Good morning, and welcome to the Allegro MicroSystems Third Quarter Fiscal 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker’s presentation, there will be a question-and-answer session. Please be advised that this conference is being recorded. I would now like to hand the conference over to Jalene Hoover, Vice President, Investor Relations and Corporate Communications.

Thank you, Kevin. Good morning, and thank you for joining us today to discuss Allegro’s third fiscal quarter 2024 results. I’m joined today by Allegro’s President and Chief Executive Officer, Vineet Nargolwala; and Allegro’s Chief Financial Officer, Derek D’Antilio. They will provide highlights of our business, review our quarterly financial performance, and share our fourth quarter and full fiscal year 2024 outlook. We will follow our prepared remarks with a Q&A session. Our earnings release and prepared remarks include certain non-GAAP financial measures. The non-GAAP financial measures that are discussed today are not intended to replace or be a substitute for our GAAP financial results. A reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures is included in our earnings release, which is available on the Investor Relations page of our website at www.allegromicro.com. This call is also being webcast, and a replay will be available in the Events and Presentations section of our IR page shortly. During the course of this conference call, we will make projections and other forward-looking statements regarding future events or the future financial performance of the company. We wish to caution that such statements are based on current expectations and assumptions as of today’s date and, as a result, are subject to risks and uncertainties that could cause actual results or events to differ materially from projections. Important factors that can affect our business, including factors that could cause actual results to differ from our forward-looking statements are described in detail in our earnings release for the third quarter of fiscal 2024 and in our most recent periodic filings with the Securities and Exchange Commission. Our estimates or other forward-looking statements may change, and the company assumes no obligation to update forward-looking statements to reflect actual results, changes to assumptions, or other events that may occur except as required by law. It is now my pleasure to turn the call over to Allegro’s President and CEO, Vineet Nargolwala. Vineet?

Thank you, Jalene, and good morning, everybody, and thank you for joining our third quarter fiscal year 2024 conference call. I’m pleased to report that we delivered another solid quarter against a weaker backdrop in fiscal Q3, consistent with expectations and our guidance. While we expect continued inventory digestion across markets in the short term, our design win momentum continues at record levels and reinforces our confidence in our ability to grow above market over the mid- to long term, consistent with our target financial model. Furthermore, we are actively managing the business to optimize profitability and cash flow throughout the cycle. In Q3, we delivered sales of $255 million, up 2% year-over-year, reflecting continued strength in automotive. Sales in our strategic growth areas, including e-mobility and industrial, which includes clean energy and automation, were up approximately 20% year-over-year to $150 million or 59% of total sales. Innovation with purpose is our core value. During the quarter, we announced the launch of the second product of our high-voltage isolated gate driver portfolio. Allegro’s newest Power-Thru solution has crucial safety features designed to protect against high operating temperatures in electric powertrain systems. It also provides high performance in noisy environments present in microinverters in solar applications, power supplies and data center applications, and onboard chargers for electric vehicles. Recall that a high-voltage isolated gate driver technology came to us through our acquisition of Heyday just over a year ago. The progress we are making with our Power-Thru product family demonstrates our ability to effectively integrate acquired technology and bring it to market quickly. We’re applying the same approach and intensity to our recent acquisition of Crocus, which further strengthens our magnetic-sensing IC portfolio and extends our leadership in this very important product category. I’m pleased to report that the integration of the Crocus team and its TMR technology is progressing very well. The acquired business is fully transitioned into our systems and processes. Product sales are underway with sampling activity accelerating in e-mobility and industrial markets. Both the Allegro and Crocus TMR offerings are now combined under a common brand, ExtremeSense, which now represents the world’s leading and most comprehensive portfolio, offering the highest accuracy, the lowest power consumption, and the highest sensitivity for the world’s most demanding applications. Feedback across the customer base has been very encouraging, and the strong majority of our customer discussions recently at CES featured TMR. Moving on to the broader macro environment. Industry estimates indicate that calendar year 2024 automotive demand will be stable, with continued growth in xEVs, which includes battery electric vehicles and full hybrids. While xEV adoption varies greatly by geography, the growing number of xEV launches proves that the momentum is strong and increasing. Recall that Allegro is well represented in all automotive segments with our solutions supporting all powertrains. Today, ADAS represents the majority of e-mobility sales, and xEV is the fastest-growing component. And while e-mobility is a key strategic focus, nearly half of our automotive sales are in other automotive applications such as ICE powertrain and safety, comfort, and convenience, which are agnostic of the choice of powertrain. Additionally, OEs' use of both hybrid and full electric platforms to meet fuel economy and emissions regulations positions us well. Allegro’s content in full hybrid vehicles is similar to that in BEVs, with both significantly higher than that in ICE. And so Allegro wins, no matter which platforms OEMs invest in. While automotive demand remains stable, and we see continued strong momentum in e-mobility, we are seeing certain inventory dynamics where tiers and contract manufacturers are paring back inventory from the 8 to 10 weeks during the supply chain crisis to pre-pandemic levels of 4 to 6 weeks as carrying costs pick up as a factor, and OEMs support premiums for inventory. Despite these dynamics, we expect our automotive business to deliver above-market growth for fiscal year ‘24, consistent with our target financial model. Our fourth quarter sales outlook comprehends macroeconomic conditions, including ongoing inventory digestion in industrial and consumer markets, as well as pockets of inventory rebalancing in automotive. Looking to the future, we continue to see strong design win activity with 80% of our Q3 design wins in our strategic growth areas and more than 50% in the area of e-mobility. Key highlights from our third quarter design wins include the following: in automotive, we were awarded multiple programs by a leading Japanese OEM for an xEV platform. This was for current sensors on onboard chargers and AC inverters and for our magnetic position sensors for electronic power steering systems; in China, we were awarded multi-solution design wins for xEV powertrains and EPS systems with a leading automotive OEM using our current sensor and power technology; in the industrial end market, we won several designs using our current and isolation sensor technology for clean energy applications, including solar and EV charging; in data center applications, we recorded several design wins with our motor drivers with a major OEM for cooling, high-performance AI servers using port traditional fabs as well as liquid cooling. We remain focused on serving our customers and extending our market-leading positions. We’re investing for the future with a focus on maximizing growth in these strategic areas while positioning the business to scale and grow profitably. This focus is being rewarded by our customers with more business, and our record design wins indicate that we are winning in the market. In fact, for fiscal year 2024, we are on track to close over $1 billion in design wins, with the majority turning to revenue over the next 3 years. This is proof that our strategy is working, underpinning our confidence in our ability to deliver above-market performance over the long term. I want to thank our teams globally for serving our customers and the continued execution of our strategy. I’ll now turn the call over to Derek to review the Q3 financial results and provide guidance for our fourth quarter. Derek?

Thank you, Vineet. Good morning, everyone. Starting with a summary of our Q3 financial results. Sales were $255 million, gross margin was 54.6%, operating income was 27.2%, and adjusted EBITDA was 34% of sales. As a result, earnings were $0.32 per share, 10% above the midpoint of our guidance range and exceeding the high end. Total Q3 sales increased by 2% compared to Q3 of fiscal ‘23, and sales to our automotive customers were $195 million, an increase of 18% year-over-year and representing 76% of Q3 sales. E-mobility sales increased by 6% sequentially and 45% year-over-year, representing 54% of third quarter auto sales, up from 44% a year ago. Industrial sales were $46 million, declining 25% sequentially and 14% year-over-year. Other sales, which include consumer applications, were $14 million, down 17% sequentially and 53% year-over-year. Sales through our distribution channel, which comprise the majority of the industrial and other sales, were down 10% sequentially as expected. We continue to monitor our channel point-of-sale sell-through closely to manage inventories to appropriate levels. From a product perspective, magnetic sensor sales were $154 million, declining 13% sequentially and flat year-over-year. Sales of our Power Products were $101 million, increasing 2% sequentially and 7% year-over-year. Sales by geography were again well balanced with 30% of sales in China, 24% in the rest of Asia, 17% in Japan, 15% in Europe, and 14% in the Americas. Now turning to Q3 profitability. Gross margin was 54.6% and in line with our expectations for the quarter. Gross margin has remained healthy through this sales decline as a result of our fabulous and our flexible manufacturing model. Operating expenses were $70 million or 27% of sales, down from 28% of sales a year ago, and included two months of Crocus. Third quarter R&D expenses were 15% of sales, and SG&A was 12% of sales. Operating margin was 27.2% of sales compared to 31.3% in Q2 and 30% a year ago. The effective tax rate for the quarter was 10%, slightly better than expected due to the geographical mix of income. We are now projecting our full-year non-GAAP tax rate to be approximately 12%. The third quarter diluted share count was 194.6 million shares, and net income was $62 million or $0.32 per share. Moving to the balance sheet and cash flow. We ended Q3 with cash of $224 million. Cash flow from operations in the quarter was $77 million and free cash flow was $42 million, an increase of $27 million or more than 170% sequentially. From a working capital perspective, DSO was 41 days compared to 40 days in Q2 and inventory declined by $8 million, and days in inventory were 124 days compared to 136 days in Q2. Capital expenditures in the third quarter were $34 million as we are completing a capacity expansion of our operations in the Philippines. Also in the third quarter, we opened a new Philippines tech and shared services center and made investments in R&D labs in strategic locations. I’d like to take a few moments now to speak to the actions we are taking to optimize our financial performance with a focus on free cash flow. First, we continue to prioritize investments in our strategic growth areas, specifically in R&D and sales. However, in response to the recent slowdown in sales, we have aligned factory costs with production levels and taken actions, which have contributed to an $8 million or 11% sequential decline in organic operating expenses. We now expect organic operating expenses to decline by approximately 9% in the second half of fiscal ‘24 compared to the first half. To further optimize cash flow, we are managing our material purchases, including wafers, to align with current production levels. We are also nearing the end of our most recent capacity expansion in the Philippines. As a result, we expect CapEx to decline by approximately $25 million or 30% in the second half of fiscal ‘24 compared to the first half of the year. Now I’ll provide a few additional updates on the Crocus acquisition. As Vineet mentioned, integration is progressing well, and planned synergies are on schedule. In Q3, we completed the full systems integration and a number of tax and legal steps to allow us to utilize significant pre-acquisition tax net operating losses and enable us to begin to realize tax and operating benefits. Finally, I’ll turn to our Q4 and full year 2024 outlook. We expect fourth quarter sales to be in the range of $230 million to $240 million, reflecting continued inventory digestion. At the midpoint of our Q4 guidance, we are projecting sales growth of 7% for fiscal ‘24, with auto sales expected to grow in the high teens in fiscal ‘24. Based on our current view and historical cycles, we estimate continued inventory digestion for a couple of quarters, and we expect Q1 of fiscal ‘25 for the June quarter to be our trough quarter. We expect Q4 gross margin to be between 53% and 54%, reflecting the projected product and channel mix. We expect operating expenses to be approximately 31% of sales, and Q4 operating expenses include a full quarter of Crocus and the annual payroll tax reset. We expect our non-GAAP tax rate to be approximately 12%, and our diluted share count to be approximately 195.8 million shares. As a result, we expect non-GAAP EPS to be between $0.19 and $0.23 per share.

Thank you, Derek. This concludes management’s prepared remarks. Before we open the call for your questions, I’d like to share our fourth fiscal quarter conference lineup with you. We are attending Wolfe’s Inaugural Semiconductor Conference on February 15 at the Jay Autograph Collection in San Francisco, California; Susquehanna’s 13th Annual Technology Conference on March 1 with attendance virtual and Morgan Stanley’s TMT Conference on March 4 at the Palace Hotel in San Francisco, California. We will now open the call for your questions. Kevin, please review the Q&A instructions.

We’ll pause for a moment while we compile our Q&A roster. Our first question comes from Chris Caso with Wolfe Research.

I guess just a first question on the guidance for the March quarter and some of the commentary you had on the June quarter as well. Could you characterize that between the auto and the industrial segment? Obviously, industrials already pulled back quite a bit here from the peak. In terms of the sequential decline that you expect for March, and it seems like you’re also implying a sequential decline in June. How would that be broken out between the 2 segments?

Yes, Chris, this is Derek. We don’t specifically guide by market, but as I look at Q4, we see activity across all end markets. There is ongoing inventory digestion, especially in industrial, which is starting to stabilize. In the auto sector, as Vineet mentioned, there are dynamics related to inventory clearing out, and we anticipate this trend will continue into Q4 and Q1.

Yes, Chris, this is Vineet. Thanks for the question. We have been pretty transparent and have communicated the inventory digestion in the industrial and other markets. The order dynamic is more recent, and it’s really a rebalancing. In discussions with CEOs of base OEMs and the tiers, it’s clear that the automotive OEM demand continues to be pretty stable. The xEV production estimates remain very robust. The pressure is coming from the contract manufacturer in the tier side where there’s a rebalancing of inventory back to pre-pandemic levels. That’s part of what we’re seeing in fiscal Q4. As Derek mentioned, we expect to see similar trends continue into the next quarter.

As a follow-up to that, Vineet, you mentioned that you anticipate outpacing the market within the automotive sector. When you refer to that, are you defining the market in terms of auto units, which is still expected to grow this year, or is it focused on the core of the auto semiconductor peers? Considering that the overall market is still growing while inventory declines, simply put, do you foresee being able to increase your auto revenue year-on-year in calendar '24?

Yes, Chris. So a couple of clarifications there, right? So any time we talk about outgrowing the market, it is from an auto production perspective. So that’s the basis. And if you recall, when we talked at our Analyst Day, we laid out a model which talked about 7% to 10% growth above auto production. That’s how we characterize the market. Our comment which I think Derek made in the prepared remarks was with respect to full year fiscal ‘24, including our Q4 guidance, where we expect for the full year fiscal ‘24 top line to be about 7% year-on-year growth. When within that, automotive to be exceptionally strong high teens. And so that’s consistent with our model. And as a reminder, we are long cycle. The quarter-to-quarter, we’ll see some perturbations. But really, what we’re focused on is full year growth, and really pleased with how the team has executed that strategy to deliver that kind of growth considering the backdrop.

Our next question comes from Gary Mobley with Wells Fargo.

Derek, you’re guiding the fourth quarter gross margin down about 110 basis points sequentially. Can you bridge that delta for us between lower distribution mix, pricing, and contribution Crocus and the other factors that are affecting that? And then, as it relates to the start to the fiscal year ‘25, I would assume that with June quarter revenue trending down again sequentially, should we expect another leg down in the gross margin as well?

Our Q3 gross margin was approximately 60 basis points better than what we had anticipated. Some of this improvement was due to changes in product mix. We observed pricing dynamics, especially in the channel during Q3, where pricing pressure typically first appears due to market conditions. This trend began in Q3. As we move into Q4, we are currently engaging in negotiations for calendar year contracts with our customers, which will result in some pricing adjustments before we see benefits from vendor pricing negotiations over the next quarter. This contributes to our Q4 guidance which suggests a decline of around 100 basis points from Q3. Additionally, the distribution mix is expected to decrease in Q4 as we continue to manage channel inventories. Another factor to consider is Crocus, whose fixed costs play a role as we anticipate synergies starting to materialize in the second half of calendar year 2024. For Q1, I expect gross margins to remain within the range of 53% to 54%. The positive aspect is that, with our now variable cost structure and flexible manufacturing model, our gross margins hold up much better than they would have previously when we operated multiple facilities and fabs. I foresee gross margins staying in the 53% to 54% range in the near term. As distribution normalizes, we expect to return to and work towards our target of 58%. Lastly, in Q3, our organic gross margin for Allegro exceeded 55%.

Gary, I want to ask more of a longer-term focused question. China is a very important market in the overall automotive market for sure. And so my question to you is, what sort of investments are you making there in terms of forging relationships with localized foundry partners and back-end partners and whatnot? How are you showing China domestic customers that you’re willing to invest in the market in an effort to win their trust to maintain their business? Gary, thanks for the question. And you’re right, China is incredibly important to us. Actually, in the most recent quarter, we saw some really nice growth in China despite all the macro noise that you hear, which just reinforces the belief we have to be in China to win with the Chinese customers, and we’re really pleased with the progress we’re making. To the question you asked, we are investing in localizing a part of our supply chain in China. We have inked an agreement with local OSAT, and we expect in the next 12 to 18 months, we’ll start shipping from our China partners locally. We are also working with a foundry partner in China which will take a little bit longer to qualify wafers, but it’s part of the plan. It’s important for us to demonstrate to our Chinese partners and customers that we are indeed investing in the region. Not just for supply chain resilience from their perspective, also to take advantage of economies of scale locally. We’re really excited about the progress we’re making, and we’ll continue to update everybody as we make progress.

Next question comes from Quinn Bolton with Needham & Company.

This is Nick Doyle on for Quinn. So sentiment around EV is low, at least in the U.S., I think the China data points continue to be strong. I understand Allegro is a bit agnostic to EV versus ICE but wanted to get your sense on customer sentiment. What are you seeing from U.S. EV customers? Is there better design activity than the recent data points suggest from guys like Tesla and GM?

Yes, Nick, thanks for the question. Let’s take a step back. I think as you look at emissions and fuel economy regulations globally, the end outcome is pretty clear that all OEMs will have to move towards a pretty high mix of battery electric vehicles or some sort of emissions-free vehicle to comply with those regulations. The path there is going to be different for each OEM. Some OEMs are investing completely and totally in battery electric vehicles. Others are taking more of a mixed approach with plug-in hybrids and equal parts of their focus and strategy. The positive for Allegro is that we are really agnostic to whether the platform is plug-in hybrid or full battery electric. Our content is very similar, and it’s about 1.5 to 1.7x that of a pure ICE vehicle. We’re really pleased regardless of the direction any OEM takes, and we’re ready to support the OEMs and the tiers with a really broad portfolio of magnetic sensing and very targeted power applications. From a design activity standpoint, every OEM is investing significant amounts of capital in R&D into electrifying their fleet. It’s various degrees of electrification, as I’ve just pointed out. I can’t comment on any specific OEM. But suffice to say that every OEM is working on a bunch of new models, which will hit the market over the next 2 to 3 years. From a consumer standpoint, it’s going to be a really exciting time because there will be a ton of choice when it comes to battery electric vehicles or plug-in hybrid vehicles at all price points and from every brand. Nick, thanks for the question. This has been a pivot from our partners that we work with that serve the data center infrastructure market as AI data centers or AI chips are proliferating through data centers. The cooling approach or the cooling solution is much different than a traditional data center. AI chips are larger, and they run hotter. The power consumption and the heat dissipation is orders of magnitude higher than a regular data center chip. Just air cooling is not enough. That’s why a lot of our partners are innovating and coming up with clever liquid cooling solutions. When we look at the data center market, our design win activity through this inventory digestion period has actually stayed strong. We’re starting to see the first design wins on liquid cooling solutions where our motor drivers are used not just now for fans but also for the pumps used to pump the liquid to ensure that the level and pressure of the liquid remain consistent. We’re just getting started, and I think we’re very excited about what the potential is here.

Our next question comes from Vijay Rakesh with Mizuho.

Just Vineet and Derek. Just a quick question here. If you look at your outlook, I think it looks like the key is the inventory destocking, especially on the margin line. As you look at June quarter, do you think that OEM inventories get back to normal in that 4- to 6-week range that you talked about?

Yes, Vijay, thank you for the question. It usually takes a couple of quarters, right? Historically, it’s taken, generally speaking, about 3 quarters. So I’ll call the December quarter the first quarter, March is the second quarter, and June is the third quarter. If history is any guidance, that would be the case that Q1 will get back to normal. We expect Q1 to be our trough quarter. We’re starting to see that clear in consumer, and as I said, I expect that consumer is probably at a trough first, which is the March quarter. Industrial continues to clear, particularly parts of the data center, parts of solar, that may take another quarter to clear. Auto is a relatively new dynamic, of course, with the rebalancing of the inventories that Vineet talked about. We do expect, if history is any guide, that the June quarter decline would be similar to the decline we saw in the December quarter and the March quarter.

Got it. And then on the auto side, obviously, a big chunk of your sales there is 75% or something. But the outlook for fiscal ‘24, up 15% to 18% versus where LVP is. Can you talk to what’s driving that? That’s it.

Yes. So let me give you the numbers. For our fiscal ‘24, which ends in March, we expect our auto sales to be up high teens and overall sales to be up 7%. For that same period, LVP is about 8%. So we’re about double that, a little bit more than double that, consistent with our model, so 7% to 10% outgrowth on top of that. Really what’s driving that has been the continued design wins and the growth within EV and xEV and the e-mobility side. The e-mobility side of our business went from 44% of auto a year ago to 54% of auto the same quarter this year. Yes. We’re not guiding for ‘25 right now, and we’re going to continue to watch the market closely for ‘25, Vijay.

Our next question comes from Blake Friedman with Bank of America.

Just kind of wanted to approach the comments on June from a different perspective. When I look at your auto and industrial peers on a fee to top basis, most are down anywhere from 20% to 35%. When I look at your March quarter guide, it implies declines on a peak-to-trough basis, closer to mid-teens. I know you mentioned June would mark the trough of the cycle, but is it fair to say Allegro the peak-to-trough declines this cycle can finish at the lower end of that range?

Yes. The way we haven’t given any guidance, Blake, with respect to the June quarter, right? But we had a decline of about 8% in the December quarter. Our guidance is about a decline of 8% in the March quarter. Again, if history is any guide, we’re expecting that these 3 quarter cycles, we’ll continue to see that kind of a decline in the March quarter as well. In our Q3 results, we exceeded 55% on an organic basis before factoring in the synergies from Crocus, which presented a headwind of around 70 basis points in the first quarter. We are actively working to achieve synergies in that business, and as it grows, we will also see improvements in gross margin. Distribution sales are down, and as we've mentioned before, they are significantly higher by approximately 800 to 1,000 basis points compared to OEMs due to volume differences. As these sales normalize, we expect this to decrease by about 100 basis points, bringing us back to the 56% to 57% range. Our supply chain teams are focusing on a flexible manufacturing model by shifting standard products to subcontractors, as Vineet discussed regarding the supply chain in China, while also utilizing our back-end facility in the Philippines. There are ongoing opportunities for optimization, and we recently completed a large capacity expansion in the Philippines, which occurs every few years and will not continue next year. With our vendor leverage as we scale our facility in the Philippines and gain synergies from Crocus, along with the normalization of distribution sales, we aim to reach the 58% level, which we achieved two quarters ago.

Our next question comes from Joshua Buchalter with TD Cowen.

I guess I wanted to follow up on the previous one, and I apologize for beating the inventories digestion to that. But did you just say that you expect the June quarter to be down as much as the December and March quarter? Big picture, can you talk to confidence that you’ll be able to get this inventory cleaned up by the June quarter? Any anecdotes about where inventory levels are at your end customers would be helpful.

Yes, Josh. Right now, inventory levels in the channel where we have direct visibility and contractual visibility are elevated. Those are above our target ranges, and that’s why distribution sales are down. We continue to manage distribution sales down while watching that POS and the inventory in the channel. We’re starting to see that clear in consumer and expect that consumer will be probably at a trough first, which is the March quarter. Industrial continues to clear, particularly parts of the data center and parts of solar. That may take another quarter to clear out of there. Auto is a relatively new dynamic, of course, with the rebalancing of inventories that Vineet talked about. Yes, we do expect if history is any guide that the June quarter decline would be similar to the decline we saw in the December quarter and the March quarter.

Josh, this is Vineet. Thanks for the question. I can indeed confirm with pleasure that we have now auto qualified the Crocus product. It is what we call a generic call. As we engage with each individual customer, obviously, there’s a qualification cycle as per the unique design. But we are very actively engaged across automotive and industrial customers. I’d characterize the engagements and some of the excitement in two ways. One is with the industrial base that Crocus had where maybe there was a little bit of trepidation on engaging with a smaller company, a start-up company. That’s gone away, and now we’re able to engage with a much more comprehensive portfolio around sensing and power with those customers. Those customers are really excited to engage with us and take advantage of the whole portfolio. On our customer base where perhaps some of the more challenging applications, we were working through some of those technical challenges. The addition of the Crocus TMR stack has made the solution very obvious and very easy. We are accelerating the adoption of the TMR stack onto our parts. As I mentioned, we are going to market through a common brand. ExtremeSense TMR is now the world’s most comprehensive magnetic sensing portfolio on TMR, really addressing the most demanding challenges around sensitivity, speed of response, and low power consumption. We see an endless set of opportunities that we can address together. We’re really excited about the two technologies coming together under one brand.

Our next question comes from Thomas O’Malley from Barclays.

I wanted to ask about the auto trends into March, but I wanted to ask more specifically on the makeup of those auto trends. If you look at the December quarter, you’re still seeing really strong growth on a year-over-year basis from the ADAS and xEV rev. But your core non-faster-growing auto business was down 7. Could you talk about when you look into March, what your expectations are for the split between those two businesses? Do you see sequential declines in some of the faster-growing ADAS and xEV revenue? Given all of the weaker data points on EV that we’ve been hearing lately, is that the reason for the incremental auto weakness for the next two quarters? Or is it really more of the core, more SAR kind of levered auto?

Yes, Tom, this is Derek. So in the Q3 quarter, you’re right, e-mobility was up strong, and the traditional auto business was down. If you remember in our guidance, we talked about the UAW strike in the United States. It did actually have some impact. Looking at the pull ahead with the Detroit Big 3, sales were down significantly in Q3 compared to Q2, there was a pull ahead we saw in Q2, and we expected that. Rolling into Q4, we’re not going to break that out guidance by market. It’s really the inventory digestion primarily at the tiers and subcontractors. It’s not specific to end market demand, certainly not EV, and certainly not ADAS.

Yes, Thomas. This is Vineet. I’ll just add to that. As Derek pointed out, we had some order push-pull dynamic with our North American customers around the UAW strike. At the same time, we’ve seen strong growth with our China customers and Japanese customers. If I take a step back and look at the mid- to long-term, we know that Chinese OEMs, Japanese OEMs, and European OEMs are forging fast and furious towards an all-electric future. The North American OEMs are taking their own path with a mix of plug-in hybrids as well as battery electric vehicles. We’re serving all of them in their unique way. The path on each region to an all-electric future will be slightly different and will take a slightly different timeline.

As I mentioned, our Q3 gross margin was about 60 basis points better than we had guided to at the 54.6%. Within that, Allegro’s organic gross margin was still over 55%. The organic gross margin is still very good and very healthy. It holds up well based on the flexible manufacturing model that we have. Going into the March quarter, we’re guiding to 53% to 54%. That projects a continued decline in distribution sales, which generally has significantly higher gross margins than OEM sales because of the volumes they’re buying. Product mix also plays a part from quarter to quarter. The third piece of the March quarter is the continued Crocus integration and Crocus fixed costs before we start to see synergies in the second half of the year. I’d expect that gross margin to remain in that 53% to 54% range for the near term, the next couple of quarters. As we start to get synergies, we’ll see the normalization of the distribution, and I expect that to go back up to 55% in the medium term, and we’ll work towards our model of 58% back to where we were a few quarters ago.

Thank you, Kevin. We appreciate you taking the time to join us this morning. This concludes the call.

Ladies and gentlemen, this does conclude today’s presentation. You may now disconnect, and have a wonderful day.