ON Semiconductor Corporation (ON) Cash Flow Statement

The OCF/NI ratio swung from -7.16 in 2026Q1 to 2.03 in 2026Q2, reflecting the impact of a large net loss in Q1 that was offset by substantial non-cash charges and working capital inflows. This pattern indicates that reported net income is a poor proxy for cash generation in the near term, as depreciation and working capital changes dominate the conversion process. Investors should monitor whether this volatility persists as the company navigates its cyclical recovery.

The FCF margin improved from 7.2% in 2025Q2 to 26.5% in 2026Q2, but this was partly due to a sharp reduction in capex to $34.3M, the lowest in the period. The 2025Q3 quarter showed a positive capex of $225.8M, which is unusual and may indicate asset sales or refunds, distorting the FCF trend. Excluding that anomaly, FCF has been volatile, ranging from $106M to $644M, suggesting that the company's cash generation is still highly sensitive to working capital and capex timing.

The capex-to-revenue ratio has declined significantly, from double-digit levels in early 2024 to low single digits in 2026, indicating a period of restrained investment. This may reflect the completion of major SiC fab expansions or a strategic pause to align capacity with demand. However, given the company's high fixed-cost structure and the need to transition to 200mm wafers, such low capex levels may not be sustainable if the company aims to maintain its competitive position.

The working capital line item has been the most volatile component of operating cash flow, with changes ranging from -$201.3M to +$462.9M over the past ten quarters. This suggests that inventory and receivables management are highly sensitive to demand fluctuations, and the company may be using working capital as a buffer during the cyclical trough. The large inflow in 2025Q1 likely reflects inventory liquidation and improved collections, while the outflow in 2026Q1 may indicate rebuilding of inventory in anticipation of a recovery.

Buybacks have been consistently large, ranging from $100M to $450M per quarter, and have exceeded net income in several quarters, including 2026Q1 when the company reported a net loss. This aggressive capital return program suggests management's confidence in the long-term outlook, but it also reduces financial flexibility and may be unsustainable if cash flows deteriorate further. The absence of dividends indicates that buybacks are the primary vehicle for shareholder returns.

The cumulative gap between operating cash flow and net income is substantial, indicating that reported earnings understate the company's cash-generating ability. This is largely due to significant depreciation and amortization charges, which totaled over $1.7B over the period, and favorable working capital movements. However, the gap also reflects the inclusion of large one-time charges in net income, such as the $573.7M operating loss in 2025Q1, which may not recur. Investors should consider this divergence when assessing the sustainability of future dividends or buybacks.