Why Silicon Laboratories’ inventory increased 25% this week



What happened

Chip designer actions Silicon Laboratories (NASDAQ: SLAB) jumped 25% this week, according to data provided by S&P Global Market Intelligence. A third quarter 2021 earnings report that exceeded all expectations was responsible. Revenue rose 39% year-over-year to $ 185 million, but that’s adjusted earnings per share of $ 0.34 – more than double what the average Wall analyst expected. Street – which really made the action pop.

Image source: Getty Images.

So what

Also in the third quarter, Silicon Labs finalized the sale of its infrastructure and automotive segment to a colleague designer of connectivity chips. Skyworks Solutions (NASDAQ: SWKS). Disposal focuses Silicon Labs on Internet of Things (IoT) chips for smart home devices and industrial equipment – circuits that convert real-world “analog” signals like sound or radio waves into an electronic signal that a computer chip can process. The deal with Skyworks sent $ 2.75 billion in cash to Silicon Labs. Management quickly returned $ 1.1 billion of that cash to shareholders through open market share buybacks and a $ 400 million fast-track buyback executed in the third quarter.

Silicon Labs will be a smaller company in the future, but more focused on WiFi, Bluetooth and associated circuit engineering, with software for managing IoT devices and networks. To accelerate that vision, the company acquired the WiFi and Bluetooth businesses of Redpine Signals in early 2020 for $ 317 million in cash.

The recent sale to Skyworks helps to clean up the balance sheet and make Silicon Labs one of the leading providers of chips and software in the IoT world. At the end of September, the company had $ 2.73 billion in cash and short-term investments, offset by convertible debt of just $ 445 million.

Now what

For the last quarter of 2021, Silicon Labs expects revenue of between $ 195 million and $ 205 million. This represents at least a sequential 5% increase in sales from the third quarter. Obviously, the company’s IoT products are in high demand right now.

Keep in mind, however, that the semiconductor industry is cyclical. The resulting revenue and profit margins can fluctuate wildly due to supply and demand from Silicon Labs customers. Nonetheless, it has been a steadily growing business for over a decade as the world becomes increasingly digitally connected. At the level of the money, this is a top IoT stock to watch out for.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.


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