Release Date: July 24, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Silicon Laboratories Inc (SLAB, Financial) delivered strong second-quarter results with revenue reaching the top end of their forecast and earnings exceeding expectations.
- The company reported record design wins in industrial and commercial business units, particularly in the smart cities and home business sectors.
- Significant momentum in insulin management devices, electronic shelf labels, and smart meters, with millions of units shipped across multiple customers and regions.
- The company's first Wi-Fi 6 product, the 917, has lower power consumption than competing products, generating significant market opportunities and design wins.
- Strong adoption of Series 2 products and the introduction of Series 3 platform, which promises advancements in performance, power consumption, and compute capability.
Negative Points
- Despite improvements, weekly bookings are still below target levels, indicating some ongoing market challenges.
- GAAP operating loss for the quarter was $48 million, and non-GAAP operating loss was $25 million, reflecting ongoing financial pressures.
- The company continues to experience non-GAAP operating losses, highlighting the need for further cost control and margin improvements.
- Inventory levels at some significant customers remain high, which could impact future sales and revenue growth.
- The end market demand remains unpredictable, adding uncertainty to future growth projections.
Q & A Highlights
Q: Can you provide insights into the electronic shelf labeling market, including its size, growth trajectory, and unit economics?
A: The electronic shelf labeling market has seen increased adoption due to technology maturity, battery life improvements, and software reliability. We work directly with shelf label suppliers who then collaborate with retailers. The market is expanding globally, with retailers seeing attractive returns. Although still early days, we are well-positioned with our technology, which offers long battery life, security, and reliability.
Q: Could you elaborate on the smart metering market and your involvement in different regions?
A: The smart metering market is more mature and moves at a different pace. We have a leadership position due to our comprehensive technology offerings. The market is resilient, with ongoing renewals and new deployments globally. We are involved in gas, water, and electric metering, and our technology maturity and customer returns drive adoption. We see this as a long-term, robust market.
Q: How should we think about pricing trends and unit growth in the upcoming quarters?
A: Pricing has been relatively stable, with recent changes primarily due to product and customer mix. We expect this stability to continue. The sequential revenue growth is driven by unit increases, and as our mix improves, we anticipate gross margin improvements.
Q: What is the expected timeline for normalizing distribution inventory levels?
A: We expect it to take roughly two quarters to normalize distribution inventory levels. Currently, we are at 55 days, below our typical 70-75 days. We are not pushing for rapid replenishment and expect a gradual return to normal levels, likely by early 2025.
Q: Can you discuss the design win momentum, particularly in the Wi-Fi market?
A: We are early in the Wi-Fi market but seeing strong market reception for our first product. Design wins are converting, and we expect growth to accelerate into 2025 and 2026. We focus on one-by-one Wi-Fi 6 for IoT applications, offering leading power consumption and battery life. Our large customer base provides immediate opportunities, and we plan to expand our product offerings.
Q: What are your expectations for the China market, given increased competition from domestic suppliers?
A: We are seeing some improvement in China but are not relying on it for our future growth. We focus on export opportunities rather than the local market due to geopolitical challenges. We continue to secure design wins but remain cautious about the market's overall strength.
Q: Can you provide more details on the integration of AI/ML into your Series 2 platform?
A: We have integrated machine learning cores into our Series 2 products, enabling inference at the Edge for battery-powered applications. Customer interest is high, and we see increasing adoption. Our Series 3 platform will further enhance these capabilities, positioning us well for future growth.
Q: What are the main drivers of the gross margin improvement in the September quarter?
A: The 200-basis-point improvement is primarily due to channel and product mix, with better margin products and increased channel contributions. Overhead absorption also plays a role as revenue grows. We expect continued gross margin improvements as these factors evolve.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
