Q3 2022 Allegro Microsystems Inc Earnings Call

Speaker 1: you

Speaker 2: Good day and thank you for standing by. Welcome to the Allegro Micro Systems Q3 fiscal 2022 financial results conference call. At this time all participants on the listen only mode. After the speakers presentation there will be a question and answer session. To ask a question during that session you will need to press star one on your telephone. And if you require any assistance during the call please press star zero.

Good day and thank you for standing by welcome to the Allegro Microsystems Q3 fiscal 2022 financial results Conference call. At this time all participants are in a listen only mode. After the speaker's presentation there'll be a question and answer session.

Ask a question during that session you will need to press star one on your telephone.

Any assistance during the call. Please press star zero.

Speaker 2: I would now like to hand the conference over to your speaker today, Ms. Katie Bly. Ms. Bly, the floor is yours.

I'd now like to handle conference over to your speak today as Katie Bly Bly the floor is yours.

Good morning, and thank you for joining us today for <unk> third quarter results for fiscal year 2022.

Speaker 3: Good morning and thank you for joining us today for Allegro's third quarter results for fiscal year 2022. I'm joined today by Allegro's President and Chief Executive Officer, Robbie Vig, and Allegro's Chief Financial Officer, Derek D'Antilio.

I'm joined today by <unk>, President and Chief Executive Officer Ravi Big.

Our Chief Financial Officer, Derek Dan Helio.

He will review, our quarterly financial performance and provide a summary of our outlook.

Speaker 3: We will review our quarterly financial performance and provide a summary of our outlook.

Speaker 3: Our earnings release and the accompanying financial tables are available on the investor relations page of our website.

Our earnings release, and the accompanying financial tables are available on the Investor Relations page of our website.

Speaker 3: Just call us being webcasted and a recording will be available on our IR page shortly.

Call It via webcast and a recording will be available on our IR page shortly.

Speaker 3: Please note that comments made during this conference call include four bridging statements as defined by federal security blogs. These four bridging statements include projections and other statements about future events that are based on current expectations and assumptions and as a result. Our subject to risks and uncertainties that could cause actual results to vary materially from our projections.

Please note that comments made during this conference call include forward looking statements as defined by federal Securities laws.

Forward looking statements include projections and other statements about future events that are based on current expectations and assumptions and as a result.

Subject to risks and uncertainties that could cause actual results can vary materially from our projections.

Speaker 3: Please refer to the earnings press release we issued today and other documents filed by SBC, including the risk factors discussed in detail in our most recent 10K Files on May 19, 2021. It company assumes no obligation to update any board, but the key information presented.

Please refer to the earnings press release, we issued today and other documents filed by us with the SEC, including the risk factors discussed in detail in our most recent 10-K filed on May 19, 2021, a company assumes no obligation to update any forward looking information presented.

Speaker 3: The non-gas financial measures that are discussed today are not intended to replace or be a substitute for the presentation of Allegra's gas financial results, and may be calculated differently than similar measures used by other companies.

And non-GAAP financial measures that are discussed today are not intended to replace or be a substitute for the presentation of <unk> GAAP financial results.

And maybe calculated differently than similar measures used by other companies.

Speaker 3: We are providing this supplemental information because it may enable investors to make meaningful comparisons of core operating results and more clearly highlight the results of our core ongoing operation.

Providing this supplemental information because it may enable investors to make meaningful comparisons of core operating results and more clearly highlight the results of our core ongoing operations.

Speaker 3: A reconciliation that's got to know and gap planning is when measures reference during today's call can be found in our earnings press release, which is in posted to our IRP.

Conciliation of GAAP to non-GAAP financial measures referenced during today's call can be found in our earnings press release, which has been posted to our IR page.

Speaker 3: I'll now turn the call over to a Legos president and CEO , Ravi Vig. Ravi? Thank you, Kay. And just like it.

Now I'll turn the call over to <unk>, President and CEO Ravi Vig Ravi thank.

Thank you Keith and good morning, everyone.

Speaker 4: Q3 was a story of great product, accelerating design went and strong financial performance.

Q3 was a story of great products accelerating design wins and strong financial performance.

Speaker 4: Demand from our customers remains very strong, especially in our target automotive and industrial markets.

And from our customers remains very strong, especially in our target automotive and industrial markets. We continue to benefit from multiple tailwind, including alignment to high growth applications automotive content experience and design win momentum.

Speaker 4: We continue to benefit from multiple tailwinds, including alignment to high-growing applications, automotive content expansion on design windwind.

Speaker 4: Q3 design wins in emerging growth markets and XIV, ADAS, and industry 4K, I know, and Data Center are up nearly 100% on a rolling 4-quarter basis with total design wins of roughly 25%. The momentum and mix of the wins in these areas supports the better than industry growth in a long-term target revenue model.

Q3 design wins in emerging growth markets and FCB a depth of industry four <unk> data center are up nearly 100% on a rolling four quarter basis with total design with roughly 25%.

The momentum and makes up the wins in these areas to support the benefit of the industry growth and our long term.

Target revenue model now.

Now turning to Q3 results.

Speaker 4: In fiscal Q3, we all became the COVID-related disruption to describe last quarter, and revenue was up 13% year over year to 186.6 million.

In fiscal Q3, we overcame the Covid related disruptions, we described last quarter and revenue was up 13% year over year to $186 6 million.

We expect to be back on track to prior revenue run rate in Q4 margin expansion again exceeded the high end of our guidance with non-GAAP gross margins at 54, 8% and we continue to make progress towards a 55% target.

Speaker 4: we expect to be back on track to prior revenue run rates in Q4. Margin expansion again exceeded the high end of our guidance with non-GAF gross margins at 54.8% and we continue to make progress towards a 55% target. This year is shaping up to be...

This year is shaping up to be one for the record books.

Speaker 4: Now most of you saw our announcement a few weeks ago that all walls are tiring after a long and successful career in the dentist.

Now most of you saw our announcement a few weeks ago, Paul Walsh, who is retiring after a long and successful career in this industry.

Speaker 4: I want to take this opportunity to thank Paul again, particularly for being a partner to a strategic transformation and subsequent ideal. I fully support his conditions and wish him the best.

I wanted to take this opportunity to thank Paul again, particularly for being a partner to our strategic transformation and subsequent IPO.

I fully support its decision and wish him the best.

Speaker 4: Today, I'm pleased to introduce you to Director Yess, that Dan Celio, our new chief.

Today.

I am pleased to introduce you to Derek.

Hello.

Our new Chief Financial Officer.

Speaker 4: Derek joined Allegro in January with dedicated to broad financial operating experience in semi-to-high tech. We're glad to have Derek on board. He's an accomplished CEO goal with a strong business document and the financial expertise to continue with all of that stuff. And he's already getting the phone line.

Derek joined Allegro in January with decades of broad financial and operating experience and salaries and high Tech. We are glad to have Derek on board. He is an accomplished CFO with a strong business acumen and financial expertise to continue with all lepton and he is already hitting the ground running.

Speaker 5: Now I'll turn the call to over to Derek. We'll provide you with more color of the financial and then I'll turn more details on the business and our outlook. Derek. Thank you, Ravi, and good morning, everyone. First, let me say I'm very excited to be part of the Allegro team. And after my first few weeks with the company, I'm very encouraged about the prospects for the business.

Now I'll turn the call over to Derek who will provide you with more color on the financials and then I'll share more details of the business and our outlook.

Thank you Ravi and good morning, everyone first let me say I'm very excited to be part of the Allegro team and after my first few weeks with the company I'm very encouraged about the prospects for the business.

Speaker 5: From what I've seen, Allegro is well positioned within high growth markets and the company has made great financial progress.

From what I've seen Allegro is well positioned within high growth markets and the company has made great financial progress.

Speaker 5: Infew three, Allegro delivered another quarter of solid financial results. Revenue, gross margin, and earnings per share all exceeded our guidance.

In Q3 of Allegro delivered another quarter of solid financial results revenue gross margin and earnings per share all exceeded our guidance custom.

Speaker 5: Customer backlog remained strong across all of our surrogate markets and regions and backlog continue to climb Sitting at historic levels last quarter the company expected that business would be impacted by COVID-19 related supply disruptions Add assembly partners in Malaysia. I am pleased to report that our increasingly diversified supply chain Enabled us to recover supply more quickly than anticipated

Customer backlog remains strong across all of our served end markets and regions and backlog continue decline sitting at historic levels last quarter. The company expected that business would be impacted by COVID-19 related supply disruptions at Assembly partners in Malaysia, I am pleased to report that our increasingly diversified supply chain.

It enabled us to recover supply more quickly than anticipated.

Speaker 5: And revenue for the quarter was $186.6 million, an increase of 13% over the same quarter one year ago, and down 4% sequentially.

And revenue for the quarter was $186 6 million, an increase of 13% over the same quarter, one year ago and down 4% sequentially.

Our sales marketing supply chain and operations teams have all done a remarkable job supporting our customers, particularly in automotive as a result of their efforts in Q3, our automotive revenue grew 4% sequentially to $138 million.

Speaker 5: Our sales, marketing, supply chain, and operations teams have all done a remarkable job supporting our customers, particularly in automotive. As a result of their efforts, in Q3, our automotive revenue grew 4% sequentially to $130.8 million, representing 70% of our revenue.

Representing 70% of our revenue.

Speaker 5: We continue to see strong growth in our XEV and ADAS businesses, which represented roughly 37% of our automotive revenue in the quarter.

We continued to see strong growth in our <unk> and <unk> businesses, which represented roughly 37% of our automotive revenue in the quarter.

Speaker 5: Our industrial revenue was $31.9 million, representing 17% of revenue in the quarter. Industrial revenue declined 12% sequentially and was supply-consumption.

Our industrial revenue was $31 9 million, representing 17% of revenue in the quarter.

Industrial revenue declined 12% sequentially and with supply constraint.

Speaker 5: Our industrial customer demand remains very strong with backlog at record level.

Our industrial customer demand remains very strong with backlog at record levels.

Speaker 5: Other revenue was $23.9 million in represented 13% of revenue in the quarter, declining 23% sequentially.

Other revenue was $23 9 million and represented 13% of revenue in the quarter declining 23% sequentially.

Speaker 5: Sequential decline was anticipated based upon supply constraints and we expect that other revenue will stabilize over the coming quarters

The sequential decline was anticipated based upon supply constraints and we expect that other revenue will stabilize over the coming quarters.

Once again, no single customer represented more than 10% of our revenue in the quarter.

Speaker 5: Once again, no single end customer represented more than 10% of our revenue in the quarter.

Customer orders continue to outpace supply in the quarter and our technology and operation teams have been working diligently to secure additional capacity.

Speaker 5: Customer orders continue to outpace supply in the quarter, and our technology and operation teams have been working diligently to secure additional capacity.

Speaker 5: Our TSMC ramp is well underway and we expect our TSMC wafer receipts to double this quarter on track to plan.

TSMC ramp is well underway and we expect our TSMC wafer receipts to double this quarter on track to plan.

Speaker 5: We are also in the process of securing long-term capacity with our foundry partners to enable out-of-year growth. And we continue to bring on additional sources of back-end capacity to give us enhanced flexibility. We are pleased with the progress we've made on both of these fronts.

We are also in the process of securing long term capacity with our foundry partners to enable outer year growth and we continue to bring on additional sources of backend capacity to give us enhanced flexibility.

We are pleased with the progress we've made on both of these fronts.

We also continue to make meaningful progress towards the target financial model.

Speaker 5: We also continue to make meaningful progress towards the target financial model.

Speaker 5: In Q3, GAAP gross margin was 54.2%, a recent record.

In Q3, GAAP gross margin was 54, 2% a recent record.

Speaker 5: Gross margin continued to benefit from multiple factors including structural improvements, good cost controls, and advantageous product mix.

Gross margin continued to benefit from multiple factors, including structural improvements good cost controls and advantageous product mix.

Speaker 5: After excluding $0.7 million for stock-based compensation expense and $0.4 million of other charges, non-GAAP gross margin was 54.8%.

After excluding <unk> 7 million for stock based compensation expense and <unk> 4 million of other charges non-GAAP gross margin was 54, 8%.

Speaker 5: up 100 basis points sequentially, and more than 500 basis points compared to the same quarter just one year ago.

Up 100 basis points sequentially and more than 500 basis points compared to the same quarter, just one year ago.

Speaker 5: We remain on track to meet our non-gap gross margin target of 55%.

We remain on track to meet our non-GAAP gross margin target of 55%.

Speaker 5: GAAP operating expenses were $65.6 million, GAAP R&D expense was $30.3 million, and GAAP SG&A expense was $38 million.

GAAP operating expenses were $65 6 million GAAP R&D expense was $30 3 million and GAAP SG&A expense was $38 million.

Total non-GAAP expenses operating expenses in Q3 were $59 2 million compared to $57 5 million in Q2, and with 31, 7% of revenue.

Speaker 5: Total non-GAAP operating expenses in Q3 were $59.2 million, compared to $57.5 million in Q2, and with 31.7% of revenue.

Speaker 5: Operating expenses in the quarter included higher variable compensation of about 0.9 million dollars above last quarter's run rate and continued investments in research and development

Operating expenses in the quarter included higher variable compensation of about $9 million above last quarter's run rate and continued investments in research and development.

non-GAAP adjustments include stock based compensation of $6 9 million.

Speaker 5: non-GAAP adjustments include stock-based compensation of $6.9 million and $2.1 million of other charges offset by $2.7 million gain from an adjustment of a contingent consideration liability.

And $2 $1 million of other charges offset by $2 $7 million gain from an adjustment of a contingent consideration liability.

Speaker 5: non-GAAP R&D expenses were $29.3 million and non-GAAP SG&A expense was $30 million.

non-GAAP R&D expenses were $29 3 million and non-GAAP SG&A expense was $30 million.

Speaker 5: We expect non-GAAP expenses to be up modestly in the fourth quarter.

We expect non-GAAP expenses to be up modestly in the fourth quarter.

Third quarter GAAP operating income was $35 6 million or 19, 1% of sales and non-GAAP operating income was $43 1 million or 23, 1% of sales.

Speaker 5: Third quarter gap operating income was $35.6 million or 19.1% of sales and non-gap operating income was $43.1 million or 23.1% of sales.

Speaker 5: Gap net income was $33 million for the quarter with an effective tax rate of 16%.

GAAP net income was $33 million for the quarter with an effective tax rate of 16%.

Speaker 5: The Q3 diluted share count was 192.1 million shares and gap earnings per diluted share was $0.17.

The Q3 diluted share count was $192 1 million shares and GAAP earnings per diluted share was <unk> 17.

non-GAAP net income was $36 1 million or 19, 3% of revenue.

Speaker 5: non-GAAP net income was $36.1 million or 19.3% of revenue.

Speaker 5: The Q3 non-GAAP effective tax rate was 15.9%, and we expect that to be about 16% in the fourth quarter.

Q3, non-GAAP effective tax rate was 15, 9% and we expect that to be about 16% in the fourth quarter.

Speaker 5: Our non-GAAP earnings per diluted share was $0.19, exceeding our guidance by about 5.5%.

Our non-GAAP earnings per diluted share was <unk> 19, exceeding our guidance by about five 5%.

Speaker 5: We also continue to strengthen our balance sheet in the quarter. Cash and cash equivalents in Q3 increased by $11 million over Q2 to $267 million.

We also continue to strengthen our balance sheet in the quarter cash and cash equivalents in Q3 increased by $11 million over Q2 to $267 million.

Speaker 5: We generated $46.7 million in operating cash flow in the quarter, a sequential increase of $15.3 million.

We generated $46 7 million in operating cash flow in the quarter, a sequential increase of $15 3 million.

Speaker 5: counts receivable balances were $107.4 million, and we ended the quarter with DSO of 52 days within our target range.

Accounts receivable balances were $107 4 million and we ended the quarter with DSO of 52 days within our target range.

Speaker 5: Net inventory rose marginally to end the quarter at $79 million, an increase of about $0.8 million.

Net inventory rose marginally to end the quarter at $79 million, an increase of about $8 million.

Speaker 5: Days in inventory were 83 compared to 77 in Q2, still below our target of about 100 to 110 days.

Days in inventory were 83 compared to <unk> 77 in Q2 still below our target of about 100 to 110 days.

Speaker 5: In addition, inventory in the channel remains at historically low levels.

In addition inventory in the channel remains at historically low levels.

Speaker 5: In summary, demand remains very strong, backlog is at historically high levels, and we continue to make very meaningful progress toward our target financial model.

In summary demand remains very strong backlog is at historically high levels and we continue to make very meaningful progress towards our target financial model.

Now I will turn the call back over to Ravi for additional commentary on the business and our outlook for the fourth quarter.

Speaker 5: Now we'll turn the call back over to Ravi for additional commentary on the business and our outlook for the fourth quarter.

Speaker 4: Thank you, Derek. Renewing 2.3 reflected year-old year-old sprint that crossed a strategic product line than 10 markets. We continue to benefit from multiple tailwinds, including automotive content expansion, design wind momentum, and fast growing end marks.

Thank you David.

Revenue in Q3 reflected year over year sprint across our strategic product lines and markets.

We continue to benefit from multiple tailwind, including automotive content expansion design win momentum and fast growing end markets fueling these tailed into the alignment of our R&D pipeline, but emerging growth markets, which was a key part of our strategic transformation.

Speaker 4: Fueling these tailwinds is the alignment of our R&D pipeline with emerging growth markets, which was a key part of our strategic transformation.

Speaker 4: Investments in XMR and embedded motion control are yielding innovations that are giving us a competitive advantage, and we are seeing this translate into market share.

<unk> and <unk> and embedded motion control, yielding innovations that are giving us a competitive advantage and we are seeing this translate into market share gains.

The result is accelerating new product revenue that we believe will have a positive impact on both the top and bottom line.

Speaker 4: The result is accelerating new product revenue that we believe will have a positive impact on both the top and bottom line.

Speaker 4: Here are three examples from last quarter that will offer great proof points of our technical leadership.

There are three examples from the last quarter that it will offer great proof points of our technical leadership.

Speaker 4: First, a back-by-s GMR solutions continue to take share of competitors, particularly in XEV, where a technology enables significant efficiency gain.

First of all.

<unk> solutions continued to take share from competitors, particularly in F&B, where our technology enabled sufficient significant efficiency gains.

Speaker 4: We expanded our share in transmission speed testers to 10 transmission design groups in the quarter.

We expanded our share in transmission speed.

<unk> transmission design wins in the quarter.

Second in Adas, we secured 25, new steering and braking design wins, including the SaaS sensor motor driver at Phoenix targets in the next generation <unk> systems for the market leader in Evs.

Speaker 4: In ADAS, we secured 25 new steering and braking design wins, including the sensor motor driver at PMIC sockets and the next generation steering systems for the market leader in EVs.

Speaker 4: Third, expanded out family of 3D position sensors to include a tiny 3D IC for both low and high speed motor position application.

Third we expanded our family of <unk> position sensors to include a tiny <unk> for both low and high speed motor physician applications.

Speaker 4: with initial design wins in areas such as e-bikes, factory robotics, and automotive wipers. It's an incredibly versatile chip and well aligned with our strategy to expand our channel sales and grow a broad market industrial business.

With the initial design wins in areas such as E bikes.

Robotics and automotive makers.

And incredibly versatile chip and well aligned with our strategies and our channel sales that go up broad market industrial business.

Speaker 4: Moving to end markets in Q3, automotive revenue was up 15% year-over-year at $130.8 million.

Moving to end markets in Q3, automotive revenue was up 15% year over year at $130 8 million.

Speaker 4: We have another record quarter for XEV powertrain revenue. Our revenue is up roughly 60% in XEV on a rolling four quarter basis.

We had another record quarter for FCB powertrain revenue.

Our revenue was up roughly 60% of the FCB on a rolling four quarter basis.

This compares favorably to SUV car production growth of 49% over that period.

Speaker 4: This compares favorably to XIV car production growth of 49% of all of that period, supporting the content of the method we have in this growing market.

Put into context momentum we have in this growing market.

And we believe our result.

Speaker 4: And we believe our results would have been even stronger were it not for the Malaysia supply chain challenges we face in the quarter.

I have been even stronger were it not for the Malaysia supply chain challenges, we faced in the quarter.

Speaker 4: Looking ahead, XCD's production of the broadcasts has a grow at a 32% cater from 2021 to 2025.

Looking ahead FCB car production is forecasted to grow at a 32% CAGR from 2021% to 2025.

Speaker 4: On top of that growth, we estimate XCD also has 60% more content opportunity than internal combustion vehicles. We win when cars electrify, and we believe we're in a good position to take advantage of this secular growth.

On top of that growth the estimate exit.

We also had 60% more content opportunity.

Internal combustion vehicles, we win with cars electrify and we believe we're in a good position to take advantage of this secular growth trend.

We also continue to see acceleration in the adoption of level, one plus AI assistance and advanced steering and braking.

Speaker 4: We also continue to see acceleration in the adoption of Level 1 plus ADAS systems in advanced steering and braking.

Speaker 4: Last quarter, we launched our first two market high resolution TMR real speed sensor, which is a key enabler of level sweet mud automation and passenger beam.

Last quarter, we launched our first to market high resolution TMR real estate sensitive, which is a key enabler of level, three plus automation and passenger vehicles.

Speaker 4: We're also increasing our braiding system context across our private schools.

We're also increasing our braking system content across our product portfolio.

Speaker 4: Last quarter, we secured a significant design win with a market-leading Tier 1 supplier in Europe using our 3D position sensors in an ADAS level 3 plus ready break-by-wire solution that is modularized for cross-vehicle platforms.

Last quarter, we secured a significant design win with a market leading tier one supplier in Europe , using our <unk> position sensors and that Adas level, three plus ready brake by wire solution that is Modularized book Cross vehicle platforms.

Speaker 4: We continue to win with ADAS adoption and we believe we are uniquely positioned with a broad range of solutions for these ADAS level 1 plus ready systems.

We continue to win with Aaas adoption and we believe we are uniquely positioned.

With a broad range of solutions for these adas level, one plus rating system.

As you know our alignment to secular growth trends beyond automotive into the industrial and infrastructure markets.

Speaker 4: As you know, our alignment is straight to the growth crest, except the non-automotive into the industrial and industrial model.

Speaker 4: In Q3, our industrial business was up 35% year-over-year to 31.9 million.

In Q3, our industrial business was up 35% year over year to $31 9 million.

We saw.

Speaker 4: Strong, early-year results in many major categories like robotics, re-metagy, and ED charging infrastructure.

Strong year over year result in many major categories like robotics Green energy at EV charging infrastructure.

Speaker 4: In these areas, as well as data center, we saw revenue double year-over-year. The strong growth was offset by a pause in our broad-based industrial revenue stemming from supply constraints. Demand is quite healthy and at record levels across our industrial business, and we expect that it will return to growth in Q4, ending FY22 with strong double-digit growth for the year.

In these areas as well as data center revenue doubled year over year.

Strong growth was offset by a pause in a broad based industrial revenue stemming from supply constraints.

Demand is quite healthy and at record levels across our industrial business and we expect that we will return to growth in Q4, ending FY 'twenty, two with strong double digit growth for the year.

Speaker 4: Looking to FY23 and beyond, we expect one of our strongest industrial growth drivers to be data centers.

Looking to FY 'twenty, three and beyond we expect one of our strongest industrial growth drivers to be data center.

Recent new design wins for data center are layering on top of the long term agreements, we discussed last quarter.

Speaker 4: Recent new design wins and data sets are layering on top of the long-term agreements to discuss last quarter. Positioning that will strong, sustained growth in the T-MAR.

<unk> us strong sustained growth in the <unk>.

Market.

Speaker 4: The growth has been driven not just by data center build-outs to support hyperscalers and 5G, but also by three-phase fan conversions and existing service stacks, where the economics of conversion, both in efficiency gains and in audible noise safety, are incredibly favorable.

The growth is being driven not just by data center build outs with hyper scalar and <unk>, but also by pre baseband conversions and existing service tax, but the economics of conversion both in efficiency gains and an audible noise safety incredibly favorable.

Speaker 4: Looking ahead, Q4 is playing out exactly as we framed for you last quarter. We anticipate a return to sequential growth with revenue in the range of $193 million to $197 million to end fiscal 2022 approximately 29 percent year-over-year.

Looking ahead Q4 is playing out exactly as we frame the last quarter, we anticipate a return to sequential growth with revenue in the range of $193 million to $197 million to end fiscal 'twenty two.

Approximately 29% year over year.

Speaker 4: For Q4, we expect both automotive and industrial to be up sequentially, and other will be flat to down.

For Q4, we expect both automotive and industrial to be up sequentially and other will be flat to down.

Speaker 4: We expect non-GAAP gross margin to be in the range of 54 to 55 percent.

We expect non-GAAP gross margin to be in the range of 54% to 55%.

Speaker 4: We anticipate non-GAAP earnings per diluted share will be in the range of 20 to 21 cents.

We anticipate non-GAAP earnings per diluted share will be in the range of 20% to 21 sets.

Speaker 4: Looking ahead, I believe the acceleration with seeing your strategic markets is a strong indicator of competitive differentiation.

Looking ahead I believe the acceleration with senior a strategic market is a strong indicator of our competitive differentiation.

Speaker 4: We have a strong innovation pipeline, and we're in the sweet spot of the conversions of growth trends in automotive. We energy, industry 4.0, and data center. We believe that a liberal is a secular growth story, and expect that our technology, content and marketer expansion will be key enablers of better than industry growth. With that, I'll turn it.

We have a strong innovation pipeline and we're in the sweet spot of the convergence of growth trends in automotive clean energy industry portfolio and data center.

We believe <unk> is a secular growth story and expect that technology content and market share expansion will be key enablers of better than industry growth.

With that I'll turn the call back over to Kate.

Speaker 3: Thanks, Ravi. That concludes our prepared remarks, and now we'll open the call for questions. Operator, could you please review the question and answer instructions with our participants?

Thanks, Ravi that concludes our prepared remarks, and I will open the call for questions. Operator can you. Please review the question and answer instructions with our participants.

Speaker 2: Yes, thank you. As a reminder, to ask a question, you'll need to press Star 1 on your telephone. To throw your question, please press the pound key. Stand by as they compile the Q&A rock.

Thank you.

As a reminder to ask a question you will need to press star one on your telephone to withdraw your question. Please press the pound key.

<unk> is the compile the Q&A roster.

And our first question comes from Gary Mobley of Wells Fargo.

Speaker 2: And our first question comes from Gary Mobley of Wells Fargo.

Your line is open.

Good morning, everybody welcome to the earnings call Derek and Paul's wish you the best in the next chapter.

Speaker 5: morning everybody welcome to the Ernie's called Derek and Paul we should do the best in the next chapter.

Speaker 6: I want to start out by asking about some of the supply constraints that you spoke of.

I want to start out by asking about some of the supply constraints that you spoke of.

Speaker 6: know perhaps impacting your outlook for the for the fourth fiscal quarter. I'm wondering if you can break out the contribution of those supply constraints between those factors that may be specific to kidding in in your customers supply chain and what may be specific to your own internal you know supply constraint considerations such as back-end testing.

Perhaps impacting your outlook for the for the fourth fiscal quarter.

I'm wondering if you could break out.

The contribution of those supply constraints between those factors that may be specific to kitting and.

In your customers' supply chain and what may be specific to your own internal supply constrained considerations such as back end test and assembly.

Yes, just to clarify.

Speaker 5: Just to clarify, the supply constraints that we have that affected our fiscal Q3 revenues were all specifically associated with COVID-related impacts in Malaysia.

<unk> constraints that we have.

Affected our fiscal Q3 revenues were all specifically associated with the Covid related impacts in Malaysia.

Speaker 4: At this point, we have a general industry-wide supply demand imbalance, including waker supply, you know, back-ends supply, and test capacity that we continue to balance with our growth projections.

At this point, we have a general industry continue.

General industry wide supply demand imbalance.

Including wafer supply.

Backend supply.

Capacity that we continue to balance with our to our growth projections.

Speaker 4: So we continue to run capacity as we stated that our PSMC Waker received double quarter of a quarter, which gives us great momentum on the wake of front. We have secured long-term agreements and capacity with back-end suppliers. And we also continue to bring on alternate sources to further increase our capacity.

So we continue to ramp capacity at these stages that are TSMC wafer receipts doubled quarter over quarter, which gives us.

Great momentum on the wafer front, we have secured long term agreements and capacity with.

Backend suppliers and we also continue to <unk>.

Bring on alternate sources to further increase our capacity.

Speaker 4: So at this point, we continue from a mentor on growth. But clearly, due to our design wins and our strong tail wins of the target market, demand that we'll continue to exceed supply in the new.

So at this point, we continue our momentum.

<unk>.

Clearly.

Due to our design wins and a strong tailwind.

Target market demand will continue to exceed supply in the near future.

Speaker 6: I think previously you were counting on your gross margin exiting fiscal year 22 to be roughly 55%.

Gotcha Gotcha I think previously you were counting on your gross margin exiting fiscal year 'twenty to be roughly 55%.

Your guidance is simply rounding error.

Speaker 6: your guidance is simply a rounding issue to get you to that point. But how do you view the achievement of 55% gross margin in the context of fiscal year 23 and double clicking on that? Would you expect it to be driven more so by your production mix at your three different front end fab options? Or would you expect it to be driven more so by overall product mix in ASP tail?

A rounding issue to get you to that point, but.

How do you view the achievement of 55% gross margin in the context of fiscal year 'twenty three.

Double clicking on that would you expect it to be driven more so by your production mix that youre three different front end fab.

<unk> or would you expect it to be driven more so by overall product mix in ASP tailwind.

Yes. This is derrick thank you.

Speaker 5: Hi, Gary. This is Derek. Thank you. I believe the company has said that the 55% is more of a longer-term gross margin target in fiscal 24, but you're right. In Q3, we had a great gross margin quarter, and really what drove that was sort of two macro trends. One is the structural improvements you've seen over the last couple of years here at Allegro, which gross margin is up 500 basis points over one year as a result of those structural improvements.

I believe the company has said that the 55% is more of a longer term gross margin target in 'twenty four calendar fiscal 'twenty four but youre right. In Q3, we had a great gross margin quarter and really what drove that was sort of two I'd call. The macro trends. One is the structural improvements you've seen over the last couple of years here at Allegro.

Gross margin is up 500 basis points over one year as a result of those structural improvements and we're really seeing a lot of the benefit from that the second piece really is the shift a little bit in the mix towards the higher feature content products that Ravi talked about EV and Adas. So there's sort of two macro trends really driving that but in the near term as we have.

Speaker 5: and we're really seeing a lot of the benefit from that. The second piece really is the shift a little bit in the mix towards the higher feature content products that Robbie talked about in XEV and ADAS. So the sort of two macro trends really driving that, but in the near term, as we've said here, we expect gross margins to be between 54% and 55%. Okay, appreciate it.

<unk> said here, we expect gross margins to be between $54, 55%.

Okay I appreciate it I'll hop back in the queue. Thank you guys.

Thank you.

Speaker 2: Next question comes from DJ Rackesh of Mijuso.

Our next question comes from Vijay Rakesh.

<unk>.

Your line is open.

Speaker 4: Yeah, I guess the congenitions are on a great corner and congenitions fall in Derek. And a quick question on the design wins. I know you talked about design wins being up 100% as you look here, but just wondering how investors should think about revenue conversion, especially, these are pretty strong growth segments with XCVA, that's in data center, etc. How do you think through how that should translate to the revenue pipeline for the design?

Yes, hi, guys.

Congratulations on a great quarter and congratulations PON delek.

Quick question on the on the design wins I know you talked about design wins being up 100%.

As you look here, but just wondering how investors should think about revenue conversion, especially these are pretty strong growth segments in <unk> and data center et cetera.

How would you.

True.

<unk>.

That should translate to the revenue pipeline from the design wins.

Yes on design wins.

Speaker 4: Undesignments, when we claim them, are projects that are one and granted a lawyer to us qualified at our customers as well as a lawyer to us by the customers purchasing organization. So for all practical purposes, they're, they're, they have a reasonable degree of assurance that they will convert to reddit.

When we climb them are projects that are.

And grant awarded to US qualified at our customers as well as awarded to us by the customers purchasing organization. So.

All practical purposes, they're there.

They have a reasonable degree of assurance that they will convert to revenue.

Speaker 4: We continue to provide this data to SHILD in the momentum of the company, and it doesn't replace our revenue guidance that we provide.

We continue to provide this data.

The shells of the midterm of the company and but it doesn't replace our revenue guidance that we provide.

Speaker 7: And I know you talked about auto industrial up sequentially into the March quarter.

Got it.

I know you talked about auto industrial up sequentially.

Into the March quarter.

Speaker 7: good to see that. But you also talked about some constraints on the supply chains, can provide intellectual.

Good to see that but you also talked about some constraints on the supply chain side and industrial.

Speaker 7: If you can give some kind of what they are, how are you seeing that alleviate, when do you see it alleviate, and that's it.

If you can give some color on what.

How are you seeing that alleviate.

When do you see deliberate.

Thanks.

Yes, so when we start looking at.

Speaker 4: Yeah, so I'm going to start looking at the market in general. Again, our business is really fueled by the design winds that we have that are driving up, our production wind conversions, if you want to call it that, as well as the key sectors that we're working in, which have great tailwinds, XAB, ADAS, as well as the broad industrial and data center.

At the market in general again our.

Our business is really fueled by the design wins that we have that are driving up.

Our our production.

Production with conversions, if you wanted to call it that as well as the key factors that we're working in VIX had great tailwind exiting.

<unk> as well as the.

The broad industrial and data center. So when we look at all of this we see that despite the increases in capacity that continuously.

Speaker 4: So when we look at all of this, we see that despite the increases in capacity that we continuously generate and offer to the market, the demand levels that we experience.

Generate an offer into the market.

<unk>.

The demand levels that we experience still continue to exceed supply and.

Speaker 4: still continue to receive supply and I think they will love it continue to explain supply in the near future.

There will continue to exceed supply in the near future.

Great. Thanks, a lot.

Yeah.

Thank you.

Speaker 2: Our next question comes from Con Bolton of Needham. Your line is open.

Our next question comes from Quinn Bolton Needham your.

Your line is open.

Speaker 8: you guys uh... congratulations on the nice results and outlook and welcome their uh... ravi just wanted to start with sort of a bigger picture i think uh... in past conference calls uh... you guys have talked about uh... your confidence in growing sort of by a load maybe mid-team double digit rate

Hey, guys congratulations on the nice results and outlook and welcome Derik.

Robert I, just wanted to start with sort of a bigger picture I think in past conference calls you guys have talked about your confidence in growing sort of by a low to maybe mid teen double digit rate in fiscal 'twenty three.

Speaker 8: As you look into calendar 22 auto production versus content gains, can you give us a sense? What do you think, what are you sort of baking in in terms of unit production increases in calendar?

As you look into calendar 'twenty, two auto production versus content gains can you give us a sense what do you think.

What are you what are you sort of baking in in terms of unit production increases in calendar 'twenty to fiscal 'twenty three.

Speaker 8: 23 versus your expectations for continued content gains. And then I've got a follow-up.

Is your expectations for continued content gains and then I've got a follow up.

Yes, we have seen the market data from independent.

Speaker 4: We have seen of the market data from independent projections of car production.

An independent projections of car production, but.

Speaker 4: But we remain cautious in terms of the product production numbers that are currently being forecasted.

We remain cautious in terms of the kind of production numbers that are currently being forecasted.

Speaker 4: We do see that the supply demand challenges that exist today in automotive

We do see that the supply demand challenges that exist today in automotive.

Speaker 5: We'll continue to have an impact, I think early data, year to date from external sources has already indicated that there is an impact on car production at this point. You just have to conduct your availability. So our...

We will continue to have an impact I think early data year to date up from external sources has already indicated that so that there is a.

There is an impact of car production at this point due to semiconductor availability so are.

Speaker 9: Our mid-teens guidance, low to mid-teens guidance that we have provided is really a factor in some cautiousness in terms of the industry car production. We'll continue to review this as the year goes on and as supply continues to come into play, we'll re-look at our estimates.

Our mid teens guidance low to mid teens guidance that we have provided is really <unk>.

Factors and some cautiousness in terms of.

The industry car production will continue to review this year goes on.

As supply continues to come into play.

We will re look at our.

At our estimates.

So from that comment Ravi is it safe to assume you think it is probably more skewed to content gains.

Speaker 8: So from that comment, Ravi, is it safe to assume you think it's probably more skewed to content gains with, you know, takes into vehicle production, comes in its forecast, but that could be a tailwind to the...

With vehicle.

Vehicle production comes in its forecast, but that could be a tailwind.

To the business.

Speaker 4: Yeah, I mean, you know, our business is really is a star plus pie to 10.

Yes.

Our business is really is.

A plus 5% to 10%.

Speaker 9: range numbers. This is something that we provided to the market over the course of the last 12 months. And we expect that that's continued in that this direction. And we also look at it, not to forget that our industrial business and our other businesses is 35% of our overall business. That also has great Kelvin. So, you know, we do expect that there is...

Range number this is something that would be provided to the market.

The course of the last 12 months.

<unk>, we expect that that will continue in that direction and we also look at that.

Yet that our industrial business and our other business is 35% of our overall business that also has great tailwind. So we do expect that there is.

Speaker 9: You know, it beats it for optimism. But at this point, I think the entire industry is better off being a little cautious in terms of where this growth is.

The reason for optimism.

But at this point I think the entire industry better better off being a little cautious in terms of.

Where does this growth will be.

Okay. Great. My follow up question was just wondering if you could spend a little bit of time talking about some of the traction you're seeing on the <unk> side of the business I think you mentioned some back bias to speed sensors for transmissions, but.

Speaker 8: Great. My follow-up question was just wondering if you could spend a little bit of time talking about some of the traction you're seeing on the GMR, decided to business, I think you mentioned some back bias, the speed sensors for transmissions. But broadly, can you say where are you seeing the greatest interest in GMR technology? Is it mostly in speed sensors? Are you seeing that technology beginning to move into the current sensing market, which I know is a big application or big requirement. Electric.

Lee can you say where are you seeing the greatest interest in GM or technology is it mostly in speed sensors are you seeing.

That technology, beginning to move into the current since the market, which I know is a big.

Hey, good application.

Requirement.

Trick vehicles. Thanks.

Speaker 9: Yeah, so we see GMR and TMR applicable in four different spaces. So what we would call is the first one would be just wheel and motor encoding, which is the high density ring magnet type of products that we have announced. And we continue to win them. Those are very applicable to ADAS applications, specifically in the breaking area. We see...

Yes, so we see GM or TMR.

TMR.

Flexible.

In four different spaces. So let me the call is the first one would be just wheel in motor and coding which is the high density ring magnet.

Type of products that we.

We have announced.

We continue to see wins of those those are very applicable to.

Two eight applications, specifically the braking area, we see.

Speaker 9: the speed sensor, back by speed sensor, prior to that we have that service to purposes. One is they continue to cement our market share in the internal combustion, but more importantly, they provide...

<unk> backed by speed sensor.

Product that we have that service two purposes, one is to continue to cement our market share in internal combustion, but more importantly, they provide.

Speaker 9: The transmission manufacturer enables them to have better solutions in the XAB space.

Transmission manufacturers enables them to have better solutions in the <unk> space and we see.

Speaker 9: And we see, I think we said that we had about 10 transmission sensor winds over the course

I think we said that we had about 10 transmission sensor wins over the quarter.

Speaker 9: The third area that we see is in ADAS, in terms of motor encoding, where our TMR sensors are deposited on top of silicon to offer opportunity for heterogeneous redundancy.

Third area that we see is in Aaas in terms of motor and coding where our TMR sensors are.

The positive top of silicon to offer opportunity for heterogeneous redundancy, which what that means is that we can provide a higher more safer iron antiquated more safer solution out to the market.

Speaker 9: which what that means is that we can provide a higher, more safer, higher integrated, more safer solution out to the market.

Speaker 9: These are currently in the pipeline and being sampled.

We are currently in the pipeline and being sample and then the fourth area of course is current sensors TMR and then with TMR that will.

Speaker 9: And then the full area of course is current sensors with TMR and then with TMR.

Speaker 8: that will attack the X-A-D area. So, you know, we're proud to say that we have an extraordinarily broad breadth of target applications in GMR and TMR, and will attack all aspects of the automotive ecosystem. Thank you, Ravi.

Kathy.

Broad breadth of target applications in TMR, TMR and will attack all aspects of the.

The automotive ecosystem.

Thank you Ravi.

Thank you.

And next we have Chris.

Barclays.

Your line is open.

Speaker 10: Hey good morning, thanks for taking my question. I wanted to ask you, Ravi, on pricing, you talked about your first margin, our trend is at 55%, but you're seeing a lot of people start to see pricing, start to layer through, maybe just address, whether you're seeing any tailwind from pricing now, and as you look to the next year.

Hey, good morning, Thanks for taking my question I wanted to ask you Ravi on pricing you talked about.

Your gross margin.

Our trend towards that 55%, but you're seeing a lot of people start to see pricing start to layer through maybe you can just address.

Whether youre seeing any.

Tailwind from pricing.

Now.

As we look into the next fiscal year.

Yes, I think what Youll find is that we have long term relationships with strategic customers.

Speaker 9: Yeah, I think what you'll find is that we have long-term relationships with strategic customers and our approach on pricing has been that we would certainly pass through being margin neutral on ASP in order to make sure that a leg rope can operate successfully but not with the objective of attacking margins on a proper pricing perspective.

Our approach on pricing has been that we would.

Certainly pass through.

Being margin neutral on.

On ESP, so in order to make sure that Allegro.

Can operate successfully but not with the objective of attacking margins from a pricing perspective. So.

Speaker 9: You know, it's a long-term business. I've noticed this really one that is, as well as industrial is one that we really focused on, probably a long-term-despected long-term relationships and we think we're great partners for our customer cell.

It's a long term business automotive is really one that is.

As well as industrial is one that we really focused on.

From a long term perspective long term relationships and we think we're great partners for our customers. So.

Good opportunity at this point, but we are really trying to be margin neutral at this point with pricing. It is the mix that we worry about that.

Speaker 9: Good opportunity at this point, but we are really trying to be margin-y at this point with pricing. It is the mixed everywhere you are about. That's what we continually focus on. A new business has brought up new opportunities.

That's what we continually focus on new businesses bring up new opportunities.

The margin.

Speaker 10: Thanks. And then I might have missed this, but you had been breaking out kind of ADAS. The next CV is the percent auto revenue. I think it was 35% last quarter. I was just curious if you mentioned that number. I missed it.

Thanks, and then I might have missed this but you had been breaking out kind of aid at <unk> as a percent of auto revenue I think it was 35% last quarter. Just curious if you mentioned that number and I missed it.

It's up 37%. So you see a slight uptick will continue to see a slight uptick in.

Speaker 9: It's 37% so you see a slide up tick will continue to see a slide up tick and you know every every quarter in that particular number.

Every every quarter in that particular number.

Okay. Thanks, guys.

Thank you.

Speaker 2: Our next question comes from Shrinni Tajiri of SMBC Nikol. Your line is open.

Our next question comes from shiny jewelry.

SBC Nicole your line is open.

Speaker 11: Thank you and good morning Ravi and Derek and Paul. Congratulations to both of you. First, my question on TSM sourcing. I know it's early days. I'm just wondering if you have any longer term.

Thank you and good morning, Ravi and Derek and Paul Congratulations to both of you.

First my question on the TSM sourcing I know it's early days.

Just wondering if you have any longer term.

Speaker 11: in a target for how you see your sourcing max and TSM versus UNC and polar.

Target for how you see your sourcing mix TSM versus UMC and polar and.

Speaker 11: And I guess the broader question is, you know, how, you know, that makes my impact.

The broader question is how that mix might impact.

Speaker 11: You know, you talked a little bit on the pricing side, but just curious as to how that makes my, you know, impact your gross margins going forward.

You talked about a little bit on the pricing side, but just curious as to how that mix might.

Impact your gross margins going forward.

Yes.

Speaker 9: Our Asian sources certainly are more competitive and pricing than our US sources is something that we have set to everybody over the last two.

Asian sources, certainly a more competitive pricing than our U S sources is something that we have set.

To everybody over the last 15 months, so thats not a.

Speaker 9: So that's not a, you know, that's, so that is pretty well understood. And that's PSN Ramsey. We continue to increase the ratio of our Asian sources to our US sources. So, you know, we would expect to see, you know, continued leverage in terms of the benefit from, from the resources, brand-made resources. You know, it's not just a cost, it really is a technology play for us. They're great partners. Everything.

So that is pretty well understood and Thats PSM ramps.

We continue to increase the ratio of our Asian sources to our U S sources. So we would expect to see.

<unk> leverage in terms of the benefit from from from these sources Brent but these sources.

It's not adjusted costs. It really is a technology play for us they're great partners.

Speaker 9: they are really capable in manufacturing, they really fulfill very well the automotive quality requirements and supply chain requirements.

A really capable of manufacturing they really fulfill very well the automotive quality requirements and supply chain requirements.

Speaker 9: the stability in production, so there are enormous benefits to us with these sources. And we continue to look at sources, right? Our goal is to continue to support our long-term growth objectives, and we continue to...

Stability in production. So there are enormous benefits to us with.

With these sources and we continue to look at other sources right.

Our goal is to continue to support our long term growth objectives, and we continue to to either ramp. These current sources will bring on new ones.

Speaker 9: to either ramp these, the current sources will bring on new ones.

Got it and then Ravi question on the channel inventory, obviously, the things are quite tight still on the auto side, but given as you compare about a year ago versus now at least we are hearing the news flow is not as bad in terms of the production that.

Speaker 11: And then, Ravi, a question on the channel inventory. Obviously, the things are quite tight still on the auto side. But in a given, if you compare about a year ago versus now, at least, we're hearing the news law is not as bad in terms of the production that factors are on the world. So if you can comment on what you're seeing in terms of channel inventory at your customers. But then, a longer-term question, coming out of this unprecedented supply in a tightness.

Factories around the world. So if you can comment on what Youre seeing in terms of channel inventory at your customers and then longer term question coming out of this.

This I guess unprecedented supply tightness.

Speaker 11: What are your customers telling you about how they're going to manage their inventory is going forward? Do you think the industry is going back to just in time again? Or is there any other practice that they're looking at? I just want to hear your thoughts as we come out of this supply situation. What you think the industry practices will look like?

What are your customers, telling you about how they're going to manage their inventories going forward I mean do you think.

The industry is going back to just in time again or is there any other packages that they are looking at I just wanted to hear your thoughts as we come out of this situation.

Situation and what you think the industry practices will look like.

So channel inventory for us still are at record lows.

Speaker 4: So the channel inventory for us still are at at normally low levels. And so when we look at distribution inventory, they're all sitting extraordinarily low. Our BNOs OEMs direct customers rather are taking every part, every device that we can give them. And we know that we continue to

Phenomenally low levels.

And so when we look at that distribution inventories theyre, all sitting extraordinarily low.

We know that our OEM direct customers, rather or are taking every park every device that we can give them and we know that we continue to.

Speaker 4: participate as do most of our peers in conversations regarding expediting material and keeping lines running. So, we have all indications in front of us are that

To participate as do most of our peers in in conversations regarding expediting material and.

Keeping lines of ninth running so we are we are all indications of other fabs.

That's the.

Speaker 9: the key areas that we can best grow in the vehicle as well as an industrial, which are XEV, ADAS, you know, even complex convenience areas such as lighting, secling, fans, etc. Because these are all growth areas that supply extraordinarily.

The key areas.

That are growing in the vehicle as well as in industrial which are <unk>.

Even comfort convenience areas such as lighting.

<unk> adds et cetera. These are all growth areas.

That supply is extraordinarily tight for all of these.

Speaker 4: for all of these growing areas, as well as an industrial. A lot of this fuel buys the need for additional semiconductors into these particular solution as opposed to ice, which is quite...

These growing areas as well as in industrial a lot of it's fueled by the need for additional semiconductors into these particular solution as opposed to <unk>, which is quite stable.

Speaker 9: So, when we look at customers, we don't really see, at this point, there's a lot of conversations going on by the OEMs on how to deal with the supply chain crisis, you know, the initial discussions have all been around, you know, how do I get...

So when we look at customers, we don't really see at this point, there's a lot of conversations going on.

Five Oems and how to deal with the supply chain crisis. The initial initial discussions have all been around.

How do I get.

More.

Speaker 4: more high-density digital 300-millimeter supply. But rapidly, the conversations are also going around smart power, 200-millimeter supply situations, et cetera.

High density digital 300 millimeter supply, but rapidly the conversations are also growing our roundup smart power 200 millimeter supply situations et cetera, but while the conversations are happening thats been low conclusions at this point on how they would propose to address this.

Speaker 4: But while the conversations are happening, there's been no conclusion at this point on how they would propose to address this.

Got it thanks Ravi.

Thank you.

Speaker 2: And then if you have Natalia Windler of Jeffries, your line is open.

And if we have Natalia Windler of Jefferies. Your line is open.

Hi, Ravi.

Derek.

Speaker 3: A quick question, Ravi, on the ADAS. Thank you so much for providing kind of some color on the growth and the proportion of automotive. I think on ADAS, the question I had was, as you guys see the transition, you mentioned kind of the content increase from level zero to level one. I'm just curious, do you guys see kind of a similar uptick as you go through further levels? Is there any meaningful content increase if you were...

A quick question Ravi on the Ada assay. Thank you so much for providing some color on the growth.

The proportion of automotive I think I'll, maybe just a question I had was as you guys see the transition you mentioned kind of the content increase from level from level two level. One I'm. Just curious do you guys see kind of a similar uptick.

Go through further levels is there any meaningful.

An increase if you were.

Speaker 3: you know, once the cars are kind of transitioning from level one and higher level.

One of the cars that kind of transitioning from level, one and then higher level.

Yeah, Hi Italia. So yeah, great question. So as you go to level, one and you go to level, one plus level to the more economy that you provide to the steering system.

Speaker 4: Yeah. Time to go, yeah. So, yeah, great question. So.

Speaker 4: As you go to Level 1 and you go to Level 1 plus Level 2, the more autonomy that you provide to the steering system, the higher the electronic content tends to get to in terms of from a safety and functionality perspective. So these systems have to be more independent. And in the past, we've spoken about, you know, that at this point...

The higher the electronic content tends to get to in terms of from a safety and.

Functionality perspective, so these systems have to be more independent and in the past we've spoken about.

At this point steering braking the entire motion control of the vehicle is being re imagined in the industry as we get onto <unk> platform to the electrification.

Speaker 9: Steering, breaking the entire motion control of a vehicle is being reimagined in the industry as we get on to skateboard platforms, electrification. The ADAS and electrification intersects is really clear. And so what you have is long-term trends on break-by-wire, you know.

The Adas and electrification intersect is really clear.

And so what you have is long term trends brake by wire.

Speaker 9: break a break on the wheel. Yes, sure, by wire steering on the wheel. Movement of these motion ecosystems from...

Break a break on the deal.

Steer by wire steering on the wheel.

Movement of.

<unk> motion control systems from <unk>.

Speaker 9: from the body, to really onto the skateboard, or to the wheel, or to the drive train.

On the from the body into really onto the skateboard onto the Wheeler to the drivetrain at.

Speaker 9: And all of which actually results in more independent control per wheel, which require more additional motion control systems, which will drive content. So where are we feel very good about the...

All of which actually results in more independent control per wheel, which required more additional motion control systems, which will drive content.

We feel very good about the secular tailwind as it relates to the motion control of the vehicle.

Speaker 9: Secular tailwinds as it relates to motion and control in the vehicle.

Understood. That's very helpful color. Thank you and for my follow up.

Speaker 12: That's a very helpful color. Thank you. And for my follow-up, I just wanted to double-check. You guys put kind of a lot of focus on data center on the certain calls. Just curious if you feel like this would be, you know, the main source of growth for industrial in fiscal 20, you know, in the future.

I just wanted to double check you guys.

There are a lot of focus on data center on the <unk> call. Just curious if you if you feel like this will be the mean.

<unk> source of growth for industrial.

Fiscal 2000.

The future fiscal years.

Speaker 9: Well, we did announce last quarter that we had signed several long-term agreements. We continue to wrap our data center business. I think Katie had a great stat on data center quarter over quarter. Your view, Katie?

Well, we did announce last quarter that we have signed several long term agreements we continue to ramp our industrial our datacenter business I think <unk> had a great add.

On data center.

Quarter over quarter year over year.

Speaker 4: more than doubled. More than doubled. So, you know, we're talking about this particular segment continuing to grow for us and as these new...

More than doubled more than doubled.

No.

Talking about this particular.

Segment, continuing to grow for us and as these new projects start ramping.

Speaker 9: projects start ramping, design wins were up also, as these projects start ramping, we'll start seeing the data center cooling really taking hold.

Design wins were also as these projects start ramping we will start seeing the data kind of cooling really taking hold in addition to that.

Speaker 4: But in addition to that, you know, we do have this broad market motion control, also solar electrification infrastructure associated with electrification that's driving our industrial business. And we see equal growth in the broad market area of our industrial business. And so we are pretty excited about our core strategy, which is...

We do have this broad.

<unk> market motion control.

Also solar electrification infrastructure associated with with electrification, that's driving our industrial business and we see equal growth in the broad market area up our industrial business. So we are.

Pretty excited about our core strategy, which is setting in motion control both for automotive as well as in industrial.

Speaker 9: testing and motion control, both for automotive as well as industrial.

Thank you that's very helpful.

Okay.

Speaker 2: Thank you. Again, to ask a question, please press star one on your telephone. Do it, joy or question. Please press the pound key.

Thank you again.

Please press star one on your telephone to withdraw your question. Please press the pound key.

Speaker 2: And we have a question from John Pitzer of Credit Suisse. Your line is open.

And we have a question from John Pitzer Credit Suisse. Your line is open yes.

Speaker 13: Yeah, good morning, Robbie Derek. I'm sure that in the ask the question, Robbie, I want to go back to an answer you gave earlier about pricing, basically saying that you're raising pricing only to pass along costs and the real driver pricing for you.

Yes, good morning, Ravi Derek Thanks for letting me ask the question Rob you want to go back to an answer you gave earlier about pricing basically, saying that youre raising pricing only pass along cost and the real driver of pricing for you.

Speaker 13: in sort of mix and new products. I'm wondering if you could just elaborate on the second half of that. When you think about mix, when you think about new products like GMR, when you think about the very strong design pipeline funnel, how should we, on the outside looking in, think about pricing? And given that gross margin

Sort of mix and new products I'm wondering if you could just elaborate on the second half with that when you think about mix. When you think about new products like GMO or when you think about the very strong design pipeline funnel how should we.

Outside looking and thinking about pricing and given that gross margins.

Speaker 13: that have been beating street expectations, should we say that the path to your target is faster or should we start to think about the target that needs to be revised higher?

Been beating street expectations should we say that the path to your target is faster or should we start to think about the target that needs to be revised higher.

Yes so.

Speaker 9: Yeah, so, you know, great question, right, John ? So, you know, we're not, you're right that our pricing strategy at this point is really to try to keep ourselves margin neutral in terms of where the costs are coming in. So, that's a cost increase. Now, certainly there is that inflation going around throughout the semi-supply chain.

Great question right John .

We're not.

Youre right that our pricing strategy at this point is really to try to keep ourselves margin neutral in terms of where the costs are coming in so that's a cost increase so it certainly does.

There is inflation going around throughout the supply chain.

Speaker 9: So, but on the other hand, our long-term story is about attacking these new emerging growth segments. These segments typically offer us higher margin opportunities.

But on other hand, our long term story is about attacking these new emerging growth segments.

These segments typically offer higher margin opportunities.

Speaker 9: And so we will continue to see some uplift as a result of these segments growing.

And so we will continue to look to see some uplift as a result of these segments growing.

Speaker 4: Now, on the other hand, we also have continued to have efficiency activities both in our backhand facilitating the both.

On the other hand, we also have continued to add efficiency activities.

<unk> and our back end facility in the Philippines, but also as we bring on more additional Asian supply sources for our wafers will continue to see that help us with our margin mix. So.

Speaker 4: But also, you know, as we bring on more additional ways in supply sources for wapers, we'll continue to see that help us with our margin mix. So, to your question, we are a little bit ahead of where we probably would be on gross margin. You know, we'd like to oversee, I guess, that we'll continue to push forth. And once we get closer to running,

To your question.

A little bit ahead of where we thought we would be on gross margin.

We like to Overachieve I guess is that we'll continue to.

Tubular to push forward and once we get closer to two running stably at that.

Speaker 4: Stably at that 55% target that we are, we'll certainly be looking at the next step in the journey which will be clearly a step ahead.

Ft five at that 55% target that we are we will certainly be looking at the next step in the journey, which will.

Which will be clearly a step ahead.

And then maybe as my follow on there is sort of direct supply constraints that you had to deal with than theirs.

Speaker 13: And then, Robbie, as my follow-on, there's sort of direct supply constraints that you have to deal with, and then there's...

Speaker 13: indirect, and I'm wondering if you can differentiate between the two today. Is your demand being 100% limited by what you can directly supply, or do you get the sense that customers are not completing full kits because there's deficiencies away from you? And as you address the question, I'd be kind of curious as to whether or not the current environment makes you change or rethink your strategy around CapEx and kind of how much of your supply you want to control internally versus externally.

Indirect and I'm wondering if you could differentiate between the two today is your demand being 100% limited by what you can directly supply or do you get the sense that customers are not completing full kits because theres deficiencies away from you and as you address the question that would be kind of curious as to whether or not the current environment makes.

You change or rethink your strategy around Capex and kind of how much of your supply you wanted to control internally versus externally.

Speaker 9: Huh, tough question there. So, you know, what we look at the demand that's out there.

Tough question there.

So what we will look at.

The demand Thats out there.

Our our demand that we see is really fueled by.

Speaker 9: Our demand that we see is really fueled by the new products that we have in the areas that we are. Some of the examples are that our industrial business as well as our XEV-8S business is certainly outgrowing the rest of our business in general. So it really kind of validates the narrative that we have that our growth is not just the old and the new.

But the new product that we have and the areas that we are some of the examples are that our industrial business as well as our <unk> business is certainly outgrowing the rest of our business in general so it really kind of validates the the.

The narrative that we have that we are.

Our growth is not just the organic cost reduction inventory.

Speaker 9: car production, inventory fuel growth that could be there, but it really is a growth that is focused on new projects and new wins.

Inventory fueled growth that could be there, but it really is a growth that is focused on new projects and new wins.

Sure.

Speaker 4: We don't see inventory bills at our customers. We don't, you know, we see that supply challenges that are going to be broad 200 millimeter, which is where we live on. It certainly always has been a constraint and will continue to be.

We don't see inventory builds at our customers.

Don't.

See that cut supply challenges that are going to be broad 200 millimeter, which is where we live on.

Certainly <unk> has been a constraint and will continue to be challenged over the next film.

Speaker 9: challenged over the next, over the near future. So we do see continued supply-demand challenges.

Over the near future. So we do see.

Continued supply demand challenges, specifically as we ramp up our 200 millimeter, we will see it specifically to really being challenged pressured on the other end by design wins and just the growth of the target markets that we are.

Speaker 4: Specifically, as we ramp up our 200 millimeter, we'll see it specifically really being challenged, pressured on the other end by design wins and just the growth of the target markets that we are focused on.

We are focused on.

Thanks, guys.

Thank you.

And I'm seeing no further questions in the queue I will turn it back.

Speaker 2: And I'm seeing no further questions in the queue. I'll turn it back over to the speakers for closing remarks.

The speakers for closing remarks.

Speaker 3: Okay, thank you, Chris. If there are no further questions, we'll conclude the call this morning. Thank you all for joining us today.

Okay. Thank you Craig if there are no further questions. We will conclude the call. This morning. Thank you all for joining us today.

Speaker 2: Thank you. This concludes today's conference call. Thank you all for participating. You may now disconnect and have a pleasant day.

Thank you. This concludes today's conference call. Thank you all for participating you may now disconnect and have a pleasant day.

Speaker 14: ?

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Speaker 14: Really.

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