Allegro MicroSystems's (NASDAQ:ALGM) Q1 Sales Top Estimates But Quarterly Guidance Underwhelms

Petr Huřťák /
2024/05/09 7:11 am EDT

Chip designer Allegro MicroSystems (NASDAQ:ALGM) reported results ahead of analysts' expectations in Q1 CY2024, with revenue down 10.7% year on year to $240.6 million. On the other hand, next quarter's revenue guidance of $165 million was less impressive, coming in 22.7% below analysts' estimates. It made a non-GAAP profit of $0.25 per share, down from its profit of $0.37 per share in the same quarter last year.

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Allegro MicroSystems (ALGM) Q1 CY2024 Highlights:

  • Revenue: $240.6 million vs analyst estimates of $235 million (2.4% beat)
  • EPS (non-GAAP): $0.25 vs analyst estimates of $0.21 (17.1% beat)
  • Revenue Guidance for Q2 CY2024 is $165 million at the midpoint, below analyst estimates of $213.4 million
  • Gross Margin (GAAP): 51.2%, down from 56.8% in the same quarter last year
  • Inventory Days Outstanding: 126, up from 124 in the previous quarter
  • Free Cash Flow was -$1.51 million, down from $42.16 million in the previous quarter
  • Market Capitalization: $5.67 billion

“Continued strong momentum in e-Mobility drove record fiscal year 2024 sales to more than $1 billion and record non-GAAP earnings per share of $1.35. We also achieved a record level of design wins of more than $1 billion. I would like to thank the entire Allegro team for their contributions which enabled us to achieve these significant milestones,” said Vineet Nargolwala, President and CEO of Allegro.

The result of a spinoff from Sanken in Japan, Allegro MicroSystems (NASDAQ:ALGM) is a designer of power management chips and distance sensors used in electric vehicles and data centers.

Processors and Graphics Chips

The biggest demand drivers for processors (CPUs) and graphics chips at the moment are secular trends related to 5G and Internet of Things, autonomous driving, and high performance computing in the data center space, specifically around AI and machine learning. Like all semiconductor companies, digital chip makers exhibit a degree of cyclicality, driven by supply and demand imbalances and exposure to PC and Smartphone product cycles.

Sales Growth

Allegro MicroSystems's revenue growth over the last three years has been strong, averaging 22.9% annually. But as you can see below, its revenue declined from $269.4 million in the same quarter last year to $240.6 million. Semiconductors are a cyclical industry, and long-term investors should be prepared for periods of high growth followed by periods of revenue contractions (which can sometimes offer opportune times to buy).

Allegro MicroSystems Total Revenue

Even though Allegro MicroSystems surpassed analysts' revenue estimates, this was a slow quarter for the company as its revenue dropped 10.7% year on year.

Allegro MicroSystems's revenue inverted from positive to negative growth this quarter, which was unfortunate to see. Looking ahead to the next quarter, the company's management team forecasts a 40.7% year-on-year revenue decline. Analysts seem to agree that the poor performance will continue, as their estimates for the next 12 months call for a 10% drop in revenue.

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Product Demand & Outstanding Inventory

Days Inventory Outstanding (DIO) is an important metric for chipmakers, as it reflects a business' capital intensity and the cyclical nature of semiconductor supply and demand. In a tight supply environment, inventories tend to be stable, allowing chipmakers to exert pricing power. Steadily increasing DIO can be a warning sign that demand is weak, and if inventories continue to rise, the company may have to downsize production.

Allegro MicroSystems Inventory Days Outstanding

This quarter, Allegro MicroSystems's DIO came in at 126, which is 17 days above its five-year average, suggesting that the company's inventory has grown to higher levels than we've seen in the past.

Key Takeaways from Allegro MicroSystems's Q1 Results

We were impressed by how significantly Allegro MicroSystems blew past analysts' EPS expectations this quarter. We were also glad its revenue outperformed Wall Street's estimates. On the other hand, its revenue guidance for next quarter missed analysts' expectations and its operating margin shrunk. Overall, this was a bad quarter for Allegro MicroSystems. The company is down 1.4% on the results and currently trades at $28.97 per share.

Allegro MicroSystems may have had a tough quarter, but does that actually create an opportunity to invest right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.