Silicon Laboratories Inc. Q3 FY2025 earnings call

• Silicon Labs delivered third quarter results consistent with outlook, with strong sales and profitability growth. - Industrial and commercial business continued strong performance, with commercial applications like building safety, lighting having strong QoQ growth and industrial smart meter demand building. - Home & Life business grew as expected, with smart home applications having sequential growth and medical customers up nearly 60% YOY. - Introduced 2 groundbreaking design tools: Studio 6, a revamped enablement platform streamlining development, integration and debugging; and Simplicity AI software development kit, an agentic AI development environment for customers. - Emerging trend of accelerating demand for active wireless asset tracking, with Silicon Labs' solutions enabling real-time beaconing with high accuracy and ultra-long battery life. - Announced expansion of partnership with GlobalFoundries to manufacture Series 2 wireless SoCs at its Malta, New York facility.

Industrial and commercial business: Third quarter revenue was $118 million, accounting for 57% of consolidated revenue, up 7% sequentially and 22% year-over-year. Demand for commercial applications like building safety, lighting and access points had strong QoQ sales growth, while electronic shelf label shipments had softened QoQ. In industrial, smart meter demand continued to build. Home & Life business: Third quarter revenue was $88 million, accounting for 43% of consolidated revenue, up 6% sequentially and 26% year-over-year. Sequential growth was driven by strength in smart home automation customers, and year-over-year growth was dominated by new ramps in continuous blood glucose monitors and other medical applications.

• Anticipate Q4 revenue in the range of $200 million to $215 million, midpoint implying 25% YOY growth. - GAAP and non-GAAP gross margins expected in the range of 62% to 64%, midpoint has a one-time benefit of approximately 200 basis points. - Non-GAAP operating expenses expected in the range of $110 million to $112 million, GAAP operating expenses between $134 million and $136 million. - Non-GAAP earnings per share expected in the range of $0.40 to $0.70 on an expected diluted share count of 33.2 million shares.

• Forward-looking statements are subject to risks and uncertainties. Need to review SEC filings which identify important risk factors that could cause actual results to differ materially from forward-looking statements.

Q: Could you clarify the onetime benefit in Q4 gross margin guidance and how to think about gross margin going forward?

A: Yes, the onetime benefit is a credit received, about 200 basis points, to be recorded all in one period. At midpoint 63%, backing out the benefit, it's around 61%, and expected to be in 60% to 61% for next few quarters, then gradually move back toward long-term range.

Q: What's the financial impact of the Simplicity AI SDK over time?

A: It's an agentic AI development environment that streamlines steps, accelerates time, eases development. Allows experienced developers to be more efficient, new entrants to lower the bar. Should result in scalability and more efficiency in acquiring customers' designs and scaling, not overnight but working with first customers now.

Q: Expectations for channel and customer inventories?

A: Customer side, excess inventory effects at end customers are effectively gone. On disti side, target is 70-75 days, made progress this quarter, and will keep pushing to get there over coming quarters.

Q: How has the product mix changed since Analyst Day and what about pricing?

A: Nothing majorly changed, just piercing above 60% for next few quarters due to specific product mix. Gradually moving back towards stated long-term range of 56%-58%, not a fast movement down.

Q: Is active asset tracking a fourth company-specific driver?

A: It has potential as an end market with growth potential, early days but has exciting potential, our technology is attractive to customers and we have ability to turn products quick to address needs.

Q: Thoughts on inorganic opportunities and buybacks?

A: Open to M&A but with tight filter, likely to focus more on buybacks due to increasing profitability and excess cash flow.

Q: Conversations about geopolitics and inventory?

A: Not seeing customers building inventory around geopolitics, broadly inventory has come down, uncertainty weighs on customers' visibility and clarity.

Q: Updates on Wi-Fi program ramps?

A: Wi-Fi had strong growth this year, 30%-40% YOY, part of Series 3 platform with accelerated growth ahead, still smallest of 4 areas but with strong design win momentum.