Chip designer Allegro MicroSystems (NASDAQ: ALGM) reported Q3 CY2025 results exceeding the market’s revenue expectations, with sales up 14.4% year on year to $214.3 million. On top of that, next quarter’s revenue guidance ($220 million at the midpoint) was surprisingly good and 3.3% above what analysts were expecting. Its GAAP profit of $0.03 per share was $0.02 below analysts’ consensus estimates.
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Allegro MicroSystems (ALGM) Q3 CY2025 Highlights:
- Revenue: $214.3 million vs analyst estimates of $211.4 million (14.4% year-on-year growth, 1.4% beat)
- EPS (GAAP): $0.03 vs analyst estimates of $0.05 ($0.02 miss)
- Adjusted EBITDA: $40.82 million vs analyst estimates of $40.64 million (19% margin, in line)
- Revenue Guidance for Q4 CY2025 is $220 million at the midpoint, above analyst estimates of $213 million
- EPS (GAAP) guidance for Q4 CY2025 is $0.14 at the midpoint, beating analyst estimates by 138%
- Operating Margin: 2.9%, in line with the same quarter last year
- Free Cash Flow Margin: 6.5%, up from 3% in the same quarter last year
- Inventory Days Outstanding: 135, down from 141 in the previous quarter
- Market Capitalization: $5.69 billion
“We delivered strong second quarter results, with sales of $214 million, up 14% year-over-year, and led by growth in both e-Mobility and Industrial & Other, increasing 21% and 23% year-over-year, respectively. Non-GAAP EPS was $0.13, increasing more than 60% year-over-year,” said Mike Doogue, President and CEO of Allegro.
Company Overview
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.
Revenue Growth
A company’s top-line performance can indicate its business quality. Rapid growth can signal it’s benefiting from an innovative new product or burgeoning market trend. Over the last two years, Allegro MicroSystems’s revenue declined by 14.2% per year. This shows demand was weak, a tough starting point for our analysis. Semiconductors are a cyclical industry, and long-term investors should be prepared for periods of high growth followed by periods of revenue contractions.
We at StockStory place the most emphasis on long-term growth, but within semiconductors, a half-decade historical view may miss new demand cycles or industry trends like AI. Allegro MicroSystems’s performance shows it grew in the past but relinquished its gains over the last two years, as its revenue fell by 14.2% annually. 
This quarter, Allegro MicroSystems reported year-on-year revenue growth of 14.4%, and its $214.3 million of revenue exceeded Wall Street’s estimates by 1.4%. Company management is currently guiding for a 23.7% year-on-year increase in sales next quarter.
Looking further ahead, sell-side analysts expect revenue to grow 18% over the next 12 months, an improvement versus the last two years. This projection is healthy and suggests its newer products and services will fuel better top-line performance.
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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.
This quarter, Allegro MicroSystems’s DIO came in at 135, which is 17 days above its five-year average. These numbers suggest that despite the recent decrease, the company’s inventory levels are higher than what we’ve seen in the past.
Key Takeaways from Allegro MicroSystems’s Q3 Results
It was encouraging to see Allegro MicroSystems’s revenue guidance for next quarter beat analysts’ expectations. We were also glad its inventory levels shrunk. On the other hand, its EPS was in line and its adjusted operating income fell slightly short of Wall Street’s estimates. Overall, this was a mixed quarter. The stock traded up 6.6% to $32.80 immediately after reporting.
So should you invest in Allegro MicroSystems right now? If you’re making that decision, you should consider the bigger picture of valuation, business qualities, as well as the latest earnings. We cover that in our actionable full research report which you can read here, it’s free for active Edge members.
