Allegro MicroSystems' Q4 2025: Unpacking Contradictions in Gross Margins, Inventory Management, and E-Mobility Strategy

Gross margin recovery, inventory levels, e-mobility market share are the key contradictions discussed in Allegro MicroSystems' latest 2025Q4 earnings call.



Strong Q4 Sales and Profitability:
- Allegro MicroSystems reported fourth-quarter sales of $193 million, exceeding the high-end of their guidance.
- Non-GAAP EPS was $0.06 above the midpoint of their guidance.
- The growth was attributed to strong performance in automotive, particularly e-mobility, and industrial sectors like data center and robotics.

Automotive Market Recovery:
- Automotive sales returned to growth, increasing by 8% sequentially, driven by e-mobility sales, which rose by 16%.
- However, automotive sales declined by 23% year-over-year.
- The improvement was due to wins in e-mobility applications and the positive outlook on XEV powertrain production.

Industrial and Other Sales Growth:
- Industrial and other sales increased by 9% sequentially, with particular strength in data center and robotics.
- Sales in industrial sectors declined by 11% year-over-year.
- Growth was driven by increased demand for motor drivers and isolated gate drivers in AI data centers.

Gross Margin Dynamics:
- Gross margin was 45.6% in Q4, below expectations due to mix and lower absorption from customer price adjustments.
- The company expects cost reductions from vendor pricing negotiations and restructuring programs to impact the P&L in Q1.
- The temporary under-absorption of production costs was a factor affecting gross margin.

Future Revenue and Earnings Outlook:
- Guidance for Q1 2026 sales is between $192 million and $202 million, reflecting an 18% year-over-year increase.
- The company anticipates gross margin to improve to between 46% and 48%, and non-GAAP EPS between $0.06 and $0.10.
- The outlook is supported by anticipated cost reductions, vendor pricing adjustments, and strong demand across key markets.