Prospectus Summary
In this prospectus, “Allegro,” “our,” “we,” “us,” and similar expressions refer to Allegro MicroSystems, Inc., and its subsidiaries; “Sanken,” “our parent company,” and “the selling stockholder” refer to Sanken Electric Co. Ltd.; and “PSI” refers to our affiliate Polar Semiconductor, Inc.
Our fiscal year end is the 52-week or 53-week period ending on the Friday closest to the last day in March. The fiscal years ended March 30, 2007 and March 25, 2005 were 52-week periods. The fiscal year ended March 31, 2006 was a 53-week period. Unless the context indicates otherwise, whenever we refer in this prospectus to a particular year, with respect to ourselves, we mean the fiscal year ending in that particular calendar year. Our interim results are based on fiscal quarters of 13 or 14 weeks in duration. The fiscal quarter ended March 31, 2006 consisted of 14 weeks. The first and second fiscal months of each fiscal quarter are four weeks in duration and the final fiscal month consists of five weeks. Each of our interim periods ends on a Friday. The operating results for any interim period are not necessarily indicative of results for any subsequent period or the full fiscal year.
This summary highlights key aspects of the information contained elsewhere in this prospectus. This summary does not contain all of the information you should consider before investing in our common stock. You should read this summary together with the entire prospectus, including the information presented under the heading “Risk Factors” and the more detailed information in the historical consolidated financial statements and the accompanying notes included elsewhere in this prospectus.
Overview
We design, develop, manufacture and market magnetic sensor integrated circuits (ICs) and application-specific analog power semiconductors for the automotive, computer and office automation, communications, consumer and industrial markets. We are a leading provider, in terms of total net sales, of integrated Hall-Effect sensor ICs with applications in each of these markets. Our broad product portfolio of application-specific analog power ICs includes motor drivers and power interface drivers that are used in automotive electronic systems and computer and office automation products, such as printers and LED displays. Our 40 years of experience in the semiconductor industry serves as our foundation for designing and manufacturing magnetic sensor ICs and analog power ICs, and enables our current expansion into the growing field of power management ICs.
Our product portfolio includes over 325 Allegro products across a range of high-performance analog and mixed-signal semiconductors, including magnetic sensor ICs, analog power ICs and power management ICs. During fiscal year 2007, we sold our products directly to approximately 140 original equipment manufacturers (OEMs), 33 distributors and 49 electronic manufacturing services (EMS) providers, many of which are leaders in their respective markets. In addition, we also sold our products to a wide range of end customers in Japan through Sanken, our parent company. Our close relationship with Sanken enables us to access a broad base of leading Japanese customers in the automotive, consumer and computer and office automation markets for which we develop advanced products that can be sold worldwide. We provide product design and applications development support to our customers through design and application centers located in the Americas, Asia and Europe.
We employ both internal and external manufacturing capacity for wafer fabrication, assembly and testing. Our relationship with PSI, a wholly owned subsidiary of Sanken, provides us with cost-effective wafer manufacturing capacity that utilizes our advanced wafer fabrication technology. This manufacturing approach allows us to leverage our intellectual capital while reducing our capital investment requirements.
Our Relationship with Sanken
Prior to this offering, we have been a wholly owned subsidiary of Sanken, a Japanese company whose common stock is traded on the First Section of the Tokyo Stock Exchange. Sanken intends for the foreseeable future to maintain majority ownership of the outstanding shares of our common stock.
Sanken’s worldwide production, design, sales and distribution operations are organized in three segments: semiconductors (which includes Allegro), power modules and power supply equipment. Sanken’s semiconductor business segment, which includes power supply ICs, motor driver ICs, automotive ICs and discrete devices, complements our product lines. Sanken owns 100% of PSI, which operates a wafer fabrication facility in Bloomington, MN, where we have implemented our advanced wafer fabrication technology. For its fiscal year ended March 31, 2007, Sanken had net sales of approximately 203.8 billion Japanese yen (approximately US$1.7 billion) and net profits of 7.5 billion Japanese yen (approximately US$63.5 million).
End box 1 END LOGICAL PAGE PAGEBREAK BEGIN LOGICAL PAGE Begin box 1In addition to currently being our controlling stockholder, Sanken collaborates with us in the areas of marketing and distribution, technology development and manufacturing. We believe that the collaborative efforts between Sanken and us create synergistic opportunities and benefits, including access to Sanken’s extensive customer relationship, distribution, sales and technical support networks; access to the wafer manufacturing facility operated by our affiliate, PSI; and cost-effective, advanced joint technology development.
Industry Trends
The use of analog ICs and magnetic sensor ICs has rapidly increased across a wide range of applications due to the broad replacement of mechanical functions with semiconductor-based devices that improve the reliability and efficiency of such electro-mechanical systems as motors, information encoders and potentiometers for measuring voltages. The growing use of these two types of ICs has been particularly significant in the automotive, computer and office automation and communications markets. Within the automotive industry, for example, an increasing focus on fuel efficiency and safety has resulted in fundamental redesigns of automotive systems and the introduction of multiple electronically controlled systems, including hybrid vehicles, thereby increasing the number of semiconductors used in such systems. Within the computer and office automation market, consumer demand for increased functionality has also resulted in the increased use of analog ICs in a variety of applications. For example, increased demand for home office multi-function printing systems that perform printing, scanning and faxing functions has increased the demand for power ICs that enable this greater functionality.
Customer demand for more features and functionality in smaller, lower-cost ICs and IC packages has resulted in increased circuit integration and greater complexity in the IC design and manufacturing process. In order to more effectively deliver the benefits of higher integration to a customer, a semiconductor supplier must possess a broad range of engineering capabilities, including expertise in device modeling, the ability to optimize IC design and component interfaces based on system-level knowledge, and the ability to combine analog and digital designs on the same IC. Other required capabilities include the ability to manage the thermal, mechanical, magnetic and packaging engineering issues that affect the performance of a highly integrated system, as well as the capability to perform more complex assembly and test operations. As a result of these factors, the knowledge and skills required to design innovative, high-quality integrated analog and mixed-signal devices are highly specialized and can take many years to develop. Additionally, given the research and engineering lead times involved, close collaboration between semiconductor suppliers and their leading customers has become increasingly important. Finally, the semiconductor industry experiences sales cycles of varying length, which leads to the need for careful management of product lines, inventories and resources.
Our Competitive Strengths
Our key competitive strengths include the following:
We have leading market positions. According to Gartner, Inc., we were the leading provider of magnetic sensor ICs in 2006. Within this market, Gartner, Inc. identified us as the second leading provider of magnetic sensor ICs for the automotive market. In addition, within the high-growth communications market for magnetic sensor ICs, we had the leading position in 2006, according to Gartner, Inc.
We have established technology leadership in the development of integrated magnetic sensor ICs and power ICs. Our innovations in Hall-Effect sensor ICs include assemblies with magnets and magnetic field concentrators and circuit design techniques for multiple applications. Our power IC expertise is especially strong in the integration of multiple motor drivers and switching regulators on the same chip. We have a team of highly skilled engineers with analog design, test development and process technology development expertise.
End box 1 END LOGICAL PAGE PAGEBREAK BEGIN LOGICAL PAGE Begin box 1Our business diversification provides a stable base with multiple growth opportunities. Our net sales are diversified across customers, sales channels, geographies and end markets. This enables us to continue to invest across business cycles, pursue multiple growth opportunities and leverage our research and development efforts across multiple products and end markets. In addition, for many of our customers, we are among a limited number of vendors who are prequalified to compete for their next-generation product requirements and are the sole supplier for many of our products. These relationships allow us to gain insight into the specifications for their products, providing us with multiple opportunities to expand our business.
We are well-positioned to access the Japanese markets. We have leveraged Sanken’s customer relationships and extensive distribution and technical support networks to increase our sales in Japan. Relationships with leading Japanese manufacturers in the consumer and automotive markets are particularly valuable since many of the solutions created for customers in these markets are quickly adopted by other manufacturers outside of Japan.
We possess a flexible, advanced manufacturing infrastructure. We optimize our manufacturing infrastructure through a mix of internal and external capacity.
Our management team is highly experienced. Our senior management team averages 25 years of semiconductor industry experience and 20 years of service to Allegro and its predecessor entity. We believe that our team has demonstrated expertise in our business and has the capability to develop and execute successful business strategies through semiconductor industry cycles.
Our Strategy
Our objective is to enhance our position as a leading provider of analog semiconductor products. Key elements of our strategy include:
Leveraging our intellectual property and technology capabilities to pursue additional opportunities in high-growth markets. We address high-growth markets by developing new applications that create synergies with our existing technologies and product portfolio. We are expanding our presence in the communications and consumer markets by leveraging our analog power IC design and process capabilities to develop new power management products and by applying our sensor design skills and our power supply and motor control applications expertise in the development of technologies for sensing electric current.
Rapidly introducing value-added products. We believe that our research and development investments in the areas of product design, wafer fabrication technology enhancement and IC package development are critical to maintaining our competitive advantage. We intend to increase the pace of our new product introductions and enhance our research and development capabilities to enable us to continue to offer differentiated, value-added products to our customers.
Increasing the breadth and depth of our customer relationships. We believe our close collaboration with industry-leading customers has provided us with market insights that enable us to focus our resources on developing innovative products. We intend to continue strengthening our relationships with existing customers by broadening our product portfolio to further satisfy their needs. Furthermore, we intend to continue broadening our customer base by enhancing our sales and marketing efforts.
Continuing to pursue a flexible and cost-effective manufacturing strategy. We believe that our use of both internal and external manufacturing capacity provides a flexible and efficient manufacturing model that reduces capital requirements, lowers operating costs, ensures reliability of supply and supports our growth.
End box 1 END LOGICAL PAGE PAGEBREAK BEGIN LOGICAL PAGE Begin box 1Continuing to improve our profit margins. We expect to improve our profitability by enriching our product portfolio, rapidly introducing new, higher-margin products and reducing manufacturing costs. We expect to continue to improve our product mix by developing new products for growth markets which typically generate higher profit margins. We intend to place a particular focus on enhancing our margins by converting existing products to products using newer technologies.
Pursuing selective acquisitions and other strategic transactions. We evaluate and pursue selective transactions to facilitate our entrance into new applications, add to our intellectual property and design resources, and diversify our product offerings. For example, our collaboration with PSI was a key factor in Sanken’s acquisition of PSI in July 2005.
Corporate Information
We were incorporated in Delaware in 1990 as the company through which Sanken acquired the semiconductor division of Sprague Electric Company (Sprague). Our principal executive offices are located at 115 Northeast Cutoff, Worcester, MA 01606, and our telephone number is (508) 853-5000. Our website is located at www.allegromicro.com. Information on our website should not be considered part of this prospectus.
Industry and Market Data
We obtained the industry, market and competitive position data used throughout this prospectus from our own internal estimates and research, as well as from industry publications and research, surveys and studies conducted by third parties. Industry publications, studies and surveys generally state that they have been obtained from sources believed to be reliable, although they do not guarantee the accuracy or completeness of such information. While we believe that each of these publications, studies and surveys is reliable, we have not independently verified industry, market and competitive position data from third-party sources. While we believe our internal business research is reliable and the market definitions are appropriate, neither such research nor these definitions have been verified by any independent source.
In preparing this prospectus, we have relied on the following third-party publications and research:
The Gartner, Inc. reports described herein (Gartner, Inc. Reports) represent data, research opinion or viewpoints published, as part of a syndicated subscription service available only to clients, by Gartner, Inc., a corporation organized under the laws of the State of Delaware, USA, and its subsidiaries, and are not representations of fact. The Gartner, Inc. Reports do not constitute a specific guide to action and the reader of this prospectus assumes sole responsibility for his or her selection of, or reliance on, the Gartner, Inc. Reports, or any excerpts thereof, in making any decision, including any investment decision. Each Gartner, Inc. Report speaks as of its original publication date (and not as of the date of this prospectus) and the opinions expressed in the Gartner, Inc. Reports are subject to change without notice. Gartner, Inc. is not responsible, nor shall it have any liability, to us or to any reader of this prospectus for errors, omissions or inadequacies in, or for any interpretations of, or for any calculations based upon data contained in, the Gartner, Inc. Reports or any excerpts thereof.
End box 1 END LOGICAL PAGE PAGEBREAK BEGIN LOGICAL PAGE Begin box 1The Offering
The number of shares of common stock that will be outstanding after this offering is calculated based on 25 million shares outstanding as of March 30, 2007 and excludes:
Unless otherwise indicated, all information in this prospectus assumes:
Risk Factors
Elsewhere in this prospectus we have described several categories of risk that affect our business. These include risks specifically related to our business and industry and risks related to our relationship with Sanken. In addition, a number of risks related to this offering can affect investment in our common stock. You should read the “Risk Factors” section of this prospectus for a more detailed explanation of these risks.
End box 1 END LOGICAL PAGE PAGEBREAK BEGIN LOGICAL PAGE Begin box 1Summary Consolidated Financial Data
The following summary consolidated and as adjusted financial data should be read in conjunction with “Capitalization,” “Selected Consolidated Financial Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and the accompanying notes to those consolidated financial statements included elsewhere in this prospectus.
Our historical results are not necessarily indicative of future operating results.
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