Allegro Microsystems Inc at Needham Growth Conference Transcript

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

Question: Quinn Bolton - Needham & Company Inc. - Analyst : Guys, I wanted to start off with your biggest business, automotive. Obviously, lots going on. But if I look at your September or the guidance you gave in September for the December quarter, you're guiding overall revenue down about 6% at the top line, but I think embedded in that was a pretty cautious outlook for North America and European auto customers. How much of that weakness that you're seeing in North America and Europe is just sort of overall weak end demand versus the continued effect of inventory digestion?

Question: Quinn Bolton - Needham & Company Inc. - Analyst : Yes. No. And we'll get into a lot of those drivers here in the Q&A. As you head into the March quarter, Vineet, what are your expectations for sort of inventory dynamics at both your distribution channel as well as the direct to customers?

Question: Quinn Bolton - Needham & Company Inc. - Analyst : Perfect. And I know you guys -- we'll talk about this on public calls, but maybe just give us a sense of the design win momentum you saw in '24 on the automotive business.

Question: Quinn Bolton - Needham & Company Inc. - Analyst : Perfect. I know S&P Global Mobility is sort of forecasting sort to be sort of flattish, maybe down 40 basis points in 2025. But speaking to your e-mobility business, what kind of xEV growth rate are you looking at over the next few years? Do you still see that as a sort of 20%-ish grower? What kind of growth rate do you think that, that market is going to be growing at?

Question: Quinn Bolton - Needham & Company Inc. - Analyst : You've talked about the e-mobility side of the business. Maybe just what are your thoughts on the growth rate looking forward over the next few years on e-mobility. And -- can you give us some sense how much of the e-mobility is largely xEV driven versus sort of the ADAS side of --

Question: Quinn Bolton - Needham & Company Inc. - Analyst : Perfect. And on the xEV side, I think there may be some misperception out there in the market with investors that your business is primarily driven by the battery electric vehicles. Can you maybe just sort of talk about your content across the xEV landscape?

Question: Quinn Bolton - Needham & Company Inc. - Analyst : Got it. Okay. I wanted to sort of switch a couple of years ago or almost two years ago, you terminated your distribution agreement with Sanken. What's your outlook now for the Japanese market now that you're sort of targeting that market more of the direct sales relationship? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 16, 2025 / 2:30PM, ALGM.OQ - Allegro Microsystems Inc at Needham Growth Conference

Question: Quinn Bolton - Needham & Company Inc. - Analyst : Great. Wanted to sort of move to the acquisition of Heyday, and you're moving to the isolated gate drivers. I know you've announced your GaN gate driver already. Maybe give us a sense of what the customer feedback has been. I believe you also have announced your first design win with a Chinese customer for that. And then on the silicon carbide gate driver, is that still set to sample later this year?

Question: Quinn Bolton - Needham & Company Inc. - Analyst : Yes. We definitely heard from some of the other folks ran at the conference, the idea that silicon carbide could start to move into the front end of the data center power supplies as those racks go from 120 kilowatts to 400 kilowatts to 500 kilowatts over the next couple of years. On those gate drivers, maybe just can you give us a sense of what the dollar content per auto would be as you -- as those designs ramp?

Question: Quinn Bolton - Needham & Company Inc. - Analyst : Great. Moving to the China business. I believe it's roughly 25% of sales. Can you discuss your strategy to localize your China supply chain? When do you expect to have first production from OSATs? When do you expect to have local Chinese wafer manufacturers qualified and ramping? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 16, 2025 / 2:30PM, ALGM.OQ - Allegro Microsystems Inc at Needham Growth Conference

Question: Quinn Bolton - Needham & Company Inc. - Analyst : Derek, I wanted to just sort of follow up there, I think, in a recent fireside chat. You had mentioned that you're not necessarily moving everything for China to China that what you're all outsourced or more sort of standard process flows that some of the proprietary -- foundry processes in particular, may stay offshore. But just talk about what will you sort of manufacture in China? What do you keep sort of more proprietary and perhaps with your current suppliers?

Question: Quinn Bolton - Needham & Company Inc. - Analyst : Can you just spend a minute maybe just the China for China strategy, certainly very important, I think, for production that's consumed locally within China. But as the Chinese OEMs export more internationally, how much of that production needs to be locally produced in China? Or are they more willing to source parts from international manufacturing locations?

Question: Quinn Bolton - Needham & Company Inc. - Analyst : I think many semiconductor companies will say, the best product still win in China, but there's a concern by investors about the threat from local competition in the China market. And so can you describe what you're seeing in terms of local competition in China? Do you see anyone locally in mag sensors or power ICs that could be a threat over the next couple of years?

Question: Quinn Bolton - Needham & Company Inc. - Analyst : Got it. I wanted to shift over now to the industrial auto business. It looks like that business troughed in June and is starting to recover. I know earlier, you said there's still a pocket of inventory you have to get through in various industrial markets. But hopefully, it looks like the bottom was put in, in June. What do you see application-wise driving the recovery as we head into 2025 in the industrial and other business? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 16, 2025 / 2:30PM, ALGM.OQ - Allegro Microsystems Inc at Needham Growth Conference

Question: Quinn Bolton - Needham & Company Inc. - Analyst : The medical opportunity sounds really interesting over the past couple of conference calls. I think you've announced now two pretty major wins in continuous glucose monitors with your TMR switch and sensor products. Can you give us some sense of those design wins? How big is this medical TAM for the company?

Question: Quinn Bolton - Needham & Company Inc. - Analyst : I didn't know the $5 million, that's pretty nice already.

Question: Quinn Bolton - Needham & Company Inc. - Analyst : Yes, I guess maybe just on that TMR opportunity. I know it's a pretty high-growth opportunity. But any thoughts on how that TMR TAM is growing over the next several years in those industrial applications?

Question: Quinn Bolton - Needham & Company Inc. - Analyst : Great. I wanted to sort of switch over to sort of some financial or just more business-related questions, couple of questions we're asking most of our companies here at the conference. One is around the incoming administration and policies they may enact. And so the first question is about tariffs. To the extent that the Trump administration does increase tariffs. Is there any direct impact on your business? I know indirect impact if tariffs cause higher prices, there may be lower demand impact, but just anything that could hit you directly in terms of tariffs?

Question: Quinn Bolton - Needham & Company Inc. - Analyst : Got it. And the other question we'll get is if the Trump administration reduces incentives for either solar or electric vehicles would have a meaningful impact on your business? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 16, 2025 / 2:30PM, ALGM.OQ - Allegro Microsystems Inc at Needham Growth Conference

Question: Quinn Bolton - Needham & Company Inc. - Analyst : Great. You guys have set up a gross margin target of 58%. I think your guidance for the December quarter is 50%. What are the biggest drivers for you to reach that long-term gross margin target?

Question: Quinn Bolton - Needham & Company Inc. - Analyst : Perfect. And I think at the recent fireside chat, you also sort of talked about expectations for the pricing environment. What are you seeing in terms of pricing for 2025? And has pricing had any impact on your longer-term growth outlook for the business?

Question: Quinn Bolton - Needham & Company Inc. - Analyst : Great. You've mentioned your strategic review or annual planning process, and you wrapped that up last fall. I know you sort of reiterated your sort of longer-term model and outlook. But were there any other sort of big takeaways from that strategic planning process, any shifts in strategy? Or -- REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 16, 2025 / 2:30PM, ALGM.OQ - Allegro Microsystems Inc at Needham Growth Conference

Question: Quinn Bolton - Needham & Company Inc. - Analyst : Got it. I think recent calls and fireside chats, you've talked about seeing some customers in China and Korea placing orders within lead times. But I think you've also talked about, obviously, in the near term, you can ship within lead time, but you're starting to ask customers for a little bit better visibility so that you can play on your business and those folks aren't caught short. Are you seeing the customers respond to those requests for sort of longer-dated delivery times?

Question: Quinn Bolton - Needham & Company Inc. - Analyst : Understood. Last July, the company repurchased 38.8 million shares from your largest shareholder and former parent, Senken. Senken's ownership in the company now down to about 32.5%. Has that reduced ownership? Had any impact on day-to-day operations at Allegro? Or was Sanken already pretty arm's length in terms of the relationship between the two companies?

Question: Quinn Bolton - Needham & Company Inc. - Analyst : Got it. And has Sanken sort of expressed any desire to you that they may look to sell additional shares when their 14-month lockup expires in October? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 16, 2025 / 2:30PM, ALGM.OQ - Allegro Microsystems Inc at Needham Growth Conference

Question: Quinn Bolton - Needham & Company Inc. - Analyst : Great. kind of a bigger picture, long-term question, what are your biggest priorities? Or what are you most focused on over the next, say, five to seven years rather than say, the next one to two years?

Question: Quinn Bolton - Needham & Company Inc. - Analyst : Excellent. And then the last question for me. Your last two acquisitions brought some pretty nice technology to the company, the TMR sensors, the isolated gate drivers and both of those products seem to have some pretty nice momentum right now. What are your thoughts on additional M&A opportunities? And what type of technology would you find interesting additions to potentially expand the product portfolio?

Question: Quinn Bolton - Needham & Company Inc. - Analyst : Yes. The robotics opportunity sounds pretty interesting. Someone this week said that there could be 50 different motors and humanoid robot and obviously, lots of sensing, lots of motor control, motor drive. I imagine in those robots. So -- REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 16, 2025 / 2:30PM, ALGM.OQ - Allegro Microsystems Inc at Needham Growth Conference

Question: Quinn Bolton - Needham & Company Inc. - Analyst : Perfect. Well, we're near the end of the session. I just wanted to see if there are any closing thoughts or comments you might like to leave with the investors listening to today's fireside chat.

Question: Quinn Bolton - Needham & Company Inc. - Analyst : That's right. And we're certainly excited for you for 2025. And so with that, Vineet, Derek, thank you for joining us at the Needham Growth Conference. We really appreciate it.

Question: Quinn Bolton - Needham & Company Inc. - Analyst : Thanks, everyone.