Allegro MicroSystems(US:ALGM)2023-01-31 17:27Financial Data and Key Metrics Changes - Allegro reported record sales of $249 million, a 5% sequential increase and a 33% year-over-year increase, near the high end of guidance [7][8] - Gross margin expanded to 58%, an increase of 180 basis points compared to Q2, driven by favorable product mix and foreign exchange [15][19] - Operating income reached 30.3%, up from 27.9% in Q2 and 23.1% a year ago, with earnings per share increasing 84% year-over-year to $0.35 [19][21] Business Line Data and Key Metrics Changes - Automotive sales increased 8% sequentially to $170 million, representing 68% of total sales, with e-Mobility sales growing 15% sequentially and 54% year-over-year [15][16] - Industrial sales grew 6% sequentially and 60% year-over-year to $51 million, driven by Clean Energy and Industrial Automation markets [11][15] - Magnetic sensor sales increased 10% sequentially and 25% year-over-year to $154 million, while power product sales declined 3% sequentially but increased 50% year-over-year [16] Market Data and Key Metrics Changes - Global auto production is projected to increase by 8% in fiscal 2023 and by another 4% in fiscal 2024, with EV production expected to rise by 50% in fiscal 2023 [14] - Sales by geography were well-balanced, with 26% in China, 24% in the rest of Asia, 18% in Japan, and 16% in both Europe and North America [17] Company Strategy and Development Direction - Allegro is focusing on e-Mobility and industrial markets, with a strategic emphasis on innovation and R&D investments to support growth [10][21] - The company plans to open a new R&D center in Richardson, Texas, to enhance its research and development efforts [11] - Allegro aims to improve lead times and reduce past due backlog by increasing wafer and die bank capacity [15][19] Management's Comments on Operating Environment and Future Outlook - Management acknowledged macroeconomic uncertainties but noted robust demand and order patterns across focus areas [13][14] - The company expects sales in Q4 to be in the range of $260 million to $270 million, projecting a full-year sales increase of 26% [20] - Management expressed confidence in the company's ability to outperform market growth due to strong secular trends and innovative product offerings [21] Other Important Information - Allegro's backlog remains strong, with over a year of backlog and a decline in past due backlog as product shipments increase [9][26] - The company received recognition as the Best Cooperation Supplier of 2022 by Wodeer and Geely, highlighting its commitment to customer engagement [22] Q&A Session Summary Question: Update on backlog stress testing - Management confirmed that backlog stress testing continues, with cancellations slightly higher in Q3, but backlog remains above normalized levels [26] Question: Insights on gross margin performance - Management indicated that foreign exchange continued to be a tailwind in Q3, contributing to gross margin performance [27][28] Question: Timeline for Polar investment impact - Management expects the Polar investment to contribute meaningfully in two to three years, while working with other foundry partners for increased allocation in the short term [30][32] Question: Inventory targets and lead times - Management acknowledged the need to build wafer and die banks and indicated that a 100 to 110-day inventory target may be too low in the near term [33][34] Question: Data center business outlook - Management noted a pause in data center inventory digestion but remains optimistic about design wins and the 48-volt trajectory [36][37] Question: EV market growth expectations - Management is using third-party data for EV growth projections, indicating potential for faster expansion due to price cuts [48] Question: Foundry capacity allocation improvements - Management confirmed that foundry capacity allocation is incrementally improving, with a positive long-term outlook [51]