Allegro Microsystems Inc Q3 2025 Earnings Call Transcript

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

Question: Joe Quatrochi - Wells Fargo Securities LLC - Analyst : Maybe first is just to kind of unpack the gross margin guidance a little bit for the March quarter. How should we think about the mix of the impact from underutilization costs as well as the pricing agreements and just the timing there? And then, do we think about the March quarter as being kind of the bottom for gross margin this year for the calendar year?

Question: Joe Quatrochi - Wells Fargo Securities LLC - Analyst : That's helpful. And then, I guess as we just kind of look forward in demand and you're talking -- I can appreciate you're talking about continuing to work down inventory. But I guess like, how do you view the shape up for the calendar year? And given that you're talking about some of your end markets growing double -- low double digits or double digits for ADAS and EV production. Do we start to shift to better than in-demand here as we look beyond the March quarter?

Question: Thomas O'Malley - Barclays Investment Bank - Analyst : I have a couple of housekeeping ones and then a broader one. Into the March quarter, could you give us the split between your expectations between Auto and Industrial, and Other?

Question: Thomas O'Malley - Barclays Investment Bank - Analyst : And if I look at your xEV business, you said it was 48% of revenue. This is the first time since kind of really like June of '23, I guess, there's been a couple of times along the way, but you see the crossover of the other auto business or more of like the SAR tracking auto business get larger. When you look over the next four quarters, would you expect there to be a crossover again where you see more growth on that xEV side? Or do you think that the trajectory of this year is really growth fueled by the broad-based bucket, just because it looks as though the faster-growing stuff is actually

Question: Thomas O'Malley - Barclays Investment Bank - Analyst : Got you. And then, if I can just sneak one more. And if you look at the trajectory over the last three quarters, the industrial business has tracked pretty closely with your exposure to China. In June, there was a very large stepdown. China stepped down from 27% to 19%. You had a really big uptick in September. China stepped up from 19% to 26% and now with auto down, you're actually seeing a little bit of China growth. Could you help us understand, like, as a percentage of your revenue in Industrial, is China a bit more outsized there versus the rest of the business?

Question: Gary Mobley - Loop Capital Markets LLC - Analyst : I want to ask, I guess, direct and focused question. One, do you believe in S&P Mobility's forecast of flat light vehicle production in calendar year '25? And given where your inventory levels are in the automotive channel, do you think you can grow in line or better than light vehicle production unit growth in 2025?

Question: Gary Mobley - Loop Capital Markets LLC - Analyst : Okay. As my follow-up, I want to ask about, pricing on both sides. So pricing to your customers, we think about that as being once a year discrete event or is it more dynamic real-time adjustments? And what pricing trends are you seeing from your various foundry partners?

Question: Chris Caso - Wolfe Research LLC - Analyst : I guess, just another question with regard to kind of pricing and margins. It sounds like what you said was there was a 200 basis point impact from this pricing ahead of cost reduction and some of the other charges. I guess, question one would be, are we -- do we expect that we recapture that as we go into the second half when the cost reductions come back? And then secondly, and perhaps more importantly, what do you think is the right gross margin structure for the company? And coming out of the pandemic when prices were going up, perhaps that's not the best way to look at it. What's the right way to look at the company's margin structure as we go forward?

Question: Chris Caso - Wolfe Research LLC - Analyst : Okay. Understood. As a follow-up, you had spoken -- I think it was last spring, where you had taken some price actions and I think at that time, it was in the Industrial business. There's some price support you provided to the channel to move some inventory. Has the pricing in that segment now normalized? And I guess, our assumption at the time was that was a onetime short-term thing in order to move some inventory. With the channel business, what's been the trend in pricing there?

Question: Quinn Bolton - Needham & Company Inc. - Analyst : Derek, I guess, I wanted to follow up on the gross margin question. You've talked about the 65% incremental fall-through for a while now, and it sounds like that still holds. And I guess obviously, you're taking a step back in March. It sounds like some of that are charges like obsolete inventory. And so, I guess, if I looked at a 65% incremental fall-through off the December base versus a 65% fall-through from the March base, that's a pretty different outlook. And so, I know you're not guiding beyond the March quarter, but is there an opportunity at some point in calendar '25 to see better than a 65% fall-through as one, you start to see these lower costs cycle through inventory, you obviously won't have inventory charges I hope every quarter. It just kind of feels like if we're only modeling 65% fall-through of that March base, it's a pretty big reset to margins throughout fiscal '26 and probably into fiscal '27. So just wondering if we might be able to make back some of that margin over the next several quarters. 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 30, 2025 / 1:30PM, ALGM.OQ - Q3 2025 Allegro Microsystems Inc Earnings Call

Question: Quinn Bolton - Needham & Company Inc. - Analyst : Great. And then maybe just a question what you're seeing from customers. One of your peers, Mobileye, on their call this morning talked about, given some of the slower growth in EVs, they're seeing some customers reemphasize ICE vehicles that have just -- obviously, they're ICE vehicles, not EVs. They also have perhaps lower ADAS content. Wondering if you're seeing any of this kind of shift back to ICE vehicles with lower ADAS? And if so, does that have what kind of impact might that have on your business over the next couple of years? Or are you just not really seeing any major push to reemphasize ICE among your customer base?

Question: Blayne Curtis - Jefferies LLC - Analyst : I had two. First, just going back on the gross margin, I want to understand, obviously, you said higher underutilization charges. Derek, just what do you expect to do with absolute value of inventories with these moves that you made? Will that start to come down into March? And I'm just trying to use that as a gauge as the recovery into the next fiscal year. I know you don't want to give absolute numbers, but I also want to know, is there any interplay between your different fab options? I kind of lost track. You went during the pandemic back to more polar, because it ended up being cheaper. There was a storyline about using TSMC and UMC at one point to be cheaper. Can you just kind of level set us on that as well as it impacts your utilizations and whether there's any swing factor there? 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 30, 2025 / 1:30PM, ALGM.OQ - Q3 2025 Allegro Microsystems Inc Earnings Call

Question: Blayne Curtis - Jefferies LLC - Analyst : Perfect. And then, I wanted to ask you on bookings. You mentioned some improvement. You probably don't want to give us book-to-bill, but kind of directionally, just kind of -- I'm trying to understand between your two of these segments, Auto and Industrial, whether they're above one? Like I guess, kind of just any color you can provide as to where it is today?

Question: Vijay Rakesh - Mizuho Securities USA - Analyst : Just a quick question on the bookings. I saw you in December quarter bookings had a pretty nice pick up, 50% sequentially. Just wondering how that's trending into March? And also, if you could give us some more color on the bookings, Vineet, is that more on the auto side? Is that a spread out between Auto and Industrial?

Question: Vijay Rakesh - Mizuho Securities USA - Analyst : And then on the gross margin side, can you walk us through just -- if you look out to the next four to eight quarters, how this should play out between? What are the puts and takes to it between pricing and inventory and utilization or demand, et cetera?

Question: Josh Buchalter - TD Cowen - Analyst : I want to follow up on some of Vineet's comments just now. So is it correct? It sounds like you think inventory levels in autos at your Tier 1 partners and OEMs is at levels where you want them to be and you no longer feel like you need to undership anymore, and it's just waiting on end demand. Like anything, I guess, in fact, the risk is more in the other direction that there's too little and too much right now. I just want to just ask that one pretty directly.

Question: Josh Buchalter - TD Cowen - Analyst : Got it. And I guess -- just apologize for being the dead horse here on pricing. But I assume that there's been no material change in the competitive environment that's driving any of the incremental changes in pricing. You described it as back to normal. I just wanted to check in on the competitive front and also ask within your product portfolio, how much is current sensing contributing today? And I would just be helpful to hear an update on Crocus. Sorry, I snuck through in there.

Question: Josh Buchalter - TD Cowen - Analyst : Any change in competitive environment --

Question: Grant Joslin - UBS - Analyst : In the presentation, you called out Industrial being led higher by medical and data center, but I was wondering if you could talk about what you're seeing in your other industrial end markets like clean energy and broad markets. Are we seeing policy uncertainty or macro overhanging on clean energy? And how would you characterize broad markets generally?

Question: Mark Lipacis - Evercore ISI - Analyst : Vineet, when you talk about the doubling of the product introductions over the past two years or the past six quarters, can you just help us understand where are you in the revenue realization part of that? Maybe if you could just step us through the design win process to when you start to recognize revenues from the new products? And then when you really hit your stride with those, and when do they start to really have a nice impact on the top line?