Allegro MicroSystems(ALGM) - 2024 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Sales for Q3 were $255 million, up 2% year-over-year, with gross margin at 54.6% and operating income at 27.2% [6][15] - Earnings per share were$ 0.32, exceeding the high end of guidance by 10% [15] - Automotive sales reached $195 million, an 18% increase year-over-year, representing 76% of total sales [15] - E-mobility sales increased by 45% year-over-year, now accounting for 54% of automotive sales [15][46] Business Line Data and Key Metrics Changes - Sales in strategic growth areas, including e-mobility and industrial, rose approximately 20% year-over-year to$ 150 million, making up 59% of total sales [6][15] - Industrial sales were $46 million, down 25% sequentially and 14% year-over-year [15] - Magnetic sensor sales were$ 154 million, declining 13% sequentially but flat year-over-year [16] Market Data and Key Metrics Changes - Sales by geography were balanced: 30% in China, 24% in the rest of Asia, 17% in Japan, 15% in Europe, and 14% in the Americas [16] - The automotive market is expected to remain stable with growth in xEVs, which includes battery electric vehicles and hybrids [10][11] Company Strategy and Development Direction - The company is focused on maximizing growth in strategic areas while optimizing profitability and cash flow [6][14] - The integration of the Crocus acquisition is progressing well, enhancing the magnetic-sensing IC portfolio [9][20] - The company aims to close over $1 billion in design wins for fiscal year 2024, with the majority expected to convert to revenue over the next three years [14] Management's Comments on Operating Environment and Future Outlook - Management expects continued inventory digestion across markets in the short term but remains confident in above-market growth for the automotive business in fiscal year 2024 [12][21] - The fourth quarter sales outlook is projected between$ 230 million and $240 million, reflecting ongoing inventory digestion [20] - Management anticipates Q1 of fiscal 2025 to be the trough quarter for inventory levels [21] Other Important Information - The company is investing in localizing parts of its supply chain in China to enhance relationships with local partners [33][34] - The company is managing material purchases to align with current production levels, expecting a decline in capital expenditures by approximately 30% in the second half of fiscal 2024 [19][20] Q&A Session Summary Question: Guidance for the March quarter and June quarter dynamics between auto and industrial segments - Management indicated that inventory digestion is expected across all end markets, particularly in industrial, with automotive demand remaining stable [24][25] Question: Expectations for automotive revenue growth in fiscal 2024 - Management expects automotive sales to grow in the high teens, significantly outpacing the overall market growth [28][46] Question: Factors affecting fourth quarter gross margin guidance - Management noted that pricing dynamics and distribution mix are contributing to the expected decline in gross margin [29][30] Question: Investments in China and local partnerships - Management confirmed investments in localizing supply chains in China to build trust with domestic customers [33][34] Question: Customer sentiment regarding EVs in the U.S. - Management observed significant R&D investments from OEMs in electrifying their fleets, indicating strong design activity despite market sentiment [36][37] Question: Design win activity in data centers, specifically for AI liquid cooling - Management highlighted that their power solutions are being utilized in innovative liquid cooling solutions for AI data centers, indicating strong design win activity [40][41] Question: Confidence in inventory normalization by June quarter - Management expects inventory levels to normalize by Q1 of fiscal 2025, following historical patterns of inventory digestion [42][43] Question: Expectations for gross margin recovery - Management anticipates gross margins to remain in the 53% to 54% range in the near term, with potential recovery as distribution normalizes [63][65]