Onsemi (NASDAQ: ON) has officially canceled its $6.9 billion acquisition of Allegro MicroSystems, Inc. (NASDAQ: ALGM), withdrawing its all-cash proposal to acquire the company for $35.10 per share. Despite believing that the merger would create significant value for both companies' customers and Allegro shareholders, Onsemi has determined that there is no viable path forward for the acquisition.

Onsemi will now focus on other opportunities to drive shareholder value. The company announced plans to continue allocating capital towards its existing share repurchase program.

Hassane El-Khoury, President and CEO of Onsemi, explained, "Onsemi is committed to a disciplined approach to capital allocation and maximizing long-term shareholder value. While we still believe that a combination with Allegro would have been mutually beneficial, we have decided to withdraw our acquisition proposal after Allegro's Board of Directors declined to fully engage with us on the matter. We continue to have great respect for Allegro's leadership team and its talented employees."

El-Khoury further emphasized that Onsemi remains strategically and financially well-positioned, with strong technology, a robust innovation pipeline, and a clear roadmap for future growth in key markets such as automotive, industrial, and AI data centers.

In another development, Onsemi has also halted its investment in a SiC (silicon carbide) power management IC factory in South Korea. This decision comes amid a slowdown in electric vehicle (EV) sales by South Korean automakers and increased demand for Si IGBT chips in low-cost EVs. Sources indicate that Onsemi has recalled most of the engineers from its Bucheon plant in Gyeonggi Province, South Korea, to the United States. Currently, only a few researchers remain at the plant, and restructuring is expected.

The Bucheon factory was originally set to play a significant role in Onsemi's SiC production strategy, with the S5 production line planned to account for 35-40% of the company's total SiC output. However, the company has faced challenges, including instability in SiC revenue and a sharp decline in EV demand in China. In contrast to two years ago, the SiC power management IC market is now facing concerns about oversupply. Onsemi's CEO had previously expressed high expectations for the Korean EV market, but sales of Hyundai and Kia's EV models have fallen significantly, with a 19% drop in Hyundai's sales and an 18% drop for Kia.

Sources also report that Onsemi's optimistic view of the South Korean EV market may have been misplaced, as locally produced SiC chips are less price-competitive than those made in China. South Korean automakers are now focusing on introducing more affordable EV models, such as Hyundai's Casper EV and Kia's EV4, which use Si IGBT power management ICs instead of SiC.

As a result, Onsemi is shifting its focus to its SiC power management IC factory in the Czech Republic. The company plans to invest 2.7 trillion Korean Won and expects the facility to begin operations by 2027. This new plant will have three times the production capacity originally planned for the Bucheon factory, solidifying Onsemi's position in the SiC market moving forward.