Silicon Labs Takes Q2 Hit From ZTE Tariffs; Pushes Broad Portfolio
A 12 percent year-on-year decline in Silicon Labs’ Q2 access business was partially attributable to the U.S. government’s ban on shipments to ZTE, said Chief Financial Officer John Hollister on a Wednesday earnings call. Since the ban's lifting this month (see 1807130048), the company is in talks with the Chinese telecom gearmaker “to determine their resumption of production activity and consumption rates,” said Hollister.
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Silicon Labs doesn’t believe tariffs enacted on imported goods from China thus far will have a “significant direct effect” on its financials, said Hollister. Most of the company’s manufacturing is outside of China, leaving it “well-positioned” relative to the competition, but “global supply chains in the electronics and industrial markets are tightly interconnected,” he noted.
Revenue from Silicon Labs' Z-Wave business, acquired from Sigma Designs in April (see 1804180064), contributed $8 million to Q2, said Hollister, saying the Z-Wave business has been fully integrated. Total sales grew 14 percent to $217 million from the year-ago period, said the company. Shares closed 5.6 percent lower Wednesday at $99.25.
The IoT segment posted record sales of $116 million in Q2, up 19 percent from the year-ago quarter, Hollister said. Also posting strong growth in the quarter were microcontrollers, sensors and proprietary wireless products, while 802.15.4 sales declined amid customer product delays, he said. The broadcast business declined 7 percent to $34 million, the broadcast consumer business was flat, and automotive revenue dropped, Hollister said.
CEO Tyson Tuttle called IoT Silicon Lab’s biggest opportunity, now at more than half of revenue. He referenced the company’s broad coverage with IoT protocols, highlighting the Q2 addition of Z-Wave to the company menu. Z-Wave, with 100 million products in market, complements Silicon Labs’ existing wireless hardware and software portfolio and expands Silicon Labs’ smart home customer base to ADT, Alarm.com, Amazon and Ring, Comcast, Google Home, Samsung SmartThings, Vivint and Yale, said Tuttle. Having multiple connectivity standards under one roof “strengthens our influence on the evolution and adoption of wireless standards and targeted IoT market segments,” he said.
Silicon Labs’ ability to combine multiple capabilities under one platform, develop its own standards-based wireless protocols “rather than licensing stacks from third parties,” and optimize hardware and software to work together creates competitive advantages, said Tuttle.
Answering a question on strategy with Wi-Fi, Tuttle noted it launched Wi-Fi this year through the 802.11n standard, focusing on end devices that are “cost- and power-constrained.” The company’s focus is to deliver low-power solutions cost effectively “to be able to scale across this multitude of IoT and node applications.” Most IoT end nodes are going to remain 802.11n for the foreseeable future, he said, while the rollout of 802.11ax access points will “take some amount of time.”
As a higher power protocol, Wi-Fi “burns down the batteries a lot faster,” Tuttle said, saying many end-node applications require a Zigbee or Z-Wave solution to meet cost and battery life requirements. But protocols aren’t mutually exclusive, he said, comparing the IoT market to smartphones that typically have Bluetooth and Wi-Fi. “There’s going to be a proliferation of platforms that require each of these standards,” he said. That Silicon Labs can support all of them through a common platform “is a big advantage” in meeting customers' needs for the appropriate wireless technology, he said.