Release Date: July 30, 2026
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Allegro Microsystems Inc ALGM delivered its sixth consecutive quarter of sequential sales growth, with Q1 FY2027 sales of $259 million, exceeding the high end of guidance and representing a 27% year-over-year increase.
- Data center sales surged to a record 17% of total revenue, driven by a 66% sequential increase in current sensor sales, which now account for 22% of data center revenue.
- The company secured significant design wins in robotics, including current sensor wins with large Chinese humanoid robot OEMs and an inductive position sensor win with a prominent North American humanoid robotics OEM, contributing 3-4% of FY2027 sales.
- Automotive sales grew 15% year-over-year, outpacing the long-term target, with design wins up 30% year-over-year, particularly in electronic power steering and electromechanical braking systems.
- Gross margin improved to 51.1%, up 290 basis points year-over-year, driven by operating leverage, product mix, and selective pricing actions, with a clear path to the 55% target.
- Bookings increased for the seventh consecutive quarter, and backlog continued to expand, indicating strong forward demand signals.
Negative Points
- The company experienced within-lead-time orders that could not be shipped in Q1, leading to a slight delinquency that will be shipped over the next couple of quarters, indicating potential capacity constraints.
- Gross margin guidance for Q2 is only 50.75%-51.75%, with a lower drop-through rate of 57% due to a higher mix of automotive sales, which have lower margins than industrial.
- Operating expenses are expected to increase to $84.5 million in Q2 due to targeted R&D investments and higher variable compensation, potentially pressuring near-term profitability.
- The automotive business saw only 1% sequential growth in Q1, with some deceleration in Focus Auto, reflecting a flattening trend compared to peers who are reaccelerating.
- Pricing actions are expected to have a more significant impact only in the back half of the fiscal year, limiting near-term gross margin improvement from this lever.
- The company noted that the general industrial business, which contributed to the Q1 beat, can be lumpy from quarter to quarter, introducing uncertainty in future industrial revenue.
Q & A Highlights
Here are the key highlights from the Allegro Microsystems Inc (ALGM) Q1 2027 earnings call, presented as Q&A summaries.Q: Can you elaborate on the pricing actions you are taking and how they will affect gross margins, especially given the annual negotiations with auto customers?
A: (Derek Dentilio, CFO) The majority of our auto customer contracts begin at the start of the calendar year, and as normal, we saw low single-digit declines in those contracts. However, due to inflationary headwinds, we are taking selective price actions, largely in the distribution channel, which began at the tail end of Q1. While the slight beat in Q1 gross margin was due to positive mix, we expect these pricing actions to become more impactful and beneficial to gross margins in the back half of the fiscal year (Q3 and Q4).
Q: As the data center business grows, what is the expected mix between current sensors and fan drivers, and how does that affect the margin profile?
A: (Derek Dentilio, CFO) Current sensors have a higher gross margin profile than fan drivers. We are seeing multiple positive dynamics, including increasing power levels in data centers and share gains due to our innovative TMR technology. As a result of current sensors now being 22% of our data center business, the overall gross margins for that segment are now in the mid-50s.
Q: You mentioned data center sales will more than double in fiscal 2027. Is that a starting point, and what is your visibility on potentially revising that number upward?
A: (Mike Doogue, CEO) Our confidence is based on strong design win momentum and a short time-to-market. The primary driver for potential upside would be if the year-over-year growth in data center CapEx spend, which is currently estimated at around 80% for calendar 2026, were to flex up. We will provide more color as the year progresses.
Q: Can you discuss the traction you are seeing with TMR technology versus Hall effect, both in automotive and data center applications?
A: (Mike Doogue, CEO) We are seeing TMR technology extend into growth applications. In auto, we secured our first major TMR angle sensor win for ADAS steering motors in China, taking share from established players. In data center, as customers adopt SiC and GaN, the need for faster switching speeds requires very fast current sensors. Our TMR current sensors are much faster than Hall effect, which is why we are winning in data center power supplies.
Q: When should we expect the isolated gate driver and PMIC businesses to become a more meaningful part of the data center revenue stream?
A: (Mike Doogue, CEO) For isolated gate drivers, we expect a material impact in 18 to 24 months. We will begin sampling a generation 2 product ideal for data centers this fall, which should accelerate momentum. Regarding PMICs, they are more automotive-focused and are not a major growth vector for us in the data center. Even without PMICs, we have a robust dollar content growth story.
Q: Your auto growth has flattened sequentially while some peers are reaccelerating. Is there something different about your customer mix or how you handled inventory?
A: (Derek Dentilio, CFO) It relates to how we handled the inventory cycle. We had a very painful quarter two years ago with significant inventory digestion, but we came back much earlier in the cycle. Despite the sequential flattening, we continue to see strong underlying demand, with design wins up 30% year-over-year and bookings up 30% year-over-year, including a growing proportion of port orders that couldn't be shipped within the quarter.
Q: Can you distinguish between the content opportunity in humanoid robotics versus other forms of industrial automation?
A: (Mike Doogue, CEO) The dollar content opportunity is largely based on the number of joints or degrees of freedom in a moving system. Whether it's a singular robotic arm on a conveyor belt or a humanoid, more joints mean more content for Allegro. We are seeing wins and revenue ramps across the full spectrum, from factory automation arms to autonomous mobile robots, not just humanoids.
Q: You mentioned robotics would be 3-4% of fiscal 2027 sales. Can you provide a baseline for where it was in fiscal 2026 and how you see that trajectory?
A: (Mike Doogue, CEO) We provided the 3-4% number to establish a baseline, showing we are already winning in this space. We are starting from a relatively small base, and the growth rate will ultimately depend on the pace of adoption of robots with more joints. While we won't forward guide, multiplying a meaningful number like 3-4% by a high long-term growth opportunity can have a significant impact on the company's overall growth rate over time.
Q: What is the demand environment like in China, and how is it contributing to your growth?
A: (Mike Doogue, CEO) We see relative strength in China, which matches our internal data. A significant number of high-dollar-content design wins are happening there, such as for electromechanical braking (EMB) systems. The EV market in China is strong, and during a recent visit, we found our market share with a top customer has increased significantly over the past year. Our China business grew 6% sequentially in Q1.
Q: Can you comment on the demand environment for electromechanical braking (EMB) and steer-by-wire, and how much growth that could drive in fiscal 2027?
A: (Mike Doogue, CEO) We see broad global trends towards EMB and steer-by-wire. These systems represent a meaningful amount of additional content per vehicle. They are a key factor giving us confidence in our ability to grow double-digits in automotive, even in a flat or negative SAR environment, both in FY27 and beyond.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
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