Earnings Call: Silicon Labs Reports $166 Million Revenue

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Earnings Call: Silicon Labs Reports $166 Million Revenue

Silicon Labs (SLAB), a leading provider of silicon, software, and solutions for a smarter and more connected world, announced its financial results for the third quarter of fiscal year 2024 on October 24, 2023. The company reported $166 million in revenue, reflecting a 14% increase from the previous quarter, but an 18% decline compared to the same period last year. This decline was attributed to persistent excess inventory issues affecting annual financials. Nevertheless, Silicon Labs sees a gradual demand recovery with positive customer sentiment extending into 2025.

Key Points

  • Third-quarter revenue was $166 million, showing a sequential increase of 14% but a year-over-year decline of 18%.
  • The industrial and commercial segments generated $96 million in revenue, representing a 20% year-over-year decline; the Home and Life segments contributed $70 million, down 16% year-over-year but up 22% sequentially.
  • CEO Matt Johnson identified connected health, smart measurement, and commercial retail as key growth areas.
  • CFO Dean Butler reported a GAAP gross margin of 54.3% and a non-GAAP gross margin of 54.5%.
  • Revenue for the fourth quarter is expected to range between $161 million and $171 million, with GAAP loss per share anticipated between $0.75 and $1.05.

Company Outlook Silicon Labs anticipates a strong growth year in 2025, supported by design wins and technological innovations. A flat guidance is projected for the fourth quarter of 2023, with a midpoint annual growth rate of 90%. The initiation of first production shipments for continuous glucose monitoring customers is expected to lead to full-scale growth by 2025.

Negative Highlights

  • Year-over-year declines were seen in both industrial and commercial as well as Home and Life segments due to ongoing inventory issues.
  • A GAAP operating loss of $30 million was reported for the third quarter.
  • The company indicated irregular order patterns and weakness in industrial markets.

Positive Highlights

  • Inventory levels are normalizing for several customers, while some are still working through excess inventory.
  • Positive customer sentiment and demand recovery extend into future years.
  • The "Works With" developer conference showcased significant advancements in AI and IoT platforms.

Caveats

  • Despite sequential growth, the company experienced an 18% year-over-year revenue decline.
  • Inventory levels ended at 53 days, below the targeted 70-75 days.

Q&A Highlights

  • The impact of AI on ASPs and market expansion was discussed.
  • The company aims to grow through design wins despite the current horizontal consumption environment.
  • Visibility remains limited, but there is an increase in reorders for the first quarter, indicating a less typical seasonal pattern.

Silicon Labs ended the quarter with a strong cash position of $370 million and reduced inventory of $139 million. The company continues to focus on increasing design wins, expecting them to contribute to future growth as they transition to mass production. The next interaction opportunity for investors and analysts with Silicon Labs will be on November 7 at Stifel's 2024 Midwest Conference, where more insights about the company’s strategy and performance will be shared.

InvestingPro Forecasts Silicon Labs' latest financial results reflect a challenging period for the company, but signs of a potential recovery appear on the horizon. According to InvestingPro data, the company's market cap stands at $3.54 billion, with trailing twelve-month revenue of $504.98 million as of the third quarter of 2024. However, this represents a significant 47% revenue decline for the same period.

The company's financial health presents a mixed picture. One InvestingPro Tip highlights that Silicon Labs holds more cash than debt on its balance sheet, consistent with its reported strong cash position of $370 million. This financial cushion may provide stability for the company to navigate current market challenges and invest in future growth opportunities.

Another InvestingPro Tip indicates that analysts expect a decline in sales for the current year, aligning with the company’s reported 18% year-over-year revenue drop in the third quarter. This trend is further supported by expectations of declining net income this year, reflecting ongoing inventory issues and market pressures mentioned in the earnings report.

It is important to note that Silicon Labs' shares took a significant hit in the past week, with a total weekly price return of -11.02%. This recent decline may be a reaction to the company's financial results and its cautious near-term outlook.

For investors seeking more comprehensive analysis, InvestingPro offers additional tips and forecasts. Nine more InvestingPro Tips for Silicon Labs are available, providing valuable context for understanding the company's financial state and future expectations.