established players rely on include:

• Applied Materials
• ASML
• Lam Research
• Tokyo Electron
• KLA Corporation

This concentration of essential, high-cost equipment, combined with the control over key patents, means a new competitor faces a dual challenge: out-innovating the incumbents while simultaneously trying to secure the necessary, often proprietary, manufacturing technology. It's a defintely high hurdle.