Silicon Laboratories, Inc. Q2 FY2024 earnings call

• Silicon Labs delivered strong second quarter results with revenue reaching the top end of the forecast and earnings exceeding expectations.
• Many customers' excess inventory levels have normalized though some outliers remain; improved booking patterns in the first half indicate recovery in the second half.
• Design win pipeline is strong with record design wins in Industrial & Commercial (especially Smart Cities) and Home business units.
• Progress in various areas: insulin management has started shipping millions of units; ESL is the fastest-growing business with global deployments expanding and cumulative shipments of 300 million units; smart metering is participating in large global deployments outside China and secured significant design wins in Japan.
• Series 2 portfolio is well-positioned with industry-leading power consumption, security, etc., and Series 3 platform sampling has started.
• Focus on returning to profitability as quickly as possible and executing for the long-term financial model.

In the second quarter, Silicon Labs' Industrial & Commercial business unit generated $88 million in revenue, a 35% sequential increase and a 47% year-over-year decrease. The Home & Life business unit had $57 million in revenue, a 39% sequential increase and a 28% year-over-year decrease. Distribution accounted for approximately 69% of the revenue mix for the June quarter, an increase from the prior quarter but still below the typical distribution versus direct sales channel mix.

• Anticipates Q3 revenue to be in the range of $160 million to $170 million.
• Expects GAAP gross margin in the September quarter to be between 54% and 56%.
• Forecasts GAAP operating expenses for the September quarter to be in the range of $123 million to $125 million and non-GAAP operating expenses to be in the range of $101 million to $103 million.
• Projects GAAP loss per share to be between $0.95 and $1.25 and non-GAAP loss per share to be between $0.10 and $0.30.

• Excess inventory at customers is still a factor with some significant outliers remaining.
• Geopolitical challenges in China where local suppliers are favored, limiting participation in the domestic smart metering market.
• Uncertainty in end market demand which is hard to predict.

Q: Matt, dig into the electronic shelf labeling market, size, growth trajectory, unit economics, and how it works for Silicon Labs?

A: Matt Johnson said they work directly with shelf label suppliers. Shelf labeling adoption is accelerating due to technology maturity, long battery life, software reliability, and attractive returns for retailers. Deployments start with prototyping in stores and expanding within regions.

Q: Matt, level set on smart metering programs in different regions and what to expect in next 24 months?

A: Matt Johnson said smart metering is a mature market with resilient and durable deployments. It's a function of having multiple technologies, renewals on the back end, and new deployments globally across gas, water, and electric. Well-positioned with leadership position and continuing to bring new technology.

Q: Thomas O'Malley on pricing and disti mix?

A: Dean Butler said pricing has been relatively stable, and disti mix is a function of channel inventory and customer behavior, expecting it to normalize over roughly two quarters with a target of around 70-75 days.

Q: Quinn Bolton on disti mix, gross margin improvement, and inventory consumption?

A: Dean Butler said gross margin improvement is due to channel and product mix, and inventory consumption trends are positive but hard to predict precisely. Matt Johnson added design win momentum and end market uncertainty are factors.

Q: Srini Pajjuri on Wi-Fi market and competition in China?

A: Matt Johnson said Wi-Fi is early days with the first product getting good market reception and design wins converting, and in China, local suppliers are favored limiting participation in the domestic smart metering market.

Q: Kyle Smith on design win lifetime value and revenue split?

A: Matt Johnson said design wins are strong but some delayed, and Home & Life is likely to grow faster in the September quarter due to new product ramps.

Q: Cody Acree on consumption levels?

A: Matt Johnson said Q2 and Q3 levels are not at consumption levels, with end customer inventory improving but some big customers still having excess.

Q: Peter Peng on China market and AI/ML use cases?

A: Matt Johnson said China market shows some improvement but not banking on it, and AI/ML is being adopted as customers work through deploying machine learning in their applications, similar to previous technology trends.