Silicon Labs' Q3 2025: Contradictions Emerge on Gross Margins, Wi-Fi Program, Inventory Targets, and Active Asset Tracking Opportunities

Date of Call: November 04, 2025

Financials Results

• Revenue: $206M, up 7% sequentially and up 24% year-over-year
• EPS: GAAP loss per share $0.30; Non-GAAP EPS $0.32, beat guidance midpoint by $0.02
• Gross Margin: GAAP 57.8%; Non-GAAP 58%, up 170 bps sequentially and up 350 bps year-over-year
• Operating Margin: GAAP operating loss ~ $12M; Non-GAAP operating income ~ $11M; non-GAAP operating expense $109M

Guidance:

• Revenue for Q4 expected to be $200M–$215M (midpoint implies ~25% YOY growth)
• GAAP and non‑GAAP gross margins expected 62%–64%; Q4 includes an approximate one‑time ~200 bps benefit (normalized midpoint ~61%)
• Non‑GAAP operating expense expected $110M–$112M; GAAP operating expense $134M–$136M
• GAAP EPS expected between a $0.22 loss and $0.08 profit (basic shares ~32.9M); Non‑GAAP EPS $0.40–$0.70 (diluted shares ~33.2M)
• Company plans to limit opex growth and prioritize EPS accretion over revenue growth

Business Commentary:

• Revenue and Profit Growth:
• Silicon Labs reported revenue of $206 million for the September quarter, up 7% sequentially and 24% year-over-year.

• This growth was driven by strong sales and profitability across its industrial and commercial business, with the industrial segment particularly beneficial from smart metering and energy management solutions.

• Product and Segment Performance:

• Industrial & Commercial segment revenue reached $118 million, contributing 57% of consolidated revenue, up 7% sequentially and 22% year-over-year.
• Home & Life segment revenue was $88 million, representing 43% of consolidated revenue, up 6% sequentially and 26% year-over-year.
• Growth in both segments was attributed to expanding smart home applications, new medical program ramps, and demand for commercial applications like building safety and access points.

• Gross Margin Expansion:
• Silicon Labs reported a non-GAAP gross margin of 58% for Q3, improving by 170 basis points from the previous quarter and 350 basis points from the same period last year.

• The improvement was driven by better product mix, increasing sales through distribution channels, and a one-time benefit expected in the December quarter.

• IoT and Asset Tracking Opportunities:

• The company highlighted significant potential in active wireless asset tracking, leveraging advanced radio location features for real-time precision with long battery life.
• This emerging trend is expected to drive growth across logistics, retail, and manufacturing sectors as demand for secure and accurate asset tracking increases.
  

  Sentiment Analysis:

  Overall Tone: Positive

  • Management: "delivered third quarter results consistent with our outlook"; "expect full year revenue growth of 34% compared to 2024"; "confident in our strategic direction"; CEO: "positive bias" toward 2026 — highlighting strong sales, expanding margins and multiple growth opportunities (CGM, metering, Series2/3, asset tracking).

Q&A:

• Question from Tore Svanberg (Stifel, Nicolaus & Company, Incorporated, Research Division): You talked about the one‑time benefit to Q4 gross margin and mix driving margin — can you clarify what the one‑time item is and how to think about the dynamic into 2026?
  Response: Q4 includes a one‑time ~200 bps gross‑margin credit; backing that out yields a stabilized ~61% gross margin and they expect to remain in the ~60–61% range for the next few quarters before gradually reverting toward the long‑term range.

• Question from Tore Svanberg (Stifel, Nicolaus & Company, Incorporated, Research Division): You introduced Studio 6 and the Simplicity AI SDK — what is the expected financial impact over time?
  Response: The agentic AI SDK lowers development barriers and accelerates time‑to‑market, enabling broader, faster adoption and scaling of customer designs; revenue/scale benefits will accrue over time, not immediately.

• Question from Christopher Rolland (Susquehanna Financial Group, LLLP, Research Division): Thoughts on distributor fill (target 70–75 days) and customer inventory replenishment — could you reach 70–75 and how long might that take? Also expectations for customer replenishment?
  Response: End‑customer excess inventory is effectively gone; distributors are being built toward a 70–75 day target (from ~50 DSI), aiming to add ~5 days per quarter though progress is lumpy.

• Question from Christopher Rolland (Susquehanna Financial Group, LLLP, Research Division): Broad strokes for 2026 setup and which products will carry growth?
  Response: While not providing a 2026 guide, they expect to outgrow the market driven by Series2/3 ramps, smart metering, ESL, CGM, asset tracking and Matter revenue, and have a 'positive bias' for continued share gains and margin/EPS improvement.

• Question from Cody Grant Acree (The Benchmark Company, LLC, Research Division): Can you detail the incremental drivers of the Q4 gross‑margin uplift beyond the one‑time benefit?
  Response: A small number of specific high‑margin parts, a higher share of distribution sales (~74%), and a stronger industrial mix together are driving incremental gross‑margin improvement.

• Question from Cody Grant Acree (The Benchmark Company, LLC, Research Division): Any directional color on Home, Life and I&C segments?
  Response: Expect a similar segment mix quarter‑to‑quarter, but visibility is limited due to short lead times and backlog variability.

• Question from Kyle Bleustein (Barclays Bank PLC, Research Division): Has anything changed since Analyst Day regarding gross margin — is the >60% level sustainable and is it mix or pricing driven?
  Response: No fundamental change to the long‑term 56–58% framework; current >60% is a shorter‑term mix phenomenon (product‑specific and industrial strength) and should decline gradually toward the long‑term range.

• Question from Kyle Bleustein (Barclays Bank PLC, Research Division): Update on Series 3 rollout, percent of mix and pricing implications as it ramps?
  Response: Series 3 is in early ramp with first products shipping; Series 2 still has multi‑year runway; Series 3 will be more impactful long‑term but not expected to materially drive near‑term revenue or pricing changes.

• Question from Quinn Bolton (Needham & Company, LLC, Research Division): Could active asset tracking be a fourth company‑specific growth driver like CGM, smart meters, ESL?
  Response: Active asset tracking is early but promising with attractive product–market fit and potential to become a meaningful additional company‑specific growth driver over time.

• Question from Quinn Bolton (Needham & Company, LLC, Research Division): Is BLE with channel sounding the technology basis for that active asset tracking?
  Response: Yes — BLE with channel sounding is a key enabler, allowing determination of absolute and relative positions for asset‑tracking applications.

• Question from Quinn Bolton (Needham & Company, LLC, Research Division): Is the timeline for CGM reaching ~10% of revenue still on track for late '25/early '26?
  Response: They still see a path for CGM to reach approximately 10% of revenue in the first half of 2026.

• Question from Joseph Moore (Morgan Stanley, Research Division): Are you still open to M&A given strong organic growth, and how are you thinking about it?
  Response: Open to M&A but with a tight filter—must accelerate growth and be in‑wheelhouse; given the strong organic growth, excess cash is more likely to be returned via buybacks.

• Question from Joseph Moore (Morgan Stanley, Research Division): Are customers building inventory because of geopolitical uncertainties?
  Response: Not seeing inventory builds tied to geopolitics; customer inventories have broadly decreased rather than increased.

• Question from Peter Peng (JPMorgan Chase & Co, Research Division): At >$200M revenue and falling end‑customer inventories, are you still under‑shipping to demand and if so by how much?
  Response: No — they believe shipments are aligned with end‑market consumption as much as they have been in a long time.

• Question from Peter Peng (JPMorgan Chase & Co, Research Division): Update on Wi‑Fi programs and trajectory over the next 1–2 years?
  Response: Wi‑Fi is growing strongly (~30–40% YoY), is their second‑fastest growing area, and Series‑3 will bring more Wi‑Fi products and accelerate ramps over time (currently the smallest of four pillars but fast‑growing).

Contradiction Point 1

Gross Margin Expectations

It involves changes in financial forecasts, specifically regarding gross margin expectations, which are critical indicators for investors.

What is the gross margin guidance for Q4, Dean, including the one-time benefit and outlook for 2026? - Tore Svanberg(Stifel, Nicolaus & Company, Incorporated, Research Division)

2025Q3: Gross margins in Q4 are expected to be in the range of 61% to 63%, with the higher end of that range primarily being driven by a onetime benefit. Without this onetime benefit, our gross margin guidance for Q4 would have been 59% to 61%. - Dean Butler(CFO)

Will Blackwell's Q4 revenue be additive, and what's the expected gross margin exit rate? - Stacy Rasgon(Bernstein Research)

2025Q2: Gross margins for Q3 are expected around 75%, with full-year guidance in the mid-70s. - Dean Butler(CFO)

Contradiction Point 2

Wi-Fi Program Status and Opportunities

It involves the status and expectations for the Wi-Fi program, which could impact market positioning and future growth opportunities.

Are you undershipping demand, and what is the status of your Wi-Fi program? - Peter Thomas Puk(JPMorgan Chase & Co, Research Division)

2025Q3: Wi-Fi has strong growth with new products coming from the Series 3 platform, showing significant design win momentum. - Robert Johnson(CEO)

Are there any Wi-Fi strength, application wins, or ramps you're seeing there? - Cody Grant Acree(The Benchmark Company, LLC, Research Division)

2025Q2: Our Wi-Fi device in the Roku battery camera has achieved significant market exposure, demonstrating the longest battery life for Wi-Fi applications. We're seeing other customers take advantage of our battery-powered capabilities, particularly in long-life applications, and expect continued market traction. - Robert Johnson(CEO)

Contradiction Point 3

Distribution Inventory Target

It involves the company's strategy and timeline for managing inventory levels, which affects operational efficiency and cost management.

Will the distribution channel inventory reach the 70-75 target range, and are customers currently replenishing their inventories? - Christopher Rolland (Susquehanna Financial Group, LLLP, Research Division)

2025Q3: We're stepping away from the 70 to 75 days of distribution inventory target. It was an important bridge that we needed to get through the distributors because of our ability to sell to end customers. - Robert Johnson(CEO)

For your June guidance, what is your target for channel inventory? Will you refill it or push it to new highs? - Thomas O’Malley (Barclays)

2025Q1: We do not want to end June again at 48 days or even lower. We expect the channel inventory to come back above 50 days but below 60 days. Eventually, we aim to reach the target level of 70-75 days, but it will take several quarters. - Dean Butler(CFO)

Contradiction Point 4

Active Asset Tracking Opportunities

It involves the identification and potential impact of a new growth opportunity, which could influence strategic planning and investor expectations.

Is active asset tracking a fourth company-specific driver, and what technology underlies it? - Quinn Bolton(Needham & Company, LLC, Research Division)

2025Q3: Active asset tracking is identified as a growth opportunity with potential, using BLE with channel sounding technology. It fits well with Silicon Labs' technology and size. - Robert Johnson(CEO)

Can sequential growth continue for the rest of the year based on positive booking trends and design win ramps? - Peter Thomas Puk(JPMorgan Chase & Co, Research Division)

2025Q2: We don't have anything specific to announce today, but we remain very, very optimistic about the opportunity. So I think it's probably a little bit further out than some of the other trends that we see today. - Robert Johnson(CEO)