Allegro outlines $12B SAM expansion and targets 58% gross margin amid fiscal 2026 growth initiatives
May 08, 2025 2:59 PM ET
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Earnings Call Insights: Allegro MicroSystems (ALGM) Q4 2025
Management View- CEO Mike Duke emphasized the company's focus on innovation and strategic priorities, including accelerating new product development to drive sales growth and gross margin improvements. Allegro released 50% more products compared to its IPO year, aiming to target a $12 billion SAM opportunity. Key growth areas include automotive, industrial, data center, robotics, and medical markets.
- Management highlighted the potential of TMR magnetic sensors, projecting a 30% CAGR through 2030. Notable wins include a biomedical application and an XEV thermal management application. The launch of high-precision XtremeSense TMR current sensors and new high-voltage isolated gate driver ICs was also emphasized.
- Automotive sales returned to growth, with e-mobility leading an 8% sequential increase. Allegro secured design wins in XEV applications and advanced ADAS systems, including electromechanical braking systems.
- CFO Derek D’Antilio noted that Q4 sales reached $193 million, with non-GAAP EPS at $0.06. Automotive and industrial segments showed sequential growth, while year-over-year declines persisted. Gross margin was 45.6%, with operational restructuring initiatives expected to enhance margins moving forward.
Outlook- Q1 2026 sales are expected to range between $192 million and $202 million, representing an 18% year-over-year increase at the midpoint. Gross margin guidance is 46% to 48%, with cost reductions and vendor pricing benefits beginning to impact results.
- Operating expenses are projected to rise 3% sequentially, driven by annual salary increases and variable compensation resets. Non-GAAP EPS is anticipated to range from $0.06 to $0.10.
- CEO Duke reaffirmed confidence in achieving long-term financial targets, including double-digit sales growth, 58% or greater gross margins, and operating margins above 32%.
Financial Results- Q4 revenue was $193 million, an increase of 8% sequentially, driven by strength in automotive and industrial sales. Automotive sales grew 8%, led by a 16% sequential increase in e-mobility sales. Industrial and other sales rose 9%, with growth in data center and robotics segments.
- Gross margin was reported at 45.6%, affected by pricing resets and lower absorption. A restructuring program initiated in Q4 is expected to deliver $15 million in annualized cost savings starting in FY 2026.
- Full-year 2025 revenue totaled $725 million, a decline of 31% year-over-year due to inventory reductions. Non-GAAP EPS for the year was $0.24.
Q&A- Timothy Arcuri, UBS: Asked about the progress of the China for China strategy. CEO Duke explained that significant advancements have been made in local wafer technology and package production, with meaningful revenues expected later this year.
- Joe Quattrochi, Wells Fargo: Inquired about backlog growth and design win contributions. CEO Duke stated that more than 70% of recent design wins were in strategic focus areas such as e-mobility and data centers.
- Vijay Rakesh, Mizuho: Questioned competition in China. CEO Duke highlighted customer preference for Allegro's high-quality, automotive-grade products, despite approaches from local competitors.
Sentiment Analysis- Analysts expressed cautious optimism, focusing on backlog improvements and the company's ability to execute its growth strategy. Concerns about gross margin pressures and pricing dynamics were raised but met with detailed responses.
- CEO Duke’s tone was confident, emphasizing innovation and operational efficiency. Repeated references to accelerating strategic priorities and achieving long-term targets underscored management’s positive outlook.
- Compared to the previous quarter, discussions reflected increased confidence in inventory normalization and demand recovery.
Quarter-over-Quarter Comparison- Q4 2025 results showed sequential improvement in sales and automotive growth, compared to Q3’s 5% sequential decline.
- Gross margin declined from 49.1% in Q3 to 45.6%, influenced by pricing resets and cost absorption challenges. Management expects margin normalization in the coming quarters.
- Analysts’ focus shifted from inventory digestion concerns in Q3 to strategic growth areas and operational efficiencies in Q4.
Risks and Concerns- Management identified geopolitical risks and tariff uncertainties as ongoing challenges but noted minimal direct impacts on current operations.
- Analysts raised concerns about pricing pressures and underutilization costs, which could affect gross margins if not addressed effectively.
- Europe remains an area of caution due to structural issues in the automotive sector.
Final Takeaway
Allegro MicroSystems highlighted its strong performance and strategic initiatives, with a focus on innovation and market expansion. Management remains confident in achieving long-term financial targets, supported by new product introductions and operational efficiencies. While challenges such as pricing pressures and geopolitical uncertainties persist, the company is well-positioned for growth in its key markets, including automotive, industrial, and data centers.
Read the full Earnings Call Transcript |
