Silicon Labs Demand Still Outpacing Supply; Q4 Revenue Up 13%
Demand continues to “significantly outpace our supply,” said Silicon Labs CEO Matt Johnson, leading his first earnings call since Tyson Tuttle's retirement in December. Design wins in 2021 grew by nearly 45%, and the company’s sales funnel entering 2022 is about $14 billion, more than it was before the divestiture of the Infrastructure and Automotive business last spring, he said.
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Chief Financial Officer John Hollister referenced the “unusual time,” saying “demand is very strong,” with no sign of when supply will improve. Price increases Silicon Labs instituted late in 2021 across all product lines are expected to recover existing and expected manufacturing cost hikes, Hollister said. Late-2021 price hikes, on top of earlier ones last year, were an effort to “get in front of this … even acknowledging that some of that is ahead of some of the cost increases that are yet forthcoming.”
The company expects near-term gross margin of about 63% in Q1 following a Q4 rate of 61.4%. The company expects gross margin to "moderate" in 2022 to the “high 50s,” then mid-50s longer term, Hollister said. It anticipates a "tight labor market" this year, with associated inflationary pressures on wages and benefits.
Q4 revenue increased 13% year on year to $209 million, at the top end of guidance; for the year, it was up 43% to $721 million, the company said. Wireless solutions drove the increases, with 51% higher revenue, he said. Revenue was strongest in industrial and commercial segments, especially in proprietary sub-gigahertz products that nearly doubled year on year, Hollister said. Industrial growth was broad-based, covering connected equipment, remote monitoring, smart buildings, retail and smart city applications such as metering, he said.
Inventory declined in the quarter to $49 million, about 6.6 turns, said Hollister. "Our inventory balance is significantly below our target level, which would ideally be more in the range of three to four turns," he said. An ideal inventory level would be "roughly double what we’re currently carrying," he said. Distributor inventory days at the end of December dropped to 37; the company’s goal is 45-55 days, said Hollister. Silicon Labs sees a “greater possibility for unit output materially increasing” toward year-end; the middle part of the year will be “under particular constraint.”
On how the company secured units and wafers to meet growth rates in second-half 2021, “we did go into our inventory balance to deliver on this,” Hollister said. Johnson noted suppliers “have more demand that they can respond to,” and the company made sure suppliers “have visibility into our growth potential and our market positioning, because when they make their decisions, they’re betting on us, or whoever they select, as well.”
In response to an analyst’s question on Silicon Labs’ ability to pick up additional market share amid changing competitive dynamics, Johnson said the priority is to take care of existing customers, but the company has been able to “increase our customer count long tail as well.” He called it a “balancing act,” noting growing design wins by more than 40% was a “strong record” for the company.
Commenting on the launch of the BG24 and MG24 SoC families last week (see 2201250003), Johnson said they're unique because of the “integrated acceleration on a wireless SoC.” That enables Silicon Labs to offer AI and machine learning “at incredible efficiency for performing that inference at the edge,” which enables battery-powered devices to run AI and ML applications at the edge, he said.