Release Date: August 01, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Allegro Microsystems Inc (ALGM, Financial) delivered Q1 sales of $167 million, above the midpoint of guidance.
- Non-GAAP EPS was $0.03, at the high end of guidance.
- The company made significant progress in reducing inventory in direct and distribution channels.
- Allegro Microsystems Inc (ALGM) launched new products, including a high-voltage power IC solution and new sensor solutions, enhancing their product portfolio.
- The company increased its leadership position in magnetic sensing, driven by continuous innovation.
Negative Points
- Total Q1 sales declined by 31% sequentially and by 40% compared to Q1 of fiscal '24.
- Sales to automotive customers declined by 28% sequentially and 29% year-over-year.
- Industrial and other sales declined 39% sequentially and 62% year-over-year.
- Gross margin was 48.8%, a decline from previous quarters.
- Operating margin was 6% of sales, significantly lower than the 23.8% in Q4 and 31% a year ago.
Q & A Highlights
Q: Could you give us some sense of what you're seeing and the progress that you've made in the quarter regarding customer inventory levels?
A: We have made substantial progress in bringing down inventories, particularly in the automotive channel, where inventories have come down roughly four weeks. In the industrial business, which is largely sold through distribution, we have also made significant progress in regions like China and North America.
Q: What does the inventory work-down in the September quarter imply for the December quarter?
A: While we are not guiding for the December quarter, our assumptions from the prior earnings call remain unchanged. We are pleased to get back to sequential growth in the coming quarter.
Q: Can you help us understand where you're seeing the most recovery between your two segments for the September quarter?
A: The majority of the recovery from Q1 to Q2 is in the automotive segment. Industrial and some consumer markets remain relatively muted, but areas like data centers are expected to recover over the next couple of quarters.
Q: How has your outlook for the automotive market changed over the quarter?
A: We remain focused on the mid to long-term and are encouraged by the continued double-digit growth in xEV production and sales. The quarter-to-quarter changes in automotive production do not significantly impact our long-term strategy and investments.
Q: Are you seeing any impact from the recent US tariffs on Chinese vehicle manufacturers?
A: We do not see the tariffs significantly impacting our Chinese customers' behavior or growth. Our guide reflects our current order patterns and backlog, and we feel well-positioned for secular growth with Chinese OEMs globally.
Q: Can you provide clarity on how your market share is standing in EV and ADAS, and how the design pipeline looks?
A: Third-party data shows we have extended our market share. Our design pipeline continues to grow well, and we are winning more than our fair share in the market. We are pleased with our design pipeline and the trust our customers place in us.
Q: How do you see gross margins progressing towards historical levels?
A: The majority of the decline in gross margin from Q4 to Q1 was due to utilization. We expect gross margins to improve as utilization increases and product and distribution mix become more favorable. We remain committed to achieving our target gross margin model over time.
Q: How should we think about the right level of distribution inventories?
A: Ideally, we aim for 8 to 12 weeks of inventory in the distribution channel, varying by region. We are working to get back to these levels over the next couple of quarters to ensure spot availability and meet demand efficiently.
Q: How is Crocus's margin expected to layer in over the next several quarters?
A: Crocus has been largely integrated into Allegro, and their variable contribution margins are above our existing margins. We are focusing on R&D and expect to release more parts this year, contributing positively to our overall margins.
Q: What is the long-term outlook for Sanken's ownership in Allegro?
A: While this question is best posed to Sanken, they have expressed satisfaction with the strategic relationship and have monetized a significant portion of their value in Allegro through this transaction. Future decisions will depend on their strategic needs.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
