Fiscal Q2 2027 earnings call, October 29, 2026: Sales of $277 million beat guidance, but data center growth slowed to 4% sequentially and pricing has yet to help margins

Allegro MicroSystems reported fiscal second-quarter sales of $277 million, above the high end of its guidance range, up 7% sequentially and 29% year-over-year. Non-GAAP EPS of $0.26 doubled from a year earlier. The more important news for investors is that forward indicators accelerated while the company's most closely watched growth engine, data center, paused. Management attributed the pause to timing rather than demand, though the explanation involves hyperscaler programs that slipped, which investors should treat as a real execution dependency on customers.

Data Center: A Pause Driven by 800-Volt Delays, With Current Sensors as the Next Leg

Data center sales reached a record $46 million, up more than 150% year-over-year but only about 4% sequentially, a sharp deceleration after a June quarter in which the business grew more than 30%. CEO Mike Doogue was direct about the cause. The prior quarter was a "monster growth quarter" as customers prepared for big new programs, but "those big programs were pushed out by a quarter or 2." He added: "The pushouts seem to be related to the delay of some 800-volt programs with the hyperscalers." Management maintained that the business remains on track to more than double in fiscal 2027, and that the delayed programs "are on the come and they will happen in the very near future." The guide for the full year leaves little room for a second quarter of flat sequential performance.

The bull case rests on current sensors. Allegro secured more than 10 design wins with leading Taiwanese power supply makers for hyperscaler power supply units, battery backup units and UPS systems, spanning 5 to 30 kilowatt designs including new 800-volt architectures. Current sensor design wins for data center more than doubled sequentially. Doogue framed the technical logic clearly: as rack power densities climb, legacy resistive shunts and bulky transformers "generate too much heat and take up too much space," while the need for high-voltage isolation favors Allegro's magnetic sensors. Current sensors were 22% of data center sales last quarter, and management said it does not plan to disclose that split every quarter. Doogue noted the sensors are "useful at 400 volts. They're even more useful at 800 volts," so the delay in 800-volt programs defers the benefit rather than removing it.

Management reiterated its target of lifting data center content from $150 to more than $425 per rack, with about two-thirds coming from motor drivers and current sensors. Isolated gate drivers would add "hundreds of dollars on top of that $425." Doogue had previously guided to an 18 to 24 month ramp for gate drivers in the data center and said the company "could beat that previously mentioned timing, but only time will tell." Second-generation gate drivers sample this quarter, and the company sees stronger-than-expected interest in solid-state circuit breakers.

On the CPU-versus-GPU question, Doogue argued that the shift toward liquid cooling for GPUs is not a threat to the fan driver franchise. Growth will come from cooling CPUs and from power supplies, which are not expected to be liquid cooled. For capacity planning, management is using calendar 2027 hyperscaler capex growth estimates of 30% to 80% and holds formal quarterly business reviews with data center customers.

Bookings, Design Wins and the Mid-Teens Growth Target

Total design wins rose nearly 40% year-over-year, the highest quarterly total since the 2020 IPO. Bookings increased for the eighth consecutive quarter, up 45% year-over-year, and backlog is now extending into fiscal 2028 given lead times. Management argued that the combination puts the company ahead of the mid-teens sales growth target set at its Analyst Day, which assumed Automotive growth above 10% and Industrial growth near 20%. Asked by Gary Mobley of StoneX why the target is not higher given design win lifetime value growth of 30% to 35%, Doogue said the company believes it "has the potential to exceed" it, but did not raise the target.

Time from design win to ramp is compressing. Data center and robotics wins typically ramp in 6 to 12 months, and EV programs in automotive increasingly ramp in under a year, versus longer cycles 3 to 4 years ago.

Automotive: Steady Growth, Share Gains and a Lean Inventory Backdrop

Automotive sales were $173 million, up 4% sequentially and 11% year-over-year, the sixth consecutive quarter of double-digit annual growth. Bookings rose 33% sequentially and 50% year-over-year. More than 75% of record design wins were in xEV and ADAS. Allegro won a next-generation onboard charger platform at a leading North American EV maker using 5 megahertz current sensors, taking share from a competitor, along with a motor driver win in the same vehicle's cooling system. It also won an electronic power steering design at a leading Japanese OEM. One customer is now shipping multiple Allegro ICs into one of the first vehicles with electromechanical braking, where content per braking system rises roughly 4x.

A caveat is that the mix is not yet diverging as management argues it should. Focus Auto (xEV and ADAS) and the legacy ICE, safety, comfort and convenience business both grew 4% sequentially and 11% year-over-year. Focus Auto has risen from about 35% to about 55% of Automotive revenue over time. Management attributed the lack of near-term divergence to thin customer inventories that force shipments of whatever parts are needed.

No restocking is visible. Many Tier 1 customers hold "very low single-digit weeks of inventory," and while customers are talking about building safety stock, "there has not been much activity." That leaves potential upside if the conversation turns into orders. Global distribution inventory sits in the middle of the 10 to 12 week target range, though some pockets are leaner than the company would like.

Industrial and Robotics: A Record Quarter and Early Humanoid Traction

Industrial and Other sales rose 11% sequentially and 79% year-over-year to $104 million, the first time the segment has topped $100 million. Management cited a halo effect from data center on energy infrastructure, share gains in magnetic sensors for medical, and a lift in personal mobility. Allegro landed its first major win for its silicon carbide high-voltage gate driver, with a leading solar provider for next-generation inverters.

In robotics, Allegro won a Chinese humanoid supplier that will use roughly 60 inductive position sensor ICs per robot in its large joints, ramping to production within 6 months. It also won a design with an Asian robotics developer for current sensors in primary drive joints. In fiscal Q3 it will begin sampling what it describes as the industry's first fully integrated magnetic sensor and motor driver IC for humanoid hands and fingers. Factory automation and robotics are expected to be only 3% to 4% of fiscal 2027 sales, so this remains an option on future growth. Doogue said humanoid content represents a multiple of 3x to 10x current robot content, with theoretical content of $150 per humanoid.

Margins: Operating Leverage Is Working, Pricing Is Not Yet

Gross margin was 51.5%, up 40 basis points sequentially and 190 basis points year-over-year. Operating margin was 20.6%, up 670 basis points from a year ago, and adjusted EBITDA margin was 25%. Management has guided fiscal Q3 gross margin to 51.5% to 52.5%, versus sub-50% at the Analyst Day roughly 7 months ago. The target remains above 55%, and CFO Derek D'Antilio said "we don't intend to stop at that mid-50s."

Pricing contributed nothing meaningful in the quarter. The company is still absorbing the January 1, 2026 Automotive price resets, and has so far only raised prices in the catalog tail, with larger Industrial increases coming in fiscal Q3 and most Automotive contract renewals and increases effective January 1. D'Antilio said pricing typically hits in the quarter it takes effect, while cost inflation reaches the P&L a quarter or two later, implying favorable gross margin effects in fiscal Q3, marginally in Q4 and in Q1 of next year. Over the next couple of years, pricing is expected to be "at least neutral" to margins, with operating leverage the primary driver.

The cost side is not benign. Wafer supply contracts also reset on January 1, and "unfortunately, it's an ongoing thing," D'Antilio said, citing commodities that have leveled off but remain up significantly over three years, along with rising energy and labor costs. Conversion from gold to copper wire, which has been a headwind of about 200 basis points over the last couple of years because of gold prices, begins shipping in fiscal Q3 and should structurally lower costs.

Guidance, Capacity and Balance Sheet

For fiscal Q3, Allegro guided sales to $278 million to $288 million, a 2% sequential increase at the midpoint and 23% year-over-year, above the seasonal norm of roughly a 5% decline for December quarters. Management expects the quarter to be led by Automotive and data center, as the long tail of Industrial typically declines on distributor year-end behavior. Non-GAAP EPS is guided to $0.25 to $0.29. Operating expenses are expected at $87 million, plus or minus $1 million.

Capacity is a watch item. Wafers are not constrained, but test capacity is tight on a mix-dependent basis and constraints begin to show in fiscal Q3. Allegro will add capacity in fiscal Q3 and Q4, has room in the Philippines, and has begun shipping from a Chinese OSAT for probe, assembly and test. Inventory fell to 117 days from 128 days, mostly from finished goods shipped to distributors.

Free cash flow was $31 million on $37 million of operating cash flow and $6 million of capex. The company ended with $201 million of cash, $285 million of term loan debt and net debt of $84 million, and made another voluntary $25 million debt payment on September 30.

Overall, the quarter strengthens the demand case through bookings and design wins, while the near-term data center trajectory depends on the timing of hyperscaler 800-volt programs that management does not control.