Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion in conjunction with our audited historical consolidated financial statements, which are included in the 2025 Form 10-K, and our unaudited consolidated financial statements for the fiscal quarter ended April 3, 2026, which are included elsewhere in this Form 10-Q. This Management's Discussion and Analysis of Financial Condition and Results of Operations contains statements that are forward-looking. These statements are based on expectations and assumptions as of the date of this Form 10-Q and are subject to risks, uncertainties and other factors. Actual results could differ materially because of the factors discussed below or elsewhere in this Form 10-Q. See Part II, Item 1A. "Risk Factors" of this Form 10-Q and Part I, Item 1A. "Risk Factors" of the 2025 Form 10-K.

Executive Overview

onsemi Overview

ON Semiconductor Corporation ("onsemi," "we," "us," "our," or the "Company"), with its wholly and majority-owned subsidiaries, operates under the onsemiTM brand. The Company is organized into three operating and reportable segments: the Power Solutions Group ("PSG"), the Analog and Mixed-Signal Group ("AMG"), and the Intelligent Sensing Group ("ISG").

We offer intelligent power and intelligent sensing solutions that drive electrification, energy efficiency, safety, and automation in automotive, industrial, and other end‑markets, including AI data center. Our intelligent power technologies enable electrified drivetrain and power management applications in the automotive industry and support efficient fast‑charging systems. Our intelligent sensing technologies enable advanced safety applications in automotive through industry‑leading performance and reliability.

We believe the evolution of the automotive industry, with advancements in autonomous driving, ADAS, vehicle electrification, and increased electronics content across vehicle platforms, is reshaping the boundaries of transportation. Through sensing integration, we believe our intelligent power solutions achieve increased efficiencies compared to our peers. This integration allows lower temperature operation and reduced cooling requirements while saving costs and minimizing weight. In addition, our power solutions deliver power with less die per module, improving performance efficiency for a given battery or power capacity.

In the industrial market, our intelligent power technologies propel sustainable energy for the highest efficiency solar strings and industrial power. In the medical field, our intelligent power technologies extend the life of personal diagnostic devices, such as continuous glucose monitors. Our intelligent sensing technologies support the next generation industry through automation, allowing for smarter factories and buildings. Our intelligent power and sensing technologies are enabling robotics and humanoids.

In our other end-market, which includes AI data center products, our intelligent power technologies enable energy efficiency in a market in which energy needs are growing at an exponential rate, and AI data center operators are focused on reducing energy consumption. We believe we have one of the most comprehensive portfolios of products and technologies for this market to address the complete power tree, and we are well-positioned to benefit as next-generation AI data center processors and racks enter the market.

Business Strategy Developments

We are focused on increasing profitable revenue through differentiated technologies to address the high-growth megatrends in automotive, industrial and other markets which include AI data centers. We continue to optimize and right-size our manufacturing footprint to align our capacity with our long-term outlook, while focusing on generating efficiencies that result in meaningful gross margin expansion and operating cash flows. We intend to achieve efficiencies in our operating and capital expenditures and invest in research and development initiatives to accelerate growth in high-margin products.

2026 Manufacturing Realignment Program

During the first quarter of 2026, the Company continued to engage in additional restructuring and cost reduction initiatives under its previously disclosed multi‑year manufacturing realignment program to better align manufacturing capacity and capabilities with anticipated long-term needs.

We expect to incur total severance costs and related benefit expenses of $24.0 million related to the termination of approximately 650 employees. Of this, approximately $20.2 million was recognized during the quarter ended April 3, 2026.

Additionally, we recorded non-cash impairment charges of $147.0 million during the quarter ended April 3, 2026 related to previous investments in manufacturing equipment at certain manufacturing facilities pursuant to held-for-sale accounting guidance. Other charges of $162.1 million for the quarter ended April 3, 2026 consisted primarily of accelerated depreciation of leasehold improvements and accelerated amortization of ROU assets that were abandoned in connection with the 2025 and 2026 Manufacturing Realignment Programs. The total of the aforementioned costs was included within Restructuring, Asset Impairments and Other, Net in the Consolidated Statement of Operations.

For additional information, see Note 5: ''Restructuring, Asset Impairments and Other, Net'' in the notes to our unaudited consolidated financial statements included elsewhere in this Form 10-Q.

Share Repurchases

During the quarter ended April 3, 2026, we repurchased approximately 5.7 million shares of common stock for an aggregate purchase price of $348.6 million. For additional information, see Note 8: ''Earnings Per Share and Equity'' in the notes to our unaudited consolidated financial statements included elsewhere in this Form 10-Q.

Results of Operations

Quarter Ended April 3, 2026 compared to the Quarter Ended April 4, 2025

The following table summarizes certain information relating to our operating results that has been derived from our unaudited consolidated financial statements (in millions):

			Quarters Ended
			April 3, 2026						April 4, 2025						Dollar Change
Revenue			$	1,513.3					$	1,445.7					$	67.6
Cost of revenue			930.2						1,151.9						(221.7)
Gross profit			583.1						293.8						289.3
Operating expenses:
Research and development			144.3						164.1						(19.8)
Selling and marketing			63.0						68.3						(5.3)
General and administrative			89.4						84.4						5.0
Amortization of intangible assets			10.5						11.4						(0.9)
Restructuring, asset impairments and other, net			329.3						539.3						(210.0)
Total operating expenses			636.5						867.5						(231.0)
Operating loss			(53.4)						(573.7)						520.3
Other income (expense), net:
Interest expense			(12.7)						(18.0)						5.3
Interest income			17.7						26.6						(8.9)
Other income			3.8						4.1						(0.3)
Other income (expense), net			8.8						12.7						(3.9)
Loss before income taxes			(44.6)						(561.0)						516.4
Income tax benefit			11.7						75.8						(64.1)
Net loss			(32.9)						(485.2)						452.3
Less: Net income attributable to non-controlling interest			(0.5)						(0.9)						0.4
Net loss attributable to ON Semiconductor Corporation			$	(33.4)					$	(486.1)					$	452.7

The following table summarizes certain information relating to our segment results (in millions):

			Quarter Ended April 3, 2026						As a % of Total						Quarter Ended April 4, 2025						As a % of Total						Dollar Change
Revenue:
PSG			$	736.6					48.7		%				$	645.1					44.6		%				$	91.5
AMG			540.4						35.7		%				566.4						39.2		%				(26.0)
ISG			236.3						15.6		%				234.2						16.2		%				2.1
Total			$	1,513.3					100.0		%				$	1,445.7					100.0		%				$	67.6
Cost of revenue:
PSG			$	536.2					57.6		%				$	521.9					45.3		%				$	14.3
AMG			250.8						27.0		%				265.5						23.1		%				(14.7)
ISG			143.2						15.4		%				364.5						31.6		%				(221.3)
Total			$	930.2					100.0		%				$	1,151.9					100.0		%				$	(221.7)
Gross profit: (1)
PSG			$	200.4					27.2		%				$	123.2					19.1		%				$	77.2
AMG			289.6						53.6		%				300.9						53.1		%				(11.3)
ISG			93.1						39.4		%				(130.3)						(55.6)		%				223.4
Total			$	583.1					38.5		%				$	293.8					20.3		%				$	289.3

(1) Gross profit margin as a percentage of respective segment revenue balances.

Revenue

Revenue was $1,513.3 million and $1,445.7 million for the quarters ended April 3, 2026 and April 4, 2025, respectively, representing an increase of $67.6 million, or approximately 5%, year over year due to increased demand across all end-markets. We had one customer, a distributor, whose revenue accounted for approximately 12% and 10% of our total revenue for the quarters ended April 3, 2026 and April 4, 2025, respectively, across all reportable segments.

Revenue from PSG

Revenue from PSG increased by $91.5 million, or approximately 14%, for the quarter ended April 3, 2026 compared to the quarter ended April 4, 2025 due to increased demand. This was driven by an increase in revenue of $53.1 million, $31.0 million, and $7.4 million in the automotive, other, and industrial end-markets, respectively.

Revenue from AMG

Revenue from AMG decreased by $26.0 million, or approximately 5%, for the quarter ended April 3, 2026 compared to the quarter ended April 4, 2025 attributable to lower demand in certain end-markets. This was driven by a decrease in revenue of $16.3 million and $14.7 million in the automotive and other end-markets, respectively, which was partially offset by an increase of $5.0 million within the industrial end-market.

Revenue from ISG

Revenue from ISG increased by $2.1 million, or approximately 1%, for the quarter ended April 3, 2026 compared to the quarter ended April 4, 2025 due to increased demand. This was driven by an increase in revenue of $4.6 million in the industrial end-market, which was partially offset by a decrease in revenue of $1.4 million and $1.1 million in the automotive and other end-markets.

Revenue by Geographic Location

Revenue by geographic location, based on sales billed from the respective country or region, was as follows (dollars in millions):

			Quarter Ended April 3, 2026						As a % of Total Revenue (1)						Quarter Ended April 4, 2025						As a % of Total Revenue (1)
United Kingdom			$	392.2					25.9		%				$	367.5					25.4		%
Hong Kong			368.9						24.4		%				370.1						25.6		%
Singapore			322.2						21.3		%				273.8						18.9		%
United States			296.5						19.6		%				292.6						20.2		%
Other			133.5						8.8		%				141.7						9.8		%
Total revenue			$	1,513.3											$	1,445.7

(1) Certain amounts may not total due to rounding of individual amounts.

Gross Profit and Gross Margin

Gross profit increased by $289.3 million, or approximately 98%, to $583.1 million for the quarter ended April 3, 2026 compared to $293.8 million for the quarter ended April 4, 2025 primarily due to the absence of $237.7 million of excess and obsolete inventory charges and a $43.9 million write‑off of consumables and manufacturing supplies recognized during the quarter ended April 4, 2025, which did not reoccur in 2026.

Our gross margin increased by 18.2 percentage points from 20.3% for the quarter ended April 4, 2025 to 38.5% for the quarter ended April 3, 2026. The increase was primarily driven by the absence of prior‑year excess and obsolete inventory charges and consumables write-off, slightly improved manufacturing utilization and favorable mix within certain business segments, partially offset by lower volumes in select end‑markets.

PSG gross profit increased by $77.2 million, primarily driven by higher revenue across all end‑markets and improved absorption resulting from higher manufacturing utilization. PSG gross margin increased by 8.1 percentage points to 27.2% from 19.1%, primarily due to the absence of a $43.9 million write‑off of consumables and manufacturing supplies charges during the quarter ended April 4, 2025, as well as improved utilization and operating leverage on higher volumes during the quarter ended April 3, 2026.

AMG gross profit decreased by $11.3 million, primarily driven by the decline in demand within the automotive and other end-markets. AMG gross margin increased by 0.5 percentage points to 53.6% from 53.1%, primarily due to product mix, including a higher proportion of higher‑margin offerings, which partially offset the impact of lower overall volume.

ISG gross profit increased by $223.4 million and gross margin increased to 39.4% from (55.6)%, primarily due to the absence of $232.2 million of excess and obsolete inventory charges recognized during the quarter ended April 4, 2025, which did not reoccur during the quarter ended April 3, 2026.

Operating Expenses

Research and development expenses were $144.3 million for the quarter ended April 3, 2026, as compared to $164.1 million for the quarter ended April 4, 2025, representing a decrease of $19.8 million, or approximately 12%. The decrease was primarily attributable to a decrease in production material costs and other variable expenses.

Selling and marketing expenses were $63.0 million for the quarter ended April 3, 2026, as compared to $68.3 million for the quarter ended April 4, 2025, representing a decrease of $5.3 million, or approximately 8%. The decrease was primarily attributable to lower payroll‑related expenses and reduced commission costs.

General and administrative expenses were $89.4 million for the quarter ended April 3, 2026, as compared to $84.4 million for the quarter ended April 4, 2025, representing an increase of $5.0 million, or approximately 6%. The increase was primarily attributable to higher payroll‑related expenses, including increased investments in corporate and operational support functions.

Other Operating Expenses

Amortization of Intangible Assets

Amortization of intangible assets was $10.5 million for the quarter ended April 3, 2026, as compared to $11.4 million for the quarter ended April 4, 2025, representing a decrease of $0.9 million, or approximately 8%.

Restructuring, Asset Impairments and Other, Net

Restructuring, asset impairments and other, net was $329.3 million for the quarter ended April 3, 2026, as compared to $539.3 million for the quarter ended April 4, 2025. Charges incurred for the quarter ended April 3, 2026 relate to restructuring actions during the period. See Note 5: ''Restructuring, Asset Impairments and Other, Net'' in the notes to our unaudited consolidated financial statements included elsewhere in this Form 10-Q for additional information.

Interest Expense

Interest expense decreased by $5.3 million to $12.7 million during the quarter ended April 3, 2026, as compared to $18.0 million during the quarter ended April 4, 2025, due to the repayment of the Revolving Credit Facility on December 31, 2025. Our average gross long-term debt for the quarter ended April 3, 2026 was $3,004.9 million at a weighted-average interest rate of 1.7%, as compared to $3,379.9 million at a weighted-average interest rate of 2.1% for the quarter ended April 4, 2025.

Interest Income

Interest income decreased by $8.9 million, or approximately 33%, to $17.7 million during the quarter ended April 3, 2026 compared to $26.6 million during the quarter ended April 4, 2025. The decrease was primarily attributable to lower interest rates earned on cash equivalents and short‑term investments, as well as lower average cash and investment balances during the period.

Other Income (Expense)

During the quarter ended April 3, 2026, other income was $3.8 million compared to other expense of $4.1 million during the quarter ended April 4, 2025.

Income Tax Benefit

We recorded an income tax benefit of $11.7 million and $75.8 million for the quarters ended April 3, 2026 and April 4, 2025, respectively, representing effective tax rates of 26.2% and 13.5%, respectively. The higher effective tax rate in 2026 was due to the impact of discrete benefits recognized during the quarter.

For additional information, see Note 13: ''Income Taxes'' in the notes to the unaudited consolidated financial statements included elsewhere in this Form 10-Q.

Liquidity and Capital Resources

Overview

Our principal sources of liquidity are cash on hand, short-term investments, cash generated from operations, available borrowings under our Revolving Credit Facility as well as new debt and/or equity issuances. In the near term, we expect to fund our cash requirements by utilizing any or a combination of these principal sources. Our cash and cash equivalents and short-term investments were approximately $2.4 billion as of April 3, 2026, and the Revolving Credit Facility has approximately $1.5 billion available for future borrowings.

We require cash to: (i) fund our operating expenses, working capital requirements, outlays for strategic acquisitions and investments; (ii) service our debt, including principal and interest; (iii) incur capital expenditures; and (iv) repurchase our common stock. During the ordinary course of business, we evaluate our cash requirements and, if necessary, adjust our expenditures to reflect the current market conditions and our projected sales and demand. Future capital expenditures may be impacted by events and transactions that are not currently forecasted.

We believe that our cash on hand, cash generated from our operations and the amounts available under the Revolving Credit Facility are adequate to meet our working capital requirements and other business needs for at least the next 12 months and thereafter for the foreseeable future.

Operating Activities

Our cash flows from operating activities were $239.1 million and $602.3 million for the quarters ended April 3, 2026 and April 4, 2025, respectively. The decrease in operating cash flows by $363.2 millions was primarily driven by unfavorable changes in working capital, including the timing of cash receipts and payments.

Net loss for the quarter ended April 3, 2026 improved compared to the prior‑year period, primarily due to lower non‑cash asset impairment and restructuring‑related charges, partially offset by accelerated depreciation and amortization expense for ROU assets and related improvements that were abandoned in connection with the 2025 and 2026 Manufacturing Realignment Programs. However, these improvements in earnings did not directly translate to higher operating cash flows, as working capital requirements had a more significant impact on cash generation during the period.

Our ability to generate positive operating cash flows depends on, among other factors, the achievement of revenue targets, management of manufacturing and operating costs and effective management of working capital. The timing of collections from customers, payments to suppliers and inventory management also significantly influences our operating cash flows.

Investing Activities

Our cash flows used in investing activities were $16.7 million and $214.9 million for the quarters ended April 3, 2026 and April 4, 2025, respectively. The decrease of $198.2 million was primarily attributable to a decrease in capital expenditures and a decrease in the payments for acquisition of a business during the quarter ended April 3, 2026. Our capital expenditures as a percentage of revenue were approximately 1%, and we expect capital expenditures of approximately 5% of revenue for the year ended December 31, 2026.

Financing Activities

Our cash flows used in financing activities were $366.0 million and $317.6 million for the quarters ended April 3, 2026 and April 4, 2025, respectively. The increase of $48.4 million was primarily attributable to increased share repurchases during the quarter ended April 3, 2026.

Our 0% Notes will mature on May 1, 2027 unless earlier repurchased or redeemed by the Company or converted pursuant to their terms. We expect to continue our New Share Repurchase Program subject to market conditions, the price of our shares and other factors (including liquidity needs). However, the New Share Repurchase Program may be modified, suspended or terminated by the Board of Directors at any time without prior notice.

Key Factors Potentially Affecting Liquidity

We believe that the key factors that could adversely affect our internal and external sources of cash include, among other considerations:

• changes in demand for our products, competitive pricing pressures, supply chain constraints, effective management of our manufacturing capacity, our ability to achieve further reductions in operating expenses, our ability to make progress on the achievement of our business strategy and sustainability goals, the impact of our restructuring programs on our production and cost efficiency, and our ability to make the research and development expenditures required to remain competitive in our business; and

• the debt and equity capital markets could impact our ability to obtain needed financing on acceptable terms or to respond to business opportunities and developments as they arise, including interest rate fluctuations, macroeconomic conditions, sudden reductions in the general availability of lending from banks or the related increase in cost to obtain bank financing and our ability to maintain compliance with covenants under our debt agreements in effect from time to time.

Debt Guarantees and Related Covenants

As of April 3, 2026, we were in compliance with the indentures relating to our 0% Notes, 0.50% Notes and 3.875% Notes and with covenants included in the Credit Agreement. The 0% Notes, 0.50% Notes and 3.875% Notes are senior to the existing and future subordinated indebtedness of onsemi and its guarantor subsidiaries, rank equally in right of payment to all of our existing and future senior debt and, as unsecured obligations, are subordinated to all of our existing and future secured debt to the extent of the assets securing such debt.

Recent Accounting Pronouncements

For a discussion of recent accounting pronouncements, see Note 3: ''Recent Accounting Pronouncements and Other Developments'' in the notes to the unaudited consolidated financial statements included elsewhere in this Form 10-Q and our 2025 Form 10-K.