Please ensure Javascript is enabled for purposes of website accessibility
Free Article Join Over 1 Million Premium Members And Get More In-Depth Stock Guidance and Research

Silicon Laboratories Surprised Itself In the Third Quarter

By Anders Bylund - Oct 31, 2015 at 4:04PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Shares of the mixed-signal semiconductor designer rose more than 12% on Wednesday, boosted by a strong Q3 report.

Silicon Labs has found an unofficial mascot in the Gecko series of microcontrollers. Source: Silicon Labs.

Semiconductor designer Silicon Laboratories ( SLAB -0.40% ) reported third-quarter results on Wednesday morning. The quarter left management's own projections far behind, and Silicon Labs shares rose as much as 12.4% in Thursday's morning session.

Silicon Labs results: The raw numbers

 

Q3 2015 Actuals

Q3 2014 Actuals

Growth (YOY)

Revenue

$156 million

$158 million

-1.3%

Net Income

$10.0 million

$5.6 million

79%

GAAP EPS (diluted)

$0.23

$0.13

77%

Source: SEC filings.

What happened with Silicon Labs this quarter?
Sales came in at the very top end of management's official guidance for the third quarter. On the bottom line, Silicon Labs had set the top end of its guidance range at $0.10 per share.

  • That soft guidance was based on macroeconomic trends, which management expected to "stifle the global demand for TVs." The third quarter's surprise overcame that headwind thanks to strong sales into the automotive and Internet of Things (IoT) markets.
  • In particular, the IoT division saw 25% year-over-year sales growth, and represented 42% of Silicon Labs' total revenues in the quarter. In the year-ago quarter, IoT pulled in 33% of total sales.
  • The plump bottom line was also helped by strong cost controls. Silicon Labs reduced its selling, general, and administrative expenses by 18.8% while increasing R&D budgets by 9.4%. Overall, operating expenses declined by 5%.

Management offered the following guidance targets for the fourth quarter, based on current business trends and macroeconomic environments.

  • Revenues should land somewhere between $156 million and $161 million. At the midpoint, Silicon Labs would see a 2% sales decrease year over year.
  • Fourth-quarter GAAP earnings should land between $0.05 per share and $0.011 per share, fully diluted. The midpoint of that range sits far below the equivalent 2014 quarter's earnings of $0.23 per diluted share.

What management had to say
Silicon Labs CEO Tyson Tuttle basically urged the rampant macro headwinds to come and get him: "Despite the challenging macro environment, we are confident in our strategy and proud of our accomplishments," Tuttle said. "We are engaging with top industry leaders who are rapidly adopting our IoT solutions and propelling our design win activity to record levels. We are executing on our vision and strategy and excited about what lies ahead."

Looking ahead
Silicon Labs investors have been riding a dramatic roller coaster over the last 52 weeks. The stock has barely outperformed the S&P 500 in that period, including Wednesday's sudden surge.

Including these results, Silicon Labs shares now trade for 25 times trailing earnings. That's right in line with the competition, as Analog Devices ( ADI 0.33% ) trades at 28 times trailing earnings and Texas Instruments ( TXN -0.32% ) looks back at a P/E ratio of 21. But neither one of these giants can match Silicon Labs' earnings growth figures, and TI's profits are actually shrinking.

On a grander scale, Silicon Labs prides itself on providing "energy-friendly solutions for a smarter, more connected world." The IoT division fits right into that timely vision, and that segment's results speak for themselves.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Silicon Laboratories Inc. Stock Quote
Silicon Laboratories Inc.
SLAB
$195.48 (-0.40%) $0.79
Texas Instruments Incorporated Stock Quote
Texas Instruments Incorporated
TXN
$191.76 (-0.32%) $0.61
Analog Devices, Inc. Stock Quote
Analog Devices, Inc.
ADI
$180.84 (0.33%) $0.59

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
656%
 
S&P 500 Returns
144%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 12/01/2021.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Our Most Popular Articles

Premium Investing Services

Invest better with the Motley Fool. Get stock recommendations, portfolio guidance, and more from the Motley Fool's premium services.