onsemi Q2 2026 Earnings: Revenue Rises 9% as Free Cash Flow Quadruples

onsemi (Nasdaq: ON) reported Q2 2026 revenue of $1.6035 billion, up 9% from $1.4687 billion a year earlier, while GAAP diluted EPS increased to $0.56 from $0.41. GAAP gross margin expanded by 80 basis points to 38.4%, and free cash flow reached $425.4 million, roughly four times the prior-year level. Growth was concentrated in PSG, with management citing stronger AI-related demand and increased adoption of Treo and high-voltage power solutions.

Core Financial Results

For the quarter ended July 3, 2026, gross profit grew faster than revenue while GAAP operating expenses remained nearly unchanged year over year. This lifted GAAP operating margin to 16.1% from 13.2% and increased net income attributable to onsemi by approximately 33%.

The non-GAAP results showed a similar improvement in the underlying business. Non-GAAP operating margin rose to 20.8% from 17.3%, while non-GAAP diluted EPS increased by approximately 40%.

Free cash flow is a non-GAAP measure defined by onsemi as operating cash flow less purchases of property, plant and equipment. Other non-GAAP figures exclude restructuring, amortization, acquisition-related costs and additional special items.

Business and Segment Performance

PSG generated nearly all of the company’s year-over-year revenue increase. Its revenue rose by $130.8 million, compared with a $134.8 million increase for onsemi as a whole, meaning PSG contributed approximately 97% of the consolidated gain.

AMG remained the only segment reporting a year-over-year decline, while ISG grew from the prior year but fell sequentially.

Management described AI data centers as onsemi’s fastest-growing business and now expects that business’s revenue to more than double in 2026. The company highlighted an expanded role in the NVIDIA MGX ecosystem, AI data center platform wins with Great Wall and the launch of its GaNEXUS gallium nitride power portfolio.

Outside AI infrastructure, onsemi said its power solutions will support Rivian’s R2 platform. It also announced a planned acquisition of Synaptics to expand into connected computing, describing the transaction as additive to its gross-margin profile; the release did not provide transaction terms.

Gross Margin Gains and Flat Expenses Increased Operating Leverage

GAAP gross margin increased to 38.4% from 37.6% a year earlier, although it was nearly unchanged from 38.5% in Q1. Non-GAAP gross margin reached 39.3%, up from 37.6% in Q2 2025.

At the same time, GAAP operating expenses were effectively flat at $357.7 million versus $358.5 million. Non-GAAP operating expenses declined slightly to $296.8 million from $297.7 million. Revenue growth, margin expansion and controlled core expenses therefore combined to lift non-GAAP operating margin by 350 basis points.

The sequential improvement in GAAP profitability also reflects lower restructuring costs. Restructuring, asset impairments and other charges fell to $41.2 million from $329.3 million in Q1, helping GAAP operating margin recover from negative 3.5% to positive 16.1%. Non-GAAP operating margin also improved sequentially, but by a smaller 170 basis points, illustrating how special items amplified the GAAP rebound.

Working Capital and Lower Capital Spending Magnified Cash Generation

Operating cash flow increased by $275.4 million year over year, considerably faster than the increase in net income. One major contributor was the movement in operating assets and liabilities, which provided $44.6 million of cash in Q2 2026 after using $199.8 million a year earlier—a favorable swing of approximately $244 million.

Capital expenditures also declined to $34.3 million from $78.2 million. The combination of higher operating cash flow and lower capital spending lifted free cash flow margin to approximately 27%, compared with about 7% in Q2 2025.

Cash and cash equivalents increased to $3.5145 billion from $2.0036 billion at the end of Q1. That increase was not solely operating-driven: financing activities provided $1.0441 billion, including $1.4737 billion from debt issuance and borrowings. Current and long-term debt totaled approximately $4.46 billion at quarter-end, up from $2.98 billion of long-term debt at the end of Q1.

The company also reported $332 million of share repurchases and said year-to-date shareholder returns represented approximately 105% of free cash flow. The repurchases should be viewed as a capital-allocation action rather than evidence of management’s view on valuation.

Q3 2026 Guidance

The Q3 outlook points to further sequential revenue and margin improvement. At the midpoint, revenue guidance implies growth of approximately 6% from Q2, while the GAAP gross-margin midpoint is 250 basis points above the Q2 result.

The outlook assumes approximately 402 million GAAP diluted shares and 395 million non-GAAP diluted shares. The projected difference between GAAP and non-GAAP operating expenses is $15 million, substantially below the special-item impact recorded in Q2.

Management View

CEO Hassane El-Khoury attributed the quarter’s results to stronger demand, especially in AI applications, and wider customer adoption of Treo and high-voltage power products. His most specific forward-looking statement was: “AI data center remains our fastest-growing business, and we now expect revenue to more than double in 2026.”

CFO Thad Trent emphasized operating leverage, pointing to EPS growth that outpaced revenue and the expansion in free cash flow margin. The financial statements support that assessment, although part of the cash flow increase came from a favorable working-capital swing and lower capital expenditures rather than earnings growth alone.

Recent Insider Transactions

The supplied six-month summary shows 393,429 shares categorized as purchases across 17 transactions and 245,974 shares sold across seven transactions, producing net purchases of 147,455 shares. That represented 12.5% of the reported 1.32 million insider shares held.

The detailed recent records, however, were dominated by stock awards, including zero-price grants. The six-month net purchase figure therefore should not be treated as equivalent to open-market insider buying.

These records describe the transactions but do not establish the insiders’ views on onsemi’s future performance.

Risks Investors Need to Watch

• Growth is concentrated in PSG. The segment accounted for approximately 97% of the company’s year-over-year revenue increase. AMG revenue declined 2%, leaving consolidated growth more dependent on PSG and AI-related demand.
• Q3 guidance requires substantial margin expansion. The midpoint calls for GAAP gross margin to rise by 250 basis points sequentially. Product mix, demand and continued cost discipline will be important to achieving that improvement.
• Special items continue to affect GAAP comparability. Q2 included $75.5 million of adjustments between GAAP and non-GAAP operating income, although that was far below Q1’s unusually high restructuring impact.
• Debt increased alongside cash. The quarter-end cash balance improved, but the company also issued or borrowed $1.4737 billion, lifting total current and long-term debt to approximately $4.46 billion.
• The size of the AI contribution remains undisclosed. Management expects AI data center revenue to more than double in 2026, but it did not disclose the current revenue base, limiting investors’ ability to quantify its contribution to consolidated growth.

Summary

onsemi’s Q2 2026 results combined 9% revenue growth with better margins, controlled core expenses and sharply higher free cash flow. PSG and AI-related demand supplied most of the momentum, while AMG remained a drag and part of the cash flow improvement came from working capital and lower capital spending. Q3 guidance calls for another sequential increase in revenue and a meaningful step up in gross margin, making segment diversification, margin execution and the company’s higher debt balance the main areas to monitor.

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