Allegro Microsystems Inc Q1 2026 Earnings Call Transcript

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

Question: Joe Quatrochi - Wells Fargo Securities LLC - Analyst : Yes. I was wondering -- I think you talked about starting to see some areas -- increasing areas of shortages and needing to refill inventory. Can you talk about just the forward demand picture you're seeing in the demand pull through your customers and how you're thinking about the dynamic of potential tariff pull-ins versus continued recovery?

Question: Joe Quatrochi - Wells Fargo Securities LLC - Analyst : That's really helpful. And then as a follow-up, I was wondering if you -- can you talk a little bit more about just the industrial exposure? I think in the past, you talked about clean energy, solar being a big piece of that. And I know there's been some changing with the Big Beautiful Bill in terms of subsidies for solar. So any help there and like what those discussions with customers have been like?

Question: Vivek Arya - Bofa Merrill Lynch Asset Holdings Inc - Analyst : The first one is on gross margin. So they exceeded the high end of your outlook, and I'm curious what helped to drive the upside? And if you could help differentiate between utilization, pricing and mix, what was specifically different than your initial assumptions? And then as we look forward, how do you see these three drivers as you march towards your goal of 50% over the next few quarters?

Question: Vivek Arya - Bofa Merrill Lynch Asset Holdings Inc - Analyst : Very helpful. Then maybe, Mike, one for you. Maybe your views on the Automotive demand recovery because there has been some mixed messages from some of your larger peers, Texas Instruments, STMicro and others. And I'm curious, how do you see the demand environment now versus what you thought 90 days ago? And to be more specific, how are you looking at Automotive sales growth going into your September quarter against what is probably just a flattish auto production environment globally. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JULY 31, 2025 / 12:30PM, ALGM.OQ - Q1 2026 Allegro Microsystems Inc Earnings Call

Question: Gary Mobley - Loop Capital Markets LLC - Analyst : Derek, that revenue guide for the September quarter of $210 million. Would you say that represents shipping to true end demand? Or are we still seeing some reduction in the distribution channel that holds the quarterly revenue back?

Question: Gary Mobley - Loop Capital Markets LLC - Analyst : Got it. Appreciate that color, Derek. Mike, you just highlighted the mix data points in the automotive market. On the negative side, clearly, we've seen a number of leading Western automotive OEMs revised down their profit forecast because of tariffs and whatnot. Has that had any impact on the design RFQ activity with many of those Western automotive OEMs in other words, are they trying to plug the dike, so to speak, because of the tariff environment? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JULY 31, 2025 / 12:30PM, ALGM.OQ - Q1 2026 Allegro Microsystems Inc Earnings Call

Question: N. Quinn Bolton - Needham & Company LLC - Analyst : Derek, congratulations on the nice results and outlook. I guess my question is this auto recovery and looking into the second half of the calendar year? I know you give guidance only one quarter out. But historically, you've seen some seasonality in the December quarter, certainly sounds like the growing backlog, the increasing bookings, the

Question: N. Quinn Bolton - Needham & Company LLC - Analyst : Got it. And then I guess just a second question. You're seeing increasing expedites. It sounds like both from OEMs and potentially Distis. You've talked about Disti inventories coming down. I mean at what point do you think you start to restock the channel? I know September sounds like you're expecting flattish this year or selling to Matt sell out in that it channel. But would you expect to be in a position of exiting this year to start refilling the channel or are you going to take it one quarter at a time.

Question: Chris Caso - Wolfe Research LLC - Analyst : I guess the first question is regarding China. And I guess we've heard different things from different suppliers with regard to China. It looks like a 28% of revenue. It's not terribly different than what you've seen in the past, but you could talk -- can you talk to specific trends of what you're seeing for both the direct customers and the distribution customers within China?

Question: Chris Caso - Wolfe Research LLC - Analyst : Got it. As a follow-up question, I'd like to discuss pricing. And we're probably in the early stages of recovery right now. So it's probably early to see pricing trends. But I know last year, you had to make some pricing moves to move some inventory. You've got -- you'll be starting soon the annual price negotiations with your auto customers. What's your view with regard to pricing as you head into the end of the year and into next year in the context of maybe supply gets a little bit tighter? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JULY 31, 2025 / 12:30PM, ALGM.OQ - Q1 2026 Allegro Microsystems Inc Earnings Call

Question: Tom O'Malley - Barclays Services Corp - Analyst : I wanted to dive into the sequential omni Industrial and Other side, which was very strong in June, I think, up 14%. And that coincided with a bit of a pickup in China and then a bit of a pickup in Europe as well. Could you map for us where you were seeing that strength? Is that Industrial side more isolated on China? Are those correlated at all? Or was that broad-based strength across the different geos?

Question: Tom O'Malley - Barclays Services Corp - Analyst : Helpful. And then when I look at the e-mobility versus your other auto businesses, there's a pretty big divergence over the last couple of quarters where you're seeing mid-teens growth on the e-mobility side, and then some declines in your more star tracking business. When you look at what's growing within that e-mobility bucket, is that related to EVs more specifically? Just because like when you look broadly right now, you're seeing some news around potentially EV credits some pull forward there being a bit better. Like could you help me understand how much of that's being driven by EV? And like do you have any fears around any order patterns changing just because you're having some change in the rules.

Question: Blayne Curtis - Jefferies - Analyst : I was wondering on the e-mobility side, you mentioned a few drivers in the script. Maybe you could just highlight in terms of -- curious on the future drivers. You mentioned TMR pricing coming down. I know that's a more future one to insert that technology into auto. And then I don't think I've heard gate drivers. Can you maybe just walk us through some of the -- as you look out the next year or two, the timing of some of these new products within e-mobility.

Question: Blayne Curtis - Jefferies - Analyst : I do want to ask you on the data center because that was a segment you broke out a while back and it fell off as spending the data center went down. You mentioned a few times is within that Industrial and Other is data center become more material? Or is it the largest segment? Maybe -- I think someone asked this before, but in terms of this Industrial business that have gone up a bunch, can you just walk us through maybe what are the some of the bigger segments within that?

Question: Vijay Rakesh - Mizuho Securities Asia Ltd - Analyst : Just a quick question, just a follow-up on Blayne's question. When you look at the e-mobility side, I know you laid out the different products that are driving it. Can you also give us some color on what -- as you look at your traction in xEV in China and APAC, how the customer pipeline looks like? What are the big OEMs? Where are you seeing increased penetration? And what are the big wins that you're seeing across APAC and China, et cetera? And what the company landscape looks like? And I have a follow-up.

Question: Vijay Rakesh - Mizuho Securities Asia Ltd - Analyst : Got it. And then on your China for China strategy, does that support all your China revenues now? And are the margins there attractive with the China for China allowing you the 75% drop-through that mentioned.

Question: Timothy Arcuri - UBS AG - Analyst : So Derek, gross leverage is down to about 2 times for September based on your guidance. So when will capital deployment shift from debt pay down to capital return, maybe some share repo. Basically, the question is like when do you consider the balance sheet to be fixed and you're happy with it?

Question: Timothy Arcuri - UBS AG - Analyst : Okay. And then I also wanted to ask on China for China. I think you are getting chips from SMIC maybe at the end of this year. I think you've taped out, I don't know, maybe 10, 15 products in that fab, and then you're taking wafers from other existing fabs and you're routing them through OSATs in China. So can you just talk about, like is that on track with SMIC? And does that change your competitive position in China? I know only you report 26% or mid-20s revenue into China roughly and only -- I think only about half of that remains in China. But does the China for China like is it on track? And do you see it changing your competitive balance in China?

Question: Joseph Moore - Morgan Stanley - Analyst : Sorry, this Joe Moore. There might be some confusion. Can you hear me?

Question: Joseph Moore - Morgan Stanley - Analyst : Okay. Sorry. (inaudible) dial in on a different line. I want to ask about OpEx. I think your long-term plan is 26% of sales. As your revenue accelerates, do you get there quicker do you use that opportunity to invest a little bit more in some of these new markets? Just how do I think about OpEx trajectory? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JULY 31, 2025 / 12:30PM, ALGM.OQ - Q1 2026 Allegro Microsystems Inc Earnings Call

Question: Joseph Moore - Morgan Stanley - Analyst : Okay. That's helpful. And then with regards to China, I know the question has been asked, but in terms of building a pipeline there, can you talk about what that's like. Do you -- obviously, you have differentiated technology, but where there's a tie do they favor European suppliers over American suppliers? And do you see any prospects for China organically doing what you guys do on the semi side?

Question: Joshua Buchalter - Cowen and Company LLC - Analyst : I wanted to ask about current sensing. So it seemed like in the prepared remarks, maybe I'm overthinking this, but your confidence in the near- to medium-term contribution from current sensors and autos has increased. It seems like it's a little early for the TMR IP that you acquired for Crocus to be impacting the auto market. Is this primarily for Hall-effect sensors or

Question: Joshua Buchalter - Cowen and Company LLC - Analyst : Got it. And then I wanted to ask about the legacy auto business. So I back into the numbers, I think the non-e-mobility revenue is down high single, low double digits sequentially and year over year. Was that some of the inventory dynamics that Derek discussed in his prepared remarks. Anything else going on there? And how should we -- is that business stabilized? Or is that just at the point where e-mobility is so much greater as a portion of the mix that it should be flat to down here.