Pat McKeough responds to many requests from members of his Inner Circle for specific stock advice as well as questions on investment strategy and the economy. Every week, his comments and recommendations on the most intriguing questions of the past week go out to all Inner Circle members. And each week, we offer you one of the highlights from these Q&A sessions. While we reserve our buy-hold-sell advice for Inner Circle members, these excerpts provide a great deal of information and analysis on stocks we’ve covered for members of Pat’s Inner Circle.

This week we had a question from an Inner Circle member on one of the many tech stocks on the Nasdaq market. ON Semiconductor serves a diverse clientele, although almost a third of its customers are in the automotive industry. The company is pursuing growth by acquisition. Pat examines this strategy as well as the company’s financial outlook and its ability to increase its chip sales in the competitive markets in which it operates.

Q: Pat: What is your opinion on ON Semiconductor Corp.?

A: ON Semiconductor Corp. (symbol ONNN on Nasdaq; www.onsemi.com) designs and makes energy-efficient chips for electronic devices, including computers, video game systems, TVs, music players and smartphones. It also makes chips for automobile emission control, interior lighting and safety equipment, such as air bags.

Automotive customers supply 30% of ON Semiconductor’s sales, followed by industrial/military users (21%), communication equipment makers (17%), consumer product companies (17%) and computer makers (15%). Customers in Japan and other parts of Asia account for 70% of sales.

The company has a long history of expanding by acquisition.

For example, in January 2011 it paid $479.9 million for the chip making operations of Japan’s Sanyo Electric. The purchase gave the company access to Sanyo’s many customers in Asia, as well as the opportunity to sell them a wider variety of chips.

Earlier this year, ON Semiconductor acquired Truesense Imaging for $95 million. Truesense produces image sensors for makers of medical scanners and traffic-monitoring gear.

Company’s research spending down 11% from a year ago

Without the cost of integrating new operations and other unusual items, the company’s earnings jumped 68.2% in the three months ended March 28, 2014, to $72.5 million from $44.7 million a year earlier. Earnings per share gained 70.0%, to $0.17 from $0.10, on fewer shares outstanding.

Revenue rose 6.9%, to $706.5 million from $661.0 million. Rising chip demand from industrial clients offset weaker sales to consumer product makers. As well, average chip prices fell 5%.

The company spent $78.1 million (or 11.1% of its revenue) on research in the latest quarter, down 11.7% from $88.4 million (or 13.4%) a year earlier.

ON Semiconductor’s long-term debt of $746.5 million is 19.1% of its market cap. It also holds cash and investments of $617.0 million, or $0.71 a share.

In the Inner Circle Q&A, Pat looks at the earnings outlook for ON Semiconductor and whether it can continue to compete with larger chipmakers, especially in the automotive sector. He also considers the company’s prospects in the consumer products market following the Sanyo acquisition. He concludes with his clear buy-hold-sell advice on this stock.

(Note: If you are a current member of the Inner Circle, please click here to view Pat’s recommendation. Be sure to log in first.)

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