Chip designer Allegro MicroSystems (NASDAQ: ALGM) reported Q1 CY2025 results beating Wall Street’s revenue expectations, but sales fell by 19.9% year on year to $192.8 million. Guidance for next quarter’s revenue was optimistic at $197 million at the midpoint, 2.9% above analysts’ estimates. 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 vs analyst estimates of $185 million (19.9% year-on-year decline, 4.3% beat)
- Adjusted EPS: $0.06 vs analyst estimates of $0.05 (in line)
- Adjusted EBITDA: $28.45 million vs analyst estimates of $27.78 million (14.8% margin, 2.4% beat)
- 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
- Free Cash Flow was $14.96 million, up from -$1.51 million in the same quarter last year
- Inventory Days Outstanding: 148, down from 182 in the previous quarter
- Market Capitalization: $3.44 billion
“During the fourth quarter, we delivered on our commitments with sales of $193 million, up 8% sequentially, and non-GAAP EPS of $0.06,” 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.
Sales Growth
A company’s long-term sales performance can indicate its overall quality. Any business can have short-term success, but a top-tier one grows for years. Over the last five years, Allegro MicroSystems grew its sales at a sluggish 2.6% compounded annual growth rate. This was below our standards and is a rough 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.
Long-term growth is the most important, but short-term results matter for semiconductors because the rapid pace of technological innovation (Moore's Law) could make yesterday's hit product obsolete today. Allegro MicroSystems’s performance shows it grew in the past but relinquished its gains over the last two years, as its revenue fell by 13.7% annually. 
This quarter, Allegro MicroSystems’s revenue fell by 19.9% year on year to $192.8 million but beat Wall Street’s estimates by 4.3%. Despite the beat, the drop in sales could mean that the current downcycle is deepening. Company management is currently guiding for a 18% year-on-year increase in sales next quarter.
Looking further ahead, sell-side analysts expect revenue to grow 13.9% over the next 12 months, an improvement versus the last two years. This projection is noteworthy and indicates its newer products and services will spur 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 148, which is 28 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 Q1 Results
We were impressed by Allegro MicroSystems’s strong improvement in inventory levels. We were also excited its EPS outperformed Wall Street’s estimates by a wide margin. Zooming out, we think this was a good print with some key areas of upside. The stock traded up 5.9% to $19.80 immediately following the results.
Allegro MicroSystems put up rock-solid earnings, but one quarter doesn’t necessarily make the stock a buy. Let’s see if this is a good investment. The latest quarter does matter, but not nearly as much as longer-term fundamentals and valuation, when deciding if the stock is a buy. We cover that in our actionable full research report which you can read here, it’s free.
