Allegro Microsystems Inc Q2 2025 Earnings Call Transcript

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

Question: Blayne Curtis - Jefferies - Analyst : Vineet, I just want to ask, obviously, you had a very sharp correction in June. I think you felt comfortable at the time that, that was such a big correction that you could kind of grow off of that. And you did in September, but then the sequential down again. So I'm just kind of curious, was that you're going to be back to kind of those June levels, which you thought were way below where they should be. So I'm just kind of curious what changed. And can you walk us through also for December? I'm assuming a big part of that correction is auto, but industrial was up strongly. Is that back down in December as well?

Question: Blayne Curtis - Jefferies - Analyst : Thanks. And then I just want to ask you, you mentioned a gate driver win with a China OEM.

Question: Blayne Curtis - Jefferies - Analyst : Can you just expand on that? Obviously, it's a new product for you. And there's a big discussion about Chinese silicon carbide and is your gate driver paired with Chinese silicon carbide. I'm just trying to understand, obviously, there's a bundle situation for some of the vendors. You're kind of breaking that bundle with a better performing shapes. Just kind of curious what drove that win and expand on maybe the gate driver pipeline.

Question: Thomas O'Malley - Barclays - Analyst : Mine is a little bit broader. So if I look at just the general auto space from kind of calendar year '21 on just before the pandemic and to today, like you've grown pretty much lock, stop and bear with the auto group. And if I look at 2024, obviously, not everyone has reported yet, but it looks like you're seeing a much sharper correction than your peers this year, where like just based on your guidance, you're kind of down 20-ish percent on the year versus the peer stuff that's just down modestly. So could you maybe just describe, one, do you think that you are just earlier to the correction where you're taking this cut before others and have a little bit more of a lean in supply chain given your product type and would see you recover more quickly? Or maybe any sort of statistics around inventory work down or where the channels today or where direct customers are today, that would explain that difference? I guess that's the first question.

Question: Thomas O'Malley - Barclays - Analyst : Helpful. And can you just give us the metric on weeks of inventory at Disti like where is that normally? Where does that kind of peak and where is it now? And just kind of in line with that question, if things are more normalized, do you expect that kind of looking into the March and June quarter? Obviously, you're describing some seasonality in December that you would see some accelerated growth off of the bottom there.

Question: Chris Caso - Wolfe Research - Analyst : I guess maybe just a follow-up on that last comment you made where the mix normalizes in Q4. Maybe you could give some sense of what you expect for the product mix as you go into Q4 with maybe the buckets of auto, industrial and what's going on in China there because, obviously, a lot changed? There was a lot of China in Q3, a lot of growth in Industrial in Q3 and how that kind of plays out as you go into Q4?

Question: Chris Caso - Wolfe Research - Analyst : Okay. Understood. I wonder if you could also follow up on some of the comments you made about the China supply chain, which you're making some changes there. I mean, is that you're going to move some production into China domestic to be able to address some of the local OEMs there? Maybe give some color on what's the strategy is there and what's the time line of that?

Question: Chris Caso - Wolfe Research - Analyst : And just a follow-on to my follow-on. Are there any margin implications with that with moving that production into domestic China?

Question: Tim Arcuri - UBS - Analyst : It's Tim Arcuri. So can you talk a little bit about what's going on with magnetic sensors versus PMICs? Is the outlook better in one market versus the other?

Question: Tim Arcuri - UBS - Analyst : Perfect. Yes. Got it. So Derek, I think back in May, you were hopeful to get to kind of mid-50s gross margin by March. And obviously, things are worse than you thought then. But can you sort of talk about some of the puts and takes as you look into next year? And maybe what the sort of incremental drop through we should think about is on the gross margin as you kind of come off the bottom?

Question: Vijay Rakesh - Mizuho - Analyst : Just two quick questions. On the Disti side, can you talk to where inventories are and where they should be versus normal levels, I guess?

Question: Vijay Rakesh - Mizuho - Analyst : Got it. And then as you look out, let's say look out to next year. Just wondering how the competitive landscape looks. What do you think in terms of your share on the magnetic sensor side? And are you seeing any pricing pressure or do you expect pricing to be pretty stable into next year, if you can give some color around that?

Question: Mark Lipacis - Evercore ISI - Analyst : Great. Vineet, you said you had visited -- spent a lot of time visiting customers this past quarter. And I'm wondering if you look past your own distributors to your customers, and I guess particularly at the Tier 1s, do you have a sense that inventory is there for further downstream past the distributors are still above normal and going to normal levels? Or do you think they're at normal levels going to below normal levels at that part of the supply chain?

Question: Mark Lipacis - Evercore ISI - Analyst : All right. That's very helpful. For a follow-up, if I may. Just -- just moving to that, you discussed the die bank. You had a large decline in your own days of inventory on your balance sheet. And could you just remind us of the target that we're shooting here for here? And can you characterize that? Is that mostly die bank to the extent it's finished goods? And what do you think happens to your own inventories over the next several quarters? And is the decline in aggregate affecting -- impacting your own effective lead times on an aggregate basis or how you're able to respond to your customers?

Question: Quinn Bolton - Needham & Company, LLC - Analyst : I'm hoping you might be able to help square the circle here. In the June quarter, you guys saw a pretty heavy decline in revenue. And I think you said at the time that you took four weeks out of end customer inventory with that decline. Then from that June base a quarter ago, you sort of thought you could grow low double digits through the end of the fiscal year. Obviously, we're seeing a little bit of a reset in December. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 31, 2024 / 12:30PM, ALGM.OQ - Q2 2025 Allegro Microsystems Inc Earnings Call And I understand your comments about pockets of inventory and lower demand in North America and Europe, given some of the production cuts, but that's only a third of your total sales. And so I guess I'm just trying to get a better sense from you, where do you think end consumption of your devices are? It sounds like inventory in China, Japan and most of the rest of Asia is back to pretty normalized levels. And so I'm just trying to figure out, are you sort of implying that the run rate of your business kind of sell out POS type? Is that now well below prior expectations? Or is there still a fair amount of inventory digestion embedded in the September and December numbers?

Question: Quinn Bolton - Needham & Company, LLC - Analyst : And so this may be a sort of a difficult number, but would you sort of think that as you get through these pockets of inventory over the next one to two quarters, I mean, do you think natural consumption or demand for your parts, is that closer to, say, $225 million a quarter? Is it closer to $250 million a quarter? Or do you think that it's lower again, if you're a $175 million in December, getting back to kind of the prior run rate of $250 million or above. That's a pretty hefty jump, and I'm just trying to figure out whether you think that's still kind of in the cards or whether there may have been demand destruction or just lower production kind of says maybe you don't think you get back to that level all that quickly.

Question: Quinn Bolton - Needham & Company, LLC - Analyst : Got it. So kind of end consumption, maybe in that $225 million a quarter range growing at sort of 10%. So once you get back to that level, whether that's '25 or fiscal '26, we'll see. But it sounds like that's kind of the right end demand levels to be thinking about? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 31, 2024 / 12:30PM, ALGM.OQ - Q2 2025 Allegro Microsystems Inc Earnings Call