Allegro Microsystems Inc Q2 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 : Yeah, thanks for taking the question and congrats on the results. Maybe just kind of try to understand a little bit inside the automotive business, I think mobility was up a little bit sequentially, but non-e-mobility was up a lot more. Any sort of color on just how do we think about what's driving that? Is it inventory replenishment? And what -- how do you think about that going forward?

Question: Joe Quatrochi - Wells Fargo Securities LLC - Analyst : Thanks. And then as a follow-up, I think your slide deck has referenced an opportunity like $425 million per rack of revenue for AI servers. Any help on just kind of understanding what you're capturing today? And how do you see that trending over the next couple of years? 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 30, 2025 / 12:30PM, ALGM.OQ - Q2 2026 Allegro Microsystems Inc Earnings Call

Question: Joe Quatrochi - Wells Fargo Securities LLC - Analyst : Thank you.

Question: Vivek Arya - Bofa Merrill Lynch Asset Holdings Inc - Analyst : Thanks for taking my questions. On the first one, just on the demand side, very near term. I was wondering if you are noticing any direct or indirect effects because of the next year situation that is going on and it's constraining output at some of the large auto OEMs. And in general, Mike, how would you describe kind of the regional demand environment? I think you mentioned Europe is still a little bit below trend. But just in general, how would you describe what the kind of the broader regional demand situation is and where you see inventory kind of being on the better versus worse side.

Question: Vivek Arya - Bofa Merrill Lynch Asset Holdings Inc - Analyst : And from my follow-up on just a sequential trend. So you are guiding to growth in the December quarter, right, which tends to be usually flat to down or so. So I'm curious what's driving that above seasonal growth and for extra credit, if you could give us a sense for how should we think about seasonality going into March? Thank you.

Question: Vivek Arya - Bofa Merrill Lynch Asset Holdings Inc - Analyst : Thank you.

Question: Gary Mobley - Loop Capital Markets LLC - Analyst : Good morning, everybody. Thanks for taking my question. Derek, I'm having a little bit of a difficult time reconciling the 60 basis points of gross margin upside you delivered for the quarter. Seemingly, there were some headwinds like foreign exchange also automotive was a higher percentage of mix. You delivered right on with that $0.75 of gross profit drop-through. So what drove that gross margin upside for the quarter?

Question: Gary Mobley - Loop Capital Markets LLC - Analyst : Thanks for that. Just my follow-up, I want to ask about the shipment into the channel is embedded in your third quarter revenue guide that $220 million midpoint, does that assume that you're still under shipping to end demand? And maybe you can give us a sense if so, by how much?

Question: Gary Mobley - Loop Capital Markets LLC - Analyst : Thanks, guys.

Question: Tom O'Malley - Barclays Services Corp - Analyst : Hey, guys, really nice results and thanks for taking my questions. The first is just on the mix of business in the quarter. It looks like your no mobility business was very strong. We've seen a bit of slowing on the e-mobility side. Could you just maybe give us the breakdown of what you expect

Question: Tom O'Malley - Barclays Services Corp - Analyst : Anything on the guidance between those two just into the out quarter on what you're expecting between those two segments?

Question: Tom O'Malley - Barclays Services Corp - Analyst : Go ahead.

Question: Tom O'Malley - Barclays Services Corp - Analyst : Helpful. And then just as a follow-up, into the out year, I think more broadly, auto estimates for just market growth have come down a little bit, but you guys have shown an ability to grow really despite the broader market kind of slowing or really being kind of flattish. Can you remind us again is there a way or a framework to think about your growth versus what the broad market looks like into 2026? And any kind of puts and takes that we can to apply kind of your growth trajectory versus what we think is kind of more of a flattish market for next year. Thank you very much.

Question: Chris Caso - Wolfe Research LLC - Analyst : Yes. Good morning. The first question is related to gross margins as we go into next year. And in the past -- this past year, you've seen a seasonal decline in gross margins in the March quarter as annual price reductions kind of take hold. Should we expect similar this year? And then perhaps with that, could you talk a bit about what your pricing expectations are into next year? Or are you still expecting a fairly normal pricing environment?

Question: Chris Caso - Wolfe Research LLC - Analyst : Got it. That's helpful. I guess going forward, you made some comments, Derek, this was sort of in the late eighth inning with regard to inventory reduction and such. Is that a comment for both the distribution channel as well as the direct customers? And if that's the case, how do we think about that with respect to revenue growth and seasonality as we get over the next few quarters? I mean is it -- if we start to get some restocking, if demand stabilizes here, does that suggest above seasonal quarters once the inventory burn is complete?

Question: Chris Caso - Wolfe Research LLC - Analyst : It's very helpful. Thank you.

Question: Blayne Curtis - Jefferies - Analyst : Hey, good morning and a nice results. Two questions. I just wanted to ask, obviously, data center has been all over the news. And I'm just kind of curious how you've seen the outlook for data center improved over the last quarter. And then I don't know if you're able to kind of frame how big it is within industrial I'd also be curious, just commentary as to -- obviously, there's a 3x increase in content to AI, but how much is AI today versus general-purpose servers.

Question: Blayne Curtis - Jefferies - Analyst : Got you. Thanks. And then I wanted to ask this -- I guess if I did the math right, the [Disty] sales were up 22% sequentially. So I think that's a high number vers historically. I guess I'm just curious you just described that you said inventories are down in that channel? I guess, why the jump? And is it more end market related? If you can just provide any color would be great.

Question: Blayne Curtis - Jefferies - Analyst : Got you. Thank you.

Question: N. Quinn Bolton - Needham & Company LLC - Analyst : Hey, guys. Nice job on the results and outlook. I guess I just wanted to come back. I think last quarter, you had sort of put consumption at the end of '24, somewhere in the level of $220 million to $230 million. And I think you sort of felt that, that was probably a good level to think about through this year, given some of the annual price declines. Just wanted to make sure you guys hadn't changed your outlook for where you think sort of end consumption is. And then looking forward, when do you think you get back to that sort of low double-digit growth rate in that TAM? Do you think that's something you're looking for in 2026?

Question: N. Quinn Bolton - Needham & Company LLC - Analyst : Great. And then I wanted to follow up, Mike, you sort of addressed some of the applications in the data center, but I was wondering if you could specifically talk about 800-volt given a number of the hyperscalers talking about moving to 800-volt rack power distribution rails in next-generation racks, I think you've kind of gone through where you play in 48-volt, but do you have specific applications at that 800-volt rail on top of what you've kind of previously highlighted on the 48-volt rail?

Question: N. Quinn Bolton - Needham & Company LLC - Analyst : Perfect. Thank you.

Question: Joshua Buchalter - Cowen and Company LLC - Analyst : Hey, guys, thank you for taking my questions. Congrats on the results and guide. I'm sensing a lot of optimism on the current sensing side. Really, it seems like it's been building all year. Is this because of the TMR portfolio maturing and potentially being applicable and ready for autos. Maybe you could just speak to how much of the current sensing piece is current and ready on TMR across your applications? Thank you.

Question: Joshua Buchalter - Cowen and Company LLC - Analyst : Thank you for all the color there. As my follow-up, it sounds like you have incremental confidence in the pricing environment. Obviously, maybe I was hoping you could expand on what's changed in the market that's driving that confidence? And then also when you talked about being able to hold pricing better into I think you said stable. Are you expecting flat pricing into 2026? Or is that just relative to the step down that happened at the beginning of this year that it's more stable. Thank you.

Question: Joshua Buchalter - Cowen and Company LLC - Analyst : Got it. Thank you.

Question: Vijay Rakesh - Mizuho Securities Asia Ltd - Analyst : Yeah, hi. Mike and Derek, just a quick clarification on the e-mobility and magnetic sensors. I saw e-mobility growing 21% year-on-year, and the magnetic sensor was growing only 2% year-on-year. Is that because a lot of the traction is on the motor driver side here? And do you see a pull-through for the Magnit sensors with the motor trials like the position speed or find sensing alongside those motor drives, as you look out?

Question: Vijay Rakesh - Mizuho Securities Asia Ltd - Analyst : Got it. And then, Derek, on the longer-term 58% gross margin target, just wondering in how we should look at that the progression to that, whether it's product mix or foundry or loading pricing, et cetera, again, just walk us through that. Thanks.

Question: Vijay Rakesh - Mizuho Securities Asia Ltd - Analyst : Got it. Thank you.

Question: Joseph Moore - Morgan Stanley - Analyst : Great. Thank you. I wanted to come back to the data center business. I think -- I want to make sure I have the right sizing that it's kind of mid-single-digit percentage of revenues? And can you kind of help us with how much of that currently is cooling versus power?

Question: Joseph Moore - Morgan Stanley - Analyst : Okay. That's helpful. Thank you. And then with regards to the comment you made a few minutes ago that the rack content is quite a bit different. Can you expand on that a little bit just because of the market right now, there's a combination of kind of racks of way servers versus full rack scale. What's the difference in content for you guys?

Question: Joseph Moore - Morgan Stanley - Analyst : Great. Thank you very much. Congratulations on the numbers.

Question: Timothy Arcuri - UBS AG - Analyst : Thanks a lot. I want to go back to this question on distribution. It was up 22%. It sounds like it's just shy of $120 million. But then you said that they burn $5 million worth of your part. So it sounds like sell-through was like $5 million, we've been higher than that. Yet the direct sales were down 10%. So it kind of seems like end customers are building inventory, and they're pulling from the Disty. So I know that you don't have as much visibility as to what's kind of happening at the end customer. But does that make you a little concerned that maybe they are building inventory just out of.

Question: Timothy Arcuri - UBS AG - Analyst : Okay. And then it sounds like based on the answer to a prior question, it sounds like data center you're kind of a mid- to high single-digit share of this $900 million TAM that you put in the deck. So how -- like how big do you think your share can get there? Is it -- I know that the story really is 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 30, 2025 / 12:30PM, ALGM.OQ - Q2 2026 Allegro Microsystems Inc Earnings Call one that TAM is growing versus your share, but are you also going to gain share in that TAM? And kind of what do you think that your share can get to?

Question: Timothy Arcuri - UBS AG - Analyst : Okay. Thank you.

Question: Mark Lipacis - Evercore ISI - Analyst : Great. Thanks for taking my questions. Derek, you had mentioned that some -- you're seeing some of your customers trying to order within lead times. So I'm hoping you could just review some of the cycle signals? Are you seeing expedites, are you seeing pull-ins? Or are any of these things changing quarter-to-quarter? And is any of what's going on with your own company lead times? Or any changes there or lead times from your suppliers? And then I had a follow-up.

Question: Mark Lipacis - Evercore ISI - Analyst : Got you. Very helpful. And then a follow-up. There's in the news concerns around rare earth metals or do you guys use those? And if so, what's your strategy for building inventory here? Thank you. 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 30, 2025 / 12:30PM, ALGM.OQ - Q2 2026 Allegro Microsystems Inc Earnings Call

Question: Mark Lipacis - Evercore ISI - Analyst : Great. Thank you very much.