Allegro MicroSystems, Inc. (NASDAQ:ALGM) Q3 2024 Earnings Call Transcript

Derek D’Antilio: Yes, Josh. So right now, inventory levels in the channel where we have direct visibility and contractual visibility are elevated. Those are above our target ranges and that’s why distribution sales are down. We continue to manage distribution sales down in watching that POS and watching the inventory in the channel. We’re starting to see that clear in consumer and as I said, I expect that consumer is probably at a trough first, which is the March quarter. Industrial continues to clear, particularly parts of the data center, parts of solar, that may take another quarter to clear out of there. Auto is a relatively new dynamic, of course, with the rebalancing of the inventories that Vineet talked about. And yes, we do expect if history is any guide, that the June quarter decline would be similar to the decline we saw in the December quarter and the March quarter.

Joshua Buchalter: Okay. And then as a follow-up, I wanted to ask about Crocus. I believe you mentioned some initial traction in the prepared remarks on e-mobility. Are those products — does that indicate that the products are close to or are auto qualified and maybe you could talk to a bigger picture about how your engagement with your customers have changed now that you’ve got Crocus in the company and expanding your current sensing portfolio.

Vineet Nargolwala: Josh, this is Vineet. Thanks for the question. So I can indeed confirm with pleasure that we have now auto qualified the Crocus product. It is what we call a generic call. Now we will — as we are engaging with each individual customer, obviously, there’s a qualification cycle as per the unique design. But we are very actively engaged across automotive and industrial customers. And I’d characterize the engagements and some of the excitement in 2 ways. One is with the industrial base that Crocus had where maybe there was a little bit of trepidation on engaging with a smaller company, a start-up company. That’s gone away, and now we’re able to engage with a much more comprehensive portfolio around sensing and power with those customers.

And so those customers are really excited to engage with us and really take advantage of the whole portfolio. On our customer base, where perhaps some of the more challenging applications, we were working through some of those technical challenges. The addition of the Crocus TMR stack has now made the solution very obvious and very easy. And so we are accelerating the adoption of the TMR stack onto our parts. And really, as I mentioned, we are now going to market through a common brand. ExtremeSense TMR is now the world’s most comprehensive magnetic sensing portfolio on TMR, really addressing the most demanding challenges around sensitivity, around speed of response around low power consumption. And so we see really an endless set of opportunities that we can address together.

So really excited about the 2 technologies coming together under one brand.

Operator: Our next question comes from Thomas O’Malley from Barclays.

Thomas O’Malley: I wanted to ask about the auto trends into March, but I wanted to ask more specifically on the makeup of those auto trends. So if you look at the December quarter, you’re still seeing really strong growth on a year-over-year basis from the ADAS and xEV rev. But your core non faster-growing auto business was down 7. Could you talk about when you look into March, what your expectations are for the split between those 2 businesses? Do you see sequential declines in some of the faster-growing ADAS and xEV revenue? And just given all of the weaker data points on EV that we’ve been hearing lately, is that the reason for the incremental auto weakness for the next 2 quarters? Or is it really more of the core, more SAR kind of levered auto?

Derek D’Antilio: Yes, Tom, this is Derek. So in the Q3 quarter, you’re right, e-mobility was up strong. The traditional auto business was down. And if you remember in our guidance, we talked about the UAW strike in the United States. It did actually have some impact. When we looked at the pull ahead with the Detroit Bake 3. Sales were down significantly in Q3 compared to Q2. There was a pull ahead we saw in Q2, and we expected that. And rolling into Q4, we don’t — we’re not going to break that out guidance by market. But it’s really the inventory digestion primarily at the tiers and at the subcontractors. It’s not specific to end market demand, certainly not EV, and certainly not ADAS.

Vineet Nargolwala: Yes, Thomas. This is Vineet. So I’ll just add to that. As Derek pointed out, we had some order push-pull dynamic with our North America customers, largely around the UAW strike. At the same time, we’ve seen some really strong growth with our China customers and our Japan customers. And so I think that’s the dynamic we’re seeing. If I take a step back and I sort of look at the mid- to long term, we know that Chinese OEMs, Japanese OEMs, European OEMs are really forging fast and furious towards an all-electric future. The North American OEMs are taking their own path with a mix of plug-in hybrids as well as battery electric vehicles. And we’re serving all of them in their own unique way. But I think the path on each region to an all-electric future will be slightly different and will take a slightly different time line.