Release Date: May 08, 2025
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Allegro Microsystems Inc (ALGM, Financial) reported fourth-quarter sales above the high-end of their guidance at $193 million, with non-GAAP EPS of $0.06 above the midpoint of their guidance.
- The company demonstrated accelerated innovation by releasing 50% more products compared to their IPO year, targeting a $12 billion market opportunity.
- Allegro Microsystems Inc (ALGM) secured new TMR wins in the biomedical market and a new automotive win in an XEV thermal management application, showcasing their competitive edge in TMR magnetic sensors.
- The company achieved record-level design wins in the fourth quarter, with more than 70% in strategic focus areas such as e-mobility, robotics, and data centers.
- Allegro Microsystems Inc (ALGM) is executing operational efficiency initiatives expected to enhance gross margins and profitability, including a restructuring program anticipated to result in annualized cost savings of at least $15 million.
Negative Points
- Fourth-quarter gross margin was 45.6%, below expectations due to a combination of mix and lower absorption as orders were fulfilled from finished goods.
- Total Q4 sales declined by 20% year-over-year, with automotive sales declining 23% and industrial and other sales declining 11% year-over-year.
- The company faced challenges with customer price adjustments before cost reductions could cycle through inventory and into the P&L, impacting gross margins.
- Allegro Microsystems Inc (ALGM) is experiencing potential signs of shortages in raw materials, particularly for data center products, which could impact future production.
- The company is navigating a competitive market in China, facing formidable local competitors, which could impact their market share and growth in the region.
Q & A Highlights
Q: Can you provide an update on the China for China strategy and its progress?
A: Michael Doogue, CEO, explained that Allegro has been working on the China for China supply chain initiative for several years. The strategy involves both wafer fab and back-end partners within China to meet the needs of growth customers there. Significant progress has been made in qualifying various products, and the company expects to see meaningful revenues from this initiative later in the year.
Q: What are the expectations for gross margin improvement, and when will cost reductions impact the P&L?
A: Derek D'Antilio, CFO, noted that the gross margin was impacted by pricing negotiations and lower absorption due to reduced production levels. Cost reductions negotiated with vendors are expected to start impacting the P&L in Q1, with further benefits from restructuring programs. The company aims to achieve a 50% gross margin in the short term, with a long-term target of 58%.
Q: How is the backlog growth related to design wins and market cycle improvements?
A: Michael Doogue, CEO, highlighted that over 70% of design wins are in strategic areas like e-mobility and industrials. The backlog growth is driven by strong bookings and design wins, particularly in e-mobility and data center sectors, indicating resilience and positioning for growth.
Q: Are there any strategic changes or new directions under the new CEO?
A: Michael Doogue, CEO, emphasized a focus on innovation, aiming to differentiate products and accelerate the ramp of new areas like TMR technology and high-voltage isolated gate drivers. Operational efficiency initiatives, such as converting from gold to copper wire, are also priorities to drive margin benefits.
Q: What is the impact of tariffs on Allegro's operations and pricing strategies?
A: Derek D'Antilio, CFO, stated that there are currently no material direct impacts from tariffs, as products are shipped from the Philippines and classified as semiconductors. The company has not seen abnormal customer behavior related to tariffs and maintains a normal annual cadence in pricing negotiations.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
