Last week, I wondered aloud what was up with chip slinger Silicon Laboratories (Nasdaq: SLAB). The company is doing fine by most metrics, but I couldn't make heads nor tails out of how Silicon Labs is doing so these days.
The company is known for its slate of digital media chips. In competition with focused digital media specialists like Marvell Technology Group (Nasdaq: MRVL) and Broadcom (Nasdaq: BRCM), Silicon Labs makes a lot of digital TV and radio tuners, signal decoders, and so on -- and sends them on to good homes in smartphones and set-top boxes, and other products made by customers like Apple (Nasdaq: AAPL), and Samsung. But far less glamorous products in the digital timing and industrial controller lines turned out to drive Silicon Labs' growth in the first quarter. The high-growth stuff of digital decoding didn't really factor in.
This is the deal, folks
Luckily, the good people of Silicon Labs read The Fool, and the company has reached out with an explanation.
For one, media chips are a very seasonal business. Consumers want most of their tech gadgets delivered right around the year-end holidays, so the trinket designers order up more chips in the second half of the year. While smartphones is a hot market at the moment, it's not quite smoldering enough to overcome the seasonal effect. "What was unusual about the quarter was that our revenue was not down, but essentially flat with our record coming off of Q4," says Silicon Labs director of corporate communications Shannon Pleasant.
That's enough to explain the relative slack in the media market ... but wait, there's more!
According to Pleasant, there's another white-hot market fueling the fires under the mundane timing chips. "Our timing products largely ship into networking gear," she said. I can't confirm whether Silicon Labs' customers include networking giants Cisco Systems (Nasdaq: CSCO) and Juniper Networks (Nasdaq: JNPR), but the entire sector is riding high on a wave of video signals and digital communications that will keep that sector thriving for years to come.
And finally, Silicon Labs did see orders increasing from industrial customers this quarter. "Too soon to call it a trend," says Pleasant, "but the improved visibility and order patterns are certainly promising."
What's next?
So there you have it: seasonal weakness in one division happened to coincide with networking-based strength in another, alongside some early rumblings of a possible rebound in heavy industry investments. Healthy business diversification is how Silicon Labs ended up with a strange yet satisfying business blend this quarter -- with a side of improving industrial market conditions.
Did this official explanation make you want to buy stock in Silicon Labs -- or maybe sell it? Head over to CAPS and cast your vote accordingly. I'm putting my all-star CAPS cachet behind an "outperform" rating, myself.
