Allegro MicroSystems (ALGM) Wells Fargo 8th Annual TMT Summit summary

Key business insights and market positioning

• Company has a 99-year history with deep automotive experience and is a market leader in magnetic sensing, holding a 23% share, and focused R&D in this area.

• EVs represent less than 20% of business; auto overall is 70%+, with a balanced geographic sales mix and no customer concentration risk.

• Growth is driven by e-mobility (EV, hybrid, ADAS), now 50% of auto business, with ICE and non-e-mobility remaining stable.

• Strategic focus on innovation and premium product positioning, with higher gross margins due to product specifications and reliability.

• Expansion into medical and industrial markets, including design wins in glucose monitoring and data center liquid cooling.

Financial performance and outlook

• June 2024 marked the revenue bottom; December quarter expected to be the trough for auto, with high-teens decline in North America/Europe.

• Inventory reductions in Asia and ongoing adjustments in North America/Europe set up for a cleaner 2025, with potential for a semiconductor crunch if inventories remain low.

• Gross margin upside is tied to volume recovery, new product mix (TMR, isolated gate drivers), and higher-margin industrial sales.

• Long-term gross margin target reaffirmed at 58%, with historical performance supporting this level.

• Lead times are about 12 weeks, with flexibility due to on-balance sheet inventory; customers advised to provide forecasts to avoid future supply constraints.

Strategic initiatives and capital allocation

• Localized supply chain in China being developed to meet customer and regulatory needs, with standard processes for about half the China market.

• R&D is leveraged across auto and industrial, with most parts designed for auto and repurposed for other markets, maximizing efficiency.

• Recent capital allocation focused on debt reduction after Sanken share monetization and Crocus acquisition; near-term priority is paying down debt.

• Continued investment in R&D and operational efficiencies, including expansion of shared services in the Philippines to optimize cost structure.

• No large M&A planned; focus remains on organic growth and small tuck-in acquisitions.