Q4 2024 Silicon Laboratories Inc Earnings Call
Gigi: Hello, my name is Gigi, and I'll be your conference operator today.
Welcome to Silicon Lab's fourth quarter fiscal 2024 earnings call.
Gigi: At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised.
Gigi: To withdraw your question, please press star one one again. Please be advised that today's conference is being recorded. I will now turn the call over to Giovanni Pacelli, Silicon Lab Senior Director of Finance. Giovanni, please go ahead.
Giovanni Pacelli: Our earnings press release and the accompanying financial tables are also available on our website.
Speaker Change: Joining me this morning are Silicon Labs President and Chief Executive Officer Matt Johnson and Chief Financial Officer Dean Butler. They will discuss our fourth quarter financial performance and review recent business activity.
is.
Speaker Change: We will take questions after our prepared comments, and our remarks today will include forward-looking statements that are subject to risks and uncertainties.
Speaker Change: We base these forward-looking statements on information available to us as of the date of this conference call and assume no obligation to update these statements in the future.
Speaker Change: We encourage you to review our SEC filings, which identify important risk factors that could cause actual results to differ materially from those contained in any forward-looking statements.
Speaker Change: Additionally, during our call today, we will refer to certain non-GAAP financial information. A reconciliation of our GAAP to non-GAAP results is included in the company's earnings press release and on the investor relations section of our website.
Speaker Change: I'll now turn the call over to Silicon Lab's Chief Executive Officer, Matt Johnson. Matt?
Matt Johnson: Thanks Giovanni and good morning everyone. Silicon Labs delivered fourth quarter results consistent with our outlook as we continue to drive momentum through a challenging market cycle.
Matt Johnson: Our home and life business entered a correction several quarters before our industrial and commercial business that has since grown sequentially each quarter in 2024.
Matt Johnson: The same time, our industrial and commercial business has seen a more modest recovery after entering its correction a couple of quarters after home and life.
Matt Johnson: As we look at 2025, we are confident in the many growth opportunities ahead, independent of a broad recovery and end market demand. As design wins in connected healthcare, smart metering, commercial retail, and many other applications are now ramping into production.
Matt Johnson: In Connected Healthcare, we're partnering with more than a dozen continuous glucose monitoring customers globally.
Matt Johnson: In Q4, we shipped meaningful volume to multiple CGM customers, which helped drive the sequential growth of our home and life business last quarter.
Matt Johnson: We continue to expect strong growth for us from CGM ramps throughout the coming year.
Matt Johnson: As an application, we see the potential for CGM to comprise nearly 10% of our revenue in the next 12 to 18 months, and our laser focus on further building momentum in this space across multiple regions with our industry-leading portfolio and security capabilities.
Matt Johnson: India's smart metering rollout is progressing quicker than other geographic metering rollouts have historically, and we're well positioned to capture a majority share of this 250 million unit deployment in the years to come.
Matt Johnson: We are also continuing to gain share in more established metering markets, including in Japan's upcoming refreshment cycle, where we will support a majority of the market with our higher-content multiprotocol solutions for sub-GHz and Wi-Fi connectivity.
Matt Johnson: Further, we see higher content deployments in next generation U.S. and European markets as well.
Matt Johnson: In commercial retail, we drove strong momentum in the electronic shelf labeling market in 2024, shipping significant unit volume across multiple customers and regions, while further bolstering our partnerships with a majority of the leading global ESL providers to support their anticipated rollouts and design plans.
Matt Johnson: In addition to connected healthcare, smart metering, and electronic shelf labeling, we're also focused on driving continued share gains in Bluetooth, which is now our fastest growing technology by revenue and opportunity funnel.
Matt Johnson: At CEF this year, we showcased the first commercially available Bluetooth channel sounding solution enabled on our XG24, which is now shipping to customers and opens a new addressable market for us in proximity-based applications like asset tracking and geofence.
Matt Johnson: We also debuted our first generally available Wi-Fi 6 device at CES, the 917, which can deliver an industry-leading two-year battery life on a single AAA battery.
Matt Johnson: Initial design wins on our 9-1-7 are bringing low power Wi-Fi connectivity to white goods and home automation devices.
Matt Johnson: We've been investing significantly in Wi-Fi in recent years because of our belief in its immense growth potential within our IoT space.
Matt Johnson: Early engagement with our existing customer base has been very strong as we work to support opportunities for pull-through of our Wi-Fi solutions.
Matt Johnson: In addition to CES, we hosted our fifth annual Works with Conference series in the fourth quarter, where we met more than 1,000 customers and partners, more than half of which were new to the company.
Matt Johnson: In total it works with, we logged approximately 6,000 hours of high-impact engagement, which is a testament to our unique position as the preeminent thought leader in wireless connectivity for the IoT.
Matt Johnson: We're also seeing record momentum for 15.4 connectivity in preparation for wider availability of matter-enabled devices later this year and into the future.
Matt Johnson: As the leader in 15.4 technology, we remain very well positioned to benefit as matter continues to pull thread and other device interoperability into the mainstream.
Matt Johnson: In fact, since the matter spec was released, we have secured more 15-4 design wins than the prior five years combined.
Matt Johnson: In conclusion, the Silicon Labs team executed well against a challenging market backdrop in 2024.
That said, as I stated in my opening remarks,
Matt Johnson: We are confident that we will drive growth throughout 2025, independent of a significant broad-based demand recovery.
Matt Johnson: Due to the share gains that we've made with our industry-leading Series 2 products that bring best-in-class wireless performance, ultra-low power consumption, and leading security to our tens of thousands of customers.
Matt Johnson: We expect our share gains in areas such as connected medical, smart metering, commercial retail, and many other applications to continue materializing into significant production ramps throughout 2025, placing us in a unique position to drive above market growth this year.
Matt Johnson: At the same time, we'll continue investing in technology innovation, including in our Next Generation Series 3 platform that is now sampling, and will maintain strong execution while driving toward our financial model.
Dean Butler: Now I'll hand it over to Dean for the financial update. Dean?
Dean Butler: Thanks Matt and good morning to everyone. I will first review the financial results for a recently completed year-end and fourth quarter, followed by a discussion of our current outlook.
Dean Butler: Silicon Labs ended the fiscal year 2024 with revenue of $584 million, which represents a year-over-year decline of approximately 25 percent.
Dean Butler: The decline was most pronounced in the company's industrial and commercial products, which experienced a 32% decline as customers depleted excess inventory positions throughout the year.
Dean Butler: While the year-on-year sales decline was substantial, I'm happy to have seen a positive progression in both sales and profitability improvements throughout 2024 as customers depleted inventory and demand for the company's products began to return.
Dean Butler: As a result, the company ended the fourth quarter of 2024 in a substantially better financial position with a GAAP operating loss of $29 million versus the same quarter one year ago, GAAP operating loss of $73 million.
Summarizing our fourth quarter results.
Revenue for the recently ended December quarter was $166 million.
in line with the midpoint of our prior guidance.
Dean Butler: In our industrial and commercial business, December quarter revenue was $89 million, down 8% sequentially, but up approximately 50% year-over-year as customers in this area worked through much of their excess inventory positions.
Dean Butler: During the quarter, we saw stabilization of demand signals for applications such as electronic shelf labeling and continue our early deployments of smart meters in the India market, which offset some of the slower recovery applications, such as building controls and classic industrial end applications.
Dean Butler: Home and Life December quarter revenue was $78 million, up 11% sequentially, and up nearly three-fold year-over-year, led by new program ramps and medical applications.
Dean Butler: As we anticipated, the sequential quarter growth in home and life products in the December quarter was offset by industrial and commercial end markets, resulting in roughly flat sequential revenue performance in Q4 relative to Q3 of 2024.
Dean Butler: Inventory in our distribution channel remains at lower levels than the company's target of 70 to 75 days. The December quarter saw channel inventory increase by only three days to end at 56 days, up from 53 in the prior quarter.
Dean Butler: For the December quarter, our gap gross margin of 54.3%, and non-gap gross margin was 54.6%, which was approximately flat compared to the prior quarter and in line with our prior guidance.
Dean Butler: Although direct customers are now ramping at a faster pace than the broader distribution recovery, we expect to continue to improve our gross margin profile, which continues to reinforce the value of Silicon Labs' market-leading product portfolio.
Dean Butler: GAAP operating expenses were $119 million, which includes share-based compensation of $16 million and intangible asset amortization of $5 million.
Dean Butler: Gap operating loss was $29 million, and non-gap operating loss was $7 million, both of which were improvements from the prior quarter despite a similar level of top-line sales.
Dean Butler: During the quarter, we recorded a gap tax benefit of approximately $2 million, and our non-gap tax rate remained at 20%.
Dean Butler: Gap loss per share was 73 cents and non-gap loss of 11 cents per share met the midpoint of our guidance range and was consistent with our expectations.
Dean Butler: Turning to the balance sheet. We ended the quarter with $382 million of cash, cash equivalents, and short-term investments.
Our days of sales outstanding was approximately 30 days.
Dean Butler: During the quarter, we further reduced our internal inventory by $34 million, ending the quarter at $106 million of net inventory, which contributed to our positive operating cash flow of $10 million for the December quarter despite operating losses.
Dean Butler: Days of inventory on hand improved to 125 days, another sequential improvement from 165 days in the September quarter end, and significantly improved relative to the one quarter ago quarter.
of 407 Days of Inventory on Hand.
Now, let me turn to our March quarter outlook.
Dean Butler: I'm happy to report that our order patterns from new bookings and distribution PLS continue to improve, which reinforces our viewpoint that demand for our products continues to make positive progress.
Dean Butler: A majority of these orders are coming at shorter lead times, which limits our visibility, giving us caution not to over-index on this trend too early.
Dean Butler: Our end customer checks report that excess inventory continues to deplete, and that the majority of these customers claim minimal inventory at this point.
Dean Butler: Any minor pockets that persist appear to be more customer-specific than macro-driven.
Dean Butler: As we enter Q1 and early 2025, we expect new program ramps at customers to be the prevailing driver of sales growth throughout the year, beginning now in the first quarter.
Dean Butler: As such, we anticipate revenue in the March quarter to be in the range of $170 million to $185 million, which at the midpoint would imply 67% year-over-year growth and 7% sequential growth.
Dean Butler: Considering the end market order patterns and our visibility into upcoming design wind ramps, we anticipate another quarter of outperformance by home and life products in the March quarter compared to industrial and commercial.
Dean Butler: mainly driven by shipments to connected health customers and smart home applications.
Dean Butler: Further, our guidance assumes a flat distribution days of inventory with limited to no expected increase in the quarter.
Dean Butler: We expect non-GAAP gross margin to also be in the range of 54 to 56 percent.
Dean Butler: We expect GAAP operating expenses in the March quarter to be in the range of $128 million to $130 million.
Dean Butler: We expect non-GAAP operating expenses to increase during the March quarter as the company enters a new fiscal year, resetting payroll-related expenses such as payroll taxes, bonus plans, and the company's annual merit cycle, resulting in an expected range of $103 million to $105 million.
Dean Butler: Finally, gap loss per share is expected to be the range of $0.75 to $1.05 loss.
Dean Butler: Non-GAAP earnings per share is expected to be in the range of 1 cent to a loss of 19 cents on an expected basic share count of 32.5 million shares.
Dean Butler: This wraps up our prepared remarks. I'd like to now hand the call over to the operator to start the Q&A session. Operator?
Thank you.
Dean Butler: As a reminder to ask a question, please press star one one on your telephone and wait for your name to be announced.
Dean Butler: To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster.
and many more. Thank you. Thank you.
Speaker Change: Our first question comes from the line of Quinn Bolton from Needham and Company.
Hey guys, congratulations on the nice results and outlook.
Unknown Speaker . . .
Speaker Change: Dean, I know visibility is pretty low given the high level of turns orders, but you guys seem very confident in your new program ramps and CGMs, electronic shelf labeling. Just wondering, you've talked about sequential growth through the year, but Dean, can you help us shape?
Speaker Change: You know, what kind of growth you're looking at in terms of maybe quarter to quarter, you know, what's what's realistic, given the limited, limited disability you have right now.
Speaker Change: Yeah, good question Quinn. So really what we're basing our outlook as we look forward into the remaining balance of 2025 is really around design wind ramps. We think that should be relatively consistent throughout the year.
Speaker Change: Like you said, you know, quarter to quarter visibility a little bit limited based on your short lead times.
Speaker Change: I think it's sort of yet to be seen exactly how that rate plays through, whether there's any unique pockets of seasonality throughout the year. But at this point, we are looking at likely a positive quarter-on-quarter throughout the year, Gwen.
Gwen: Great, thanks. Thanks for that comment, Dean, and I guess maybe just you guys.
Talked about the new 9-1-7 Wi-Fi.
Gwen: Devices showed it at CES. Can you just sort of talk about the pipeline you've built up for that product? How it might compare to Bluetooth? And, you know, how do you see that contributing to revenue growth and calendar 25 and 26?
Sure.
Gwen: So a bunch of things in there. Let's I'll start with pipeline. We shared some time ago that that device actually generated the largest operating pipeline that we've ever seen for any product we've ever released or announced. So we've had a incredibly strong reception to that device.
Gwen: And, you know, the pull through, it's mostly pull through existing customers. We have a very broad existing customer base, they have interest in these types of products.
And it's really bringing new to industry capability.
Gwen: As well as our support and capability that we bring to all of our customers.
Gwen: The opportunity funnel's been strong, design wind momentum's been strong, we like what we see there, and that is going to be contributing to revenue starting, you know, pretty quick in 2025, so we're not talking about something that's that's far away conceptually, the product's generally released, opportunity's good, design wind's good, and revenue's starving, so we like what we see there. To your other point on how does it compare to Bluetooth, much earlier days.
Gwen: If you think about it, we shared quite years ago that we're increasing our focus on Bluetooth.
Gwen: And that takes time, right? A lot of products in the portfolio, support, enablement.
Gwen: And, you know, as we've shared here, it worked now our, you know, biggest opportunity funnel and fastest growing revenue space we have. And that's what the backdrop of our other technologies also all doing well.
Gwen: So, you know, Wi-Fi is earlier, these are really just the first products, so what you should expect.
Gwen: is a lot more products coming down the road as we continue doing derivatives of Series 2 and introduce more products in Series 3.
Gwen: which will further accelerate what we're doing in Wi-Fi, which is unique because it's focused on the edge of IoT, where we really focus and thrive. Hopefully, that helps.
That's great. Thank you.
Thank you. One moment for our next question.
Christopher Rowland: Our next question comes from the line of Christopher Rowland from Susquehanna.
Christopher Rowland: Hey guys, thanks for the question. I guess maybe my first question is around the synaptics and Broadcom agreement. And this was around...
Speaker Change: Next-Gen Technologies, including Wi-Fi 8, which is a little further out than your roadmap.
Speaker Change: These technologies are less low-power and different from your portfolio, but I was wondering if you had any thoughts on this agreement, if you've looked at these assets from Broadcom,
Speaker Change: and ultimately your thoughts on them. Were they too overpriced or just absolutely not strategic in any way to you guys?
Speaker Change: Yeah, sure. You know, we're familiar with the technology. And, you know, the fastest way I can say it is this, this isn't in our wheelhouse or backyard at all. What they're doing is focused on handsets in the handset space where we don't operate a play. So, you know,
Speaker Change: A way to think of it is it almost takes them further away from where we focus.
Speaker Change: And, you know, our focus, as I was saying a few minutes ago, is really on that low power edge.
Speaker Change: in the IoT space, which we have to develop Wi-Fi products specifically for that ground up.
Speaker Change: So, you know, to those products don't play in our space and the IP is not applicable for this space as, as I think, you know, they, they share publicly in their comments. So.
Speaker Change: Quick answer is, you know, good technology, but focused on handsets, not in our markets and kind of moves them further away from us, not closer.
Yep, I figured as much.
Speaker Change: My second question is around distribution, basically you versus your competitors.
Speaker Change: It sounds like you finally think you're in line. You're still a little bit below your target, I think, if you had any expectations to raise that. But we'd love to know how you think your competitors
Speaker Change: whether they're over-allocated to distribution right now, and then also you know kind of maybe a post-mortem how to look at this to prevent the massive cyclical
Speaker Change: that we've seen over the past couple of years here. What can we do to prevent that? Is it just keeping it super low moving forward? Is that your caution on just the inventory? Would love the big picture take.
Yeah, maybe Chris, I'll start off with just.
Speaker Change: Our viewpoint on inventory holdings versus us internally versus distribution channel.
Speaker Change: Look, one of the things that we've seen over the last few quarters is.
Increasing short lead time orders.
Which really is a perfect fit for channel partners
Speaker Change: Quite honestly, we've been working down our internal inventory, our balance sheet inventory. And what we'd like to have happen is have a larger sort of holding set at distributors to service those short lead time orders. I think in the industry right now, there's quite a bit of inventory at various supply points.
Speaker Change: and people are able to deal with it. I think once you get back to sort of a normal steady state environment
Speaker Change: We would probably look to have our inventory holdings closer to a hundred days and distribution close to 70 days So it's really just a change between balance sheets between us sort of directly versus where the distributors are
Speaker Change: and certainly when it comes to peers and sort of what's happening with some people around us.
Speaker Change: But I don't think I've seen, you know, any instances where distributors are taking too much or taking too little. It seems to be fairly balanced, at least from a Silicon Lab perspective, the last
Speaker Change: You know, probably about four quarters, we've operated in the mode of let's let the distributors sort of naturally hold the amount of inventory they think is sufficient.
Speaker Change: for supporting their working capital sort of models as well as new customers.
Speaker Change: I think as things continue to stabilize, you'll see them probably inch up in their holdings relative to where they are now. Today, you know, 56, we just ended the quarter, but 70, 75 days is our longer term target.
Speaker Change: Yeah, I fully agree with what Dean's saying, and maybe just an add as a reminder for everyone.
Speaker Change: We never really had a distribution or channel inventory problem throughout the cycle. The biggest challenge we had was really end customer excess inventory.
Speaker Change: That's where there was, you know, a substantial buildup as we went throughout this cycle. And that's really what we've been focused on working down over the past year. And as Dean and I shared in our remarks, we've made substantial progress towards that end.
Speaker Change: And also on the other side of it, I think, you know, in the inventory side, we maintained a really constructive relationship with our distributors. And I think we fared better than most there. So, you know, the biggest challenge for us was really end customer access versus channel, although never easy to navigate all the moving pieces.
Thank you very much. Very helpful, guys.
Thanks Chris.
Thank you. One moment for our next question.
Speaker Change: Yes, thank you and congrats on the continuous recovery here. You mentioned the glucose meter business could be 10% of revenue over the next 12 to 18 months. Do you have similar numbers for perhaps for some of your other circular drivers including the shelf label and the smart meter business?
Speaker Change: No, Tori, we haven't. We haven't shared those. We just felt that in the CGM space where you can see it coming, you know, relatively quickly it's better to get out ahead of it and share that.
Speaker Change: Great. And as my follow-up, there seems to be a lot of activity on the matters side.
Speaker Change: I'm just wondering, you know, how we should think about this for Silicon Labs going forward. Obviously, this is a standard. It pulls through, obviously, a lot of your components, but how should we think about this either from penetrating existing applications to even potentially penetrating some new applications and maybe even things like smartphones?
Speaker Change: Yeah, absolutely. So the net takeaway, I'll start with the headline, is we see matter as...
Speaker Change: You know net favorable to the industry in terms of device adoption and net favorable favorable to silicon labs in terms of our position
For anyone not familiar, you know.
Matter was really adopted for the industry to
Speaker Change: You know, there's frustration out there with some because it's taking longer than people expected. I don't particularly find myself in that camp. I think these big transitions that are worthwhile take a lot of time. There's a lot of moving pieces, a lot of companies.
Speaker Change: And I think the thing to focus on there is, does it continue to move forward in the right direction? And the answer is yes, it continues to move forward. And if you look at where it's being adopted, the easy way to think of this is the infrastructure is being built out.
for MATTER.
Speaker Change: And what that does is creates the real potential for us.
which is the deployment of edge devices.
Speaker Change: out there. So as service providers and handsets put this technology in their devices,
Speaker Change: It lays the groundwork for all the edge devices, that's the big volume, to adopt this technology, and that's where we thrive.
Speaker Change: So, you know, as we've said all along, that's why we've leaned in on this, you know, we have been the largest code provider for any semi company, more search than any company out there around thread.
Speaker Change: And as I shared in my remarks, since that spec was ratified.
Speaker Change: Since then, then in the prior five years combined, which speaks to really the acceleration that you're seeing
Speaker Change: And to answer the question, yeah, existing devices definitely want to adopt and deploy.
Speaker Change: And we also see new devices where they say, okay, maybe it's time. Maybe this makes it easier for us in terms of our development and for the likelihood that the outside world can adopt it. So.
Speaker Change: We're, you know, cautiously optimistic that this is a win for the industry and a win for us to continue to move in that direction.
That's great, Carlo. Thank you, Matt.
Thank you. One moment for our next question.
Cody Acree: Our next question comes from the line of Cody Acree from the Benchmark Company, LLC.
Cody Acree: Thanks guys for taking my questions and congrats on the nice annual turn. With a little bit street estimates for 25, I think the streets got you up.
Speaker Change: 37% annual, about a little over 200 million annual. If I look at the drivers that you laid out, glucose monitoring, electronic shelf labels, and smart metering,
Speaker Change: Can you maybe handicap your other growth drivers or how much of that 37% street estimate that you could realistically gain from those large drivers and how much is going to have to come from the rest of the company?
Speaker Change: The rest of the company being other areas? Yeah, just other other applications.
Speaker Change: Yeah, sure. So we haven't broken it out, but do want to be very
Speaker Change: clear about a few things. We talk about ESL, sorry, electronic shelf labels, continuous glucose monitor, smart metering, because, you know, they're applications that people understand. We have strong positions. There's awesome growth out there for both the industry and for us.
Speaker Change: And so, you know, I'm not going to answer the question directly what percent, but, you know, they, they have meaningful growth for us and they're helping impact our, our expectation and outlook for the year. That being said.
Speaker Change: We've also mentioned just here on this call, we expect growth in Wi-Fi, we expect growth in Bluetooth. You know, some are in those applications, a lot that's independent of those applications. We just talked about Matter, which is not included in those applications, which we see only accelerating as we move forward in time.
Speaker Change: So, the point being, those applications, and there are multiple other applications that we see as growth drivers.
Speaker Change: And there's multiple other technology trends that we see as growth drivers. So I wouldn't over-index on those three areas, although we really like what we see there and they're giving us good lift. There's a lot of other vehicles out there too that are giving us a tailwind.
Speaker Change: Excellent. Thank you guys for that. Maybe if you can just talk about your gross margin puts and takes as we progress through the year. Any color would be appreciated.
Speaker Change: Yeah, Cody, we've done a good job in improving our gross margins throughout 24. As we enter the first quarter into 25, it looks like gross margins are coming up again a little bit. Looks like midpoint is 55% is what we're guiding to for Q1.
Speaker Change: I think as we look forward into the balance of 25, we would expect sort of continued progress in gross margin.
Speaker Change: I don't think you're going to see, you know, any big sort of step function from here. We're pretty close to where we see ourselves as, you know, kind of our longer term model, this mid to 50s or mid-high 50s.
Speaker Change: So we're in sort of the striking range now. So what I would like to see in progression of gross margins, one, as revenue continues to increase you'll sort of get
Speaker Change: the absorption of this fixed cost. So on a ratio basis, your margins will get a little bit better.
Speaker Change: As some of the new design ramps, I think that's helpful, but again, it's not a step function.
Speaker Change: One of the things I think is going to be key is to see sort of the broader distribution, sort of the tens of thousands of customers continue to recover and improve from here. And that will probably, you know, bring up
Speaker Change: the margins, a lot of those distribution customers end up being servicing our industrial side of the house. And that tends to come with a little bit better gross margin as a from a mixed perspective than some some of the other areas. So I hope that helps Courtney.
It does. Thank you guys very much. Yep.
Speaker Change: Our next question comes from the line of Srini Pajuri from Raymond James.
Srini Pajuri: Yeah, hi, good morning, guys. Matt, I was hoping you could maybe give us some additional color on, you know, when you talk about
Srini Pajuri: end customer inventory, not just the Disney inventory, but end customer inventory kind of, you know, still normalizing, you know, where do you see kind of, you know, what end markets or what customer types, you know, where do you feel comfortable that inventory is back to normal? And where do you think there's still some access that needs to be, I guess, corrected over the next few quarters?
Srini Pajuri: Sure. So the quick answer is, you know, for anyone not familiar, what we do is we, you know, work with our top 60 or 70 customers.
Srini Pajuri: and really try to understand their end inventory situation. So again, not perfect science, but roughly right.
Srini Pajuri: and we've seen consistent progress there over the past year to the point now where, you know, the pockets that remain, as we said, are probably more customer specific phenomena than, you know, market or industry phenomena that are going on there.
Srini Pajuri: I think the easiest way to say it is there's still some, so we don't want to ignore that. But you can break it into the major three factors that we've been talking about for quite a while now, excess inventory, end market strength, and design when ramps.
Srini Pajuri: And I think where we are right now, maybe the easiest way to conceptualize it is going forward, the biggest influencers, you know, first will be those design and ramps.
Srini Pajuri: Second will be broad market or in market strength that we're not seeing yet but we do expect at some point. And third is inventory. So it's really moved down the list where last year it would have been one.
Srini Pajuri: Now it's down there. So I think it's really moving from a, you know, a big factor to a much smaller factor and, you know, less consequential on our expectations moving forward. So hopefully that's helpful.
Speaker Change: Yeah, that's helpful. Thank you. And then just to follow up to one of the previous questions about, you know, I look at, you know, your outlook for the CGM,
Speaker Change: going to 10% of sales in the next 12 to 18 months, but you feel pretty good about the next few quarters. So there must be something else that's also contributing to that incremental growth.
Speaker Change: because your expectation for the end markets is kind of relatively, you know, kind of stable.
Speaker Change: So I'm just curious, what are some of the, you know, other new products that are driving that's giving you that confidence that you'll grow through the next few quarters in the year? And also, if we can talk about, you know, some of these markets are so niche that, you know, I guess, you know,
Speaker Change: Some of us don't have a very good idea how big these markets are, so if you can kind of give us some idea, you know, where you are in terms of penetration, how big these markets are, and, you know, any additional color will be helpful. Thank you.
Speaker Change: Sure. So let's see, there's a lot in there. Let me...
Let me talk about, first, just kind of...
Answer the first piece as directly as I can.
Speaker Change: CGM ramps have already started, and they started across multiple customers. So that's important that that's not just a down the road thing, that's a real time thing. So that's one.
Speaker Change: And the way to think of that is, if you go back a year ago, that was zero.
Speaker Change: So effectively, so that's all incremental growth for us as a company.
Speaker Change: So I don't want to downplay that piece. But to answer the question, the other areas we talked about, ESL has been ramping in a good clip and that, you know, was already in motion. Metering, we've always had a strong position. But, you know, as we shared in the prepared remarks, we're also starting to see new deployments globally, like the India Smart Metering Initiative. We're starting to ship millions of units into there. So that's starting to ramp for us. And we're seeing that one move faster than other geos we've seen historically.
Speaker Change: Unknown Speaker which is encouraging to see. So the areas we've talked about are all contributing. It's not just those one.
Speaker Change: And then I'd also say, you know, we expect to see growth in areas like from new products like Wi-Fi.
Speaker Change: that we've talked about. BLE we've shared is now our fastest growing revenue space so that's driving share gains and strong growth there. We expect MATTER will continue to contribute favorably. When you see such an acceleration of design wins
Speaker Change: You know, the simple way to think of that is that's a precursor to an acceleration of revenue.
Speaker Change: So all those are additional factors that we see contributing in addition to CGM for your original question. On the piece that, you know, some of these end markets seem niche or relatively small, I'd put it this way, you know, maybe I'll just focus on
Speaker Change: CGM, continuous glucose monitors, and shelf labels. I'd say this, both are markets that are relatively early in terms of their global adoption.
Speaker Change: So the way I'd take away from those markets, early days in terms of global adoption, I think the growth potential is substantial in all those markets over time. And our position is very strong within each of those markets. So we're well indexed for the future growth opportunity there.
Very helpful. Thanks, Matt. Yep.
Thank you. One moment for our next question.
Speaker Change: Our next question comes from the line of Thomas O'Malley from Barclays.
Speaker Change: Hey guys, thanks for taking my question. I wanted to ask about the dynamic between the DISTE and the direct inventory It took a step down in the December quarter. Could you just can you just
Speaker Change: walk through what happened there. I think for a period of time you had talked about moving up in terms of revenue towards Disney and how that helped gross margin. That's question one. And then question two is, as it relates to the top 10% customer and you stopped breaking it out at the end of
Speaker Change: 2023. But could you give us an update on where that stands today? I would assume that given the direct customer has grown as a total dollar amount, that number has also grown as well. Any help with that would be helpful as well. Thank you.
Speaker Change: And it's actually pretty simple. So a lot of our industrial type business goes through the channel. That's a little bit slower right now.
And so what you see is distribution.
Speaker Change: is not growing at the same rate that these new customer ramps are happening, and that's throwing it off. What I would expect, though, sort of throughout the year and going forward,
Speaker Change: is that industrial sort of starts coming back and sort of broader, you know, demand continues to return. I think you'll see that distribution, you know, channels continue to grow. And so you'll find probably in the near term, hey, what, what is the dynamic between some of these direct
Speaker Change: New design ramps versus sort of the broader long tail and I think it would probably just take a little while before they kind of You know get back to equilibrium
As for your second question, Tom.
Speaker Change: around top customers. Generally speaking, our top customers that you might see in some of the SEC filings tend to be our distributors. So we sell direct distributors. Historically, that's roughly on the order of 70 to, in some cases, 80% of our revenue goes to distributors. And so a lot of the top customers you see in that vein.
Speaker Change: The company for a long, long time has never had a 10% single end customer, and that continues to remain true.
Thank you. One moment for our next question.
Speaker Change: Our next question comes from the line of Peter Peng from J.P. Morgan.
Peter Peng: Hey guys, thanks for taking my questions and congratulations on the results. Maybe on the March quarter, can you maybe talk about where we are in terms of shipment versus
Peter Peng: and consumption trends. I know you guys talk that, you know, that most of your customers are done with going through inventory trends, but are you still continuing to undership versus the, you know, end consumption trends?
Speaker Change: Sure, hey Peter, so the quick answer is as long as there's some excess inventory out there at our customers.
Speaker Change: You know, you can't say you're at consumption, I guess, is the fastest way to say it.
Speaker Change: But as I said earlier, I think as a component of the kind of dynamic and expectation moving forward, we're
Speaker Change: predominantly through this inventory correction for us specifically. And as we've shared, that's continued to move down to a rate now or a level now, where, you know, I would prioritize it the way I said, you know, really, the primary driver of expectations moving forward is the diamond ramp.
Then, you know, broad market.
Speaker Change: and then inventory. So it's really moved down to a you know a factor that gets way less visibility and influence of our expectations. So don't say we're you know I can't say we're there because there's some excess out there but it continues to work its way down and it's no longer the primary factor like it was in 24, 25 is about other growth factors.
Speaker Change: And then if I kind of look at some of the seasonal trends, like March quarter is typically your softer period. Usually it's more flattish to down slightly, but you guys are guiding for up 7%. And then June and September quarter is your seasonally stronger period.
Speaker Change: Yeah Peter, good observation. You're right, generally Q1 tends to be a little bit softer. We're bucking that trend with some of these new product ramps currently.
Speaker Change: I would say it's probably too early to call to what does June-September quarter look like. Look, I do think we have lower visibility right now than we may historically have over the last couple of years.
Speaker Change: I wouldn't bank on sort of a significant acceleration from here. I mean, sort of posting a March quarter 7% positive substantially is pretty substantial in this market based on what we're hearing around some of our peers.
Speaker Change: I would think that as you look forward into the summer months, you would probably enter with a little bit of caution, at least we do, and we look at the backlog and we say, hey, things are going the right direction, but we're not calling acceleration at this point. And that's maybe how I would frame it, Peter.
Thank you, guys.
Thank you.
Giovanni Pacelli: At this time, I will now hand the call back over to Giovanni Pacelli.
Giovanni Pacelli: Thank you, Gigi, and thank you all for joining this morning. Before concluding today's call, I would like to announce our upcoming participation in Susquehanna's 14th Annual Technology Conference in New York City on February 27th.
Giovanni Pacelli: I would also like to announce our upcoming Analyst Day in New York City on March 11th at 9 a.m. Eastern. Matt, Dean, and others from our executive team will provide an in-depth review of our long-term strategy, key growth initiatives, and financial outlook.
Giovanni Pacelli: We look forward to connecting with you and providing a deeper insight into our business.
Giovanni Pacelli: A registration link is available now on our website at Investor.SciLabs.com. The event will also be streamed live on our website.
This now concludes today's call. Thank you.
Giovanni Pacelli: This concludes today's conference call. Thank you for participating. You may now disconnect.
Music Music Music Music Music
[music]
Gigi: Hello, my name is Gigi and I'll be your conference operator today.
Speaker Change: At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star-one-one on your telephone. You will then hear an automated message advising your hand is raised.
Speaker Change: To withdraw your question, please press star 1 1 again. Please be advised that today's conference is being recorded. I will now turn the call over to Giovanni Pacelli, Silicon Labs Senior Director of Finance. Giovanni, please go ahead.
Speaker Change: Thank you, Gigi, and good morning, everyone. We are recording this meeting and a replay will be available for four weeks on the investor relations section of our website at investor.scilabs.com.
Speaker Change: Our earnings press release and the accompanying financial tables are also available on our website.
Speaker Change: Joining me this morning are Silicon Labs President and Chief Executive Officer Matt Johnson and Chief Financial Officer Dean Butler. They will discuss our fourth quarter financial performance and review recent business activity.
Speaker Change: We will take questions after our prepared comments and our remarks today will include forward-looking statements that are subject to risks and uncertainties.
Speaker Change: We base these forward-looking statements on information available to us as of the date of this conference call and assume no obligation to update these statements in the future.
Speaker Change: We encourage you to review our SEC filings, which identify important risk factors that could cause actual results to differ materially from those contained in any forward-looking statements.
Speaker Change: Additionally, during our call today, we will refer to certain non-GAAP financial information. A reconciliation of our GAAP to non-GAAP results is included in the company's earnings press release and on the investor relations section of our website.
Speaker Change: I'll now turn the call over to Silicon Labs Chief Executive Officer, Matt Johnson. Matt?
Thanks Giovanni and good morning everyone.
Speaker Change: Silicon Labs delivered fourth quarter results consistent with our outlook as we continue to drive momentum through a challenging market cycle.
Speaker Change: Looking back at 2024, we grew more than 90% from our trough one year ago, underpinned by consistent improvement in both excess customer inventory and our bookings, as well as share gains across both of our business units.
Speaker Change: Our home and life business entered a correction several quarters before our industrial and commercial business that has since grown sequentially each quarter in 2024.
Speaker Change: The same time, our industrial and commercial business has seen a more modest recovery after entering its correction a couple of quarters after home and live.
Speaker Change: As we look at 2025, we are confident in the many growth opportunities ahead, independent of a broad recovery and end-market demand, as design wins in connected healthcare, smart metering, commercial retail, and many other applications are now ramping into production.
Speaker Change: In Connected Healthcare, we're partnering with more than a dozen continuous glucose monitoring customers globally.
Speaker Change: In Q4, we shipped meaningful volume to multiple CGM customers, which helped drive the sequential growth of our home and life business last quarter.
Speaker Change: We continue to expect strong growth for us from CGM ramps throughout the coming year.
Speaker Change: As an application, we see the potential for CGM to comprise nearly 10% of our revenue in the next 12 to 18 months, and our laser focus on further building momentum in this space across multiple regions with our industry-leading portfolio and security capabilities.
Speaker Change: At Smart Metering, we've begun shipping millions of units to India's Smart Electric Metering Initiative using our Series 2 sub-gigahertz products.
Speaker Change: India's smart metering rollout is progressing quicker than other geographic metering rollouts have historically, and we're well positioned to capture a majority share of this 250 million unit deployment in the years to come.
Speaker Change: We are also continuing to gain share in more established metering markets, including in Japan's upcoming refreshment cycle, where we will support a majority of the market with our higher content multi-protocol solutions for sub-GHz and Wi-Fi connectivity.
Speaker Change: Further, we see higher content deployments in next-generation US and European markets as well.
Speaker Change: In commercial retail, we drove strong momentum in the electronic shelf labeling market in 2024, shipping significant unit volume across multiple customers and regions, while further bolstering our partnerships with a majority of the leading global ESL providers to support their anticipated rollouts and design plans.
Speaker Change: In addition to connected healthcare, smart metering, and electronic shelf labeling, we're also focused on driving continued share gains in Bluetooth, which is now our fastest growing technology by revenue and opportunity funnel.
Speaker Change: At CEF this year, we showcased the first commercially available Bluetooth channel sounding solution enabled on our XG24, which is now shipping to customers and opens a new addressable market for us in proximity-based applications like asset tracking and geofence.
Speaker Change: We also debuted our first generally available Wi-Fi 6 device at CES, the 917, which can deliver an industry-leading two-year battery life on a single AAA battery.
Speaker Change: Initial design wins under 9-1-7 are bringing low-power Wi-Fi connectivity to white goods and home automation devices.
Speaker Change: We've been investing significantly in Wi-Fi in recent years because of our belief in its immense growth potential within our IoT space. Early engagement with our existing customer base has been very strong as we work to support opportunities for pull-through of our Wi-Fi solutions.
Speaker Change: We host works with each year to bring together our industry by connecting developers and large ecosystem partners, including Amazon, Google, Samsung, NVIDIA, and others, with an aim to help foster collaboration and further accelerate adoption and deployment of wireless connectivity at the edge.
Speaker Change: In total, it works with, we logged approximately 6,000 hours of high-impact engagement, which is a testament to our unique position as the preeminent thought leader in wireless connectivity for the IoT.
Speaker Change: As the leader in 15.4 technology, we remain very well positioned to benefit as matter continues to pull thread and other device interoperability into the mainstream.
Speaker Change: In fact, since the matter spec was released, we have secured more 15-4 design wins than the prior five years combined.
Speaker Change: In conclusion, the Silicon Labs team executed well against a challenging market backdrop in 2024.
Speaker Change: Looking ahead, the majority of our end customers have worked through their excess inventory and our bookings continue to move in the right direction indicating to us that our end markets are making progress toward the cyclical recovery.
That said, as I stated in my opening remarks,
Speaker Change: We are confident that we will drive growth throughout 2025, independent of a significant broad-based demand recovery.
Speaker Change: Due to the share gains that we've made with our industry-leading Series 2 products that bring best-in-class wireless performance, ultra-low power consumption, and leading security to our tens of thousands of customers.
Speaker Change: We expect our share gains in areas such as connected medical, smart metering, commercial retail, and many other applications to continue materializing into significant production ramps throughout 2025, placing us in a unique position to drive above market growth this year.
Speaker Change: At the same time, we'll continue investing in technology innovation, including in our Next Generation Series 3 platform that is now sampling, and will maintain strong execution while driving toward our financial model.
Dean Butler: Now I'll hand it over to Dean for the financial update. Dean?
Dean Butler: Thanks Matt and good morning to everyone. I will first review the financial results for a recently completed year-end and fourth quarter, followed by a discussion of our current outlook.
Dean Butler: Silicon Labs ended the fiscal year 2024 with revenue of $584 million, which represents a year-over-year decline of approximately 25 percent.
Dean Butler: The decline was most pronounced in the company's industrial and commercial products, which experienced a 32% decline as customers depleted excess inventory positions throughout the year.
Dean Butler: While the year-on-year sales decline was substantial, I'm happy to have seen a positive progression in both sales and profitability improvements throughout 2024, as customers depleted inventory and demand for the company's products began to return.
Dean Butler: As a result, the company ended the fourth quarter of 2024 in a substantially better financial position with a gap operating loss of $29 million versus the same quarter one year ago, gap operating loss of $73 million.
Summarizing our fourth quarter results.
Revenue for the recently ended December quarter was $166 million.
Dean Butler: In our industrial and commercial business, December quarter revenue was $89 million, down 8% sequentially, but up approximately 50% year-over-year as customers in this area worked through much of their excess inventory positions.
Dean Butler: During the quarter, we saw stabilization of demand signals for applications such as electronic shelf labeling, and continue our early deployments of smart meters in the India market, which offset some of the slower recovery applications, such as building controls and classic industrial end applications.
Dean Butler: Home and Life December quarter revenue was $78 million, up 11% sequentially, and up nearly three-fold year-over-year, led by new program ramps and medical applications.
Dean Butler: As we anticipated, the sequential quarter growth in home and life products in the December quarter was offset by industrial and commercial end markets, resulting in roughly flat sequential revenue performance in Q4 relative to Q3 of 2024.
Dean Butler: Inventory in our distribution channel remains at lower levels than the company's target of 70 to 75 days.
Dean Butler: The December quarter saw channel inventory increase by only three days to end at 56 days, up from 53 in the prior quarter.
Dean Butler: Distribution made up approximately 62 percent of our revenue mix for the quarter, a decrease from the prior quarter as ramps with new design when customers began early production.
Dean Butler: For the December quarter, our GAAP gross margin was 54.6%, which was approximately flat compared to the prior quarter and in line with our prior guidance.
Dean Butler: Although direct customers are now now ramping at a faster pace than the broader distribution recovery, we expect and continue improve our gross margin profile which continues to reinforce the value of Silicon Labs market-leading product portfolio.
Dean Butler: GAAP operating expenses were $119 million, which includes share-based compensation of $16 million and intangible asset amortization of $5 million.
Dean Butler: Non-GAAP operating expense of $98 million was in line with the midpoint of our prior guidance range.
Dean Butler: Gap operating loss was $29 million, and non-gap operating loss was $7 million, both of which were improvements from the prior quarter despite a similar level of top-line sales.
Dean Butler: During the quarter, we recorded a gap tax benefit of approximately $2 million, and our non-gap tax rate remained at 20%.
Dean Butler: Gap loss per share was 73 cents and non-gap loss of 11 cents per share met the midpoint of our guidance range and was consistent with our expectations.
Dean Butler: Turning to the balance sheet, we ended the quarter with $382 million of cash, cash equivalents, and short-term investments.
Our days of sales outstanding was approximately 30 days.
Dean Butler: During the quarter, we further reduced our internal inventory by $34 million, ending the quarter at $106 million of net inventory.
Dean Butler: which contributed to our positive operating cash flow of $10 million for the December quarter despite operating losses.
Dean Butler: Days of inventory on hand improved to 125 days, another sequential improvement from 165 days in the September quarter end, and significantly improved relative to the one quarter ago quarter.
of 407 days of inventory on hand.
Now, let me turn to our March quarter outlook.
Dean Butler: I'm happy to report that our order patterns from new bookings and distribution PLS continue to improve, which reinforces our viewpoint that demand for our products continues to make positive progress.
Dean Butler: A majority of these orders are coming at shorter lead times, which limits our visibility, giving us caution not to over-index on this trend too early.
Dean Butler: Our end customer checks report that excess inventory continues to deplete, and that the majority of these customers claim minimal inventory at this point.
Dean Butler: Any minor pockets that persist appear to be more customer-specific and macro-driven.
Dean Butler: As we enter Q1 and early 2025, we expect new program ramps at customers to be the prevailing driver of sales growth throughout the year, beginning now in the first quarter.
Dean Butler: As such, we anticipate revenue in the March quarter to be in the range of $170 million to $185 million, which at the midpoint would imply 67% year-over-year growth and 7% sequential growth.
Dean Butler: Considering the end market order patterns and our visibility into upcoming design wind ramps, we anticipate another quarter of outperformance by home and life products in the March quarter compared to industrial and commercial.
Dean Butler: mainly driven by shipments to connected health customers and smart home applications.
Dean Butler: Further, our guidance assumes a flat distribution days of inventory with limited to no expected increase in the quarter.
Dean Butler: We expect GAAP gross margin in the March quarter to be in the range of 54 to 56%.
Dean Butler: We expect non-GAAP gross margin to also be in the range of 54 to 56 percent.
Dean Butler: We expect GAAP operating expenses in the March quarter to be in the range of $128 million to $130 million.
Dean Butler: Finally, gap loss per share is expected to be the range of $0.75 to $1.05 loss.
Dean Butler: Non-GAAP earnings per share is expected to be in the range of 1 cent to a loss of 19 cents on an expected basic share count of 32.5 million shares.
Dean Butler: This wraps up our prepared remarks. I'd like to now hand the call over to the operator to start the Q&A session. Operator?
Thank you.
Speaker Change: As a reminder to ask a question, please press star 11 on your telephone and wait for your name to be announced.
Speaker Change: Our first question comes from the line of Quinn Bolton from Needham and Company.
Hey guys, congratulations on the nice results and outlook.
Speaker Change: Dean, I know visibility is pretty low given the high level of terms orders, but you guys seem very confident in your new program ramps and CGMs, electronic shelf labeling. Just wondering, you've talked about sequential growth through the year, but Dean, can you help us shape what kind of growth you're looking at in terms of maybe quarter to quarter, what's realistic given the limited visibility you have right now?
Dean Butler: Yeah, good question, Quinn. So really what we're basing our outlook as we look forward into the remaining balance of 2025 is really around design wind ramps. We think that should be relatively consistent throughout the year.
Dean Butler: Like you said, you know, quarter to quarter visibility a little bit limited based on your short lead times.
Dean Butler: I think it's sort of yet to be seen exactly how that rate plays through, whether there's any unique pockets of seasonality throughout the year. But at this point, we are looking at likely a positive quarter-on-quarter throughout the year, Glenn.
Speaker Change: Great. Thanks. Thanks for that comment, Dean, and I guess maybe just you guys.
Talked about the new 9-1-7 Wi-Fi.
Speaker Change: Devices showed it at CES. Can you just sort of talk about the pipeline you've built up for that product, how it might compare to Bluetooth, and you know how do you see that contributing to revenue growth and calendar 25 and 26?
Sure.
Speaker Change: So a bunch of things in there. Let's I'll start with pipeline. We shared some time ago that that device actually generated the largest operating pipeline that we've ever seen for any product we've ever released or announced. So we've had a incredibly strong reception to that device.
Speaker Change: And, you know, the pull through, it's mostly pull through existing customers. We have a very broad existing customer base, they have interest in these types of products.
Speaker Change: and it's really bringing new to industry capability as well as our support and capability that we bring to all of our customers. So
Speaker Change: The opportunity funnel has been strong, design wind momentum has been strong, we like what we see there, and that is going to be contributing to revenue starting pretty quick in 2025. So we're not talking about something that's far away conceptually, the product is generally released, opportunity is good, design is good, and revenue is starving, so we like what we see there.
Speaker Change: And that takes time, right? A lot of products in the portfolio, support, enablement.
Speaker Change: And, you know, as we've shared here, it worked. Now our, you know, biggest opportunity funnel and fastest growing revenue space we have. And that's what the backdrop of our other technologies also all doing well.
Speaker Change: So, you know, Wi-Fi is earlier, these are really just the first products, so what you should expect.
Speaker Change: is a lot more products coming down the road as we continue doing derivatives of Series 2 and introduce more products in Series 3.
Speaker Change: which will further accelerate what we're doing in Wi-Fi, which is unique because it's focused on the edge of IoT, where we really focus and thrive. Hopefully, that helps.
That's great. Thank you.
Thank you. One moment for our next question.
Speaker Change: Our next question comes to the line of Christopher Rowland from Susquehanna.
Christopher Rowland: Hey guys, thanks for the question. I guess maybe my first question is around the synaptics and Broadcom agreement. And this was around...
Christopher Rowland: Next-Gen Technologies, including Wi-Fi 8, which is a little further out than your roadmap.
Christopher Rowland: These technologies are less low power and different from your portfolio, but I was wondering if you had any thoughts on this agreement, if you've looked at these assets from Broadcom,
Christopher Rowland: and ultimately, you know, your thoughts on them. Were they too overpriced or just absolutely not strategic in any way to you guys?
Christopher Rowland: So, you know, a way to think of it is it almost takes them further away from where we focus and, you know, our focus as I was saying a few minutes ago is really on that low power edge in the IOT space, which we have to develop Wi-Fi products.
specifically for that ground up.
Christopher Rowland: So, you know, to those products don't play in our space and the IP is not applicable for this space as, as I think, you know, they, they share publicly in their comments. So, a quick answer is, you know, good, good technology, but focus on handsets, not in our markets and kind of moves them further away from us, not closer.
Yep, I figured as much.
Christopher Rowland: My second question is around distribution. Basically, you versus your competitors. It sounds like you finally think you're in line. You're still a little bit below your target, I think, you know, if you had any expectations to raise that, but would love to know how you think your competitors.
Christopher Rowland: whether they're over-allocated to distribution right now, and then also you know kind of maybe a post-mortem how to look at this to prevent the massive cyclical
Christopher Rowland: that we've seen over the past couple of years here. What can we do to prevent that? Is it just keeping it super low moving forward? Is that your caution on just the inventory? Would love the big picture take.
Yeah, maybe Chris, I'll start off with just.
Christopher Rowland: Our viewpoint on inventory holdings versus us internally versus distribution channel.
Christopher Rowland: Look, one of the things that we've seen over the last few quarters is increasing short lead time orders.
which really is a perfect fit for channel partners.
Christopher Rowland: Quite honestly, we've been working down our internal inventory, our balance sheet inventory.
Christopher Rowland: And what we'd like to have happen is have a larger sort of holding set at distributors to service those, you know, short lead time orders.
Christopher Rowland: I think in the industry right now, there's quite a bit of inventory at various supply points.
Christopher Rowland: and people are able to deal with it. I think once you get back to sort of a normal steady state environment
Christopher Rowland: and certainly when it comes to peers and sort of what's happening with some people around us.
Christopher Rowland: I think the distributors are sort of hesitant to take on a lot of extra inventory right now. I mean, everybody's sort of got their own, you know, nuanced model that they're trying to drive.
Christopher Rowland: But I don't think I've seen, you know, any instances where distributors are taking too much or taking too little. It seems to be fairly balanced, at least from a Silicon Lab perspective, the last
Christopher Rowland: You know, probably about four quarters, we've operated in the mode of let's let the distributors sort of naturally hold the amount of inventory they think is sufficient.
Christopher Rowland: for supporting their working capital sort of models as well as new customers.
Christopher Rowland: I think as things continue to stabilize, you'll see them probably inch up in their holdings relative to where they are now. Today, you know, 56, we just ended the quarter, but 70, 75 days is our longer term target.