Release Date: October 31, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Allegro Microsystems Inc (NASDAQ:ALGM) secured significant design wins, including a large project with a leading Japanese OEM for a PHEV inverter and a major project for clean energy smart metering applications.

• The company reported a strong increase in second-quarter sales in China, with shipments returning to normal ordering patterns.

• Allegro Microsystems Inc (NASDAQ:ALGM) is proactively localizing production in China, with the first parts from the newly formed China supply chain expected to launch before the end of the year.

• The company is seeing increased activity in its industrial and other end markets, with signs of demand recovery expected in calendar year 2025.

• Allegro Microsystems Inc (NASDAQ:ALGM) continues to invest in growth, focusing on new product introductions and extending market leadership.

Negative Points

• Total Q2 sales declined by 32% compared to Q2 of fiscal 2024, with automotive sales down 28% year over year.

• The company expects continued near-term choppiness in order patterns from North America and European customers due to inventory digestion challenges.

• Operating margin decreased significantly from 31% a year ago to 11.7% in the current quarter.

• Allegro Microsystems Inc (NASDAQ:ALGM) reported a $35 million non-cash GAAP loss in Q2 due to a forward repurchase fair value adjustment.

• The company anticipates a decline in third-quarter sales, projecting a range of $170 to $200 million, reflecting ongoing customer inventory rebalancing and December quarter seasonality.

Q & A Highlights

• Warning! GuruFocus has detected 6 Warning Signs with ALGM.

Q: Can you explain the sequential decline in revenue for the December quarter and the factors affecting it? A: (CEO) Our midpoint guide for the December quarter is higher than June, with progress in inventory rebalancing. Automotive sector momentum is strong in China, with shipments up 54%. However, North America and Europe still face inventory digestion challenges, compounded by production reductions by OEMs.

Q: Could you expand on the gate driver win with a Chinese OEM and its significance? A: (CEO) The win was for our GaN isolated gate driver, which offers significant space and cost savings by integrating three functions into one chip. This appeals to OEMs looking to reduce system costs while maintaining flexibility in sourcing power components. We are also preparing to sample our silicon carbide drivers, which have generated strong customer interest.