What happened

Shares of Silicon Laboratories (NASDAQ:SLAB) were up 19.1% as of 2:04 p.m. EDT on Wednesday after the company delivered revenue and non-GAAP earnings per share (EPS) that were well ahead of estimates.

Revenue grew 39% year over year to $185 million, surpassing the consensus analyst estimate of $175 million. Adjusted EPS was $0.34, crushing expectations for $0.15.

SLAB Chart

SLAB data by YCharts

So what

Silicon Labs is coming off a record year in 2020, where revenue increased by a modest 6% during the pandemic to reach $887 million. The latest results reflect the longer-term trends continuing to boost demand for its technology for the Internet of Things (IoT) market, with notable strength in home automation, smart retail, and portable products across medical, sports, and fitness. 

Management disclosed that the demand was very diverse, with the largest customer in the IoT business comprising only 5% of the sales mix. Moreover, the top 20 customers overall represented only 31% of total sales. 

Adjusted gross profit margin also exceeded management's expectations, and the company completed the sale of the infrastructure and auto business to Skyworks Solutions for $2.75 billion in cash. This left Silicon Labs well-funded with $2.7 billion in cash and investments, and management made a shareholder-friendly move to return $640 million to shareholders in the form of share repurchases

A living room equipped with digital services for security, music, and TV.

Image source: Getty Images.

Now what

The sale of the infrastructure and automotive business positions Silicon Labs as a pure-play IoT business, and if the third quarter is any indication, this should lead to great returns for shareholders over time.

Management's Q4 guidance calls for adjusted gross margin to remain steady at 59.5% with adjusted EPS improving sequentially to a range of $0.50 to $0.60. 

Investors looking for a promising IoT stock with multi-bagger return potential may want to consider Silicon Labs after these blowout earnings results.

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