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Dean Butler

Thanks, Matt, and good morning to everyone. I will first review the financial results for our recently completed year-end and fourth quarter, followed by a discussion of our current outlook. Silicon Labs ended the fiscal year 2024 with revenue of $584 million, which represents a year-over-year decline of approximately 25%. The decline was most pronounced in the company's industrial and commercial products, which experienced a 32% decline as customers depleted excess inventory positions throughout the year.
The company's Home & Life products declined 14% versus the prior year. While the year on year sales decline was substantial, I'm happy to have seen a positive progression in both sales and profitability improvements throughout 2024 as customers depleted inventory and demand for the company's products began to return.
As a result, the company ended the fourth quarter of 2024 in a substantially better financial position with a GAAP operating loss of $29 million versus the same quarter one year ago GAAP operating loss of $73 million.
Summarizing our fourth quarter results, revenue for the recently ended December quarter was $166 million, in line with the midpoint of our prior guidance and up 91% from the lowest trough point we experienced in the December quarter of 2023.
In our Industrial and Commercial business, December quarter revenue was $89 million, down 8% sequentially, but up approximately 50% year over year as customers in this area work through much of their excess inventory positions.
During the quarter, we saw a stabilization of demand signals for applications such as electronic shelf labeling and continue our early deployments of smart meters in the Indian market, which offset some of the slower recovery applications such as building controls and classic industrial and applications.
Home & Life December quarter revenue was $78 million, up 11% sequentially and up nearly threefold year over year, led by new program ramps in medical applications. As we anticipated, the sequential quarter growth in Home & Life products in the December quarter was offset by industrial and commercial end markets, resulting in roughly flat sequential revenue performance in Q4 and relative to Q3 of 2024.
Inventory in our distribution channel remains at lower levels than the company's target of 70 to 75 days. The December quarter saw channel inventory increase by only 3 days to end at 56 days, up from [53%] in the prior quarter. Distribution made up approximately 62% of our revenue mix for the quarter, a decrease from the prior quarter as ramps with new design win customers began early production.
For the December quarter, our GAAP gross margin of 54.3% and non-GAAP gross margin was 54.6%, which was approximately flat compared to the prior quarter and in line with our prior guidance. Although direct customers are now ramping at a faster pace than the broader distribution recovery, we expect to continue to improve our gross margin profile, which continues to reinforce the value of Silicon Labs market-leading product portfolio.
GAAP operating expenses were $119 million, which includes share-based compensation of $16 million and intangible asset amortization of $5 million.
Non-GAAP operating expense of $98 million was in line with the midpoint of our prior guidance range. GAAP operating loss was $29 million and non-GAAP operating loss was $7 million both of which were improvements from the prior quarter despite a similar level of top line sales.
During the quarter, we recorded a GAAP tax benefit of approximately $2 million our non-GAAP tax rate remained at 20%. GAAP loss per share was $0.73 and non-GAAP loss of $0.11 per share met the midpoint of our guidance range and was consistent with our expectations.
Turning to the balance sheet. We ended the quarter with $382 million of cash, cash equivalents and short-term investments. Our days of sales outstanding was approximately 30 days. During the quarter, we further reduced our internal inventory by $34 million, ending the quarter at $106 million of net inventory which contributed to our positive operating cash flow of $10 million for the December quarter despite operating losses.
Days of inventory on hand improved to 125 days another sequential improvement from 165 days in the September quarter end and significantly improved relative to the one quarter ago quarter of 407 days of inventory on hand.
Now let me turn to our March quarter outlook. I'm happy to report that our order patterns from new bookings and distribution POS continue to improve, which reinforces our viewpoint that demand for our products continues to make positive progress.
A majority of these orders are coming at shorter lead times, which limits our visibility, giving us caution not to over index on this trend too early. Our end customer checks report that excess inventory continues to deplete and that the majority of these customers claim minimal inventory at this point, any minor pockets that persist appear to be more customer-specific than macro driven.
As we enter Q1 and early 2025, we expect new program ramps at customers to be the prevailing driver of sales growth throughout the year, beginning now in the first quarter. As such, we anticipate revenue in the March quarter to be in the range of $170 million to $185 million, which at the midpoint would imply 67% year over year growth and 7% sequential growth.
Considering the end market order patterns and our visibility into upcoming design win ramps, we anticipate another quarter of outperformance by Home & Life products in the March quarter compared to industrial and commercial, mainly driven by shipments to connected health customers and smart home applications.
Further, our guidance assumes a flat distribution days of inventory would limit to no expected increase in the quarter. We expect GAAP gross margin in the March quarter to be in the range of 54% to 56%. We expect non-GAAP gross margin to also be in the range of 54% to 56%.
We expect GAAP operating expenses in the March quarter to be in the range of $128 million to $130 million. We expect non-GAAP operating expenses to increase during the March quarter as the company enters a new fiscal year, resetting payroll-related expenses such as payroll taxes, bonus plans and the company's annual merit cycle, resulting in an expected range of $103 million to $105 million.
Finally, GAAP loss per share is expected to be in the range of $0.75 to $1.05 loss. Non-GAAP earnings per share is expected to be in the range of $0.01 to a loss of $0.19 and on expected basic share count of 32.5 million shares. This wraps up our prepared remarks.
I'd like to now hand the call over to the operator to start the Q&A session. Operator?

Question and Answer Session

Operator

(Operator Instructions)
Quinn Bolton, Needham and Company.

Quinn Bolton

Hey guys, Okay. So congratulations on the nice results and outlook. Dean, and I know visibility is pretty low given the high level of turns orders. But you guys seem very confident in your new program ramps in CGM, electronic shelf labeling.
Just wondering, you talked about sequential growth through the year. But Dean, can you help us shape what kind of growth you're looking at in terms of maybe quarter to quarter? What's realistic given the limited visibility you have right now?

Dean Butler

Yeah. Good question, Quinn. So really what we're basing our outlook as we look forward into the remaining balance of 2025 is really around design win ramps. We think that should be relatively consistent throughout the year. Like you said, quarter to quarter visibility a little bit limited based on shorter lead times.
But we do have confidence that we will likely grow each quarter. I think it's sort of yet to be seen exactly how that rate plays through whether it's any unique pockets of seasonality throughout the year. But at this point, we are looking at likely a positive quarter on quarter throughout the year Quinn.

Quinn Bolton

Great. Thanks for that. And then I guess maybe just you guys talked about the new 917 Wi-Fi device you showed at CES. Can you just sort of talk about the pipeline you've built up for that product, how it might compare to Bluetooth. And how do you see that contributing to revenue growth in calendar '25 and '26.

Matt Johnson

Sure. So a bunch of things in there. I'll start with the pipeline. We shared some time ago that, that device actually generated the largest offering pipeline that we've ever seen for any product we've ever released or announced. We've had an incredibly strong reception to that device.
And the pull-through, it's mostly pull-through existing customers. We have a very broad existing customer base. They have interest with products and it's really bringing new to industry capability as well as our support and capability that we bring to all of our customers.
So the [ops] funnel has been strong. Design win momentum has been strong. We like what we see there. And that is going to be contributing to revenue starting pretty quick in 2025. So we're not talking about something that's far away conceptually.
The products generally released, opportunity is good, design win is good and revenue starving. So we like what we see there. To your other point on how does it compare to Bluetooth, much earlier days. If you think about it, we shared quite years ago that we're increasing our focus on Bluetooth. And that takes time, right?
A lot of products in the portfolio, support enablement. And as we've shared here, it's worked. Now our biggest opportunity funnel and fastest-growing revenue space we have and that's with the backdrop of our other technologies also all doing well. So Wi-Fi is earlier, these are really just the first products.
So what you should expect is a lot more products coming down the road as we continue doing derivatives of Series 2 and introduce more products in Series 3, which will further accelerate what we're doing in Wi-Fi, which is unique because it's focused on the edge of IoT where we really focus and thrive. So hopefully, that helps.

Quinn Bolton

That's great. Thank you.

Operator

Christopher Rolland, Susquehanna.

Christopher Rolland

Hey guys, thanks for the question. I guess maybe my first question is around the Synaptics and Broadcom agreement, and this was around kind of next-gen technologies, including Wi-Fi 8, which is a little further out than your road map and these technologies are less low power and different from your portfolio.
But I was wondering if you had any thoughts on this agreement, if you've looked at these assets from Broadcom and ultimately, your thoughts on them were they too overpriced or just absolutely not strategic in any way to you guys.

Matt Johnson

Yeah, sure. We're familiar with the technology. And the fastest way I can say it is, this isn't in our wheelhouse or backyard at all. What they're doing is focused on handsets in the handset space where we don't operate a play.
So a way to think of it is it almost takes them further away from where we focus and our focus, as I was saying a few minutes ago, is really on that low power edge in the IoT space, which we have to develop Wi-Fi products specifically for that ground up.
So to those products don't play in our space and the IP is not applicable for this space as I think they share publicly in their comments. So quick answer is good technology but focused on handsets, not in our markets and kind of move them further away from us, not closer.

Christopher Rolland

Yeah. I figured as much. My second question is around distribution. Basically, you versus your competitors it sounds like you finally think you're in line, you're still a little bit below your target, I think, if you had any expectations to raise that. But would love to know how you think your competitors whether they're over allocated to distribution right now.
And then also kind of maybe a postmortem how to look at this to prevent the massive cyclical move that we've seen over the past couple of years here. What can we do to prevent that? Is it just keeping it super low moving forward? Is that your caution on disti inventory, would love the big picker take.

Dean Butler

Yeah. Maybe, Chris, I'll start off with just our viewpoint on inventory holdings versus us internally versus distribution channel. Look, one of the things that we've seen over the last few quarters is increasing short lead time orders, which really is a perfect fit for channel partners.
Quite honestly, we've been working down our internal inventory, our balance sheet inventory. And what we'd like to have happen is have a larger sort of holding set distributors to service those short lead time orders.
I think in the industry right now, there's quite a bit of inventory various supply points and people are able to deal with it. I think once you get back to sort of a normal steady-state environment, we would probably look to have our inventory holdings closer to 100 days in distribution close to 70 days. So it's really just a change between balance sheets between us sort of directly versus where the distributors are.
And certainly, when it comes to peers and sort of what's happening with some people around us, I think the distributors are sort of hesitant to take on a lot of extra inventory right now. I mean everybody sort of got their own nuanced model that they're trying to drive.
But I don't think I've seen any instances where distributors are taking too much or taking too little. It seems to be fairly balanced, at least from a Silicon Lab perspective, the last probably about four quarters, we've operate in the mode of let the distributors sort of naturally hold the amount of inventory they think is sufficient for supporting their working capital sort of models as well as customers.
I think as things continue to stabilize, you'll see them probably inch up in their holdings, relative to where they are now. Today, 56, we just ended the quarter with 70 to 75 days is our longer-term target.

Matt Johnson

I fully agree with what Dean saying. And maybe just an add as a reminder for everyone, we never really had a distribution or channel inventory problem throughout the cycle. The biggest challenge we had was really end customer excess inventory that's where there is a substantial build-up as we went throughout this cycle. And that's really what we've been focused on working down over the past year.
As Dean and I shared in my remarks, we've made substantial progress towards that end. So maybe a way to think about it is just like in the crisis where there was not enough supply, we maintained a really constructive relationship with our suppliers, and I think we fared better than most.
And also on the other side of it, I think on the inventory side, we maintained a really constructive relationship with our distributors. And I think we fared better than most there. So the biggest challenge for us was really end customer excess versus channel, although never easy to navigate all the moving pieces.

Christopher Rolland

Thank you very much. Very helpful, guys.

Dean Butler

Thanks, Chris.

Operator

Tore Svanberg, Stifel.

Tore Svanberg

Yes, thank you and congrats on the continuous recovery here. You mentioned the glucose meter business could be 10% of revenue over the next 12 to 18 months. Do you have similar numbers perhaps for some of your other circular drivers, including the shelf label and the smart meter business?

Matt Johnson

No. Tore, we haven't shared those. We just felt that in the CGM space where you can see it coming relatively quickly, it's better to get out ahead of it and share that.

Tore Svanberg

Great. And as my follow-up, there seems to be a lot of activity on the matter side. I'm just wondering how we should think about this for circa labs going forward. Obviously, this is a standard. It pulls through, obviously, a lot of your components. But how should we think about this either from penetrating existing applications to even potentially penetrating some new applications and maybe even things like smartphones.

Matt Johnson

Yeah, absolutely. So the net takeaway, I'll start with the headline is we see matter as net favorable to the industry in terms of device adoption and that favorable to Silicon Labs in terms of our position. For anyone not familiar, matter was really adopted for the industry to simply said, make it easier for companies to develop and deploy IoT technology and easier for consumers to adopt and deploy these technologies.
And there's frustration out there with some because it's taking longer than people expected. I don't particularly find myself in that camp. I think these big transitions that are worthwhile take a lot of time. There's a lot of moving pieces, a lot of companies. And I think the thing to focus on there is, does it continue to move forward in the right direction, and the answer is yes. It continues to move forward.
And if you look at where it's being adopted, the easy way to think of this is the Infrastructure is being built out for matter. And what that does is creates the real potential for us, which is the deployment of edge devices out there.
So as service providers and handsets put this technology in their devices, it lays the groundwork for all the edge devices. That's the big volume to adopt this technology, and that's where we thrive.
So as we've said all along, that's why we've leaned in on this. We have been the largest code provider for any semi company, more search than any company out there around Thread. And as I shared in my remarks, since that spec was ratified, which I think was roughly two years ago, we've won and secured more business, since then, than in the prior five years combined, which speaks to really the acceleration that you're seeing.
And to answer the question, yeah, existing devices definitely want to adopt and deploy, and we also see new devices where they say, okay, maybe it's time, maybe this makes it easier for us in terms of our development and for the likelihood that the outside world can adopt it. So we're cautiously optimistic that this is a win for the industry and a win for us and it continues to move in that direction.

Tore Svanberg

That's a great color. Thank you, Matt.

Operator

Cody Acree, The Benchmark Company LLC.

Cody Acree

Great, thanks guys for taking my questions and congrats on the nice annual turn. With -- if you look at the street estimates for '25, I think the street's got you up 7% annual, about a little over $200 million annual. If I look at the drivers that you laid out, glucose monitoring, electronic shelf labels and smart metering, can you maybe handicap your other growth drivers? Or how much of that 37% street estimate that you could realistically gain from those large drivers and how much is going to have to come from the rest of the company?

Matt Johnson

The rest of the company being other areas?

Cody Acree

Yeah, just other applications?

Matt Johnson

Yeah, sure. So we haven't broken it out, but we want to be very clear about a few things. We talk about ESL -- sorry, electronic shelf labels, continuous glucose monitor smart metering, because there are applications that people understand, we have strong positions, there's awesome growth out there for both the industry and for us.
But -- and so I'm not going to answer the question directly, what percent, but they have meaningful growth for us, and they're helping impact our expectation and outlook for the year. That being said, we've also mentioned just here on this call, we expect growth in Wi-Fi. We expect growth in Bluetooth some are in those applications and a lot that's independent of those applications.
We just talked about matter, which is not included in those applications, which we see only accelerating as we move forward in time. So the point being those applications and there are multiple other applications that we see as growth drivers and there's multiple other technology trends that we see as growth drivers.
So I wouldn't over index on those three areas, although we really like what we see there, and they're giving us a good lift. There's a lot of other vehicles out there too that are giving us a tailwind.

Cody Acree

Excellent. Thank you guys for that. Maybe if you could just talk about your gross margin puts and takes as we progress through the year. Any color would be appreciated.

Dean Butler

Yeah, Cody, we've done a good job in improving our gross margins throughout 2024, as we enter the first quarter into '25, it looks like gross margins are coming up again a little bit. Looks like midpoint is 55% is what we're guiding for Q1.
I think as we look forward into the balance of '25, we would expect sort of continued progress in gross margin. I don't think you're going to see any big sort of step function from here. We're pretty close to where we see ourselves as kind of our longer-term model, this mid to 50s or mid-high 50s.
So we're in sort of the striking range now. So what I would like to see in progression of gross margins. One, as revenue continues to increase, you'll sort of get the absorption of fixed costs. So on a ratio basis, your margins will get a little bit better. As some of the new design wins ramp, I think that's helpful. But again, it's not a step function.
One of the things I think is going to be key is to see sort of the broader distribution sort of the tens of thousands of customers continue to recover and improve from here. And that will probably bring up the margins.
A lot of those distribution customers end up being servicing our industrial side of the house. And that tends to come with a little bit better gross margin as from a mix perspective, than some of the other areas. So I hope that helps, Cody.

Cody Acree

It does. Thank you guys very much.

Dean Butler

Yep.

Operator

Srini Pajjuri, Raymond James.

Srini Pajjuri

Yeah, hi, good morning guys. Matt, I was hoping you could maybe give us some additional color on when you talk about end customer inventory, not just the disti inventory but end customer inventory kind of still normalizing.
Where do you see kind of what end markets or what customer types, where do you feel comfortable that inventory is back to normal? And where do you think there's still some excess that needs to be, I guess, corrected over the next few quarters?

Matt Johnson

Sure. So the quick answer is for anyone not familiar with what we do is we work with our top 60, 70 customers and really try to understand their end inventory situation. So again, not perfect science, but roughly right. And we've seen consistent progress there over the past year.
To the point now where the pockets that remain, as we said, are probably more customer-specific phenomena than market or industry phenomena that are going on there. So we're getting pretty close to that working its way out for us. I think the easiest way to say it is, there's still some, so we don't want to ignore that.
But if you can break it into the major three factors that we've been talking about for quite a while now, excess inventory, end market strength and design win ramps. And I think where we are right now, maybe the easiest way to conceptualize it is going forward, the biggest influencers first will be those design-in ramps.
Second will be broad market or end market strength that we're not seeing yet, but we do expect at some point. And third is inventory. So it's really moved down the list where last year, it would have been one, now it's down there. So I think it's really moving from a big factor to a much smaller factor and less consequential on our expectations moving forward. So hopefully, that's helpful.

Srini Pajjuri

Yeah. That's helpful. And then just a follow-up to one of the previous questions about -- I look at your outlook for the CGM going to 10% of sales in the next 12 to 18 months. But do you feel pretty good about the next few quarters. So there must be something else that's also contributing to that incremental growth, because your expectation for the end market is kind of relatively kind of stable.
So I'm just curious, what are some of the other new products that are driving that's giving you that confidence that you'll grow through the next few quarters in the year?
And also if you can talk about some of these markets are certain niche that, I guess, some of us don't have a very good idea how big these markets are. So if you can kind of give us some idea where you are in terms of penetration, how big these markets are. And any additional color will be helpful. Thank you.

Matt Johnson

Sure. So let's see, there's a lot in there. Let me talk about first just kind of answer the first piece as directly as I can. CGM ramps have already started and they started across multiple customers. So that's important that, that's not just the down the road thing. That's a real-time thing. So that's one.
And the way to think of that is if you go back a year ago, that was zero, so effectively. So that's all incremental growth for us as a company. So I don't want to downplay that piece. But to answer the question, the other areas we talked about, ESL has been ramping at a good clip, and that was already in motion metering, we've always had a strong position.
But as we shared in the prepared remarks, we're also starting to see new deployments globally like the India smart metering initiative, we're starting to ship millions of units into there. So that's starting to ramp for us. we're seeing that one move faster than other geos we've seen historically, which is encouraging to see.
So the areas we've talked about are all contributing. It's not just those one and then I'd also say we expect to see growth in areas like from new products like Wi-Fi that we've talked about. BLE, we've shared is now our fastest-growing revenue space.
So that's driving share gains and strong growth there. We expect to matter will continue to contribute favorably. When you see such an acceleration of design wins. The simple way to think of that is that's a precursor to an acceleration in revenue.
So all those are additional factors that we see contributing in addition to CGM to your original question. On the piece that some of these end markets seem niche are relatively small, I'd put it this way. Maybe I'll just focus on CGM continuous glucose monitors and shelf labels. I'd say this, both are markets that are relatively early in terms of their global adoption. That being said, they already represent hundreds of millions of units.
We've shared on previous calls that we shipped over 300 million units in the ESL already, and it's early days in that market. So the way I'd take away for those markets, early days in terms of global adoption, I think the growth potential is substantial in all those markets over time. And our position is very strong within each of those markets. So we're well indexed for the future growth opportunity there.

Srini Pajjuri

Very helpful. Thanks, Matt.

Operator

Thomas O'Malley, Barclays.

Thomas O'Malley

Hey guys, thanks for taking my question. I wanted to ask about the dynamic between the disti and the direct inventory. It took a step down in the December quarter. Could you just -- can you just walk through what happened there? I think for a period of time, you had talked about moving up in terms of revenue towards disti and how that helped gross margin? That's question one.
And then question two is, as it relates to the top 10% customer, you stopped breaking it out at the end of 2023. But could you give us an update on where that stands today? I would assume that given the direct customer has grown as a total dollar amount, that number has also grown as well. Any help with that would be helpful as well. Thank you.

Dean Butler

Yeah, Tom, the direct versus distribution mix is actually pretty simple. We have been improving distribution versus direct as a percentage of revenue. Sort of throughout '24, it did take a step down in the fourth quarter. And it's actually pretty simple. So a lot of our industrial type business goes through the channel. That's a little bit slower right now.
And at the same time, some of the ramping businesses through CGM that Matt talked about, actually tends to go direct and so what you see is distribution is not growing at the same rate that these new customer ramps are happening and that's thrown it off.
What I would expect though, sort of throughout the year and going forward, is that industrial sort of starts coming back and sort of broader demand continues to return. I think you'll see that distribution channels continue to grow.
And so you'll find probably in the near term, hey, what is the dynamic between some of these direct new design ramps versus sort of the broader long tail and I think it would probably just take a little while before they kind of get back to equilibrium.
As for your second question, Tom around top customers, generally speaking, our top customers that you might see in some of the SEC filings tend to be our distributors. So we sell direct distributors. Historically, that's roughly in the order of 70%, in some cases, 80% of our revenue goes to distributors. And so a lot of the top customers you see in that vein, the company for a long, long time has never had a 10% single end customer, and that continues to remain true.

Operator

Peter Peng, JP Morgan.

Peter Peng

Hey guys, thanks for taking my questions and congratulations on the results. Maybe on the March quarter, can you maybe talk about where we are in terms of shipment versus end consumption trends? I know you guys talked that most of your customers are done with going through inventory trends. But are you still continuing to under ship versus the end consumption trends?

Matt Johnson

Sure. Hey, Peter. So the quick answer is, as long as there is some excess inventory out there at our customers you can't say you're at consumption, I guess, is the fastest way to say it. But as I said earlier, I think as a component of the kind of dynamic and expectation moving forward, we're predominantly through this inventory correction for us specifically.
And as we've shared, that's continued to move down to a rate now or a level now where I would prioritize it the way I said. Really, the primary driver of expectations moving forward is design win ramps, then broad market and then inventory.
So it's really moved down to a factor that gets way less visibility and influence of our expectations. So I don't say we're -- I can't say we're there because there's some excess out there, but it continues to work its way down. And it's no longer the primary factor like it was in '24 -- '25 is about other growth factors.

Peter Peng

Got it. And then if I can get some of the seasonal trends, like March quarter is typically your softer period. Usually, it's more flattish to down slightly, but you guys are guiding for up 7%. And then June and September quarter is your seasonally stronger periods. So would it be just given all the design wins ramp that you guys talked about that revenue growth is going to be accelerating into the June and September.

Dean Butler

Yeah, Peter, good observation. You're right, generally Q1 tends to be a little bit softer. We're bucking that trend with some of these new product ramps currently. I would say it's probably too early to call to what does June, September quarter look like. .
Look, I do think we have lower visibility right now than we may historically have over the last couple of years. I wouldn't bank on sort of a significant acceleration from here. I mean sort of posting a March quarter 7% positive sequentially is pretty substantial in this market based on what we're hearing around some of our peers.
I would think that as you look forward into the summer months, you would probably enter with a little bit of caution, at least we do, and we look at the backlog and say, hey, things are going in the right direction. But we're not calling acceleration at this point, and that's maybe how I would frame it, Peter.

Peter Peng

Perfect. Thank you, guys.

Operator

Thank you. At this time, I will now hand the call back over to Giovanni Pacelli.

Giovanni Pacelli

Thank you, Gigi and thank you all for joining this morning. Before concluding today's call, I would like to announce our upcoming participation in Susquehanna's 14th Annual Technology Conference in New York City on February 27.
I would also like to announce our upcoming Analyst Day in New York City on March 11 at 9 AM Eastern. Matt, Dean and others from our executive team will provide an in-depth review of our long-term strategy key growth initiatives and financial outlook.
We look forward to connecting with you and providing a deeper insight into our business. A registration link is available now on our website at investor.silabs.com. The event will also be streamed live on our website. This now concludes today's call. Thank you.

Operator

This concludes today's conference call. Thank you for participating. You may now disconnect.