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A Brutal Miss-And-Lower-Guide Has Silicon Labs' Growth Premium In Question

Feb. 01, 2019 9:32 AM ETSilicon Laboratories Inc. (SLAB)ADI, CY, NXPI, STM, TXN10 Comments
Stephen Simpson profile picture
Stephen Simpson


  • Silicon Labs missed for the fourth quarter and guided down significantly for the first quarter on ongoing challenges in IoT and growing weakness in China's industrial markets.
  • IoT, isolation, and timing can all be growth drivers, but Silicon Labs faces some large, well-positioned players across the board and SLAB's reliance on Chinese customers may become a liability.
  • SLAB shares aren't cheap enough to be compelling relative to the discounts available with many other chip stocks.

It’s generally accepted by most investors that you have to pay up for growth, but with the recent weak performance at Silicon Labs (NASDAQ:SLAB), including an ugly guide-down for the first quarter, I’m concerned that these shares could be liable to investors asking “wait … why are paying up for this?” I had previously expressed my view that Silicon Labs was entering a rocky operational stretch, but this is a little worse than I’d expected, and the company definitely needs markets like IoT, isolation, and timing to start coming through in the second half of 2019.

An Ugly Quarter

There’s not a lot of positive things to say about the fourth quarter at Silicon Labs, as there were disappointments across the board, driven in no small part by ongoing weakness in China and what I believe is a weaker-than-appreciated position in MCUs.

Revenue did rise 7% from the year-ago quarter, but the market typically fixates on quarter-over-quarter performance, where revenue contracted 6%, and revenue missed expectations by about 4% anyway. The IoT business did comparatively better, up 9% yoy and down 5% qoq, despite an ongoing transition at a smart metering customer, while Infrastructure rose 18% yoy and fell 13% on weaker sales of digital isolation chips in China. Access fell 8% yoy and 7% qoq, while Broadcast fell for both periods.

Gross margin was a comparative bright spot, holding steady versus last year and declining just 20bp qoq while coming in a little better than expected. Operating income dropped 5% yoy and 20% qoq, though, missing expectations by 10%.

Guidance was even worse.

Although Silicon Labs’ guide for a 10% to 15% qoq decline in revenue doesn’t look as bad as STMicroelectronics’ (STM) 20% qoq decline guidance, and Texas Instruments (TXN) guided for a

This article was written by

Stephen Simpson profile picture
Stephen Simpson is a freelance financial writer and investor. Spent close to 15 years on the Street (sell-side, buy-side, equities, bonds); now a semi-retired raccoon rancher. That last part isn't entirely true. Probably.

Analyst’s Disclosure: I am/we are long AVGO. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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Comments (10)

longnose profile picture
Well, today I will be out of my positions in NXPI and SLAB - both getting called away. Slight sad to see them go but happy to have made $$.
longnose profile picture
wow wow wow slab - no more position but conviction was not misplaces -its a well managed company
longnose profile picture
@Stephen Simpson, CFA - What is your prognosis on NXPI for Feb 6th ER?
Stephen Simpson profile picture
I don't do freebies.
longnose profile picture
i can understand that. I was just trying to get sense of direction given TXN reported sluggish numbers. I have long position in NXPI but sold Apr'95 calls
Stephen Simpson profile picture
It'll probably be like most reports in the analog/MCU space.
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