ON Semi's (NASDAQ:ONNN) Sales May Have Improved in Latter Part of Quarter

ON Semi's (NASDAQ:ONNN) quarterly earnings report shouldn't bring any surprises, as Brigantine say they should come in at expectations, although possibly on the lowered end of sales decline on stronger sales growth in the latter part of the quarter.

Brigantine says, "We expect a solid Q4 report from ON Semiconductor when the company reports results next week. Management had guided sales to decline 3% - 6% sequentially, and we believe the quarter progressed inline with expectations, and estimate sales will decline about 4% Q/Q. Based on our checks, orders may have improved through the course of the quarter as evidence of healthy consumer spending over the Christmas period percolated through the quarter...We remain very optimistic on the contribution from Sanyo, and remain comfortable with our BUY rating on the stock."

Brigantine Advisors maintains a "Buy" rating on ON Semi (ONNN), which was trading at $11.47, up $0.17, or 1.50 percent, as of 2:41 PM EST. Brigantine has a price target of $14 on On Semi.

ON Semi (NASDAQ:ONNN) Outlook Stronger on Auto Demand

Auto demand should allow ON Semi (NASDAQ:ONNN) better than Linear Tech (Nasdaq:LLTC), which gave soft guidance recently.

Canaccord says, "We are increasing our price target for On Sem ahead of what we believe will be a near-term rebound for automotive demand and a longer-term meaningful contribution to the bottom line by Sanyo. In our view, the stock has overreacted to weak guidance by Linear Tech (Nasdaq:LLTC), given Linear's soft outlook was exacerbated by the loss of a key tablet socket. Counter to Linear's comments, we are seeing some recovery for automotive semiconductor demand, a vertical where ONNN has atypically high exposure. We also believe investors will continue to warm to the Sanyo deal, as the extent of potential accretion by 2013 becomes more broadly understood.

"Q4/10E remains $575.0 million; C2010 remains $2.309 billion; C2011 remains $2.411 billion (excludes Sanyo acquisition)...Q4/10E remains $0.21; C2010 remains $0.87; C2011 remains $0.93."

Canaccord Genuity maintains a "Buy" rating on ON Semi (ONNN), which closed Thursday at $11.07, losing $0.15, or 1.34 percent. Canaccord increased their price target on 'ON Semi' from $10 to $13.

Fairchild Semi (NYSE:FCS), ON Semi (Nasdaq:ONNN), Intl Rectifier (NYSE:IRF) Still Attractive to FBR

Saying they remain constructive on the overall discretes sector, with a focus on Fairchild Semi (NYSE:FCS), ON Semi (Nasdaq:ONNN) and Intl Rectifier (NYSE:IRF), FBR doesn't see the inventory narrative as having as big as impact on the three as some believe.

FBR says, "We remain constructive on shares of FCS and the entire discretes sector as industry consolidation and improving mix initiatives should continue to benefit FCS, ON Semi (Nasdaq:ONNN), Intl Rectifier (NYSE:IRF), and others in coming years. While industry ship-ahead risks exist for all, including discrete and power management suppliers, we think valuations are still reasonably attractive versus normalized levels, and that any coming inventory correction will be very short lived as absolute inventory levels remain reasonably lean. For Fairchild specifically, we believe the firm’s mix-up story is happening and that the firm will achieve structurally higher margins in coming quarters and years given key customer exposure and improving product offering initiatives. Additionally, shares remain attractively priced, with prospects for meaningfully improved earnings power in 2012 and 2013. Finally, we think management could institute a share repurchase plan and/or a dividend plan in coming quarters, with the outside possibility that another chip firm or a private equity firm could make a bid for FCS given its very high free cash flow yield."

FBR Capital reiterates an "Outperform" rating on Fairchild Semi (FCS), which was trading at $16.05, down $0.68, or 4.06 percent, as of 1:29 PM EST. ON Semi was trading at $11.02, losing $0.20, or 1.78 percent. Intl Rectifier was at $30.04, down $0.75, or 2.44 percent.

ON Semi's (NASDAQ:ONNN) PT, EPS Estimate Raised by Needham

Citing ON Semi's (NASDAQ:ONNN) acquisition of Sanyo Semiconductor, in what is considered a good deal by Needham, they boosted ON Semi's price target and EPS estimate.

Needham says, "We have adjusted our earnings estimates to reflect the recently completed Sanyo Semiconductor acquisition, first announced in July 2010. Though we left our 2011 EPS unchanged at $1.05, we raised our 2012 EPS from $1.15 to $1.35. ONNN paid $144M in cash, assumed $129M in liabilities and borrowed $378M under a seven year loan agreement with Sanyo (N/R). Net of the $123M in cash on Sanyo Semi’s balance sheet, ONNN paid roughly $540M for approximately $1.2B in revenue. These terms compare favorably to ONNN’s original terms of $129M in cash, $302M in liabilities, and 35M shares of stock at $237M or about 8% dilution."

Needham & Company reiterates a "Buy" rating on ON Semi (ONNN), which closed Wednesday at $11.22, down $0.38, or 3.28 percent. Needham raised their price target on them from $11 to $13.

Linear Technology (NASDAQ:LLTC) Too Pricey in Short Term

Linear Technology (NASDAQ:LLTC) has done a good job in sustaining their margins, but there are few, if any, catalysts in the short term to make them attractive to FBR.

FBR says, "Some bulls may point to long-term growth opportunities in industrial, automotive, and comm/networking, and industry-high margins. Bears may argue that the firm is already well run with few operational improvement initiatives, that margins are near a peak, and that the firm walks away from too much business (Apple (Nasdaq:AAPL), among others) so the firm may keep its margin structure intact. We find ourselves somewhere in the middle, apathetic on the stock given that Linear is not very inexpensive nor very growthy, and given our view that other chip stocks offer more upside returns (ON Semi (Nasdaq:ONNN), Maxim (Nasdaq:MXIM), Fairchild Semi (NYSE:FCS), Microsemi (Nasdaq:MSCC), Marvell (Nasdaq:MRVL)). We agree that further gross margin expansion opportunities are limited, with some Apple unwind a headwind in calendars 1Q11 and 2Q11. We thus prefer less-expensive chip stocks, product-cycle stocks, or fab-consolidation stocks. (FY11 EPS estimate lowered from $2.50 to $2.45)"

FBR Capital reiterates an "Underperform" rating on Linear Technology (LLTC), which was trading at $34.66, down $1.47, or 4.07 percent, as of 11:14 AM EST. FBR dropped their price target on Linear from $35 to $34.

Maxim (Nasdaq:MXIM), Marvell (Nasdaq:MRVL), ONNN (Nasdaq:ONNN), National Semi (NYSE:NSM), Fairchild (NYSE:FCS), Int'l Rectifier (NYSE:IRF), Microsemi (Nasdaq:MSCC), Broadcom (Nasdaq:BRCM) Have Most Semi Upside

With earnings reports from a number of semiconductor companies to be released next week, FBR focused on a number of companies in the sector, saying Maxim (Nasdaq:MXIM), Marvell (Nasdaq:MRVL), ON Semiconductor (Nasdaq:ONNN), National Semi (NYSE:NSM), Fairchild (NYSE:FCS), Int'l Rectifier (NYSE:IRF), Microsemi (Nasdaq:MSCC) and Broadcom (Nasdaq:BRCM) have the most upside potential of the group.

FBR says, "Several chip firms report earnings over the next week, including Linear Technology (Nasdaq:LLTC)(UP) Tuesday AMC, Fairchild Semi (FCS)(OP), Thursday BMO, Maxim Integrated (MXIM)(OP) Thursday AMC, AMD (NYSE: AMD)(MP) Thursday AMC, and Texas Instruments (NYSE: TXN)(OP) Monday AMC. For near-term focused investors, we think FCS and MXIM could see solid share price appreciation following beat and raise results, with TXN also possibly in that camp (though our conviction is slightly lower). While both MXIM and FCS have appreciated meaningfully in the near term, robust results and still-attractive stock valuations keep us favorable near term. For AMD, while the firm could post solid 1Q11 guidance, the departure of former CEO Dirk Meyer is likely to weigh on the stock and overshadow any near-term results until a full-time successor is found. For Linear, we think the firm's core business remains solid; however, several headwinds are present in the March quarter, including (1) a possible loss of one of its two iPad sockets (we estimate content going from $2 to $1) and some iPad seasonality in March, driving a roughly $10M revenue headwind in total (three revenue points), and (2) tougher comparisons against the firm's 14-week December quarter (about four revenue points). For Texas Instruments, we think the firm will report robust results and guidance, and the stock could possibly rally, though we prefer MXIM (growth) or NSM (value) versus TXN currently. Finally, for ON Semi (ONNN–OP), we are raising our 4Q10 revenue and EPS estimates slightly toward the high end of guidance, embedding Sanyo into our financial estimates, and raising our price target from $15 to $16."

"While the group could see some profit-taking following such a move higher, we do expect some beat and raise 4Q10 results and thus think any sell-off will be short term in nature and a likely buying opportunity for later in 2011. Our favorite stocks for upside include Maxim (Nasdaq: MXIM), Marvell (MRVL), ONNN, National Semi (NSM), Fairchild (FCS), Int'l Rectifier (IRF), Microsemi (MSCC), and Broadcom (BRCM)."

Morgan Stanley (NYSE:MS) Top Semi Picks Include Intel (Nasdaq:INTC), ON Semi (Nasdaq:ONNN), Broadcom (Nasdaq:BRCM), Micron (NYSE:MU), Avago Tech (Nasdaq:AVGO), Microchip Technology (Nasdaq:MCHP)

Morgan Stanley (NYSE:MS)threw out a number of their favorite picks in the semiconductor sector, with their leaders being Broadcom (Nasdaq:BRCM), Micron (NYSE:MU), Intel (Nasdaq:INTC), Avago Tech (Nasdaq:AVGO), ON Semi (Nasdaq:ONNN) and Microchip Technology (Nasdaq:MCHP).

A second list of semiconductors based in Europe was also released, which included STMicro (NYSE:STM), ARM Holdings (Nasdaq:ARMH) and Infineon (OTC:IFNNY).

ON Semiconductor (NASDAQ:ONNN) Revenue, EPS Tracking as High End of Guidance

Citing recent checks, FBR Capital said revenue and EPS for ON Semiconductor (NASDAQ:ONNN) is tracking on the high end of guidance, with EPS probably surpassing it.

FBR said, "Recent checks suggest 4Q revenues are tracking toward the upper end of guidance, with EPS likely one or two pennies better than consensus. For 1Q, we think ON's organic revenues can decline less than seasonally typical, likely by 2%–4% QOQ, but with EPS possibly better than the Street expects. While some investors have fretted about the Sanyo acquisition, we expect this deal to close in the next week or so, and think earnings can ramp faster than previously."

FBR Capital maintains an "Outperform" rating on ON Semiconductor, which closed Wednesday at $9.92, up $0.29, or 3.01 percent. FBR raised their price target on them from $12 to $13.

QUALCOMM (Nasdaq:QCOM), Broadcom (Nasdaq:BRCM), Atheros (Nasdaq:ATHR), LSI (NYSE:LSI), National Semi (NYSE:NSM), ON Semi (Nasdaq:ONNN), Fairchild (NYSE:FCS) Look Good Going into 2011

FBR Capital gave their outlook for the chip sector going into 2011, and still see it performing strongly, although probably less than the last several quarters. Favorites in the sector include QUALCOMM (Nasdaq:QCOM), Broadcom (Nasdaq:BRCM), Atheros (Nasdaq:ATHR), LSI (NYSE:LSI), National Semiconductor (NYSE:NSM), ON Semi (Nasdaq:ONNN), Fairchild (NYSE:FCS) and Microsemi (Nasdaq:MSCC), all of which have an "Outperform" rating on them from FBR.

FBR said, "We remain constructive on the chip sector for 2011 and think that semiconductor stocks can appreciate higher over the course of the year given (1) robust end demand for smartphones, tablets, infrastructure equipment, and industrial/automotive applications; (2) higher chip content per device in handsets, automobiles, and others; (3) still-reasonable channel inventories; (4) still-limited capacity growth, and (5) reasonably high earnings power. That said, chip stocks have had a powerful move higher since September, and thus could be subject to profit taking, a pullback, or at the very least some digesting to start the year. Indeed, 2010 saw a continuation of the substantial recovery that began in 2H09, and we see these positive demand trends continuing into 2011. While the chip cycle did "over-heat" some in 2010, likely driving 2011 semiconductor revenue growth to track flattish year over year given the 5–10 points of revenue replenishment good news that does not repeat in 2011, we still believe this is the sector's first ever "soft-landing." We do see some revenue- and EPS-related "ship-ahead" risks still for chip firms, particularly in the industrial and communications/networking sectors, and expect some misses from chip firms in these sectors in 1H11, though the magnitude of these resets should be modest. Valuations remain generally attractive for the group (though not as attractive as two to three quarters ago) and we see material upside in Outperform-rated stocks like QUALCOMM, Broadcom, Atheros, LSI, National Semi, ON Semi, Fairchild, and Microsemi."

QUALCOMM closed Tuesday at $49.18, up $0.06, or 0.13 percent. Broadcom closed at $44.98, down $0.72, or 1.58 percent. Atheros closed at $33.94, down $0.62, or 1.79 percent. LSI ended the day at $5.93, up $0.02, or 0.34 percent. National Semiconductor closed at $13.64, up $0.06, or 0.44 percent. Fairchild ended the session at $15.14, down $0.33, or 2.13 percent. Microsemi closed Tuesday at $23.59, down $0.71, or 2.92 percent.