Chip designer Allegro MicroSystems (NASDAQ: ALGM) beat the market’s revenue expectations in Q1 CY2025. Its non-GAAP profit of $0.06 per share was in line with analysts’ consensus estimates.
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Allegro MicroSystems (ALGM) Q1 CY2025 Highlights:
- Revenue: $192.8 million (19.9% year-on-year decline)
- Adjusted EPS: $0.06 vs analyst estimates of $0.05 (in line)
- Revenue Guidance for Q2 CY2025 is $197 million at the midpoint, above analyst estimates of $191.4 million
- Adjusted EPS guidance for Q2 CY2025 is $0.08 at the midpoint, above analyst estimates of $0.08
- Operating Margin: -6.8%, down from 6.6% in the same quarter last year
- Inventory Days Outstanding: 151, down from 182 in the previous quarter
- Market Capitalization: $5.33 billion
StockStory’s Take
Allegro MicroSystems' latest quarter reflected ongoing challenges in its core automotive and industrial markets, as management pointed to continued customer inventory reductions and channel normalization as key themes. CEO Mike Duke highlighted sequential growth in automotive sales, particularly in e-mobility and advanced driver-assistance systems (ADAS), as well as momentum from new product launches—especially in magnetic sensors and isolated gate drivers. CFO Derek D’Angelio noted that distribution channel inventories declined 25% year-over-year, signaling improvement after prior quarters of elevated stock. Management acknowledged that pricing pressure in automotive markets remains in line with historical norms and stated that operational efficiency initiatives, including restructuring and manufacturing cost reductions, were implemented to help offset margin headwinds.
Looking forward, Allegro MicroSystems’ guidance reflects expectations of a cyclical upturn, with management citing increased bookings, growing backlog, and signs of demand recovery in e-mobility, data center, and robotics markets. CEO Mike Duke emphasized a focus on accelerating product innovation, targeting double-digit sales growth in automotive and industrial applications, and further penetration into high-growth markets such as robotics and clean energy. CFO Derek D’Angelio identified cost reductions and improved vendor pricing as factors expected to benefit gross margins in the coming quarters. Management cautioned that tariff-related impacts are difficult to predict, but maintained that customer order patterns have not shown abnormal behavior in response to trade uncertainties. Duke expressed confidence in returning to above-market growth rates by leveraging new product ramps and ongoing efficiency measures.
Key Insights from Management’s Remarks
Management attributed the quarter’s performance to sequential growth in core automotive and industrial segments, successful new product introductions, and ongoing cost optimization initiatives.
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New leadership transition: Mike Duke, newly appointed CEO, outlined strategic priorities centered on accelerating product innovation and operational efficiency, drawing on his extensive technical and business background within the company.
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Product innovation focus: The company released 50% more products than in its IPO year, including new ExtremeSense TMR (tunnel magnetoresistance) sensors and high-voltage isolated gate drivers, aimed at expanding Allegro MicroSystems’ presence in automotive, industrial, and data center markets. TMR sensors enable high-precision magnetic sensing for applications like electric vehicles (XEVs) and biomedical devices.
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Automotive e-mobility momentum: Management reported increased design wins in electric vehicle inverter and braking systems, underscoring a $5 billion market opportunity in e-mobility. Allegro MicroSystems’ content per system is higher in electric and ADAS (advanced driver-assistance systems) applications compared to traditional internal combustion engine vehicles.
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Industrial and data center growth: The company cited renewed growth in data center and robotics sectors, with AI data centers requiring more Allegro MicroSystems components per server. Medical and robotics markets are also targeted for expansion, with new design wins in blood glucose monitoring and motion control for robots.
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Operational efficiency initiatives: Allegro MicroSystems executed restructuring and footprint rationalization, including closing its Photonics business and expanding a shared services center in the Philippines, expected to yield $15 million in annualized cost savings starting next year. These measures are designed to help offset pricing pressure and improve margins.
Drivers of Future Performance
Allegro MicroSystems expects improved demand, product ramp-ups, and operational efficiencies to support its revenue and margin outlook despite persistent pricing pressure and evolving trade dynamics.
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Product ramp and design wins: Management expects new products, particularly TMR sensors, isolated gate drivers, and power devices, to drive above-market growth in automotive and industrial segments. CEO Mike Duke highlighted confidence in achieving growth rates 7–10% above the global automotive market and 5–10% above broad industrial markets, citing a $12 billion aggregate market opportunity.
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Cost reduction benefits: CFO Derek D’Angelio noted ongoing cost reduction initiatives—including vendor pricing negotiations and restructuring—as key drivers for margin recovery. As these measures take effect, the company anticipates gross margin improvements and operating leverage as sales recover, with the immediate-term goal of returning gross margin to 50%.
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Channel and supply chain normalization: The company is monitoring distributor and customer inventory levels, with recent declines viewed as a sign of stabilization. Management also referenced early signs of raw material shortages in fast-recovering end markets like data centers, indicating that careful supply chain management will be important as demand returns.
Catalysts in Upcoming Quarters
In coming quarters, the StockStory team will watch for (1) evidence that new product launches—especially TMR sensors and isolated gate drivers—translate into sustained revenue growth, (2) progress on operational efficiency initiatives and margin expansion as cost reductions flow through, and (3) continued normalization of channel and customer inventories. The impact of any changes in trade policy or tariffs will also be closely monitored.
Allegro MicroSystems currently trades at a forward P/E ratio of 57.1×. In the wake of earnings, is it a buy or sell? See for yourself in our full research report (it’s free).
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