Interwoven Interests: The Bear Cave's Deep Dive Into Allegro MicroSystems' Corporate Tangles

A new short report from The Bear Cave outlines serious concerns about Allegro MicroSystems Inc ALGM. Edwin Dorsey, the author of "The Bear Cave" newsletter, writes that although investors initially perceived it as an attractive opportunity, given its connections to the burgeoning electric vehicle and clean energy sectors, internal problems have come to light, despite bullish analyst sentiments.

What Happened: The Bear Cave points to Allegro MicroSystems' most recent 10-Q filing for the quarter ending December 23, 2022 as a resource for understanding the complex issues at play. The report noted, "The company sells products to, and purchases in-process products from, Sanken. As of December 23, 2022, Sanken held approximately 51.5% of the company’s outstanding common stock."

Sanken Electric, a Japanese semiconductor conglomerate, simultaneously holds roles as Allegro's controlling shareholder, supplier, and customer. The Bear Cave notes that Allegro's CFO Derek D'Antilio highlighted this relationship during an analyst day on March 14, 2023, stating, “On the front end, we source wafers from 3 fab partners, approximately 50% of our wafers are sourced from UMC in Taiwan, 30% to 40% from Polar Semiconductor in Minnesota and the remainder from TSMC.”

Benzinga has contacted Allegro MicroSystems for comment on the short report.

Also Read: Airbnb Under Fire: Short-Seller 'The Bear Cave' Slams Platform Amid Guest 'Horror Stories'

Why It Matters: The Bear Cave report underscores the potential issues with these entangled relationships, pointing out the scenario where supplier agreements are signed with their own board members. A particular area of scrutiny in the report is the financial relationship between Polar and Allegro, and whether the transactions between them are conducted at fair market rates.

The report indicates that Polar was modestly profitable, but as Allegro's dealings with Polar increased, the profits of the latter started declining. A disclosure in Allegro's recent financial results revealed that its "income in earnings of equity investment" from its 30% stake in Polar resulted in "a $406,000 loss!" according to The Bear Cave.

In the report, Dorsey concludes Allegro MicroSystems, a publicly traded company, turns a profit while its associated supplier, Polar Semiconductor (predominantly owned by Sanken), records financial losses.

Price Check: Shares of Allegro MicroSystems were down 0.5% to $38.60 at the time of publication Thursday.

Now Read: Famed Short Seller Muddy Waters Targets Chinook Therapeutics, Points To Drug Data Questions

This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.

Photo: Shutterstock