Allegro MicroSystems Q1 2027 Earnings Call Transcript

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Provided by Quartr
July 30, 2026

Key Takeaways

  • Positive Sentiment: Q1 revenue reached $259 million, up 27% year over year and above the high end of guidance, while non-GAAP EPS rose 156% to $0.23. This marked the sixth consecutive quarter of sequential sales growth.
  • Positive Sentiment: Data center sales grew 32% sequentially to a record 17% of total revenue, with current sensors representing 22% of data center sales. Management expects fiscal 2027 data center revenue to more than double, supported by rising AI-server power demands and additional opportunities in isolated gate drivers.
  • Positive Sentiment: Automotive revenue increased 15% year over year, while bookings and design wins each rose 30%. Allegro cited continued content and share gains in electrified vehicles, ADAS, electromechanical braking, steer-by-wire, and TMR-based sensing.
  • Positive Sentiment: Robotics and automation are expected to contribute 3%–4% of fiscal 2027 sales, with new current-sensor and inductive-position-sensor wins at Chinese and North American humanoid robotics customers. Management estimates potential Allegro content above $150 per humanoid by 2030.
  • Neutral Sentiment: Q2 revenue is expected at $265 million–$275 million, implying 26% year-over-year growth, while EPS is forecast at $0.23–$0.26. Gross margin is guided to 50.75%–51.75% as operating expenses rise for R&D investments and variable compensation, although pricing actions and manufacturing efficiencies are expected to support margins later in the fiscal year.
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Earnings Conference Call
Allegro MicroSystems Q1 2027
00:00 / 00:00

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Operator

Morning, welcome to Allegro MicroSystems' first quarter fiscal year 2027 earnings conference call. At this time, all participants are in a listen-only mode. After the presentation, there will be a question-and-answer session. To ask a question during the session, you need to press star one one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one one again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to Jalene Hoover, Vice President of Investor Relations and Corporate Communications.

Jalene Hoover
Jalene Hoover
VP of Investor Relations and Corporate Communications at Allegro MicroSystems

Thank you, Sarah. Good morning, thank you for joining us today to discuss Allegro's first fiscal quarter 2027 results. I'm joined today by Allegro's President and Chief Executive Officer, Mike Doogue, and Allegro's Chief Financial Officer, Derek D'Antilio. They will provide highlights of our business, review our first quarter 2027 financial results, and share our second quarter outlook. We will follow our prepared remarks with a question-and-answer session. Today's call includes remarks about future expectations, plans, and prospects, which are forward-looking statements. Such statements are based on current expectations and assumptions as of today's date and are subject to risks and uncertainties that could cause actual results and events to differ materially from those anticipated or projected on today's call. The company assumes no obligation to update these statements, except as required by law.

Jalene Hoover
Jalene Hoover
VP of Investor Relations and Corporate Communications at Allegro MicroSystems

For a discussion of these risks and uncertainties, please refer to today's press release and the risk factors contained in our periodic SEC filings. Additionally, we will refer to Non-GAAP financial measures during today's call. Today's earnings press release, which is available on the investor relations page of our website at www.allegromicro.com, contains important information about our Non-GAAP financial presentation and also includes reconciliations of our Non-GAAP financial measures to the most directly comparable GAAP measures. This call is also being webcast, and a replay will be available in the events and presentations section of our IR page shortly. It is now my pleasure to turn the call over to Allegro's President and Chief Executive Officer, Mike Doogue. Mike?

Mike Doogue
Mike Doogue
President and CEO at Allegro MicroSystems

Thank you very much, Jalene, good morning. Thank you all for joining our first quarter 2027 earnings call. We began fiscal 2027 with continued strong momentum, delivering our sixth consecutive quarter of sequential sales growth. First quarter sales were $259 million above the high end of our guidance range and representing a 27% increase year-over-year. First quarter EPS was $0.23, increasing more than 2.5x over Q1 of fiscal year 2026. Before Derek takes you through the financials in detail, I want to spend a few minutes on the business dynamics driving Allegro's growth. Our forward demand signals strengthened again this quarter. Bookings increased for the seventh consecutive quarter, and backlog continued to expand. Allegro's growth is increasingly fueled by the intersection of our technology with the defining megatrends of AI, electrification, and automation.

Mike Doogue
Mike Doogue
President and CEO at Allegro MicroSystems

This is particularly evident in our industrial and other business, where data center led first quarter growth, increasing 32% sequentially to establish a new quarterly record at 17% of total sales. Within data center, current sensors continue to emerge as a meaningful new growth pillar, increasing to 22% of first quarter data center sales. We are seeing accelerating customer adoption of our current sensors, which improve efficiency and system power density throughout the data center. Consistent with our expectations, current sensor growth rates are outpacing our motor driver business, which itself remains strong as fans are adopted more broadly in power supplies. This proven momentum across both our power and sensor ICs gives us confidence that fiscal 2027 data center sales will more than double over fiscal 2026. Looking forward, we remain encouraged by the significant increase in Allegro's content in next generation AI servers.

Mike Doogue
Mike Doogue
President and CEO at Allegro MicroSystems

There is a growing need for high-speed current sensors, intelligent fan driver ICs, and an outsized opportunity for isolated gate drivers throughout the data center. This creates a dynamic where rising server power multiplies our content far beyond simple rack count growth. That expansion is showing up directly in our sales pipeline, with data center again leading first quarter industrial design wins and with current sensor design wins surpassing motor drivers. For example, this quarter, we secured design wins for multiple important programs using our market leading 5 MHz current sensors, including a high volume, high voltage DC power supply with a leading provider. Within the quarter, we also secured multiple programs using our differentiated TMR current sensors in data center power supplies. Turning to automation and robotics, we continue to see increasing adoption of our sensor and power solutions in robotics applications.

Mike Doogue
Mike Doogue
President and CEO at Allegro MicroSystems

Importantly, we are winning in robotics today with our existing technology. The same precise high resolution sensing and robust power products that have made Allegro a leader in advanced automotive motion control are exactly what robotics designers need now. Our decades of automotive safety heritage give us a distinct advantage, proven silicon, established high-performance motor control, and proven quality at scale. Engaging with key robotics customers has been a top priority. My recent customer visits in North America and China have further confirmed what we already knew, that robotic joints pose the same fundamental safety-relevant motor control challenges that we solve every day in advanced steering and braking applications in cars. This quarter, we secured current sensor wins with large Chinese humanoid robot OEMs. We also secured a large design win with a prominent North American humanoid robotics OEM that is using our inductive position sensors in robotics joints.

Mike Doogue
Mike Doogue
President and CEO at Allegro MicroSystems

These wins reinforce our expectation that robotics and automation will contribute 3%-4% of our fiscal year 2027 sales. The long-term trajectory is even more compelling as humanoid robots incorporate more joints, actuators, and safety-critical motion control. We estimate our addressable content will exceed $150 per humanoid by 2030, surpassing our projected automotive content per vehicle. By securing these foundational sockets today, we are building a multiyear sales pipeline that we expect to become a meaningful growth vector for Allegro as the market scales toward the end of the decade. Turning now to automotive. First quarter automotive sales grew 15% year-over-year. This outpaces our long-term target of greater than 10% growth, which is built on our ability to outgrow SAAR by 7%-10% through content and share gains. Our content per vehicle is expanding as the industry transitions toward electrified powertrains and advanced safety systems.

Mike Doogue
Mike Doogue
President and CEO at Allegro MicroSystems

We see a clear path from roughly $40 of Allegro content in legacy ICE vehicles to upwards of $100 in next generation battery electric vehicles. Within automotive Focus Auto, which includes xEV and ADAS, led first quarter sequential growth. Our content-driven growth is validated by broad-based, geographically diverse design wins led by China, Korea, and APAC. First quarter auto design wins were up 30% year-over-year. ADAS wins were led by electronic power steering and emerging electromechanical braking applications. High voltage traction inverters and onboard chargers continued to lead our xEV wins. Let me now give you just a few examples of impactful design wins. In Korea, we secured several electronic power steering wins across two leading OEMs. These wins included Allegro current and position sensors, motor drivers, and high performance power solutions, reflecting the breadth of our sensing and power portfolio and rising content per system.

Mike Doogue
Mike Doogue
President and CEO at Allegro MicroSystems

Our current sensors were selected for a sizable win with a top Japanese OEM for a hybrid vehicle traction inverter, where our market leading current sensors are driving share gains. In China, our motor drivers, high performance PMICs, and position sensors are gaining share in 12-volt and 48-volt electromechanical braking systems with both global and local Tier 1s. Finally, we won our first major TMR angle sensor programs for ADAS steering motors with leading China OEMs. This further demonstrates the share gain potential of our market leading TMR technology. Our technology leadership continues to translate into broad-based design win momentum. This is fueling our content expansion strategy across xEV, ADAS, data center, and robotics, positioning us to capture outsized growth in a large and expanding SAM.

Mike Doogue
Mike Doogue
President and CEO at Allegro MicroSystems

We remain confident in our ability to deliver target growth rates in auto and industrial, and in fiscal Q2, we expect both end markets to deliver mid-single digit sequential growth. I'll now turn the call over to Derek to provide additional color on our financial performance as well as our second quarter outlook.

Derek D'Antilio
Derek D'Antilio
EVP, CFO, and Treasurer at Allegro MicroSystems

Thank you, Mike, and good morning, everyone. Starting with our first quarter results. Sales were $259 million, and Non-GAAP earnings per share were $0.23. As a percentage of sales, gross margin was 51.1%, operating margin was 19.4%, and adjusted EBITDA was 23.9%. Total Q1 sales increased by 7% sequentially and 27% year-over-year. Sales to our automotive customers increased by 1% quarter-over-quarter to $165 million and 15% year-over-year. Focus Auto sales, including xEV and ADAS, increased by 3% sequentially and 11% over Q1 of 2026. These results reflect growing within lead time orders not able to ship in this quarter. Auto demand from our customers continues to be really strong. As Mike mentioned, auto design wins were up 30% year-over-year, and auto bookings were also up 30% year-over-year and up high single digits sequentially.

Derek D'Antilio
Derek D'Antilio
EVP, CFO, and Treasurer at Allegro MicroSystems

Industrial and other sales increased by 18% sequentially to $94 million and by 59% over Q1 of fiscal year 2026, led by continued strength in data center to record levels. Sales to our data center customers were 17% of Q1 sales, up from 14% in Q4 and 10% in Q3 of fiscal year 2026. As Mike mentioned, sensor solutions were now 22% of our Q1 data center sales, increasing 66% sequentially. This has also driven our data center product margins to the mid-50s. From a product perspective, magnetic sensor sales increased by 6% sequentially to $150 million and by 16% year-over-year. Sales of our power products increased by 7% sequentially to $109 million and by 47% over the prior year quarter.

Derek D'Antilio
Derek D'Antilio
EVP, CFO, and Treasurer at Allegro MicroSystems

Sales by geography on a ship to basis were as follows: 32% of sales in what we term rest of Asia, which is essentially Korea, Taiwan, and India, 25% of sales in China, 17% in Japan, and 13% of sales in both the Americas and Europe. Turning to Q1 profitability. Gross margin was 51.1%, up from 50% in Q4, and gross margins have improved by 290 basis points from 48.2% in Q1 of fiscal 2026. The improvements were driven by operating leverage, product mix, and to an early and lesser extent, recent pricing actions. In addition to outgrowing our target markets, operational excellence and gross margin improvement remain top priorities. While operating leverage is a significant factor contributing to gross margin improvement, we continue to drive factory efficiencies, work through product bill of material transitions, including gold to copper wire bonding, and have taken selective price actions.

Derek D'Antilio
Derek D'Antilio
EVP, CFO, and Treasurer at Allegro MicroSystems

Collectively, these efforts provide a clear path to our target gross margin of 55% and beyond. Operating expenses were $82 million and declined by $2 million sequentially, largely due to the reset of annual incentive compensation plans at the start of our new fiscal year. Operating margin was 19.4% of sales, compared to 15.6% in Q4, and an increase of 830 basis points compared to 11.1% in Q1 of fiscal 2026. The effective tax rate for the quarter was 9.7%. Interest expense was $4 million. The first quarter diluted share count was 188 million shares, and net income was $42 million, or $0.23 per diluted share. EPS increased by 35% sequentially and 156% over the year-ago quarter on sales increases of 7% and 27%, demonstrating the significant operating leverage in our business model. Moving to the balance sheet and cash flow.

Derek D'Antilio
Derek D'Antilio
EVP, CFO, and Treasurer at Allegro MicroSystems

We ended Q1 with total cash of $170 million. Q1 cash flow from operations was $22 million. CapEx was $8 million, and free cash flow was $14 million. We ended Q1 with term debt of $285 million and net debt of $115 million. From a working capital perspective, first quarter DSO was 35 days, and inventory days were 128, both consistent with Q4. Finally, I will now turn to our Q2 fiscal year 2027 outlook. We expect second quarter sales to be in the range of $265 million-$275 million. At the midpoint of this range, it equates to a 26% year-over-year increase. Additionally, we expect the following all on a Non-GAAP basis. Gross margin to be between 50.75%-51.75%.

Derek D'Antilio
Derek D'Antilio
EVP, CFO, and Treasurer at Allegro MicroSystems

Operating expenses are expected to be $84.5 million, ±$1 million, the sequential increase reflects targeted investments in R&D, including in potentially disruptive technologies and higher variable compensation estimates for the year. Interest expense is projected to be $4 million, we expect our Non-GAAP tax rate to be approximately 10%. We estimate that our weighted average diluted share count will be 188 million shares, as a result, we expect Non-GAAP EPS to be between $0.23-$0.26 per share, with the midpoint of this range implying an 88% year-over-year increase. Now I'll turn the call back over to Jalene for your questions.

Jalene Hoover
Jalene Hoover
VP of Investor Relations and Corporate Communications at Allegro MicroSystems

Thank you, Derek. This concludes management's prepared remarks. Before we open the call for your questions, I'd like to share our second conference lineup with you. We will attend Needham's seventh annual virtual semiconductor and semi-cap conference on August 19th, Jefferies Semiconductor, IT, Hardware and Communications Technology Conference on August 25th and August 26th in Chicago, Wolfe Research's TMT Conference on September 10th in San Francisco, finally, StoneX's 13th Annual TMT Conference on September 17th, which we will attend virtually. We will now open the call for your questions. Sarah, please review the question-and-answer instructions.

Operator

Thank you. As a reminder, to ask a question, you need to press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. To ensure everyone has an opportunity to participate, please limit yourself to one question and one follow-up. Please stand by while we compile the question-and-answer roster. Our first question comes from Joe Quatrochi with Wells Fargo. Your line is open.

Joe Quatrochi
Joe Quatrochi
Analyst at Wells Fargo

Hey. Thanks for taking the questions. Maybe just a little bit of help, wondering in the puts and takes of the September quarter guide for revenue. I think you said mid-single digits for both industrial and auto, just curious if you could help us understand just what the data center growth expectation is for this quarter.

Mike Doogue
Mike Doogue
President and CEO at Allegro MicroSystems

Yeah. Thank you, Joe. To start, we continue to feel we have a great data center story, growing market, we have strong content growth. The signals that we're seeing from customers show continued signs of strength. To remind everyone, when we look at our dollar content evolution going from $150 all the way up to $425, we're really encouraged by the fact that 2/3 of that $425 of content per rack are coming from the fan drivers and the current sensors. We're seeing very strong momentum from current sensors themselves, as we discussed in the prepared remarks. We continue to see growth in the data center, and that growth is reflected into the mid-single digit growth number we gave for FQ2.

Derek D'Antilio
Derek D'Antilio
EVP, CFO, and Treasurer at Allegro MicroSystems

Joe, I'll provide a little more color on the Q2 guide when we talk about mid-single digits for both auto and industrial. That's based upon what we could ship, that's based upon what's in our backlog for that particular quarter. What we saw in Q1 actually is we continue to receive within lead time orders, both in data center and in auto. Some of those orders couldn't be shipped in Q1, and we're building a little bit of delinquency we'll ship over the next couple of quarters.

Joe Quatrochi
Joe Quatrochi
Analyst at Wells Fargo

That's helpful. Maybe as a follow-up to that, can you talk about just the plans to increase capacity? Is it front-end or back-end capacity that's maybe the bottleneck of those orders that can't be shipped within lead time?

Mike Doogue
Mike Doogue
President and CEO at Allegro MicroSystems

Yeah, sure. Most of what we're seeing, we have a good strategy to have not only a geo-diverse supply chain, but with enough capacity to grow. When you have in lead time orders, it ends up being the back end where you have constraints. We did have plans and executed those plans to expand capacity on the back end, and that we continue to have back-end equipment rolling on each and every quarter.

Joe Quatrochi
Joe Quatrochi
Analyst at Wells Fargo

Thank you.

Operator

Thank you, Joe. Our next question will be from Chris Caso with Wolfe Research. Your line is open.

Chris Caso
Chris Caso
Analyst at Wolfe Research

Yes, thank you. Good morning. I guess the first question would be with regard to some of what you said on pricing, you did talk about some pricing actions. Could you elaborate a bit on what you're doing there? Will that have any effect on gross margins going forward? We know that particularly with your auto customers, you have some annual negotiations that occur at the end of the year. Is this in place of that? How will price increases be factored in as we go through the year and into next year?

Derek D'Antilio
Derek D'Antilio
EVP, CFO, and Treasurer at Allegro MicroSystems

Yeah, Chris, thank you. This is Derek. As we said in our call at the end of April, you're absolutely right. The majority of our auto customer contracts begin in the beginning of the calendar year. As is normal, we saw low single-digit declines in majority of those auto customer contracts. Like many in the industry, we're seeing inflationary headwinds from us, commodity costs and other costs. We are taking selective price actions that really began in earnest here at the end of our first quarter, largely in the distribution channel. Very little bit of that pricing benefit was in Q1. The slight beat on gross margin in Q1 really had to do with positive mix, and that also had the slight beat on the revenue in terms of having the long tail of distribution and general industrial sales with higher gross margins.

Derek D'Antilio
Derek D'Antilio
EVP, CFO, and Treasurer at Allegro MicroSystems

As we move into the back half of this year, Q3 and Q4, we expect our pricing actions that we're taking now to be more impactful and beneficial to gross margins.

Chris Caso
Chris Caso
Analyst at Wolfe Research

Got it. As a follow-up question, it sounds like you're getting some good traction on current sensors within data center. Can you talk, as the data center business grows, what do you expect for current sensing as % of your data center business? I guess, sounds like we should expect that to grow by how much? Is there a relative mix difference, margin difference in the fan controllers versus the current sensing part of the data center business?

Mike Doogue
Mike Doogue
President and CEO at Allegro MicroSystems

Yeah. The current sensors do have a higher gross margin profile than the fan drivers. From a growth rate perspective, I won't put a hard number on it, but we have multiple positive dynamics going on here. We know that the power levels consumed by the data centers are increasing. These current sensors are used in power supplies. To the extent that power levels go up, the need for current sensors goes up as well. We have an additional tailwind here because we are gaining share in the market as well. The traditional solution in these power supplies might be a transformer or an isolated amplifier, but because of Allegro's innovations, because of our TMR technology, we were able to make these small form factor current sensors with very high bandwidth, very high speed capability. That's why we're taking share in the space.

Mike Doogue
Mike Doogue
President and CEO at Allegro MicroSystems

We're confident that it will be an attractive growth rate, but we're not putting a number to that rate at this time.

Derek D'Antilio
Derek D'Antilio
EVP, CFO, and Treasurer at Allegro MicroSystems

Chris, I mentioned on the call here that our gross margins now in the data center business are now in the mid-50s as a result of current sensors now being 22% of that business.

Chris Caso
Chris Caso
Analyst at Wolfe Research

Got it. Helpful. Thank you.

Derek D'Antilio
Derek D'Antilio
EVP, CFO, and Treasurer at Allegro MicroSystems

Welcome.

Operator

Thank you, Chris. Our next question is with Tom O'Malley from Barclays. Tom, your line is open.

Tom O'Malley
Tom O'Malley
Analyst at Barclays

Hey, guys. Thanks for taking my question. I just wanted to do a health check on auto. It looks like it was pretty strong across both the quarter and kind of indicated in the guide, just maybe what you've seen over the last quarter, any areas of strength or weakness, then you've seen some of your larger competitors be a bit later on the auto side. Anything that you would call out that's differentiated from them? Thank you.

Mike Doogue
Mike Doogue
President and CEO at Allegro MicroSystems

Thanks, Tom. We're feeling very good about our auto business. We said in the prepared remarks, we believe we can achieve our model of double-digit growth, growing 7%-10% above SAAR, and there's many reasons for that. One of those reasons, just to remind everyone, are xEV and ADAS SAM, it grows at a CAGR of about 18%. Layer some more good numbers onto that, which Derek and I covered in the prepared remarks, but with FQ1 sales up 15% year-over-year, FQ1 bookings up 30%, and FQ1 design wins up 30%, we're seeing momentum. The thing that I always like to check, I've been on the road a bunch. I was in Europe, North America, Japan, and China recently, and as we spoke to customers, our dollar content growth story is very much alive and well.

Mike Doogue
Mike Doogue
President and CEO at Allegro MicroSystems

I was able to meet with one of the tier 1s out there that was first to market with electromechanical braking systems. They're shipping in production, very high dollar content increase for Allegro. I was in China talking to an inverter manufacturer. Our market share with that very sizable customer in the Chinese market has increased significantly over the last few quarters. We continue to see signs of positivity in auto, and we're confident we can deliver our growth rate.

Tom O'Malley
Tom O'Malley
Analyst at Barclays

Helpful. Not to get super specific on numbers, but you talked about the data center business more than doubling in this coming year. I think at the Analyst Day, many people walked away kind of with that strength in mind, a lot of numbers have gone there. Is that just a starting point, the doubling? I know obviously a really big number already, or do you think that as the year goes along, you may revise that? Is this something that you have a lot of visibility on, or maybe talk to the lead times and your ability to upside that number? Thank you.

Mike Doogue
Mike Doogue
President and CEO at Allegro MicroSystems

Yeah, sure. We look at all kinds of data center statistics and one of them being CapEx spend, which still for calendar year 2026, you can find quite a range on that number. Generally, you see numbers close to 80% year-over-year growth in CapEx spending. If that were to flex up or down, our provided number would flex up or down. Really, we've been securing tremendous design wins with short time to market. It's driving, like we said, the more than doubling within the year. As we go through the quarters, we'll give a little bit more color. The things that would drive it would be CapEx spend and some of the design win activity we have in the funnel.

Operator

Thank you, Tom. Our next question will be from Vijay Rakesh with Mizuho. Your line is open.

Vijay Rakesh
Vijay Rakesh
Analyst at Mizuho

Yeah. Hi, guys. Just a couple of quick questions. On the data center side, as you go from 400-volt, 800-volt, looks like your content triples per rack. Can you talk to what the mix is of current sensing and the fan motors and the gate drivers? Is it similar or does that mix change? Should that margin profile still be in the mid-50s% there? Thanks. A follow-up.

Mike Doogue
Mike Doogue
President and CEO at Allegro MicroSystems

Thanks, Vijay. This is Mike. Yeah, I'll use the same numbers I already mentioned, but it's good to reground ourselves. In older data center racks, we had $150 of content, $425 of theoretical content in AI forward racks. Like I said, 2/3 of that $425 is coming from our current sensors and our fan drivers. What I didn't say earlier, when you look to the future, we believe there's hundreds of dollars more in content that could be added to the $425 as we layer in the isolated gate drivers, 800-volt topologies. We're also investing in some new sensor areas that would add dollar content to the rack for Allegro. We see a long multi-year evolution of dollar content growth. In the near term, we have full portfolios of market-leading products, namely the fan drivers and the current sensors to drive near-term growth.

Mike Doogue
Mike Doogue
President and CEO at Allegro MicroSystems

We think it's an exciting story in both the short term and the long term.

Derek D'Antilio
Derek D'Antilio
EVP, CFO, and Treasurer at Allegro MicroSystems

Vijay, this is Derek. Just to touch on the last part of your question, I would expect the gross margins in that business to remain in the mid-50s. Current sensors being above the fleet average, so the motor drive is slightly below it. As isolated gate drivers come in, we also expect those to be above the average.

Vijay Rakesh
Vijay Rakesh
Analyst at Mizuho

Got it. Just to continue on that same topic, Derek, when you look at the data center side that's grown from 10% to more like almost 17%-20% of revenues now and carries a much better margin profile as well, how do you see the overall gross margins trending as you look at next year? Because that data center mix could continue to go up because of the growth on the AI side, so maybe you can talk to how the margins kind of line up. Thanks.

Derek D'Antilio
Derek D'Antilio
EVP, CFO, and Treasurer at Allegro MicroSystems

We talked about in our Analyst Day almost six months ago, we expect to be trending over the next couple of years towards that mid-50s gross margins, 55% and beyond, right? We're making pretty significant progress, up almost 300 basis points year-over-year in Q1 versus last year, up another 110 basis points quarter-over-quarter from Q4 to Q1, up another 20 basis points to Q2. Within the Q2, the drop-through is only 57%. Some of that's mix as there's more auto in there. There's some mix within industrial. But as I mentioned with Chris's question, we expect to see pricing layer in more heavily in the back half of this year, which will have an uptick in gross margins.

Derek D'Antilio
Derek D'Antilio
EVP, CFO, and Treasurer at Allegro MicroSystems

We also expect some of those BOM optimizations, like converting from gold to copper on the wire bonding, to have more impact later this year and as we move into next year. Quite confident we're going to move quickly towards that mid-50s gross margins over the next couple of years.

Vijay Rakesh
Vijay Rakesh
Analyst at Mizuho

All right. Thank you.

Operator

Thank you, Vijay. Our next question is with Blayne Curtis from Jefferies. Blayne, your line is open.

Blayne Curtis
Blayne Curtis
Analyst at Jefferies

Hey, good morning, guys. Thanks for taking my question. I want to ask you about TMR. It's become a big part of your product releases. Just kind of curious in terms of your shipments, and I really want to know about the competitive landscape within auto and data center. How much interest are you seeing in TMR versus Hall?

Mike Doogue
Mike Doogue
President and CEO at Allegro MicroSystems

Sure. Thanks, Blayne. This is Mike. We've been talking about TMR for a while, knowing that as time evolved, the benefits of TMR would start to extend into growth applications, really across the business. In my prepared remarks, I spoke about a new win where we were able to get TMR motor position sensor into an ADAS motor, into a steering motor in China. That was the first time that we've accomplished that. There had been other players out there. I don't like mentioning their names in public calls. I think you know who they are. They had been established in that space at certain geos, and we're starting to go in and penetrate the market with our own market-leading TMR solutions in that application. That's not the only one in auto, by the way.

Mike Doogue
Mike Doogue
President and CEO at Allegro MicroSystems

We took some share recently in oil pumps and other areas with motor position. In the data center, I mentioned that we're ramping TMR current sensors. What's happening in the data center is that as customers want to adopt, and they are adopting silicon carbide and gallium nitride, the switching speeds in the power converters go up to gain efficiency and reduce the size of the power converter. That means you need a very fast current sensor. TMR current sensors can be much, much faster than Hall effect based current sensors, and that's why we're winning in the data center power supply space as well. We do have, at least we believe we do have the world's fastest magnetic current sensor in the data center space today.

Mike Doogue
Mike Doogue
President and CEO at Allegro MicroSystems

Those are some of the examples of where we're taking share in these growth markets and a little bit of color as to why we're taking share.

Blayne Curtis
Blayne Curtis
Analyst at Jefferies

Thanks. Maybe I wanted to follow up on Tommy's question on auto, not to nitpick, but Focus Auto has kind of decelerated. Obviously, EVs went through a very tough patch. I was kind of feeling like maybe they're getting a little bit better. I'm just kind of curious your perspective, obviously, have great design wins, so I'm not picking on it, but I wanted to know your perspective on the EV market here.

Mike Doogue
Mike Doogue
President and CEO at Allegro MicroSystems

We looked at some recent S&P data, it mentioned that we actually adjusted it to our fiscal year 2027. Within our fiscal year 2027 EV market, EV production growth was in the neighborhood of 25%. That remains a healthy number, we're seeing that with our own customer activity. Obviously, a lot of that activity is coming out of China. I think there's been particular strength in the China export market these days. I know that their domestic market was not growing as robustly, but their export sales are. Across the globe, really, we see continued momentum and strength in the EV space.

Blayne Curtis
Blayne Curtis
Analyst at Jefferies

Thank you.

Operator

Thank you, Blayne. Our next question is from Joshua Buchalter with TD Cowen. Your line is open.

Joshua Buchalter
Joshua Buchalter
Analyst at TD Cowen

Hey, guys. Thank you for taking my question. Congrats on the results and guide. Maybe following up on a couple previous ones. Really good to see the current sensor business start to grow to a meaningful portion of the data center mix. It sounds like you're very confident also in sort of the gate driver business and maybe also the PMIC for power delivery in data center. Could you maybe speak to when we should expect those latter two, the gate drivers and PMIC for power delivery to start to layer into the data center business more meaningfully? Thank you.

Mike Doogue
Mike Doogue
President and CEO at Allegro MicroSystems

Yeah. Thanks, Joshua. Yeah, I've been saying for a while now, the expected duration to see material impact in the data center from our isolated gate drivers is 18 months-24 months. Call it about an 18-month expectation for us. Very well engaged with customers. It's a dynamic market. We actually will begin sampling a Generation 2 product that is ideal for the data center this fall, which will drive a little bit more acceleration of momentum in that product line. We are very excited about the isolated gate drivers in data center. I did mention it adds hundreds of dollars to the theoretical content for Allegro in the rack. On the PMIC side of things, I don't want anyone walking away thinking that is a big growth vector for Allegro in the data center.

Mike Doogue
Mike Doogue
President and CEO at Allegro MicroSystems

Our PMICs tend to be more automotive focused, but even without the PMICs, we have a really robust dollar content growth story for Allegro MicroSystems in the data center.

Joshua Buchalter
Joshua Buchalter
Analyst at TD Cowen

Okay, got it. Thank you for the color there. Then, yeah, similar nitpicky question as Blayne's. Several of your peers this quarter have highlighted auto restocking. Your growth obviously is much better during the down cycle than your peers, but the last couple quarters has sort of flattened out as others have started to re-accelerate. Is there anything different about your customer or product mix or maybe how you handle the inventory as to why your sequential growth is looking a bit different than some of the larger auto semi suppliers? Thank you.

Derek D'Antilio
Derek D'Antilio
EVP, CFO, and Treasurer at Allegro MicroSystems

Hey, Joshua, this is Derek, and you hit it on the latter, right? Some of it's how we handle the inventory. If you remember, unfortunately, two years ago, we had a very painful quarter in June of calendar 2024, where we were down 50% in China, 30% overall, a lot of inventory digestion. As a result of that, we came back a lot quicker earlier in the cycle here. That said, we're still continuing to see a lot of strength in auto. When we mentioned the design wins being up 30%, which bodes well for the out years, and the bookings up 30%, which bodes well for the near-term quarters, and even sequentially up high single digits. Strong auto. Within the quarter, we continue to see a growing proportion of in-quarter orders, which obviously can't be shipped within that quarter as lead times are extending.

Derek D'Antilio
Derek D'Antilio
EVP, CFO, and Treasurer at Allegro MicroSystems

I think some of it has to do with the timing you mentioned of where the cycle was and how people handled inventory throughout it.

Joshua Buchalter
Joshua Buchalter
Analyst at TD Cowen

Makes sense. Thank you, Derek.

Operator

Thank you, Joshua. Our next question will be from Timothy Arcuri with UBS. Timothy, the line is open.

Timothy Arcuri
Timothy Arcuri
Analyst at UBS

Thanks a lot. I just want to circle back to the original question in terms of what's embedded in the guidance for data center. I'm assuming it has to be up 25% Q1Q, something like that, which would put it, like, in the 20% range. If that's the case, then the rest of industrial is down, like, 10%. It seems like that can account for almost all of the sequential revenue growth in data center. Can you tell me if any of that's wrong?

Derek D'Antilio
Derek D'Antilio
EVP, CFO, and Treasurer at Allegro MicroSystems

Yeah, Tim, this is Derek. I'm not going to really guide to a granular level below auto and industrial. We expect both auto and industrial to be up mid-single digits. It's based on what's scheduled to ship. I wouldn't say that data center is going to grow in the 20s, right? Data center is going to grow probably faster than that, mid-single digits, but not in the 20s. As you start to look at just the lower large numbers, and Mike said we're going to double year-over-year, you can kind of see some of the math, how that might look for the back half of this year. We're still very confident in continuing to grow above our sort of sequential growth rates.

Timothy Arcuri
Timothy Arcuri
Analyst at UBS

I guess, Derek, why the decel? I get the lower large numbers, is there some timing on certain projects? That's a pretty big decel.

Derek D'Antilio
Derek D'Antilio
EVP, CFO, and Treasurer at Allegro MicroSystems

No, it's not really timing. It's really just the lower large numbers. Remember, we're coming from a place where data center was 2% of our revenue just six quarters ago. It was 10% just four quarters ago, right? As you start to get to +$100 million a year run rate, it's just the lower large numbers. There's no real decel in our content gains. As Mike mentioned, we continue to have 66% growth in current sensors, which is driving the gross margins much higher. It really is just where we are kind of in the lower large numbers.

Timothy Arcuri
Timothy Arcuri
Analyst at UBS

Hmm, okay. Can you talk about sell-in versus sell-through, Derek?

Derek D'Antilio
Derek D'Antilio
EVP, CFO, and Treasurer at Allegro MicroSystems

Sure. POS was a record this quarter. Disti sales were about 60% of our total sales this quarter. Direct was about 40% of our sales, sell-in and sell-through were pretty equal. Inventory in the channel remained actually flat right now in a very healthy place in our normal weeks on hand.

Timothy Arcuri
Timothy Arcuri
Analyst at UBS

Okay, thank you.

Operator

Thank you, Timothy. Our next question is from Joseph Moore with Morgan Stanley. Joe, the line is open.

Joseph Moore
Joseph Moore
Analyst at Morgan Stanley

Great. Thank you. Yeah, along the same lines on the quarter you just reported, it looks like industrial ex data center was pretty strong sequentially, if I've done the math right. Can you talk about any noteworthy trends that are driving that?

Derek D'Antilio
Derek D'Antilio
EVP, CFO, and Treasurer at Allegro MicroSystems

Yeah, Joe, this is Derek. There were really two things in there, and it kind of drove us over the high end of our guidance. It was really the long tail of industrial business, the general and industrial, that all ships through distribution, which actually has quite good gross margins. That had a bit of an uptick in the quarter, and that business can be a bit lumpy, and that was probably the last place in the distribution inventory channel that had any, what I would call, excess inventory. That's largely gone now at this point. A little bit of timing there. As we move into Q2, when we look at the gross margin, a combination of mix from more auto and even within the industrial business, a little bit heavier medical and some other things in there in Q2.

Derek D'Antilio
Derek D'Antilio
EVP, CFO, and Treasurer at Allegro MicroSystems

those kind of long tails of what else is in general industrial can be a bit lumpy from quarter to quarter.

Joseph Moore
Joseph Moore
Analyst at Morgan Stanley

Okay, thank you. Then in terms of your comments on robotics and industrial automation, can you distinguish between those two things? The content opportunity for Allegro and humanoids is pretty obvious, but are you also seeing bigger changes in other form factors for industrial automation, and how much of that 3%-4% of revenue you're talking about might be in the kind of newer humanoid form factors?

Mike Doogue
Mike Doogue
President and CEO at Allegro MicroSystems

Yeah. Joe, good question. This is Mike. When we look at our dollar content opportunity, in many ways, it comes down to how many joints or how many degrees of freedom there are in something that moves. Whether it's a singular robotic arm on a conveyor belt, picking things up, moving them around, that would have multiple joints and multiple dollar content opportunities for Allegro. We model our end opportunity based on the number of joints. Obviously, there's a lot more joints and degrees of freedom in a robot Especially when you include the hands. There's ample opportunity in factory automation systems for autonomous mobile robots moving inventory around factories, arms picking and placing boxes throughout the factory, and we're seeing wins and revenue ramps kind of across the full spectrum there.

Joseph Moore
Joseph Moore
Analyst at Morgan Stanley

Great. Thank you.

Operator

Thank you, Joe. Our next question is from Quinn Bolton with Needham & Company. Quinn, the line is open.

Quinn Bolton
Quinn Bolton
Analyst at Needham & Company

Thank you for taking my question. I wanted to follow up just on the sort of the gross margin outlook, Derek, and maybe just try to better understand how your pricing actions are layering in. I think you said that the pricing actions in distis kind of kicked in towards the end of Q1, I would've thought you'd have a full quarter effect maybe in Q2, which would've benefited margins, but it sounds like it's more of a fiscal third and fourth quarter effect. Is that just timing of when those price actions take hold? Is it really when you can get the direct business to when you can increase pricing on the direct business? Just any more color on how those pricing actions kick in, because I guess I would've thought, the September quarter might've seen a greater benefit from those actions taken earlier this year.

Derek D'Antilio
Derek D'Antilio
EVP, CFO, and Treasurer at Allegro MicroSystems

Yeah. Quinn, as I mentioned earlier in the call, the majority of our auto customers are on contracts, which begin in the beginning of the calendar year, the first quarter of the calendar year. In net, that was down low single digits in terms of pricing. There are opportunities to selectively pass on surcharges for costs that are increasing and take some of those, getting some of those midway through the year. We're also making transitions from gold to copper in lieu of doing some of those things. The disti pricing did start in Q1 towards the tail end of Q1. That will be in Q2, but what's happening from Q1-Q2 is a bit of a mix where auto is also up mid-single digits.

Derek D'Antilio
Derek D'Antilio
EVP, CFO, and Treasurer at Allegro MicroSystems

As I mentioned, the gross margins in auto are of course a bit below industrial gross margins, and of course, out of that pricing dynamic that I talked about. I do expect us to see the benefit of more pricing in Q3 and into Q4, also the benefit of some of those BOM optimizations that we talked about. I expect continued gross margin projection throughout the year.

Quinn Bolton
Quinn Bolton
Analyst at Needham & Company

Thanks for that additional color. A follow-up on the robotics question. I think you said robotics would be 3%-4% of sales in fiscal 2027. Can you level set us? Was it low single digits, 1%, 2% in 2026? Was it zero? Any thoughts as you look into fiscal year 2028, could that get to sort of mid to high single digits? Could it reach double digits, based on your bookings or the design win activity?

Mike Doogue
Mike Doogue
President and CEO at Allegro MicroSystems

Yeah. Thanks, Quinn. This is Mike. We wanted to provide a little guidance there with that 3%-4% number just to establish a baseline that says, "Hey, we're already winning here. Our products and the value proposition of our products are landing." We won't obviously walk forward guide with numbers, but we are starting off of a relatively small base. I think the growth rates ultimately come down to the pace of adoption of robots with more joints. I just talked about a model where our growth rate really comes down to the number of joints in robots over the next few years. There's an array of projections, not only in terms of the number of humanoids, but also the number of robots out there.

Mike Doogue
Mike Doogue
President and CEO at Allegro MicroSystems

What we look at is a very strong growth opportunity, as you multiply what's really a meaningful number at 3%-4% by a high long-term growth opportunity, we think it can have a meaningful impact on the growth rate of the company over time.

Quinn Bolton
Quinn Bolton
Analyst at Needham & Company

Got it. Thank you, Mike.

Operator

Thank you, Quinn. Our next question is from Liam Farr with Bank of America. Your line is open.

Liam Farr
Liam Farr
Analyst at Bank of America

Hi. Thank you so much for taking my question. I guess I just want to start with China. 25% sales flat quarter-over-quarter in terms of percent of the raw, growing in line corporate average. I was wondering if you could just kind of discuss the demand environment you're seeing there, especially considering one of your competitors just reported pretty strong results from China in their recent quarter. Thank you.

Mike Doogue
Mike Doogue
President and CEO at Allegro MicroSystems

Yeah. This is Mike, and I mentioned I had just been in China. What we found on the ground matched what we see in our internal data, relative strength in China. We talk a lot about design wins in China at each of these quarterly calls, it's not because we're trying to focus on China. That's where a significant number of very large and meaningful design wins have been happening. What I like about what we see on the ground in China is that these high dollar content opportunity sockets that we have out there, like electromechanical braking. Five years ago when people were talking, we abbreviate that EMB braking. It wasn't supposed to go to market first in China, but it did. There's now multiple OEMs with EMB braking systems in cars with our devices inside of them.

Mike Doogue
Mike Doogue
President and CEO at Allegro MicroSystems

I also spoke about how in the EV market, not only is the EV market per these S&P Global numbers growing around 25% in our fiscal year 2027, we know a lot of that action's happening in China. When I visited one of our top customers in China today, only to find out that our market share has gone up significantly over the past year. We continue to see many signs of strength in China, I think some of these signs of strength will play out over the coming quarters and years, we feel very good about the China business.

Derek D'Antilio
Derek D'Antilio
EVP, CFO, and Treasurer at Allegro MicroSystems

This is Derek, just a data point. Our China business grew 6% sequentially, so pretty healthy.

Liam Farr
Liam Farr
Analyst at Bank of America

Great. Thank you. Then kind of on the note of EMB, I was just wondering if you could discuss the traction and kind of how much growth that could drive in fiscal 2027, especially considering it seems there's a lot of great demand there.

Mike Doogue
Mike Doogue
President and CEO at Allegro MicroSystems

I didn't get the question, Derek. Sorry.

Derek D'Antilio
Derek D'Antilio
EVP, CFO, and Treasurer at Allegro MicroSystems

Liam, could you please repeat the question?

Liam Farr
Liam Farr
Analyst at Bank of America

Absolutely. Could you comment on the demand kind of environment for the electromechanical braking and the steer-by-wire, and how much growth that could drive in fiscal 2027?

Mike Doogue
Mike Doogue
President and CEO at Allegro MicroSystems

Yeah. Absolutely. Sorry, I didn't catch that one the first time. We see trends broadly across the globe towards EMB braking and steer-by-wire. It would be a meaningful amount of growth. What you have there is more of a situation where cars had brakes and cars had steering systems, so now you're just picking up the additional content. I think it's really just one of the many factors that gives us confidence in our ability to grow double digits in automotive in a world where automotive SAR is flat to, in some models, negative. It's these types of systems that are keeping us growing well above market in fiscal year 2027 and beyond.

Liam Farr
Liam Farr
Analyst at Bank of America

Thank you.

Operator

Thank you for your question, Liam. At this time, I'm showing no further questions in the queue, I would like to hand it back to Jalene for closing remarks.

Jalene Hoover
Jalene Hoover
VP of Investor Relations and Corporate Communications at Allegro MicroSystems

Thank you, Sarah. This concludes today's call. Thank you for taking the time to join us this morning. We look forward to seeing you at conferences over the coming weeks.

Executives
    • Jalene Hoover
      Jalene Hoover
      VP of Investor Relations and Corporate Communications
    • Mike Doogue
      Mike Doogue
      President and CEO
    • Derek D'Antilio
      Derek D'Antilio
      EVP, CFO, and Treasurer
Analysts
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