ALGM Q1 2026: Bookings surge, eMobility pipeline lifts margins to 50%
- Robust Demand and Backlog Growth: Management highlighted strong bookings, an expanding backlog, and real discussions with customers about future component shortages—signals that demand is recovering and could drive future revenue growth.
- Innovative eMobility Product Pipeline: The team has introduced several new semiconductor products (including advanced current sensor ICs, isolated gate drivers, and innovative current sensor solutions for ADAS/EV applications) that position the company well to capture the expanding eMobility market share.
- Compelling China Strategy: The executives emphasized securing wins with local Chinese OEMs and progressing with their "China for China" supply chain rollout, which enhances competitive positioning and cost competitiveness in a key growth market.
- China Competition and Geopolitical Risks: Management highlighted intensifying competition from local Chinese semiconductor suppliers and noted ongoing geopolitical concerns, which could pressure pricing and margin performance in the region.
- Weakness in the Legacy Auto Segment: During Q&A, it was noted that non‑eMobility auto revenue is down in the high single to low double digits both sequentially and year over year, indicating potential headwinds in the traditional auto business.
- Distribution Channel and Inventory Dynamics: Management discussed that shipments are not yet fully aligned with true end demand, as distributor inventory levels remain subdued and uneven across regions, potentially limiting future revenue growth.
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Sales | Q2 2026 | no prior guidance | $205M to $215M, midpoint equating to a 12% YoY increase | no prior guidance |
Gross Margin | Q2 2026 | no prior guidance | 48% to 50% | no prior guidance |
Operating Expenses (OpEx) | Q2 2026 | no prior guidance | Approximately $73M | no prior guidance |
Interest Expense | Q2 2026 | no prior guidance | $5M projected, inclusive of a $25M debt repayment | no prior guidance |
Tax Rate | Q2 2026 | no prior guidance | 10% | no prior guidance |
Weighted Average Diluted Share Count | Q2 2026 | no prior guidance | Estimated at 186 million shares | no prior guidance |
Non-GAAP EPS | Q2 2026 | no prior guidance | Between $0.10 and $0.14 per share, up 50% YoY at the midpoint on a 12% sales increase | no prior guidance |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
Robust Demand, Backlog, Design Wins | Consistently highlighted in Q4, Q3, and Q2 2025 with strong design win percentages (70–75%), growing backlog, and robust demand indicators. | Q1 2026 reinforces robust demand with strong bookings, increasing backlog, and over 75% design wins in strategic areas. | Strengthening momentum with enhanced design wins and continued healthy backlog growth. |
eMobility Innovation and R&D/Product Pipeline | Discussed extensively in Q4, Q3, and Q2 2025 through numerous new product launches, emphasis on TMR technology, isolated gate drivers, and expanded product pipelines. | Q1 2026 highlights innovations such as the ACL C current sensor, UCOR solutions, and a robust TMR roadmap backed by notable eMobility design wins. | Continuous, aggressive innovation with deeper product differentiation and a growing pipeline. |
China Strategy and Localization Initiatives | Emphasized in Q4, Q3, and Q2 2025 with the “China-for-China” approach, local manufacturing initiatives, and positive design win momentum driven by local production partnerships. | Q1 2026 further advances the China localization strategy with active rollout of local supply chain solutions, receiving strong customer feedback and competitive cost benefits. | Sustained strategic focus with deepening localization efforts to capture market share in China. |
Supply Chain, Distribution, Inventory Management | Addressed in Q4, Q3, and Q2 2025 with significant inventory reductions, enhanced distribution channel performance, and localized supply chain efforts to mitigate raw material shortages. | Q1 2026 demonstrates strong point-of-sale performance, continued distributor inventory reductions, and forward-looking supply chain metrics supporting robust future orders. | Continued improvement in inventory management and supply chain efficiency. |
Gross Margin and Profitability Pressures | In Q4 and Q3 2025, margin pressures were noted from under-absorption and timing of cost benefits, with expectations for recovery through cost reductions and improved production efficiencies. | Q1 2026 reports a gross margin of 48.2%—above guidance—bolstered by cost benefits cycling through inventory and operational adjustments despite some foreign exchange headwinds. | Gradual margin improvement driven by ongoing cost reduction and operational efficiency measures. |
Competitive Pressures, Geopolitical Risks, Tariff Uncertainty | Q4 2025 and Q3 2025 mentioned competitive pressures and minor tariff impacts, with a cautious view on geopolitical risks though details were limited in Q2 2025. | Q1 2026 acknowledges stiff competition in China and recognizes geopolitical concerns, while noting minimal direct tariff impact and continued focus on differentiated products. | Stable sentiment with a consistent focus on product differentiation to counter competitive and geopolitical challenges. |
Automotive Segment Performance (Legacy Auto vs. eMobility) | Across Q4, Q3, and Q2 2025, eMobility was growing while legacy auto faced declines due to inventory adjustments and market transitions, with eMobility design wins accounting for a significant share. | Q1 2026 shows eMobility sales growing strongly (31% YoY, 16% sequential) alongside legacy auto declines in the high single to low double digits, reinforcing the ongoing shift. | Clear divergence: eMobility is outperforming legacy auto, underscoring the broader industry transition toward electrification. |
Cost Reduction, Restructuring, Operational Efficiency | Q4 and Q3 2025 featured active cost reduction initiatives, vendor price negotiations, restructuring programs (including asset repositioning), and debt repricing measures noted in Q2 2025. | Q1 2026 emphasizes cost innovation through manufacturing flow optimization and improved test yields on TMR devices, leading to tangible COGS reductions and operating margin improvements. | Persistent efforts in operational efficiency and cost reduction are paying off, bolstering margins and overall operational leverage. |
Regional Market Dynamics (European and North American Challenges) | Q2, Q3, and Q4 2025 discussed structural inventory digestion, production cuts, and slower recovery in Europe and North America, with challenges in aligning inventory and production. | Q1 2026 does not specifically address European and North American dynamics [N/A]. | Reduced emphasis suggests stabilization or lower prioritization of regional challenges in the current period. |
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Demand Outlook
Q: How are orders and tariffs affecting demand?
A: Management indicated that strong bookings, growing backlog, and noticeable order pull-ins underscore a healthy demand recovery—with tariffs having nearly no material impact. -
Margin Drivers
Q: What drove margins above Q1 guidance?
A: They attributed the margin improvement to effective pricing negotiations, timely cost benefits, and better utilization, setting the stage for near 50% margins in upcoming quarters. -
Revenue Guidance
Q: Does Q2 revenue reflect true end demand?
A: Management explained that the Q2 guide of $210M does not fully capture end demand, which historically sits around $220M–$230M, due to ongoing distributor inventory adjustments. -
eMobility Growth
Q: What underpins eMobility sector’s future growth?
A: They pointed to innovative launches in current sensors and isolated gate drivers that are driving ADAS and EV improvements, bolstered by new design wins, particularly in China and Japan. -
China Strategy
Q: How is the China-for-China strategy impacting the competitive edge?
A: Management emphasized robust local design wins and the rollout of a China-for-China supply chain, enhancing competitiveness and helping maintain margins amid fierce local competition. -
Capital Deployment
Q: When might capital return begin over debt repayment?
A: They stressed that repaying debt remains the most accretive use of capital right now, so no share repurchases or dividends are planned in the near term. -
Current Sensing Tech
Q: Which technology drives current sensing improvements?
A: Management detailed that near-term contributions come from Hall effect sensors, while advanced TMR solutions—with superior signal-to-noise performance—are on the horizon. -
OpEx Efficiency
Q: Will OpEx rise significantly as revenues accelerate?
A: They expect SG&A expenses to remain stable thanks to centralized operations and cost efficiencies, so revenue growth will improve margin percentages without major OpEx increases.
Research analysts covering ALLEGRO MICROSYSTEMS.