ON Semiconductor Case Study — Power Play: From Commodity Chipmaker to EV Silicon Carbide Champion

ON Semiconductor (onsemi) made a decision between 2019 and 2024 that looked counterintuitive: it deliberately exited $1.5 billion in annual revenue — shedding low-margin commodity businesses — to concentrate entirely on Silicon Carbide (SiC) power semiconductors and automotive-grade image sensors. Under CEO Hassane El-Khoury, who joined in December 2020, the company executed one of the most disciplined portfolio transformations in semiconductor history. The result: gross margins expanded from approximately 35% to 47%, EBITDA margins nearly doubled, and onsemi became a preferred SiC supplier to Tesla, BMW, and Hyundai.

The Transformation Scorecard:

Section 1: The Theoretical Foundation

1.1 Portfolio Pruning Theory

Portfolio Pruning Theory argues that a company's most important strategic decisions are not what it chooses to build, but what it chooses to stop doing. Most companies accumulate products and business lines over time because each individual addition seemed rational at the time. The aggregate effect is a sprawling portfolio where internal capital competes among dozens of initiatives, the best engineers work on the wrong problems, and the sales team has no coherent customer story.

Onsemi under El-Khoury applied portfolio pruning with unusual discipline. The $1.5 billion in exited revenue included standard MOSFET products, commodity analog components, and non-core consumer-facing chips — all technically functional businesses but structurally incapable of reaching the 47%+ gross margins that SiC and automotive image sensors commanded. By exiting these businesses, onsemi concentrated engineering talent, manufacturing capacity, and capital allocation toward the two highest-margin, highest-growth segments in the semiconductor industry.

1.2 Industry Transition Surfing

Industry Transition Surfing describes the strategic decision to align a company's capabilities with a macro-industry shift of sufficient scale that even a well-executed positioning captures enormous growth. The electric vehicle transition is one of the most significant industrial shifts in a century. A conventional gasoline vehicle contains approximately $50–80 of semiconductor content. An electric vehicle contains $500–900 of semiconductor content — with SiC power devices (the inverter that converts battery DC power to AC for the motor) representing $200–400 alone.

Onsemi identified this transition in 2018–2019, when EV penetration was below 2% globally, and began the multi-year qualification process required to become a preferred SiC supplier for automotive programs that would launch in 2022–2025. The strategic insight: the time to position for a transition is when the inflection point is visible but not yet inevitable.

1.3 Vertical Integration as Competitive Moat

SiC power semiconductors require SiC substrate wafers — a specialised material grown at extreme temperatures over days. Most semiconductor companies purchase these wafers externally. Onsemi's acquisition of GT Advanced Technologies (GTAT) SiC boule growth technology and its investment in proprietary SiC substrate manufacturing — the EliteSiC programme — created a vertical integration advantage.

By producing its own SiC substrates, onsemi controls the most constrained step in the SiC supply chain, achieves 20–30% lower wafer cost versus purchased substrates, and can guarantee supply availability to automotive customers with multi-year programme lifetimes. Competitors relying on third-party SiC substrates from Wolfspeed or II-VI face supply constraints that onsemi can avoid.

Section 2: The Technology Stack

2.1 Silicon Carbide MOSFET Technology

Silicon Carbide MOSFETs operate at higher voltage (up to 1,700V), higher temperature (200°C vs. silicon's 150°C), and switch at much higher frequencies than traditional silicon devices. For an EV inverter, these properties translate to:

• 3–5% improvement in drivetrain efficiency
• 15–20% reduction in inverter size and weight
• Higher switching frequency enabling smaller, lighter filter components

At a vehicle level, 3–5% efficiency improvement adds 15–25 km of range on a single charge — a significant differentiator in a market where range anxiety is a primary purchase barrier.

2.2 CMOS Image Sensors for ADAS

Onsemi's AR Series CMOS image sensors provide High Dynamic Range (HDR) imaging for automotive cameras — the sensors that see stop signs in bright sunlight while simultaneously detecting pedestrians in shadows. These sensors are qualified in Tesla Autopilot, Mobileye EyeQ, and 32+ other ADAS programmes globally.

2.3 Intelligent Power Module (IPM)

Onsemi's Intelligent Power Module combines multiple power chips (gate drivers, SiC MOSFETs, current sensors, and thermal sensors) into a single, pre-qualified module that automotive manufacturers can design into their vehicles without having to integrate discrete components. This system-level solution commands 2–3x the margin of discrete chip sales.

Section 3: Quantitative Results

Key Lessons

Lesson 1: Deliberate revenue exit is sometimes the most value-creative decision. Onsemi exited $1.5B in revenue and grew its market cap by more than the revenue it exited — because the remaining revenue commanded far higher margins and multiples.

Lesson 2: The right time to position for an industry transition is before it's inevitable. Onsemi began qualifying for EV programs in 2018–2019, when EV penetration was below 2%. Companies that waited until 2022 found the supply chain already locked up.

Lesson 3: Vertical integration in constrained supply chains is a durable moat. SiC substrate supply is the bottleneck in the SiC power semiconductor industry. Owning that step changes the competitive equation.

Meritshot's Investment Banking and Data Science programs use ON Semiconductor to teach portfolio strategy, automotive semiconductor economics, and the financial modelling of industrial technology pivots.