![]() I expect Silicon Labs to report a mid-to-high single-digit sequential decline in revenue next quarter, and the year-over-year declines could stretch to mid-2021 before a healthy rebound. With channel inventory having gotten low (the mid-50’s are the company’s typical target range), that adds a little variable for Silicon Labs. It’s also worth noting that different companies are following very different paths through this downturn – Texas Instruments is keeping its capacity utilization high and building inventory to have ample product on hand to serve customers, while NXP is being more conservative about reducing output. Re-filling the channel (taking channel inventory from 38 days to 54 days) certainly helped results, and I am curious to see how that gets worked down over the next couple of quarters and whether that will hurt revenue. Still, I’m a little nervous about the outlook. Unlike most semiconductor companies, Silicon Labs maintained its guidance for the June quarter (others have been lowering). Inventory days declined slightly on a sequential basis, but remain within the historical normal range. With operating expenses only slightly higher than expected (despite higher revenue), the company had an impressive $0.18/share beat the operating income line, with operating income up 19% yoy and down 22% qoq. Gross margin weakened relative to both periods, but still came in better than a half-point above expectations. Management also indicated strength in 32-bit MCUs, Bluetooth, and Z-wave within the IoT business. It sounds as though timing and isolation did relatively well, but it is difficult to quantify beyond that. Regrettably, Silicon Labs has chosen to restructure how its reports results, reducing the amount of detail it gives to shareholders regarding the performance of important segments like timing, isolation, and broadcast. Revenue (which also declined 2% qoq) was driven by the Infrastructure & Auto group, which saw 19% yoy and 6% qoq growth this quarter versus the 11% yoy growth and 8% qoq contraction in IoT. Revenue growth of 14% (year-over-year) is well above the likes of large rivals including STMicro ( STM), NXP ( NXPI), and Texas Instruments ( TXN), as well as smaller rivals like Lattice ( LSCC) (even adjusting for the Consumer segment). Not all of the chip stocks I follow have reported, but Silicon Labs’ performance nevertheless stands out positively. Standing Out Again (For The Right Reasons) I still am not crazy about the prospective value here, but I do still see some, and there aren’t as many quality growth stories in semiconductors as I’d like. Management really needs to get the operating margins up to 30% for the discounted cash flow side to work, though I readily admit growth semiconductor stocks can trade well above DCF-based fair value for long stretches. With that underperformance, the valuation is a little more interesting. The issue remains principally valuation for me, and the shares have lagged the SOX index by about 15% since my last update on the company. Likewise, I don’t have much to quibble with or complain about in terms of the opportunity set in front of the company (other than thinking they need better MCU IP). ![]() In terms of operating performance, I don’t have a lot to criticize with Silicon Labs ( NASDAQ: SLAB), as it once again did quite well in this quarter on a relative basis.
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