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Silicon Laboratories Looks to the Internet of Things for Growth

By Dan Caplinger – Feb 3, 2016 at 9:43AM

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The integrated-circuit maker topped expectations in the fast-growing area.

Image: Silicon Labs.

In trying to provide solutions for a smarter, more-connected world, Silicon Laboratories (SLAB 0.17%) has jumped into the realm of the Internet of Things. The move is a natural fit with its overall mission, and because massive companies like General Electric (GE 2.23%) are planning new applications for the Internet of Things ranging from communications across transportation networks to integrating household appliances with home-control systems, Silicon Labs has a huge opportunity to offer its expertise in integrated circuits with a wide range of potential clients.

Coming into Wednesday's fourth-quarter financial report, Silicon Labs had investors prepared for declines in profits and sales, but the company's results showed its high hopes for the future. Let's take a closer look at how Silicon Labs did recently, and what's next for the IoT player in 2016 and beyond.

Silicon Labs sees slowing growth
Silicon Labs' fourth-quarter results weren't as encouraging as we've seen in the past. Revenue came in at $160.1 million, down about 1% from the year-ago quarter, but falling at less than half the rate at which most investors expected the company to drop. Silicon Labs did better on the bottom line, and although GAAP net income got cut in half from year-ago levels, adjusted earnings of $0.63 per share were $0.15 higher than the consensus forecast among those following the stock.

Looking more closely at the results, Silicon Labs showed mixed performance in its major segments. The IoT segment exceeded Silicon Labs' expectations, climbing 2.8% sequentially from the third quarter. The broadcast business did even better, with sequential gains of nearly 9%. However, revenue from the infrastructure segment and the access business both fell, with access posting a faster 3% drop. The importance of the Internet of Things continued to rise, and the segment now makes up about 42% of Silicon Labs' overall sales.

Silicon Labs announced a number of product highlights. For home-based systems of the sort that General Electric and others have envisioned, Silicon Labs made connected home-reference designs available, so that it's simpler to link up lights, sensors, and other household assets to offer better control to homeowners. The company also released design solutions for voice-enabled remote controls to help users handle their home-entertainment systems. Other products focused on ways to add touch interfaces to designs, and improvements to security and energy management functions.

CEO Tyson Tuttle was happy with the way the company did. "During 2015," the CEO said, "we made significant progress in laying the foundation for our continued success as a leading supplier of silicon, software, and solutions for a more connected world." Tuttle pointed to record results in IoT, as well as infrastructure and broadcast automotive as helping to push the company forward.

Can Silicon Labs keep climbing?
Silicon Labs also noted several highlights that could help its business move forward. The acquisition of wireless mesh networking module-maker Telegesis in November should help the company, and Silicon Labs sees a bright future as a result of the deal. Telegesis products fit in well with Silicon Labs' ZigBee and Thread technologies, and acquiring the supplier gives Silicon Labs the inside road to what it sees as a fast-growing market for years to come. In addition, winning key industry awards, and supplying technology for connected home products at the Consumer Electronics Show, also gave Silicon Labs valuable exposure.

Silicon Labs' guidance for the beginning of 2016 was also relatively solid. Estimates for the first quarter would put revenue between $157 million and $162 million compared to the $158 million that most investors were expecting. On an adjusted basis, earnings per share of $0.42 to $0.48 are in line with consensus forecasts for $0.45 per share.

Silicon Labs' stock initially climbed on the news, but then gave up its gains, and traded near the unchanged level at midday following the announcement. As long as companies like General Electric continue to pursue the Internet of Things as a major element of their strategic platforms, then Silicon Labs should see the demand to keep coming up with innovative solutions to integrate the IoT into people's daily lives.

Dan Caplinger has no position in any stocks mentioned. The Motley Fool owns shares of General Electric Company. The Motley Fool recommends Silicon Laboratories. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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