Allegro Microsystems Inc at Morgan Stanley Technology, Media & Telecom Conference Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Joe Moore - Morgan Stanley - Analyst : Great. Well, congratulations on the job and it's a great background. It's a lot of loyalty to Allegro over those years. So congrats. I guess under other situations of CEO transitions, companies have reiterated guidance if it hasn't changed. Fair to say that you're still comfortable with the guidance that you've given.

Question: Joe Moore - Morgan Stanley - Analyst : Great. Well, on that note, you had a good earnings from a top line perspective. You had auto up sequentially in December. Can you talk about that dynamic? You guys have seen a maybe more severe correction in autos earlier than others. And now you seem to be recovering maybe a little bit early, kind of first in, first out, is that what's happening here?

Question: Joe Moore - Morgan Stanley - Analyst : Great. And I guess the gross margins were a little bit lower than you thought maybe in March. Can you talk about the reasons for that?

Question: Joe Moore - Morgan Stanley - Analyst : Great. That's helpful. And I wonder if you could just talk -- get into some of the end markets, but generally about lead times and visibility, what you're getting now from your customers and you -- I think you mentioned last quarter, turns orders have picked up. Just how much visibility you're getting from the customer front?

Question: Joe Moore - Morgan Stanley - Analyst : Great. And maybe you could also talk to customer behavior, maybe starting with autos. The -- when we were in the midst of the shortages, the automotive kind of Tier 1s were saying we're going to build a lot of safety stock. It's different this time. We're not going to let the shortages happen again. It feels like it's pretty much the same this time. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MARCH 04, 2025 / 3:45PM, ALGM.OQ - Allegro Microsystems Inc at Morgan Stanley Technology, Media & Telecom Conference We went into a downturn. People started maybe built inventory for a little while but have seemed to reduce -- my perception is some are getting to low levels, some are still higher than others. But just can you generally characterize your customers' attitude towards supply chain, both from the standpoint of inventory management and also longer term thinking from here.

Question: Joe Moore - Morgan Stanley - Analyst : Yes. I mean my thesis has sort of been that there will be a memory of how severe those shortages are, but the memory kicks in when there's something tight somewhere down the road. When there's obviously enough, then many people are still having the same behavior.

Question: Joe Moore - Morgan Stanley - Analyst : Great. And I know part of the enthusiasm for Allegro is the SAM expansion that you have in the automotive market. Can you talk to that generally? And is that -- that's a long-standing trend, of course, but are there inflections over time where you see increasing content per vehicle?

Question: Joe Moore - Morgan Stanley - Analyst : And I guess maybe in a bigger picture, what are you seeing from automotive investment in those two areas of e-mobility and ADAS, maybe take China separate because I think it's different. But I feel like in the North American and European markets, there's been maybe more focus on the EV part of the business, maybe a little less on ADAS than I might have expected. Jensen promised me there'd be no steering wheels by now, and they're still steering wheels. So the ADAS has kind of slowed. Do you see that changing a little bit? I mean, it seems like FSD from Tesla has really made some great strides. China is making great strides. Do you see the Western automakers start to replicate some of that?

Question: Joe Moore - Morgan Stanley - Analyst : Yes. Now, a lot of that seems to be happening in China like -- maybe that's the degree to which I'm surprised relative to five years ago. Can you talk about your positioning there? And it seems like even in China, your Competition is largely coming from Western companies.

Question: Joe Moore - Morgan Stanley - Analyst : And when you talk about the domestic part of the market, is it still Infineon and Melexis are the main competition for those buckets?

Question: Joe Moore - Morgan Stanley - Analyst : Okay. And then this Chinese New Year related kind of seasonality in March. I mean, I feel like others are kind of more maybe not giving us the granularity about that, but it seems like there's a clear trend of China is good, other markets still tough. It seems like you guys are a little bit more geographically balanced in terms of the recovery you're seeing. Is that fair?

Question: Joe Moore - Morgan Stanley - Analyst : Okay. And that seems pretty consistent across everybody. That's the part of the weakest part. You talked about customer diversity. Can you give us a sense for that? And how much of that is that you're multi-sourced in the similar sockets that you have multiple competitors in the same car? Like why isn't there more customer concentration?

Question: Joe Moore - Morgan Stanley - Analyst : Okay. Great. And then with regards to pricing, Derek, you mentioned a little bit of a normal decline. I guess, can you give us a sense of what's been happening for like-for-like pricing over the last two, three years? And where we're going from here? And I guess is that different geographically? Is China different than --

Question: Joe Moore - Morgan Stanley - Analyst : And I mean, you guys have -- you said you were sort of working with customers to get their inventories down. I assume the same thing is strong pricing, you don't have long-term agreements that have locked people into above market pricing or anything like that. You've taken your medicine earlier.

Question: Joe Moore - Morgan Stanley - Analyst : Okay. And then last automotive question, tariffs. Do you see -- obviously, we haven't -- I don't know what happened today, but we haven't actually implemented Mexican and Canada tariffs to my knowledge, but there's been the threats of doing so. Has that changed customer behavior at all? Are you seeing people trying to move the footprint, buy ahead of tariffs, anything like that?

Question: Joe Moore - Morgan Stanley - Analyst : Great. That's helpful. So industrial, you sort of mentioned starting to see some growth there. Can you give us a sense for what parts of the industrial market are growing? And I mean, it -- have you seen the same general inventory behaviors that everybody now seeing, which is pretty -- it would be hard to imagine that we don't start improving, just given how much it's been down. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MARCH 04, 2025 / 3:45PM, ALGM.OQ - Allegro Microsystems Inc at Morgan Stanley Technology, Media & Telecom Conference

Question: Joe Moore - Morgan Stanley - Analyst : That's great. And I don't have a long history with you guys. So maybe bear with me, but the decline you've seen in data center from peak-to-trough is pretty significant, and it's pretty clear now that you have growth drivers that you're focused on AI. Can you characterize the decline that you saw? Was that more traditional servers or what caused the business?

Question: Joe Moore - Morgan Stanley - Analyst : Yes, I want to ask you about that. I mean, it's obviously -- we don't want to get ahead of ourselves on science fiction stuff, but like doing motion sensing, things like that are really important when you start talking about industrial robots, military drones, humanoid robots. You're on a list of humanoid robots beneficiaries, I believe. So maybe just talk a little bit to, obviously, early, but like the applicability for technology.

Question: Joe Moore - Morgan Stanley - Analyst : And markets can be under-hyped and overhyped at the same time. And this has that kind of field, like this is such a huge opportunity long term, and you don't want to get ahead of yourself in terms of thinking about it. But if you have all these technologies going into the automotive market that for safety and regulatory reasons, just take years to get deployed, you could get a much quicker time to market in other areas at some point.

Question: Joe Moore - Morgan Stanley - Analyst : Okay. Great. Maybe just touch on the financials a little bit and I'll open it up for questions. But gross margin, I think you've talked about a path back to the 58% level, if I'm not mistaken. Can you walk us through where you are now, where you're going to get tactically and where you're going to get long term? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MARCH 04, 2025 / 3:45PM, ALGM.OQ - Allegro Microsystems Inc at Morgan Stanley Technology, Media & Telecom Conference

Question: Joe Moore - Morgan Stanley - Analyst : Great. And I guess, I mean, you mentioned that price isn't likely to be a major factor other than this maybe tactically that cost and price move at different times.

Question: Joe Moore - Morgan Stanley - Analyst : Great. And then last question for me, the free cash flow priorities as free cash flow starts to --

Question: Joe Moore - Morgan Stanley - Analyst : Do we have any questions from the audience? No. Maybe we could just wrap up, I mean where we started. So you're a new CEO stepping into this role, but you've been with the company almost 30 years. It seems like you're going to keep doing things pretty much the way they've been doing. Any changes we should think about -- from that transition that you're thinking about?

Question: Joe Moore - Morgan Stanley - Analyst : All three segments.

Question: Joe Moore - Morgan Stanley - Analyst : Well, congratulations on the role, and congratulations for working your way through this automotive correction and coming out really nicely on the other side of it.