onsemi (ON) Buys Ferric for $600M as Shares Slip

onsemi (ON) will pay $600 million for Ferric to bolster AI data center power delivery, while Q4 revenue guidance of $1.715-$1.815B matched expectations.

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What Is onsemi Buying in Ferric?

onsemi is buying integrated voltage regulator (IVR) technology, which places power conversion directly beside the processor. Ferric's design combines the power controller, transistors, inductors and capacitors in a single compact package. The company says this cuts board area by 50% to 70% compared with conventional discrete regulators.

For operators of AI clusters, the benefit is efficiency. Delivering power closer to the chip leaves a larger share of a system's power budget for computing, which raises output per watt. About 50 Ferric employees, mostly in New York and Silicon Valley, are expected to join onsemi. The purchase will be funded from existing cash, and the deal is expected to close by the end of 2026.

How Did onsemi's Third Quarter Look?

onsemi reported revenue of $1.72 billion, up 7% from the prior quarter and 11% from a year earlier, above the midpoint of its guidance. Non-GAAP gross margin rose 190 basis points sequentially to 41.2%, the fifth consecutive quarterly improvement. Non-GAAP earnings per share were $0.90 on roughly 392 million shares. Free cash flow reached $489 million, or 28% of revenue.

AI data center revenue rose 39% sequentially and 175% year over year to $180 million. Industrial markets improved, while automotive sales weakened as supply was reallocated away from inventory replenishment. Management described that shift as temporary and expects automotive shipments to resume in the first quarter as supply comes online.

Why Did the Stock Fall Despite the Beat?

The shares fell because the fourth-quarter outlook offered no upside surprise and pointed to a further automotive decline. Guidance calls for revenue of $1.715 billion to $1.815 billion, about 2.5% sequential growth at the midpoint, and non-GAAP gross margin of 41.5% to 43.5%. Non-GAAP EPS is guided at $0.95 to $1.07.

By end market, AI data center revenue is expected to rise at a mid-teens percentage rate and industrial at a low-double-digit rate. Other revenue is forecast to rise at a high-teens rate. Automotive, historically onsemi's largest business, is forecast to fall at a high-single-digit rate. The mix shows the company's growth engine shifting toward data centers as its core vehicle exposure cools.

How Does Ferric Fit onsemi's AI Strategy?

Ferric extends onsemi's reach from discrete power components into the architecture that feeds the processor itself. Alongside the deal, management raised its 2030 AI data center revenue target by $500 million to more than $3 billion. It expects about $620 million of AI data center revenue in 2026 and a doubling in 2027.

That makes the segment central to the investment case among ai stocks tied to infrastructure rather than chip design. Power delivery has become a bottleneck as accelerator power draw climbs, and suppliers able to shrink and speed up conversion stages gain leverage with hyperscale customers and chip designers such as NVIDIA (NVDA). The $600 million price is modest against onsemi's cash generation, and the earn-out ties part of the cost to commercial results.

Outlook

The Ferric acquisition adds a scarce technology to onsemi's data center portfolio as automotive demand pauses. Near-term attention turns to the deal's closing by year-end, the fourth-quarter print against guidance, and the pace of automotive shipment recovery in the first quarter of 2027. Execution on AI revenue, which management expects to double next year, will largely determine whether the pivot offsets the cyclical softness in vehicles.