Ladies and gentlemen, thank you for standing by, and welcome to the Allegro MicroSystems Q2 fiscal 2022 financial results. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask your question during the session, you will need to press star one on your telephone. If you require any further assistance, please press star zero. I would now like to hand the conference over to Katherine Blye. Please go ahead.
Good morning, and thank you for joining us today for Allegro's Q2 results for fiscal year 2022. I'm joined today by Allegro's President and Chief Executive Officer, Ravi Vigh, and Allegro's Chief Financial Officer, Paul Walsh. We will review our quarterly financial performance and provide a summary of our outlook. Our earnings release and the accompanying financial tables are available on the investor relations page of our website. This call is being webcast, and a recording will be available on our IR page shortly. Please note that comments made during this conference call include forward-looking statements as defined by federal securities laws.
These forward-looking statements include projections and other statements about future events that are based on current expectations and assumptions, and as a result, are subject to risks and uncertainties that may cause actual results to vary materially from our projections.
Please refer to the earnings press release 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 19th, 2021. The company assumes no obligation to update any forward-looking information presented. The non-GAAP financial measures that are discussed today are not intended to replace or be a substitute for the presentation of Allegro's GAAP financial results and may be calculated differently than similar measures used by other companies. We're providing this supplemental information because it may enable investors to make meaningful comparisons to core operating results and more clearly highlight the results of our core ongoing operations.
A reconciliation 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.
I'll now turn the call over to Allegro's President and CEO, Ravi Vig. Ravi?
Thank you, Katie, and good morning, everyone. Record revenue and profitability in Q2 reflects our alignment to multiple growth vectors and very strong franchises in magnetic sensors and power ICs, as well as in automotive and industrial. Revenue grew 3% sequentially to $193.6 million, exceeding our expectations due to favorable mix relative to our available inventory. As a result of structural improvements from our transformation, gross margin improved again, well ahead of our target model timeline. We experienced broad strength across our magnetic sensor and power IC products in an increasingly diverse set of applications and end customers. Magnetic sensor revenue was up nearly 50% year-over-year, achieving record highs due to growth across all product categories.
Our current sensors in particular are experiencing tremendous market adoption.
Power ICs were up 30% year-over-year, with motor control products achieving record revenue as customers adopt our leading embedded motion control solutions. Finally, design wins continue to be a key measure of our growth potential. Our design win revenue increased nearly 50% on a rolling four-quarter basis. Emerging growth markets continue to represent the majority of these new design wins, accelerating the company's transition to XEV, ADAS, Industry 4.0, and data center applications to enable outsized revenue growth and high levels of profitability.
As we'll discuss, recent COVID-related supply chain disruptions present what we expect will be a Q1 pause in our sequential growth in Q3, but supply recovery is already underway, and we expect a return to growth in Q4 and approximately 24%-28% annual growth in fiscal 2022.
The strength of our franchises in power and mag and auto and industrial give us confidence in our ability to deliver the low-to-mid teens% annual revenue growth in fiscal 2023 at nearly target model gross margins. Now, I'll turn the call over to Paul for more color on the financials. Paul?
Thank you, Ravi. Q2 record results highlight the diversity and strength of our business model. Customer demand remains strong across our served end markets, and once again, no single end customer represented more than 10% of our revenue in the quarter. Automotive revenue of $126 million represented 65% of revenue, which is a lighter percentage of mix than typical. Auto revenue was down 6% sequentially, but compares favorably to global car production, which declined 16%. We attribute this to both content gains and the trend towards higher-value, feature-rich vehicles in the OEM's production mix, including the accelerating shift towards electrified powertrains.
Our strategic focus areas of XEV and ADAS increased again as a percent of our automotive mix, exceeding 35% of our automotive revenue in Q2, a critical metric.
Offsetting volatility in automotive due to industry supply chain challenges, our industrial revenue was up double digits sequentially to $36.3 million, increasing to 19% of revenue. We saw broad strength across all of our industrial categories, which all grew 20% sequentially. The investments we've made in this area continue to complement our overall growth strategy. Other represented 16% of revenue, rising to $31.3 million on stronger seasonal demand. Backlog continues to grow, sitting at historic levels and with extended visibility. Like many of our peers, we have implemented actions to reduce backlog and provide assurance for us to procure additional capacity.
We've been successful in maintaining considerable pricing power of our products, helping to offset rising input costs. Demand continues to far exceed our ability to supply.
In this environment, we're pleased to share that we've now begun shipping TSMC products to customers and our three foundry partners are delivering at or ahead of planned levels. Recently, we experienced COVID-related supply disruptions, particularly in Malaysia, that are impacting our Q3 outlook and offsetting the current benefits of increased wafer supply. Now, with very high vaccination rates at our assembly partners, we are already seeing supply recovering, giving us confidence in a return to growth in Q4. We continue to make progress toward our target model, particularly with expanding gross margin.
Structural margin improvements from successful execution of our manufacturing and product portfolio transformations and increased mix towards our key investment areas are enabling us to make faster progress to our target model. GAAP gross margin of 53% was up 300 basis points sequentially.
After excluding $0.7 million of stock compensation expense and $0.9 million of other charges, non-GAAP gross margin was 53.8%, up sequentially by 160 basis points. We expect margins to remain at these higher levels in Q3. GAAP operating expenses were $64.0 million, up from $61.9 million in fiscal Q1. GAAP R&D expense was $29.6 million, and GAAP SG&A expenses was $34.4 million. Total non-GAAP operating expenses for fiscal Q2 were $57.5 million or 30% of revenue, an improvement of 30 basis points, and at the lowest level as a percent of sales in recent memory. Non-GAAP adjustments include stock compensation expense of $5.5 million and one point one million dollars of other charges.
Resulting non-GAAP R&D expense was $28.6 million, and non-GAAP SG&A expense was $28.9 million. The sequential increase due primarily to higher variable compensation driven by outperformance on the top and bottom lines. We expect non-GAAP operating expenses to be about flat in Q3. GAAP operating income for the quarter increased to $38.6 million or 19.9% of sales. Non-GAAP operating income increased to $46.6 million or 24.1% of sales, rising by 11.3% sequentially, significantly outpacing the solid top-line growth of 2.9%. Revenue growth, structural gross margin improvement, and good operating discipline are driving meaningful progress toward our target model for profitability. Q2 GAAP net income was $33.2 million with an effective tax rate of 15.6%.
GAAP earnings per diluted share increased by $0.03 over fiscal Q1 to $0.17 in Q2. Non-GAAP net income increased to $38.6 million or 20% of revenue. The Q1 non-GAAP effective tax rate was 15.5% and is expected to be in the 16% range for the upcoming quarter and throughout fiscal 2022. Non-GAAP earnings per diluted share increased 11% to $0.20, exceeding our guidance. Q2 diluted share count was 191.7 million and is expected to increase to 192.1 million in the Q3 . Our balance sheet reflects strong execution in business fundamentals. Cash and equivalents in Q2 were up by $26 million sequentially to end at $256 million, a historic high.
We generated $31.4 million in operating cash flow in the quarter. Accounts receivable balances were $99 million, and we ended the quarter with DSO of 46 days, consistent with prior quarters and in our target range. Net inventory ended the quarter at $78 million, a decrease of $4 million, and at 77 days versus a target of 100 to 110 days. Our shipments into the channel continue to be strong at 39% of sales for the quarter. Channel inventories continue to hover at historic lows while POS sell-through was at historic highs. With that, I'll turn the call back to Ravi for more color on the business and our outlook.
Thank you, Paul. Our Q2 performance highlights 2 key differentiators in the Allegro business model that provide us with the multifaceted growth and profitability engine, a diversification into high-growth markets, and the transformation to achieve structural improvements in gross margins. Let's start with the product transformations paying dividends on both the top and bottom line. Magnetic sensor ICs represented 66% of revenue in Q2. All of our magnetic sensor portfolios experience sequential growth, with current sensors growing the fastest, up 16% sequentially. As the number one supplier in the market, Allegro continues to be the customer's supplier of choice across end applications.
For example, our current sensors are being designed into next-generation applications, including green energy, EVs, and EV charging infrastructure. We have excellent market penetration in XEV inverters, which are a rapidly growing opportunity for us.
Today, 1 out of every 2 XEV inverter sockets uses an Allegro current sensor. We also achieved record revenue levels with our magnetic position sensors in Q2. Customers value our motion control expertise in position sensing, particularly in ADAS, where our high speed angular position technology for steering systems provides unmatched levels of safety and accuracy. Beyond automotive, our magnetic position sensors are growing in a variety of broad-based applications, the result of our successful transformation to improve our scale and focus in the broad market. Power ICs have been a key investment area. We have targeted developments that are highly differentiated from the competition and that are complementary to our magnetic sensor business.
Revenue was up 30% year-over-year, representing 34% of our revenue in the quarter.
We are seeing strong growth in key applications such as 48V mild hybrids, where we have the broadest portfolio of ASIL compliant products. We continue to leverage our innovative high voltage technology to expand our power IC content in adjacent applications like power tools, where we see a strong transition to battery operation with an alignment to our motor drivers and 100V process expertise. Moving to end markets, industrial performance was strong across all categories, from green energy to factory and building automation. We expect to see continued growth across our industrial categories over the coming quarters, but particularly in data center infrastructure.
Our success in data center applications is a great example of the technical leadership I was speaking about with our power ICs.
Over the last Q2 , we have successfully secured long-term agreements with three of the largest customers to support major hyperscale build-outs and 5G applications. As a result, we expect to see a step function increase in our industrial revenue, which we believe will allow us to more than double our data center revenue over the course of the contracts, further strengthening and diversifying our FY 2023. Within automotive, revenue was up 41% year-over-year, and end customer demand remains very healthy, even extraordinary. Car makers have had to become very nimble, adjusting production lines as parts become available, resulting in significant variability in demand and product mix.
The accelerating transition to feature-rich vehicles and EV has not slowed and continues to benefit Allegro and increase our content per vehicle.
While production forecasts have been revised to reflect industry-wide supply chain challenges, there continues to be pent-up demand, and from our vantage point, customers still do not have the luxury of building inventory. We continue to see acceleration in electrification and advanced safety feature adoption by OEMs, and we continue to win new strategic high-value sockets. Last quarter, we secured additional current sensor wins in XEV inverters at a major Japanese OEM, displacing a competing solution thanks to our market-leading accuracy and proven track record in this application. We also launched our latest automotive-grade battery cooling fan driver IC for advanced EV and hybrid battery cooling systems. We're already designed in at a market-leading battery manufacturer using our solution to reduce fan noise and improve cooling performance and miles per charge.
It's a great outcome for our customer, for their customers, and for the environment, and that's the type of impact we aim for with our innovation. As we look ahead, I see great alignment with our differentiated technology and the value it brings to our customers across all markets, but particularly in XEV, ADAS, Industry 4.0, and data center. We've made outstanding progress towards our long-term financial model as a result of strategic transformation, and are well ahead of our initial plan. Our asset-light model allows us to be nimble and supports demand at record levels while also enabling our gross margin expansion.
Our regional diversity, customer diversity, and strong product and end market franchises enables us to deliver strong results in any macro climate.
As Paul mentioned, despite healthy demand and backlog, we expect to see a temporary impact on our revenue outlook for fiscal Q3 from the subcon supplier factory closures we discussed. We expect Q3 revenue to be in the range of $180 million-$185 million. For Q3, we expect automotive and industrial will be down mid-single digits sequentially, while other will be seasonally down, returning to prior revenue levels. We expect non-GAAP gross margin to be roughly flat at the new higher levels. We anticipate non-GAAP earnings per diluted share will be in the range of $0.18.
With recovery already underway at our 3rd-party assembly suppliers, augmented by new ramps at additional 3rd-party wafer suppliers, we expect to return to sequential growth in Q4, ending fiscal 2022 with about 28% revenue growth. When combined with content increases in high growth applications, significant new design wins ramping, continued gross margin expansion and accelerated earnings, we believe we are well positioned to deliver low- to mid-teens revenue growth and strong gross margins for fiscal 2023. With that, I'll turn the call back over to Katie.
Thanks, Ravi. That concludes our prepared remarks, and we'll now open the call for questions. Operator, will you please review the question-and-answer instructions for our participants?
Thank you. At this time, if you would like to ask a question, please press star then the number one on your telephone keypad. Once again, that's star one on your telephone keypad. We'll pause for a moment to compile the Q&A roster. Our 1st question comes from the line of Quinn Bolton of Needham & Company. Your line is open.
Hey, guys. Congratulations on the nice results and strong margin performance. I guess a couple of questions. You know, as you look into fiscal 2023, you know, it looks like you're expecting pretty good revenue growth in the low-to-mid-teens. I'm wondering, you know, as you look across both your foundry and assembly and test networks, do you feel like you have the capacity support today in place allocated to you to support that growth? Or are you still working to secure capacity to meet that kind of revenue outlook for fiscal 2023?
Thank you, Quinn. As previously discussed, we have had a long-term development project with TSMC. TSMC has been installing wafer processes to our specification. We've just begun the shipments of wafers from TSMC this quarter, last quarter, and we will continue down a slow ramp until middle of next year, where we've secured a higher run rate for these processes. This was a long-term strategy for us, not a reaction to the near-term market conditions, and has been supported by TSMC. In short, the projections that we have align with the commitments we have received from our foundry partners.
Understood. Thanks. The 2nd question I had is, you know, obviously your revenue growth in automotive, I think, is up something like 40 to 41% year-over-year, while auto production may be down mid-teens given some of the supply shortages we all know about. I guess it's hard for folks to think that there isn't perhaps some inventory building going on when your revenue's up that much and actual production is down. I'm just wondering if you can help us bridge the gap to your comment that you don't think inventory is accumulating either in the channel or at customers. Thank you.
Yeah. There's been a tremendous transition this year to higher feature-rich vehicles. When you look at production that's been displaced in automotive, the production that's been foregone, it's been predominantly on the low-feature and low-content vehicles. What we see is that the products that we support and the systems that we support, both in XEV and ADAS are driving tremendous content expansion in these higher feature-rich vehicles. While there may be dislocations in the entire supply chain, including our customer, you know, profiles, just given the nimbleness of the car production switching platforms where components are available, we don't believe these dislocations are significant. At this point, we believe that the industry is challenged, the basic demand for car production.
Great. Thank you, Ravi.
Thank you. Next question comes from the line of Gary Mobley of Wells Fargo Securities. Your line is open.
Hey, everybody. Good morning. Thanks for taking my question. I want to ask about, you know, sort of the constraints surrounding your Q3 revenue guidance. I presume it's, you know, the constraints just simply relate to the fact that you don't have enough inventory, your distributors don't have enough inventory. My question is that lost revenue in the Q3 fully being made up in the Q4 and the sequential revenue gains in the Q4 ? I guess more importantly, when do you think you and your distributors will be in a position to start to replenish inventory?
You want to take it?
Yeah. Hi, Gary, this is Paul. The guidance that we have for Q3 really relates to specific instances that occurred at our subcons in Malaysia. As we pointed out, they're already back online, and they're ramping. We have confidence in the fact that we will return to growth and that our 28% year-over-year growth compared to fiscal 2021 should allow us to achieve the growth targets that we've had in place for much of the year. As it relates to distribution, you know, distribution is a good proxy for the broader market, and we get data from our distribution partners every month. We know what the channel levels of inventory are.
They remain at historic lows, while the POS or the end sell-in continues to be at historic highs, and we currently don't see that changing anytime soon. Whatever we ship to them basically goes right to the end customer. We don't foresee that changing anytime in the near future.
Got it. Okay. You're running close to 54% gross margin currently, which is pretty good considering that I believe you're somewhat forced to take a lot of wafer supply from maybe a lower or rather higher cost source. My question is under sort of a blue sky scenario where you know you get things back on track, you source more lower cost wafers from you know external or you know UMC TSMC specifically, you know is 55% gross margin, which I believe is your historical target, is that you know best case or with more wafers flowing from these lower cost sources, is there potentially upside to that in the out years? Thank you.
Thanks, Gary. Yes, we're very pleased with how we've done in gross margin. It's certainly indicative of the structural transformations we've undergone in manufacturing. It's also indicative of the increasing shift towards higher quality, or not higher quality, but more feature-rich products in our mix. We certainly believe, you know, clearly, we're on target to achieve 55%. As we've talked about in various forums, you know, when we get to 55%, we're not going to stop. We will continue to seek out ways to drive margin higher than that and push towards the upper fifties in the out years.
Thanks, everyone.
Thank you. Next question comes from the line of John Pitzer of Credit Suisse. Your line is open.
Yeah, good morning, guys. Thanks for letting me ask the questions. Congratulations on the solid results. I guess, Paul, I apologize if I missed this in your response to Gary's question, but did you quantify the impact for the December quarter revenue? Again, does that all get made up as you go into the March quarter?
Essentially, the revenue that is impacted by the Malaysian subcon changes or delays is, you know, when we return to growth and we drive towards 28%, that's a target that we've, you know, that's, I think in line with what our expectations were for at fiscal 2022. While it's hard to predict exactly what's going to take place in Q4, we do expect a return to growth. As I mentioned, you know, these factories are already back in full production, and we expect to, you know, catch up in 3Q and 4Q.
Yeah. John, just as an additional clarification, in fiscal Q3, if it wasn't for the impact, we would have been on target on our growth trajectory. The impact is real, but it's one time. We already see the factories running. We already see the vaccination rates at extraordinarily high levels. We're not concerned at this point of this part of the supply chain. As you know, as we go on, I think the 2nd part of your question was, do we augment our next quarter with what has happened this quarter? We continue, as every other semi manufacturer continues to be challenged with limitations across the entire supply chain.
The supply chain at this point isn't able to make up misses. What you see is our, you know, we factor that into our expectations for the year, and we're expecting to be in that 28% year-over-year growth rate.
That's helpful, Ravi. That's a good segue into my 2nd question, which is just the visibility you have on fiscal year 2023 to be able to talk about kind of low- to mid-teens% growth. I mean, that would imply kind of a quarterly run rate of revenue off of the implied fiscal Q4 guide that's up north of $25 million from a run rate perspective. I'm kind of curious if you could just help us understand the profile of that confidence. Is this the design wins? To what extent do ASPs play a bigger role 'cause there's oftentimes a lag effect as you renegotiate pricing with customers? And are you confident you have the supply actually in place to be able to drive that growth for next year?
Yeah, let's just start with the supply. We've factored in supply availability into our expectations. The supply availability that we speak of is already based on commitments that we have from our foundry partners. In terms of where we see the growth coming, we see great tailwinds as automotive build rebound off its low production levels. It will give us a tailwind along with the increased adoption of XEV systems, as well as the increased sophistication of ADAS systems in vehicles. Both of them drive content. We've spoken about data centers, where we expect really a step function growth next year but coming through to the contracts that we have secured. We expect that to be fairly legitimate.
You know, much of our activity has come through, you know, working with our customers, aligning our capacity and ensuring that there is enough coverage from an order perspective to back our commitments or back our targets.
Perfect. Thanks, guys. Appreciate it.
Thank you. Next question comes from the line of Alessandra Vecchi of William Blair. Your line is open.
Hey, guys. Congratulations on the strong results. Just to circle back on inventory levels, you touched base on customer and channel inventories, but can you maybe walk us through, given the constraints, how we should be thinking about your on-balance sheet inventories and sort of what levels you're comfortable with and what the long-term target there should look like once we get back to a more normalized state?
Sure. Alex, this is Paul. As we pointed out, channel inventories remain at historic lows, and this question was also raised by earlier today. We would, you know, in the near term, we don't really foresee that changing, given the supply situation. But there is a lot of activity in that channel. And as it relates to our own inventory, you know, we're at 78 days, 77 days, $78 million. We would like to be considerably higher than that. We alluded to it, 100 to 110-day target.
At the moment, we don't foresee that, you know, getting to that point, in the near term, but, 'cause essentially, you know, what we get for supply will address the strong demand that we have. Over the longer term, we would expect to get back to levels, in that range.
Okay, that's helpful. Just on the data center growth and the wins there, can you go a little bit more in depth on maybe what products you're gaining traction there? Is this really some of the three-phase fan announcements, or does it extend beyond that product portfolio-wise?
Thank you, Alex. Yeah, no, it is exactly as you expect. It's that we've been talking about our three-phase embedded motion control story over the last few quarters. The fact that we've been gaining traction and we are now talking about real, you know, real contracts associated with those products. It is specifically in that motion control area.
Great. Just as one extension of that, if I can, I think earlier, Paul, you said that design wins were running up 50% on a rolling Q4 basis. Can you tell us what percentage of sort of that increased or accelerated design win momentum is coming from XEV, ADAS, and maybe some of the industrial newer platforms?
We haven't disclosed that publicly, Alex, at this point.
That's fine. With that, I'll pass it on.
Thank you. Next question comes from the line of Srini Pajuri of SMBC Nikko. Your line is open.
Thank you. Good morning, Ravi and Paul. A couple of questions. 1st, on the autos, in the quarter, Ravi, you know, it's down 6%, I think, which is, you know, much better than the production, as you pointed out. At the same time, I have a difficult time believing that your customers are not, you know, lowering their orders, given all the disruptions that we're seeing. I'm just curious as to is this a supply issue? Is that why the auto declined sequentially?
Yeah, what we've, you know, Srini, our challenge right now is to match the available supply with real demand. We are aligning our supply to where customers most need the products. When we look at auto, for example, there has been this great inflection between moving from which platforms are shutting down, which ones are going to now be focused on, et cetera. We've been pretty nimble in reallocating our material associated with these with the true production. We've also been able to use the opportunity to fulfill some of the seasonal growth requirements of our other parts of our business.
You know, we've been really cognizant about not focusing on building inventory into our customer chain at the expense of supporting key demand.
Demand certainly in general in all segments and all markets for us exceeds supply.
Makes sense. My next question is on gross margins and pricing, et cetera. Obviously very strong performance here and, you know, a couple of things. On the cost side, you know, as you get more wafers from TSM and UMC. I know you said, you know, they're going to be lower cost, but also at the same time, recently there has been some speculation that the foundries are raising, you know, their wafer prices for next year. Just curious, you know, if that's going to have any potential impact as we think through next year's gross margins. A broader question, I guess, Ravi, on the pricing.
Some of your peers are talking about, you know, potential cost mitigation actions by raising prices, you know, selectively and, you know, some folks are more broadly. I'm just curious, you know, as you look out to your customer base and your product mix, et cetera, you know, how you think about, you know, potential, I guess, mitigation actions, you know, given that, you know, some of the design wins that you have may be, you know, longer term in nature. You know, to what extent do you have the ability to pass through some of the incremental costs, you know, that you might be seeing?
Hi, Srini, this is Paul. I'll start this, the response to this. Yeah, I mean, we're in an inflationary environment. Everyone's aware of that. We're seeing input costs rising. We've seen that throughout the year. What we've been able to do is to offset that with price increases where it makes sense strategically. It does, you know, and we're well aware of what's coming, and we've balanced all of those puts and takes and we remain very confident in our 55% target for gross margin.
Paul, maybe if you could clarify, you know, for the quarter, you said a mix, you know, helped the gross margins. When you talk about the mix, are you referring to the mix within the segments or is it just the auto versus industrial? Because, you know, as we look through the next few quarters, I'm suspecting auto will probably rebound at some point. Will that have any impact on gross margins as auto rebounds? Thank you.
Sure. The strength in gross margin we've seen is along the lines of what we've been talking about for a long time on the structural transformations we've seen in our own supply chain and in manufacturing. Certainly, we've also talked about mix within auto, that's a benefit. Then the auto industrial mix also had some benefits as well. You know, we're well on track to achieving our targets that we've talked about on gross margin. We've made tremendous progress in the past 12 months, and we're excited to continue to drive improvements there.
Great. Thanks, Paul.
Thank you. Next question comes from the line of Blayne Curtis of Barclays. Your line is open.
Hey, thanks for taking my question. I just want to follow up on a couple of prior questions, just for the September quarter. I thought you guided auto flat and it ended up down a bit. I was curious if that was. You said demand still exceeding supply. Was the supply issues the factor for that being down, or was it the customer behavior?
Yeah, it's pretty much the customer, Blayne, platform strategy, as you've seen that they've been sporadic line downs at customers created due to component availability. These factories have readjusted the production level as far as from one platform to the next. We've taken the opportunity to service, you know, the true demand in other segments. At this point, we don't see our ability from a capacity perspective to manufacture for the purposes of filling inventory. The native demand in the market in all segments is extraordinarily strong and we, you know, our highest priority is to keep production lines running first across all market segments.
Got you. Just to follow up on the issues in Malaysia, is that impacting any particular end market more than other? I mean, you're, I guess, guiding them all down in December, but I was just kind of curious if it's impacting one versus the other.
Yeah, you know, we do have quite a bit of assembly activity done in Malaysia, and so it is quite broad in terms of where it is affecting. We, you know, half of our assembly is done in the Philippines, so that particular piece of the business is not affected. Malaysia will affect, you know, our higher pin count packages, you know, some of the more commercially available packages that we that we service, which basically go across all market segments for us.
Got you. Thanks, Ravi.
Thank you. Next question comes from the line of Vijay Rakesh of Mizuho. Your line is open.
Yeah. Hi. Hi, Ravi and Paul. Great quarter. Good execution here. Just wondering, when you look at, and good to hear TSMC ramping, obviously part of your long-term strategy. But as you exit, say, next year, calendar 2022, any thoughts on what the mix would be between, you know, Polar and TSMC, UMC, et cetera?
Vijay, this is Paul.
Ah.
You know, as we exit the year, we've been fortunate to have Polar that's provided us a strategic source of supply. TSMC will continue to grow throughout the year. We haven't publicly said what percentage TSMC would be, say, a year from now, but it will continue to grow and basically be additive to the supply that gives us confidence in our fiscal 2023 outlook.
Got it. On the, you know, looks like automotive, you had a pretty solid quarter, you know, up, I think 30% to 40% versus an LVP down 20%, I guess. Obviously, there's some concerns inventory build in the supply chain with Texas Instruments, et cetera, kind of talking to it. I think where you guys differentiate is, you know, your leadership, and you might be sole sourced in many of your current sensing and, you know, magnetic sensors for EV ADAS. To that point, I was wondering because I think when you're sole source, less opportunity to double order or, you know, order excessively because you know exactly what the customer wants.
To that point, wondering how much of your, you know, magnetic sensing into EV ADAS was proprietary kind of sole source there. Thanks.
Yeah. Thank you, Vijay. You know, in terms of our products, XEV ADAS products are typically sole source. They're typically very specific to application designs. When our customers utilize them, they have to do quite a bit of work, whether it's mechanical or software to interface with our products. They're not easily replaceable or interchangeable. To your question, they are predominantly sole source. It gives us visibility in the market. It helps us engage very closely. We don't really have clear visibility, but we do understand better than most on what the customer's inventory levels are and what the usage rates are, et cetera.
Got it. Thanks a lot.
Next question comes from the line of Mark Lipacis of Jefferies. Your line is open.
Hi. Thanks for taking my question. Maybe a question for both Ravi and Paul. Do you think that the supply chain challenges that you and the whole industry experienced over the past year is it going to lead at the end of the day to any kind of structural change about how you or your customers or suppliers do business? Or do you think, you know, when we come out the other side of this, you know, the analysis is, you know, or the behavior doesn't change, that it's just, "Oh, that was just a fluke," and, you know, we just continue to do things like the way we've always done.
I can imagine that maybe your customers decide to, you know, elevate their own inventories to try to mitigate something like this in the future. You talked about a long-term supply agreement. I don't know if that has anything to do with, you know, the challenges that the whole supply chain experienced or if, you know, do we see permanently longer order lead times or orders on your books. Or do you maybe just talk also about, you know, structurally about how are you thinking about changing how you do business. Are you thinking about longer term supply agreements with your suppliers. That's the 1st question. I had a follow-up. Thanks.
Thanks, Mark. Yeah, in general, we always focus on long-term supply agreements with especially our foundry partners in order to secure capacity. Given that we have such a heavy automotive business, we believe that we have an obligation to ensure that the supply flow is adequate. The problem, as you know, is that the transition that's occurring to higher value-added vehicles or higher electronic content vehicles is one that's accelerating far beyond what's anticipated. From a supply chain perspective, the customers for sure would like to start building inventory, that's for sure. But at this point, it's not a customer's desire issue right now, it is more that the availability both at foundries as well as at the assembly houses.
As you know, you know, these are very high investment levels in this, within the supply chain, and everybody's really conscious about over-investing to feed a bubble. They're not, you know, there is going to be a disciplined ramp in the supply, which will probably limit the ability of the customers to go off and build very large amounts of inventory quickly. We don't see that in our own profile. We see that our supply availability that we've been able to negotiate in the near term is being consumed by real demand.
you know, for sure, at some point in time, there will be a little more discipline in the entire chain and customers will have a little more cushion in the way they operate.
Great. Thank you. A follow-up, if I may. Is this, you know, the recent issues in Malaysia for you notwithstanding, you know, my impression is it seems that you have been actually in a better position or you've been able to react to the upside and demand, perhaps better than some of your competitors, you know, just based on, you know, how you had at the time been transitioning your supply.
do you think that this has changed anything in the, you know, the last year, anything has changed on the competitive, from a competitive standpoint, like maybe on market share basis or how, you know, your own market share or how you have been, your competitive position at your customers relative to your traditional competitors?
Yeah. The market share data is a little too early to tell, but for sure, we've been extraordinarily focused on the resilience of our own operating model. I think over the last few quarters, including at the point we came out of the IPO, we spoke about having three foundries that are capable of running similar wafer process technologies that gives us a little bit of nimbleness and an ability to expand capacity wherever possible. I think this resilience of this model has allowed us to take limited advantage, I would say, of the opportunities that are presented to us.
When we look at the back end, our realignment into a single facility in the Philippines has really helped us with efficiencies. It's helped us with being nimble. It's been able to help us move equipment around within a single facility to take advantage of mix changes, et cetera. That's also really helped us from responding to the marketplace. For sure, our customers value supply at this point. This is something in their mind, then they value technology. Wherever we are supremely confident of our technology differentiation. Wherever we can support them in supply, they have come to us.
It's a complex world right now, in terms of how you manage this whole supply-demand imbalance and along with the growth trajectory of the company.
Thanks, Ravi. Very helpful.
Thank you. No further question at this time. I would like to turn the call back to Katherine Blye for closing remarks.
Okay. Thank you, Jay. That does conclude today's conference call. Thank you, everyone, for joining us today and for your interest in Allegro.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect. Have a great day.