Hey, well, good morning, everybody. My name is John Vinh. I cover semis here at KeyBanc Capital Markets. We're pleased to have Matt Johnson and CEO, and John Hollister, CFO of Silicon Labs. Welcome, guys. Morning, John. Thanks for having us. Maybe we can start and talk about your Industrial and Commercial business. It looks like it's holding up extremely well. It still grew 15% year-over-year. Can you talk about this segment in just greater detail and help us unpack it a little bit and understand what are the application areas here that are the most resilient? You know, I think you mentioned here that it is seeing a weakness like the rest of your IoT business. Mm-hmm. What are the areas in this segment that are maybe, seeing a little bit more weakness than, than others? Sure. maybe a few different ways to answer that, but quickly, at the top level, the Industrial and Commercial piece, which is roughly about 60% of our total, definitely has seen an impact of the overall market environment. It hasn't been immune to it. That being said, it's been, you know, resilient by comparison to others, like consumer, just to, to give perspective. You know, Q2, we actually had a record quarter for Industrial and Commercial, but that's really on the strength of ramps that are offsetting the overall market environment. If you go within, you have the industrial piece, and then you have the commercial and retail piece, and then you have the smart city piece. Within that, the industrial has been, you know, kind of the seen the most impact from this market environment. You know, it had a record quarter in Q2, but it should have been stronger than it was. That's been the most impacted, and that's broad, kind of a catch-all that goes across many, many applications. The other two subsegments have been much stronger. City has been stronger, more resilient, really on metering. You know, there's other areas, but metering has really held that up, less impacted by the overall market environment and all the deployments of meters globally. Gas, water, electric has been very good for us. Then in commercial and retail, that's been more resilient as well, predominantly on the ramp of digital or electronic shelf labels. That's given it some offset there as well. Industrial Side has seen it more broadly. Those two subsegments have, have proven stronger. Great. Maybe you can talk about Home and Life? Obviously, a similar question there. Home and Life obviously been much more impacted. I think it's down 30%. Yeah. year-over-year. Yeah. I think you mentioned perhaps Life was the most impacted. Maybe unpack that segment a little bit better and understand kind of where, where things are holding up and. Sure Maybe areas are weaker. It's actually, it's the other way around. Home is the bigger impact, in terms of the overall market, and the Life has been more resilient. Similar story as Industrial and Commercial. If you go into Home, or Home piece, that's more closely tied to consumer. It's been the hardest hit. It's been down for, you know, 4 quarters now. We've really seen the impact of that, you know, consumer softening in the market. The Life piece has been more resilient. That's, you know, held, in this overall environment, and we expect that to continue or get stronger as we see a lot of those designs ramping. Across all of these, the common theme is, you know, none of them, we believe, are truly immune to macro, but we do believe because of our share gains, we'll outperform in each of those, over this downturn, however it ends up playing out. Got it. I thought the other really interesting comment on your call is I think most of us have assumed a lot of the weakness we've seen thus far has really been attributed to China. I think one thing that you said that kind of stood out is that you're seeing weakness across all regions globally. Can you just talk about the timing of when you started to see incremental weakness beyond China? Maybe also just talk about kind of the softness you're seeing in the other regions relative to China. Sure. John, you know, we've talked really for the past year of more erratic bookings patterns, some weeks being strong, some weeks being more lower, and that's been ongoing for, you know, several quarters now. What changed as we rounded out second quarter and began this quarter was more consistently weak bookings on a week-to-week basis. And that really emerged, call it midstream, through the second quarter as we rounded things out. Okay. This is not all about China. If it was, it'd be a lot easier. Yeah. to navigate. Any, any perspective on North America versus Europe? Europe was strong in the second quarter. Yeah. That was our strongest geography. Yeah. You know, similar to the commentary we just had, it's the weakness has been more broad-based and... Yeah a split consistent across geographies. Got it. You know, given that you've seen some weakness now, I would assume that you've been under shipping end demand for several quarters now. Any, any sense of how far below end demand you've been shipping and, you know, what's your sense of, you know, how far are we from the bottom here? Yeah, that's an elusive question. It's a good question. you know, if you think about the areas of inventory we have our own inventory, we have channel inventory. We have good visibility on both of those areas. the, the, you know, pocket of inventory that is hard to see is the end customer inventory. in particular, given that 80% of our business is through the distribution network, that gives us a bit one step further removed from the end customer inventory. Yeah, you know, it does seem that we're likely under shipping end demand. We also believe that end demand itself is under pressure from the macro environment. Mm-hmm. We're seeing a confluence of both of those factors affecting bookings. Yeah. I mean, it's tough to answer that, right? 'Cause basically we call on the bottom, and it's not clear where, where that's at. We do see inventory working down, like it should at our end customers, but it's, it's still too high. China will come back at some point, but when is, is unclear. We, most importantly, have our design win ramps that are happening and providing us an offset for whatever this end market environment ends up being. We're not immune to it, but that allows us to drive growth on top of that. Those continue, and they're getting stronger. That's encouraging as we wait to see how the inventory demand dynamics play out, those ramps will be helpful. On the China front, we know China's been weak. Some of your peers are saying that they are seeing modest improvements in China off of a, kind of a weaker base. What are you seeing in China, more specifically? I wouldn't say anything worth mentioning. Yeah, I wouldn't either. Yeah. I think that that may be a function of end markets, John. You know, this- Yeah. This, you know, it does appear that this downturn is having a sectorial nature to it, if you will. Yes. You know, handsets, PCs, perhaps going first, coming back sooner type of thing, that may be at work in some of the pure commentary. The piece that's strong is the design activity. Yeah, yeah. It's been remarkably good in terms of designs, even with, you know, all, all the competitive pressures and that going on. That's been great. The end demand has been continuously weak. Great. That's a good transition. Why don't we talk about Series 2 first? Very clearly, Series 2 sounds like it's done extremely well for you. Now, I'm wondering if you're able to just quantify either percentage of your current revenues that are related to Series 2... Mm-hmm. maybe percentage of your design win pipeline that is part of Series 2. I'm also, if you could just clarify, is most of the traction incrementally that you're getting with Series 2, is that mostly Bluetooth related? On the Bluetooth, we know you're doing well there. Is that of a function of just your ability to tape out Bluetooth at a more advanced node than your competitors, or you have a better design there? What's behind your design win traction there? There's a lot in there. Let me start with the Series 2. For anyone who's not familiar, Series 2 is our current platform. It's actually our fourth generation wireless technology that we're, you know, focused on, and right in a very strong point of the product cycle. Majority of the development's done from an IP perspective, so now we're just cranking out products on that generation. It's getting an exceptional response from the marketplace. Maybe to help frame, John, what you're asking, think of our opportunity funnel, which is over $18 billion lifetime revenue. All the growth in that funnel over the last few years has been because of Series 2. If you look at our design win momentum, which, you know, we doubled revenue the last couple of years, design wins went even faster than that. All of that's been driven by Series 2. Majority of our revenue growth has been driven by Series 2. With all that being said, it's still early in its cycle. I mean, there's another easy 7 or 8 years of growth of revenue for Series 2. That's, you know, hopefully helps frame it. On the point on where's the growth coming from, it's broad. Series 2 covers Wi-Fi, Bluetooth, you know, sub-GHz, 15.4, all of our wireless technologies. You know, that's a synthesis of a lot of software products and a lot of hardware products that it results in. You know, really stand out right now, Bluetooth, they're all growing, and they're all growing fast. Bluetooth is clear share gains, growing faster than the others. That's not just in actuals, but that's also in design wins and funnel. We see that continuing over the next few years. How and why? It's really on having the best solution out there and having it integrated on a platform. It's not just a one-hit wonder. Here's a great Bluetooth part. Here's a great Bluetooth part with an ecosystem support across all these wireless technologies and bringing industry-leading, you know, features in terms of battery life, security, wireless performance. It's not because of the wireless technology, the process technology. The process technology is important, but you really need those, those features and capabilities on top of it, which is really the first-order driver of those share gains. Like I said, we expect them to continue, and, and we're driving the design wins to make that happen. Great. Hopefully that answered all. Yes, you answered all. Yeah. On Bluetooth, are you getting more traction? Is it mostly, standalone or combo on- Great point. Everything we talk about when we talk about Bluetooth is just standalone. Bluetooth is becoming ubiquitous and, and goes into everything. Almost every product we have has Bluetooth in it, whether it's a Wi-Fi product or a Bluetooth in it. Sub-Gig product, we just announced one with Bluetooth in it. If it's 15.4, for, you know, Zigbee Matter has Bluetooth in it. Our Bluetooth, when we talk about that, that's just the standalone products. Almost everything has it integrated, and, and it's becoming kind of table stakes from that perspective. Great. Are there any questions? John, I think it's worth just pausing for a second on the- ... strength of our wireless technology in terms of multiple frequencies in the same chip- Mm-hmm. -that can operate at 2.4 gig and sub-gig. That's really what enables a product to transmit at, say, 900 megahertz and support Bluetooth. Yeah. That's not that common in the industry. In fact, our latest generation product, the FG28, is the first multi-band product to be introduced in the market in the last 5 years. Yeah. You know, we had one years ago, now we're back with a, a next generation. That's important. For anyone who's not familiar with the company, that's, that's one thing where we just thrive on the breadth and depth of, of wireless technology. I mean, it's been almost 15 years of, of acquiring and integrating these technologies onto these platforms. You know, think of a handset. A handset is not just cellular, right? A handset includes many wireless technologies. IoT is the same way. There's not one wireless technology to rule them all, there's many wireless technologies, and we excel at integrating them, making them work well individually and together, and putting all these technologies onto one solution. Now, take an easy example, like a garage door opener. You need the proprietary to talk to the vehicle, you need the Bluetooth to talk to your phone when you're setting it up, you need the Wi-Fi to talk to your house and the cloud, being able to integrate these is what our customers want. They don't want a solution that just has this or just that. That also holds true for all the ecosystems. We support every major ecosystem in the world. That's why when, you know, like, when we hold our developer conference in a couple weeks, you know, we'll have over 8,000 IoT developers, because it's the only place we bring together the whole industry across all these proprietary, all these standards, all these ecosystems, and make them all work. That's the future of our industry. Right. That's a good point. Maybe if you could clarify, what's the integration challenge of 2.4 gigahertz with sub-gigahertz? Is there a technical issue, or is it kind of what you talked about, Matt, is the software integration of the protocols together? It's. Yep, multiple layers. Quick answer is, you know, to integrate those, there's always interference issues, to have those different radio frequencies to work well, work well together. Then, there's also the know-how of developing that. Most companies will say, "Hey, we're really good at 2.4 gig," or, "We're really good at sub-gig." To put them together, every major geography in the world has different sub-gig frequencies that they allow to operate there. We need to be able to test, validate, make sure they work compliance-wise globally, and integrate that with 2.4, make sure that works with all those standards that support 2.4, including Wi-Fi, Bluetooth 15.4. To come up with a chip that does that and makes them all work, it really literally took generations to make that work and work well together, and our customers see that. That's great. As excited as you sounded on Series 2, Matt, I couldn't help but notice that you were even more ecstatic about Series 3. I would imagine we're gonna get more details at your developers' conference- Yeah ... in a couple weeks. Without giving everything away, can you just talk about the opportunity you see with Series 3? Is this essentially a refresh of Series 2? No. or is this more of a significant architectural change? In terms of just the financial impact, how should we be thinking about this? Is this gonna be driving an ASP uplift? Is this gonna allow you to kind of get into new TAMs and new revenue segments that you previously didn't address? Sure. So let's see, starting with, Yeah, we're excited about Series 3. The way to think about it is Series 2 has become kind of the de facto standard in the industry. We love the reception the market is, is giving this platform. What we do not wanna do is, by any means, use that as an opportunity to get comfortable or take our foot off the gas. We want a step function now. Basically, how do we go bigger, faster in enabling IoT deployment, accelerating the industry, and accelerating ourselves as a company? That's what Series 3 is about. It is not incremental, it's a step function in terms of performance capability. It's not a replacement for Series 2, it's a complement to Series 2. You know, think of a step function in terms of performance, capabilities, scalability for the industry. It's software compatible, so for our customers who have invested in Series 2, this allows them to also be investing in Series 3 at the same time, which is really important, because most of their investment is in software, not in hardware, and that gives them amazing continuity. It's about going faster. For Series 1, we did 4 products, Series 2, we'll do, say, 12 or 13 products, Series 3, we'll double or triple that number. We are gaining momentum, and that flywheel effect is really happening as we, you know, hit our stride with our fifth generation, and we're really figuring out how to address more market. To answer your question, this isn't about SAM expansion, it's predominantly about growing share faster, growing our revenue faster. We have plenty of market. We're not limited by the market, we're in, we wanna go bigger and faster in terms of share gains and double or triple our share within our space. We can do that with the combination of Series 2 and Series three. It does enable some SAM expansion, that's not the first order driver. It's really about gaining share and growing revenue faster. Okay. It does sound like you're gonna be introducing some new wireless protocols in Series 3? I did not say that. We'll have to wait and see. Okay, great. Fair enough. Maybe can you talk about Wi-Fi? You know, I know you acquired Redpine several years ago. Yeah. How is that progressing, you know, what applications and segments of the market are you seeing the most traction with Wi-Fi? Sure. Just a framing for everybody, i f they're not familiar, fifteen four, we've always been leader in that space, very strong. Now that's getting pulled into mainstream with, with Matter. Sub-Gig, again, leadership position, been very strong, and that's getting pulled into mainstream with things like Wi-Sun and, and Amazon Sidewalk. The two areas where we wanted to be much stronger were Bluetooth and Wi-Fi. Bluetooth doubled and tripled down there years ago. That's working. That's paying off. We see, you know, one of our fastest growth areas and meaningful share gains there, as we talked about. Wi-Fi is the last one. We've been working on that organically, bought a company, earlier days, we like where it's going, and we're making meaningful progress in the space, just like we did with Bluetooth. To be specific, we are focusing on the extreme edge for the IoT, where we thrive because we can bring industry-leading security, battery life, and performance. We have a device that we've announced called the 917. It has the lowest power consumption in the industry for Wi-Fi. It can bring more than 2x the battery life to any competing alternative. If you start thinking about, you know, video cameras, door alarms, you know, anything like that, not needing to change your battery for 2 or 3 times longer is a huge thing. That's where we're focused, that's where we're succeeding. In fact, that product has more opportunity at this point, and it's launched than any other product we've ever done, which is unusual for an early engagement in a new technology. Usually, you know, takes a few clicks, and it still will. The market reception has been fantastic. We see great opportunity to pull through because we're already there. We have literally tens of thousands of customers, thousands of applications, and a lot of them want this type of solution. Early days, but I think it's gonna be very similar to Bluetooth, where we're gonna see strong growth there, and, we're off to a good start. Right. Needed to ask the obligatory AI question. Sorry, I was just thinking it sounds so easy when I say it that way. It's been a ton of work to get it there in Wi-Fi, but it's going in the right direction. you know, everybody is obviously interested about AI these days. Yeah. Can, can you comment if you have direct or indirect opportunities to benefit from AI? Quick answer is yes. We, we are not putting generative AI, large language model solutions on our devices. Our devices are, you know, something that sits on the extreme edge of the network that has a battery life of 5, 7, 10 years. Not gonna be doing, you know, large language model stuff there, at least for a while. Everything we're doing is in AI on the edge is really around machine learning. We do dedicated cores or processors or accelerators to allow inference at the edge with battery life that is exceptional in the space. That's where we're focused. It's still early days, if we're honest about it as an industry, but we see a lot of customer interest and adoption where they really want to bring new capabilities and features where it's, you know, they can better predict and do what they do better than it was before. I think it is gonna happen. I think we're well positioned for that. I think it parallels security in a lot of ways, where years ago we were bringing security to the market, that everyone said, "This is more than it's needed," and now we find ourselves really well positioned. I think AI ML is gonna be the same for us on our edge devices. Nice. Hey, John, I'm wondering if you could just talk about pricing trends right now? Sure. You know, pricing started to come down. I think you had kind of talked about this, but you also sound confident about your gross margins longer term. Can you maybe just speak to, to pricing and just your level of confidence that when we come out on the other side, that we are going to get back to those kind of target gross margin levels? Yeah. Pricing environment is stable at the moment, and that is also the case of our input cost environment. We really have not seen, you know, a rollover in wafer pricing, for example, or that type of thing. No. No, nowhere close to that. You know, on the run rate base of business, you've got a stable pricing dynamic just by the nature of how design wins operate. Where you see fresh price discovery, of course, is on fresh design, new design wins. Of course, there's pressure. There's always been pressure. There's gonna be pressure going forward. You know, that's why over time, some modest ASP erosion is a healthy way to think about the business. That's the way we model it. But our commitment is to our gross margin model, which we target in the mid to high 50s. We've been in that range for a number of years now, at times exceeding it, given the unusual nature of the inflation-driven price increases and so on. Yeah. We feel good about the portfolio. We deliver a premium gross margin versus the IoT market, generally speaking, and we think that trend is also gonna continue. Great. maybe just last question here, just on OpEx. Yeah. You had talked about making some temporary OpEx cuts in the near term. Can, can you just talk about what sort of actions are you taking there? Sure. If things continue to remain weak for quite some time, would you be considering some further actions on the OpEx front? Yeah, John, you know, as we look at the current environment, we need to wait and see what this is gonna look like. You know, we're four quarters into market weakness. One would logically think this is gonna, you know, come to an end relatively soon and get back into a stronger growth pattern. It's for that reason that the actions we took were more temporary in nature, and it's items like suspending hiring near term, reducing our contractor work level, you know, reducing travel. Some items like that is really the main drivers there. You know, yes, at some point, one must consider further actions if necessary, but the right thing to do for the second half here is to wait and see what the market's gonna do and, and try to measure this recovery and see how we can move forward heading into next year. Great question. The, your home products, and products that are, you know, probably the most strongest in this? It's pretty broad in Home. If you think about what we have in the Home environment, it's, you know, think of thermostats, smoke detectors, security panels, security sensors. I mean, literally anything that can go in, in the Home, we, you know, we put that under the Home umbrella. Life tends to be something more that affiliates with your person, that you'd kind of wear on your body or, or something like that in healthcare. Home is in the Home, and we've seen a pretty broad impact there across almost all applications. There was a few that, you know, showed some more potential resilience, like home security, that, that, that hung in there longer, but we've seen that slow as well now. New home starts might be a big driver for that. Yeah. A little bit of a sort of turn in the market might help. I mean, after four quarters are down, it's incredibly low. The, you know, there's definitely more upside potential than downside, and on top of that, the ramps, the design win performance there has been awesome. The combination of those two, you know, not calling the bottom, but it would logically hold that you should start seeing that go the other way, either on the design win performance or on the market or both. Do you have a percentage of, portfolio that is sort of legacy in nature that might be starting to decline and maybe creating a headwind as well? Yes and no. There, there is always that kind of cycle within. That's, that's not the driver factor, we've seen. We watch that really close. Our generations or platforms have proven just openly more resilient than even we thought. And what happens is, you know, think of Series 1, Series 2, Series 3, applications kind of work their way through those series. You know, an application might start with Series 1, then move to Series 2, then move to Series 3, over time. They're, they're remarkably durable and, and still showing resilience, you know, many, many years in. Great. If you were to have to divide This is the last question. Yeah. The slowness in your business, particularly last quarter and the guidance between too much inventory in the channels versus real macro slowdown, how does it weigh? I don't know how to answer that. It's impossible to answer. Yeah. That's exactly the right way to think about it. They're both relevant, is our best answer. Then, you know, easily said, the inventory is because people thought demand was gonna be stronger than it was, and they built inventory. Now they're burning through it. It's important. We do see both. You know, i f demand wasn't softer, inventory would be gone already. The, the two are conflating things for sure. Great. Well, thanks, guys. Thanks, John. We really appreciate it. Thank you.