Silicon Laboratories, Inc. Q4 FY2023 earnings call

Financial Performance

• Fourth quarter revenue was $87 million, above the midpoint of guidance and down 66% year-on-year.
• Non-GAAP gross margin was 51% due to product and customer mix; non-GAAP operating expenses were $91 million, resulting in a non-GAAP operating loss of $47 million.

Inventory

• Saw reductions in channel and end customer inventory; end customer inventory destocking expected to continue in Q1. Channel inventory decreased to 79 days.

Design Wins

• 2023 design wins projected lifetime revenue up low double digits year-over-year. Strength in wireless connectivity, Matter certified products, Wi-Fi solutions, Connected Health, commercial product group (e.g., electronic shelf labels, solar), and smart cities.

Personnel

• John Hollister stepped down after 20 years of service; search for new CFO is ongoing.

Fourth quarter revenue was $87 million, down 66% year-on-year. The Industrial and Commercial (I&C) business unit ended at $60 million, down 62% from the same period last year and 51% sequentially. All 3 product groups in I&C declined, with the broad industrial category hit hardest; however, smart cities and commercial product groups had record revenue for the full year. The Home and Life (H&L) business unit had revenue of $27 million, down 73% year-over-year and 67% sequentially. Distribution revenue was 63% for the fourth quarter, down sequentially and well below typical levels. Channel inventory decreased to 79 days.

Q1 2024

• Revenue expected to be in the range of $100 million to $110 million.
• Non-GAAP gross margin expected to be approximately 52%.
• Non-GAAP operating expenses expected to be approximately $96 million.
• Non-GAAP loss per share expected to be in the range of $0.92 to $1.04. GAAP loss per share expected to be between $1.89 and $2.05 per share.

2024 Outlook

• Excited about trends in wireless connectivity, more Matter certified products, growth in Life, smart cities, and commercial segments.

Identified a material weakness in internal controls related to inventory controls; working on a plan to enhance design and operating effectiveness of internal controls.

Q: Could you give an update on the inventory situation, including end customer inventory?

A: End customer inventory is coming down, sampled from top customers shows a downward trend, though precision is challenging. Channel inventory decreased to 79 days.

Q: Confirm on inventory write-downs and gross margin trend?

A: No explicit inventory write-downs. Gross margin in Q1 still faces challenges due to low revenue and fixed cost absorption, but long-term gross margin expected to return to prior range.

Q: Which segments expected to grow more in Q1?

A: Both I&C and H&L expected to grow in Q1, with Home & Life possibly further through the cycle. Pricing environment mostly normal, with one competitor acting atypically.

Q: Color on inventory controls issue and die bank inventory split?

A: Identified inventory control process improvements needed; most inventory is in die bank for flexibility in responding to customer needs.

Q: Unpack Home & Life business cyclicality and secular growth?

A: Home & Life has seen declines for 4-5 quarters, but seeing encouraging signs in bookings. Secular growth areas like Matter, Bluetooth, Wi-Fi, and Connected Health show promise.

Q: Update on Series 3 platform?

A: Series 3 making progress, on track, leveraging Series 2's strength and pushing further on wireless performance, scalability, etc.

Q: Industrial & Commercial cycle expectation?

A: Industrial & Commercial likely to continue in cycle correction for a few more quarters, but seen as trough with sequential growth expected from Q4.

Q: Disty inventory target?

A: Normal target ~60-70 days, currently higher due to lower revenue, but expected to improve as revenue recovers.

Q: Design wins and foundry quotes?

A: 2023 design wins met targets despite market challenges. Well-positioned with foundry partners to navigate downturn, confident in supply management.