I stopped doing it and then somebody yelled at me for not doing it, so I. They reminded you kindly. Yeah. The lawyers are watching, so. We good? Okay. All right, great. Hi, I'm Joe Moore. Very happy to have the executive team at Silicon Labs here at our conference, Matt Johnson, CEO, John Hollister, CFO. Before we go into questions, I just have to read quickly the Safe Harbor. For important disclosures, please see the Morgan Stanley Research Disclosure website at morganstanley.com/researchdisclosures. If you have any questions, please reach out to your sales rep. With that out of the way, welcome guys. Thank you for joining us. Thank you, Joe. Maybe we could just start off with a big picture look at your strategy. You know, it's really a unique set of capabilities you guys have and orientation around kind of a broader end market like this, particularly since the divestitures that you guys did. Can you just talk about, you know, what the strategy is and where you guys feel like you are on the journey there? Sure. Big picture, if you step back, we really see the opportunity for ourselves as a company to do what, you know, maybe Qualcomm did in cellular or NVIDIA's done in AI and GPUs. We see that opportunity in the IoT space, right? That no company has claimed that, and there's no company better positioned to do that. And, you know, the best proof point I can give you is, you know, the last couple of years we've been able to double the size of the company's revenue during the supply chain crisis. I think that's the headline that gets the most attention, but the bigger one is that we've been able to drive our design wins even greater than that during that same timeframe. More than doubled our design wins over that timeframe. That positions us, going into the next few years. You know, the question we get is, how are we different? The quick answer is, there's no company in our space that has more breadth, more depth or focus on this IoT space, and that's what we're bringing to the market. Okay, great. Yeah, I mean, the design win lifetime revenue up 50% last year versus 2021. Can you talk about maybe how you define that and, you know, how we should understand that in terms of interpreting it for our future revenue models? Yeah, sure, Joe. We have a fairly rigorous standard for scoring a design win. Our team identifies opportunities, and then once a customer takes at least $1,000 worth of product into that opportunity, only then can we consider that a design win. There's no human judgment there. It's not enough to have an award letter or an email. Mm-hmm. You have to ship $1,000. What that means for us is that that's really the beginning of a ramp, and then for the next three to four years is when that opportunity will manifest, you know, the majority of its revenue. Some applications have a very long tail, call it, you know, seven to eight years beyond that. For the bulk of the revenue, it will show up in the first three to four years after we call a design win. Okay. You define that then, the lifetime design win based on the number of years. Correct. Exactly. Okay. Then opportunity pipeline, you talked about $17 billion for a company doing $1 billion of revenue. You know, that's a lot. Right. Can you talk about how you define that and how we should think about that relative to your [crosstalk]. It's similar to the, you know, it relates very much to the design win. When we, when we had, when we see an opportunity, we estimate the total lifetime revenue for that. When we add all of that up, that's the $17 billion lifetime revenue. If you take, again, the average of about three to four years for an opportunity, that's a, you know, $3 billion-$4 billion a year type of opportunity SAM, if you will. Yeah. Then our billion-dollar run rate's roughly 25% of that. It's important to think of it too, is that, you know, that funnel, those are opportunities that the sales team actually tracks or registers. Okay. They're not incentivized in any way to make that number big. Yeah. They're more incentivized to make those numbers that they convert to design wins. In reality, that number is probably understated in terms of what's being captured. Think of the funnel as capturing the potential, but it only matters if we can convert it into business and design wins, 'cause that's the number that really speaks to what's gonna come next for sure. Yeah. Yeah. It seems like it's such a fragmented market that it would be hard to know how big the overall opportunities are, but those are actually opportunities that you guys see a line. Exactly. Of sight to being able to compete for. Yep. That's right. Exactly. Okay. It's not a Gartner report or something like that. Right. These are live that our team has sourced. Yeah. Okay. That's helpful. Thank you. So, industry conditions. You know, on your most recent earnings announcement, you know, you actually saw kind of a stabilization after maybe a little bit of a weaker quarter, the quarter before, which I think was a positive surprise for people. I think people sort of see, you know, the first downtick as like in a market like this as something that's gonna snowball. Can you talk about, you know, obviously still mixed conditions overall, but can you talk about, you know, the factors that are holding your business afloat in a tough time? Holding it afloat? Yeah. Yeah, maybe you know, going way up to the top and big picture, first of all, you know, it's impossible to know exactly how this environment's gonna play out, right? What we've said consistently is we see a path to growth, and we see a path to definitely doing better than whatever the end market ends up being. The reason for that is we know we've been gaining share. Yeah. We know those ramps are gonna help offset whatever is out there. You know, to answer your question directly, definitely still seeing, you know, strength in consumer, industrial, I'm sorry, industrial commercial. Mm-hmm. You know, seeing weakness in consumer. It's also worth pointing out that the consumer side is mostly the home, the smart home for us. Yeah. The life and health piece of that has been more you know, strong and robust than we expected. We're still seeing growth there, while we're waiting for the consumer home side to recover. Yeah. I think that diversity of business is really serving us well. Yeah. Like we said, we do see a path to growing and outperforming whatever this year ends up being. Great. Can you talk to the role of supply chain and lead times have been sort of a challenging environment for everybody? You guys have navigated it pretty effectively. Can you talk about, you know, how you've seen those challenges? Yeah. You know, we have navigated it well, and it's really based on the strength of our relationships with our suppliers and our posture as an IoT pure-play company. Yeah. That pure-play status helps us, excuse me, with customers and suppliers, where suppliers are looking for exposure to this market. We represent an outstanding opportunity for them. Okay. The other thing I'd add to it is, you know, we get asked a lot, you know, "Well, how do we know that, you know, how you're positioned from a supply perspective?" The best testament we can give to our position is not just the growth we drove during the supply chain crisis, but the design wins we secured during the supply chain crisis. You can't grow design wins that fast if customers are worried about you in the future. Yeah. If they think you're not gonna be able to support them, they'll go elsewhere. You know, our business has ramped incredibly fast in revenue and design wins 'cause they have confidence we're gonna be able to do it. It's the best data point we have. Yeah, I mean, I don't think that's something we should take for granted given that, you know, it has been such a challenging supply chain environment. I know there are some small companies, I won't mention, that I cover that have struggled with these. Mm-hmm. Supply chain issues and have struggled not just with their own supply chain, but to give customers that conviction that they can deliver. When there's a crisis, relationships either get better. Yeah. Or they get worse. You know, our supply relationships have gotten better. You don't hear us trashing any of our suppliers. Our customer relationships have definitely gotten stronger as well, and, we've gained a ton of market share, so that's exciting. Mm-hmm. Okay, great. Your visibility right now, outside of the perturbations that you talked about in home surveillance, seems like, you know, you have pretty good visibility, pretty elevated, i s it long lead time still? Yeah, we do. You know, lead times are sitting at about six months right now, Joe. That's come in a bit. Mm-hmm. It was closer to a year. Yeah Six, nine months ago. You know, all that said, that speaks to a portion of the quarterly revenue. We still rely on turns. Yeah. To build it out. Yeah. You know? It's not perfect, but it is longer than it has been in the past. Where do you want those lead times to get to? You know, I don't think we're going back to the old days where we were less than a quarter. Yeah. So, call it, you know, 13, 15 weeks. Okay. Would be kind of the ideal state over time, but it's gonna take us a while to get back there. 13, 15 weeks and still some ability to meet turns demand. Absolutely. Over to shorter than that. Yeah. Okay. Can you talk about distribution? I think over 80% of your revenue goes to distribution. You know, you've talked about rising inventory in China a little bit. Can you just talk generally to your distribution strategy and what you guys are seeing there? Yeah. Well, I was just gonna say, you know, most people are aware that we have a large distribution, you know, percentage of our business, right? 80%. Yeah. What is important that people understand within that, there's a large component that is, you know, fulfillment because we directly work, support, and engage with those customers, and that's a valuable piece. There's another piece that's very valuable as well, which is, you know, the piece that we don't touch. That's demand created by our distributors, and that's not a business we don't invest in. It requires a lot of investment to make that low or no touch, you know, easy hands-off business for us. That's really, you know, valuable business and higher margin business. We're, you know, very focused with our distributors on feeding and supporting both of those. Mm-hmm. Because, you know, our goal is to, you know, over time, continue to gain market share and be the undisputed leader in this space. We need both ends of that spectrum in order for that to happen, and that's the way we're structured and the way we're executing. Okay. Can you talk to the level of inventory that's at distribution? Yeah. We were stable in the fourth quarter at around 60 days. That's very reasonable, particularly as you compare us to larger peers in the industry. We could see that potentially coming up a bit in first quarter with the business down ahead of ramps as we progress through the course of this year. You know, we monitor that carefully. We don't wanna let that get too high as we could have, you know, other demand that could benefit from that inventory availability. Yeah, it's really important point for us that, you know, we're trying to be as responsible as we can in this market environment 'cause there's a lot of uncertainty out there. At the same time, we know the business we've won, we know the ramps that are coming. Mm-hmm. You know, frankly speaking, our industry doesn't do a great job at, you know, handling these swings. We just keep going back and forth. We're very focused on making sure we can support our customers' ramps on the other side of whatever this environment is because they're coming, and they've been won, and they're gonna ramp. Yeah. We cannot be short on supply to those ramps. It's a tough balancing act in this environment to make sure we're doing both of those well. I just wanna add on quickly to that, Joe. I mean, it's, you know, monitoring and managing that distributor inventory on the organic in-house inventory, making sure that we're well positioned for growth. Mm-hmm. Heading into later this year and into next year. That balance is coming up. It doubled in 2022. See it coming up again in first quarter, and we'll continue to build reserve inventory. That's in die bank form. Yeah. Which is almost more like raw material. Mm-hmm. That we can then build out into many different SKUs, many different part numbers. Okay. Talking about a different difficult balancing act, you know, China, we've got, talking to people at this conference, numerous reports that continues to be slow. Yeah. On the other hand, seems pretty obvious that it's gonna start to speed up. How do you prepare yourself for an economic re-acceleration after such dormancy in that economy, and how do you prepare yourself for that without overextending? It's a great setup. you know, we had 24% China mix in fiscal 2021. That was down 10 points in 2022 to 14%. Okay. That's pretty low, you know? Yeah. To your point, I think there's more upside opportunity than further downside risk, given how, you know, kind of bad it's been in the Chinese economy. We're just, you know, just the same strategies, making sure we have enough inventory on hand, making sure we're working carefully with our distribution partners who serve that market. We're just kind of waiting to see if the recovery will begin. Haven't seen it yet, to be fair. You know, as we've said publicly, we haven't, you know, predicated our plan on a recovery in China in 2023. It'd be great. Mm-hmm. We're not assuming that'll happen. The other thing that's worth mentioning is, you know, we've always had headwinds in China, to growth there, right? There's a lot of local incentives, use local suppliers, you know, there's the [audio distortion] strategy, all these things. Those have just been the, you know, business as usual. We'll only get designed in if we have a meaningfully better solution than any local alternative. We're, we're at peace with that. The dynamic that's relatively new over the last couple of years is the Chinese semiconductor suppliers are having a more difficult time getting designs in the West, in particular in the U.S. and Europe. We're seeing a lot of places where those suppliers are getting designed out in favor of our solutions because they don't want Chinese silicon in those sockets. That's new. That wasn't. Mm-hmm. A strong dynamic even just a couple of years ago. Yeah. Okay. Okay. Maybe shifting toward the annual outlook, you know, the most recent earnings, you talked about this year being more like calendar 2021, where the growth is kind of more unit driven, less ASP driven. You know, you have the product cycle design win pipeline that you talked about. You know, maybe ASPs could continue to be kind of a mix-related strength. Right. Can you just talk about the balance of those things? Yeah. Yeah. That's right. I mean, it's, you know, that commentary really is about specific price increases. We had some. Right. You know, limited price increases, but your point is a good one, is that the, you know, customer mix, product mix can still positively benefit our ASPs and revenue momentum. At the same time, we see a lot of unit growth ahead as over the next, call it, few years, as we have major programs ramping out in the market. We, you know, we talk about our current generation of product as Series 2, which is not the best name because it's our fourth generation. Right? What matters about it is each of these generations, we're getting better and better at addressing and serving this marketplace. Every generation, we learn something and things that are incredibly valuable and help us be more competitive. You know, last generation, Series 1, we released four wireless SoCs. This generation, we've already released six on Series 2, with that many, if not more, to come after that. It's not just about the quantity. They're just hitting the mark in the marketplace. Each one of these products is setting records for us that we've never seen before in terms of the adoption, the opportunity, the design wins, just the potential for each of these, which is incredibly exciting for us to have this product cycle be so strong right now, and it's helping drive that design win number I've talked about, helping drive that future growth that we're talking about. Of course, we're already working on the next generation as well, but we wanna make the most of this because we've just hit it. We've hit it hard and right, and we wanna make the most of that and, you know, grab as much land as we can. Mm-hmm. Okay. Makes a lot of sense. In terms of the price increases that you were passing through from your foundry suppliers. Right. Is there a point where that reverses? You know, that's a question I've asked everybody, but nobody seems to really see that happening. Yeah. You know, the foundry price I know reverses at some point. Does that mean you end up passing through price declines to some of your customers? Potentially. You know, we'll see what comes. I agree with the first part of your comment. We really haven't seen that yet. Yeah. In a meaningful way. You know, the marketplace will take over and normalize things probably, and hopefully actually. We could see some moderation in our pricing over time. All right. That is possible. All right. It doesn't seem like the customers are really asking for it. At this point, the customers are still focused on supply chain price increases very much. Yeah. Every customer would like better pricing all the time. I don't wanna. Okay. You know, ignore that. The way we've tried to approach it with our customers is with just transparency, integrity, and being very open with them that, you know, we're passing it along, and if it goes the other way, we'll pass it back. What we have confidence in is our ability not to get stuck in the middle, and that we can navigate it either way, and I think we have a good track record of doing that. I think where we've taken some heat is, you know, when the margins have gone up more than expected. Right. We've been asked, "Why aren't you resetting your model?" You don't reset your model in an atypical market environment. Yeah. And, you know, pricing pressure, market forces, they will prevail. They always do. It's just a function of time. But we're confident we can navigate it. Yeah, no, I think you guys have done a really good job of keeping those expectations in check and making. Sure. Helping us to understand how all that flows through. Maybe we could talk a little bit about the consumer mix that you referenced, you know, maybe first starting with the part of it that's weak. You know, any visibility into why the smart home business, I mean, it seems like still a pretty compelling product cycle, really exciting product stuff, heavily promoted at holiday period. You know, what is, what is the prognosis for that? What do you see needing to have to see that business start to grow? Oh, yeah. I don't think the fundamentals of that space have changed at all. I think it's just a victim to the environment we're in, where expectations were high, higher than reality. People built inventory, now they're trying to work that down. If you look at the marketplace itself for the smart home, the adoption is high as it's ever been. No expectation it'll slow down. There's some things out there that are gonna help, right? There's standards like Matter, which are gonna make it easier for consumers, easier for developers, which will accelerate wireless adoption in the home and in the industry overall. Same with Amazon Sidewalk, right? I mean, these massive initiatives exist for no other purpose than to accelerate wireless adoption. Mm-hmm. Those are all gonna help the smart home, but they gotta work through the inventory that's there right now before we see that on the other side. Yeah, I mean, it seems like even the end demand from what some of the customers have said is still quite good, that it is more than expected. It's yeah, I think, you know, a lot of customers are very quick to remind us, they still have good demand. Yeah. It's just not as strong as they thought it would be. Yeah. It's still strong. Yeah. Okay. The parts of your consumer business which are stronger, in healthcare and stuff like that, can you talk about the drivers of that strength? Yeah. You know, think of the smart home as a space that, you know, we've had a leadership position for a long time, we've been focused on for a long time, you know, we just covered what's going on in the market there. If you take healthcare, which we call life, that's a space that we have not historically had a strong position in or any position. You know, going back four or five years ago, we decided that would be a good strategic thrust or vector for us to double down, triple down, because you can see it coming. That the need is there and the opportunity is there. You know, I would never call the pandemic lucky, but we were fortunate that we were so focused on that space. And then, with the pandemic, it just accelerated the need and adoption for wireless connectivity across so many devices, whether it's on the non-FDA side or the FDA side for wireless connectivity. You know, we've seen strength, you know, independent of what's going on in the overall environment because we're seeing new applications and we're seeing share gains. That combination, I think, will serve us well for years. I think you're gonna be hearing a lot from us over the years to come about our position in healthcare and the growth potential there. It's cool 'cause it's good products that are also making a difference in helping people, which everyone loves. Right. Right. Okay. Then on the more industrial side of your business, can you talk about some of the most important growth drivers there? Sure. you know, industrial is always tough because, you know, you love the dynamics of it, but it's very diffuse. Yeah. In terms of all the different applications. You know, couple things, growth drivers at a high level, then I'll talk about specifics. At a high level, it hit its mark, right? The technology's ready and easy enough to deploy, and the returns are fantastic, right? Our, you know, customers are seeing returns, you know, in nine, 12, 18 months, and also seeing a competitive dynamic where people don't. You know, it's almost FOMO, where people don't wanna be left behind. The adoption is accelerating clearly. It's still early days, so, you know, you're looking at a good decade or two of growth in that space, which is awesome. Easy examples, we've talked about metering. Always had a strong position there. Gas, water, electric, has, you know, always been kind of big in Europe and the U.S. Now you're seeing India and Asia explode with adoption. South America. I mean, it's just fantastic. Our position there is good in most cases, no matter who wins. Or shelf labels. Another example we've talked about, the digital labels. It has really accelerated in terms of global adoption. You know, whether you're going, y ou know, a lot of people in the U.S. will have seen them at, you know, maybe Whole Foods or Best Buy or Home Depot, but those devices can automatically update the price to price match what's available online, manage for, you know, perishable inventory. You don't have to update all the time. It works for dynamic pricing, and the returns are great. You know, those are a couple examples of, you know, specifics within that massive market of all those. Mm-hmm. Different applications that. Inflation helps you. Just taking off, so. Yeah. You can change the price of eggs every two [crosstalk]. As much as you want. Yeah. Okay, great. I guess when you think about the revenue growth, you know, at the Analyst Day, I think you talked to a 20% CAGR. You've also talked about your design win lifetime revenue going up a lot more than that. Right. You know, I guess how do you, y ou know, is that conservatism? Is that it just takes time to bring these ramps up? Just how should we think about those two numbers and? Yeah. You know, fundamentally, Joe, it's looking at our best view of the SAM growth rate, which is in the mid-teens over time. Again, like Matt was saying earlier, it's been an atypical environment in the past couple of years. Yeah. Over time, we see the market growing in the mid-teens. We think, as we have been doing. Mm-hmm. We can continue to grow our share of that market ahead of that growth, and that's what we're targeting, the 20% CAGR on. Mm-hmm. Okay. I mean, there is still the pricing lift of Series 2 and things like that. It's part of that as well. Yeah. I mean, easy way to think about it is, you know, our commitment to that model is what drives us, and our goal is to always do better than that. We've done better than that the last couple of years, but we honestly don't see any signs of that slowing down, given the design win momentum. You know, it'll be lumpy how it comes in, like. Mm-hmm. Years in environments like this. Mm-hmm. The absolute opportunity and trend is the strongest it's ever been. You know, I think even in this environment that we're in right now, which is uncertain, you know, most of our discussions have been around, "Yep, we gotta be responsible," but how do we capture and maximize all this opportunity that's coming in? I think as we've kind of gotten to the size that we are and clarity of message and focus, we just keep getting looks. You know, people approach us who've never used wireless technology before and say, "How might we do this? How might we partner?" Obviously, our goal is to support that, and they don't even talk to anyone else. I mean, it's really exciting. Mm-hmm. We feel good about it. You know, market's huge and growing. Best position possible. Just gotta put two and two together and make the most of that. Great. One more question, and then I'll open it to the audience. You know, the building blocks that you have, I mean, obviously you have the highest breadth of communication standards. Yeah. For IoT. You have software offerings to sort of help people do designs. You know, where are you in terms of that? Are there capabilities that you still wanna build out from kind of a broad capability standpoint? Yeah. I mean, it's never done 'cause it's always evolving but, you know, big picture, if you look at it, we spent really the last 10 years acquiring, almost a company a year. Mm-hmm. When most of that was really about adding capabilities, to our portfolio. We're at a point now where we have the requisite capabilities that we want and need, our focus now is just about maximizing driving share within that. That's not to say if we need a technology over time, we'll make it or buy it. Right now, we're just trying to maximize the opportunities in front of us, and we're not feeling short on any capability or technology, which is one of the reasons why I think we're just seeing that flywheel effect and acceleration that we're seeing. Do you see, you know, the bigger competitors taking on your approach, or is it still they're selling point products in like Zigbee and Bluetooth and things like that? I mean, we should always be hyper paranoid about all our competitors, but you know, what we're seeing right now is the biggest companies, it's a challenge for them, right? They have core businesses that they have to protect and focus on. That served us really well during the supply chain crisis because they all retrenched, and that helped us gain some share. Also, when you have a big core business, the tendency is to try to apply that model to the new model, right? You know, it's important that people realize the IoT space is unlike any space the semiconductor industry has ever seen, right? Think of the volumes of handsets or PCs, which are big and have been globally game-changing for the way we live and work. The IoT volumes are dwarfing those already, right? You're talking tens of billions of annual units going to probably 100 billion units over the next decade. You cannot take approach that worked in one of those other markets and say, "Oh, I'm just gonna apply it to this market." It doesn't work, and you can see that. Everything we've done has been custom, homegrown, made for the IoT across four generations. That's why we're able to do what we're doing because it's made for it. We're not trying to repurpose it and reapply it. Mm-hmm. You know, we always have to be watching all our competition, but, until they really start working to focus on the market and serve what the market needs versus just reapplying what exists against that market, we'll be relatively well-positioned. Great. Let me pause there and see if we do have questions from the audience. I'd be so disappointed, Jack, if you don't ask a question. Come on, Jack. Come on, Jack. Maybe I don't wanna know what the question is then. Maybe we could talk about some of the financial issues. Yeah. I guess, you know, on the most recent earnings announcement, you talked about another $200 million available for share repurchase. You look for a cash buffer of $1 billion. Can you talk about the trade-offs in terms of your cash balance and what the. Sure. Yeah. You know, Joe, we're looking at returning capital to shareholders in a responsible way. We've done a good job of that, I would say. Yeah. Since the divestiture, we've deployed more than $2 billion, as was our commitment. Part of what we're looking at is what's the right amount of cash to retain on hand? What's the right amount of leverage to keep in the model, if any, as we move forward here? We are evaluating that as well. You know, just ensuring that we have good capacity on hand to be strategic in the event that an M&A opportunity or other cash need of that nature arises. That's the. Mm-hmm. That's the balancing. Okay. You know, continuing to return capital to shareholders as we generate cash flow is an ongoing thing that we see in the future. Yeah. Yeah. Okay, great. Well, I think we'll wrap it up there. Thank you so much. Okay. Yeah. Appreciate it. Thank you.