Silicon Labs at KeyBanc Forum: Strategic Growth Amid Challenges

On Monday, August 11, 2025, Silicon Labs (NASDAQ:SLAB) provided a strategic overview at the KeyBanc Capital Markets Technology Leadership Forum. The company highlighted its recovery journey and growth prospects, with a focus on smart home and medical applications. Despite macroeconomic uncertainties, Silicon Labs expressed confidence in its financial targets and strategic investments.

Key Takeaways

• Silicon Labs is experiencing a recovering demand environment, particularly in industrial and commercial sectors.
• The company is focusing on growth drivers such as Continuous Glucose Monitoring (CGM) and Electronic Shelf Labels (ESL).
• A $10 billion design win pipeline is expected to generate $2 billion to $2.5 billion in annual revenue.
• The company aims for a long-term gross margin target of 56% to 58%.
• Investments in Series 3 microcontrollers and smart home standards are key to future growth.

Financial Results

• Q3 revenue is projected at $205 million.
• Current gross margins are trending towards the high end of the 57% to 58% range.
• Operating expenses are targeted to grow at only a third of the rate of revenue.
• The $10 billion design win pipeline is expected to translate into $2 billion to $2.5 billion in annual revenue over four to five years.

Operational Updates

• CGM applications are anticipated to reach 10% of revenue, with engagement from over 60 customers.
• ESL deployments are expanding across geographies, notably in big box retailers in the Americas and retail grocers in Europe.
• Adoption of Matter, Thread, and other smart home standards is increasing.
• Series 3 microcontrollers offer enhanced compute capability and security features.

Future Outlook

• Silicon Labs is focused on converting its $10 billion design wins into revenue.
• The company is balancing growth investments with profitability improvements.
• Continued investment in WiFi and smart home technologies is expected to drive future growth.
• Series 3 microcontrollers are positioned to cater to applications requiring higher capabilities.

Q&A Highlights

• Demand visibility for the latter half of the year remains limited but generally healthy.
• The CGM ramp-up is on track, with potential for growth beyond 10% of revenue.
• Series 2 and Series 3 microcontrollers will coexist, with Series 3 targeting higher performance applications.

For more details, please refer to the full transcript below.

Full transcript - KeyBanc Capital Markets Technology Leadership Forum:

John Van, Analyst, KeyBanc Capital Markets: Great. Good morning, guys. My name is John Van, I cover our semis here at KeyBanc Capital Markets. Really pleased to have the Silicon Labs team with us. We have Dean Butler, CFO and Thomas Hawes, Director of Investor Relations.

Welcome, guys.

Dean Butler, CFO, Silicon Labs: Thanks. Thanks, John. Thanks for having us.

John Van, Analyst, KeyBanc Capital Markets: Yes. So maybe we can just start talking kind of big picture cycle recovery. Clearly, you guys have seen a recovery now for several quarters. Just maybe just talk about what you’re seeing right now from this recovery. I think some of your peers have been saying that one of the things that’s making hard to kind of get better visibility into the back half is the nature of the recovery is there’s a lot of turns based orders given how short lead times are, so you’re not getting that backlog being built up in the back half.

Maybe just talk about what you’re seeing and how you’re trying to navigate kind of the visibility into the back half of the year.

Dean Butler, CFO, Silicon Labs: Sure. One, I would say, like we have a large set of applications that we service. So we see things on industrial side. We see things on the consumer side, increasingly on the medical side, in the commercial retail space. So we have lots of sort of pockets of business that we service.

My general take is I think things are better demand wise than people sort of let on. Think what’s sort of holding things back more than anything is changing noise in the macro. Like I think there’s, hey, tariffs are on, tariffs are off, things are happening, geopolitical changes. I think people are waiting for, like, what’s gonna happen with the Fed. Like, there’s a lot of macro things that I think sort of slow things down.

However, across the board in almost all of the applications that we serve, I would say demand is reasonably healthy. Like I think people aren’t taking big gambles on lead time. So I think some of the peers have said, hey, a little bit limited visibility turns orders. We see the same, but it hasn’t really changed for three quarters. The last three quarters has kind of turns based, and that really hasn’t changed.

And I think that more than anything, people as customers are just sort of putting forward like the next quarter or two worth of demand and giving themselves the flexibility to sort of change without saying, hey, I’m going to give you nine months worth of POs, twelve months worth of POs. I think you’re looking at like three or four months worth of POs to allow some of that flexibility. We’ve over the last year, I’ve sort of been really rallied around ramping up a lot of our new designs. And that has made us a little more agnostic on what’s happening with all the macro and more focused on sort of driving sort of new design ramps up, and that’s really been driving the revenue uptick over the last several quarters, and that is likely to continue. But as a macro observation, things are probably better than sort of the macro would sort of let on across most applications.

John Van, Analyst, KeyBanc Capital Markets: Okay. That’s helpful. Maybe if we kind of dig down a layer, can you just talk about what you’re seeing in home and life versus industrial and commercial? And you talked about some of the volatility related to some of the tariff uncertainty. Do you think one segment or the other is a little bit more resilient to some of that tariff risk?

Dean Butler, CFO, Silicon Labs: I would say our observation has been that the industrial and commercial side of our business has been doing relatively better than the other side of the business over the last kind of two quarters, March, June. That looks like that probably continues from at least what we can see so far. And I think that’s really around what are the drivers in industrial and commercial. Like this is sort of broad strength on sort of pulling back from inventory and sort of starting to come back to more normal demand rates. I think that’s what we see on the industrial side.

We don’t see sort of cracks and weakness around industrial customers, maybe late ’twenty four. Some of the industrial, like in Europe, sort of was weak, and we don’t see that anymore. We see actually industrial in Europe doing reasonably well. On the home and life side, so there’s sort of two sides. One is kind of like smart home and one is sort of more medical centric.

On the smart home, it’s sort of steady, slow and steady. I think things are doing pretty well. We you’ll see the business doing well. That one, we think, is a little bit attached to like interest rates and therefore home price sales and renovations. So I think that’s pausing and waiting a little bit more to see what happens in sort of the real estate market.

I think the real estate market does better, that market does better. Medical, I think, is agnostic to all of that. Medical, I think, is sort of a growth business for us, agnostic of what happens in the macro. That more than any of the others has been design win driven. And that looks like that deal is going to be separate from any of the other activities.

John Van, Analyst, KeyBanc Capital Markets: Great. Maybe we can talk about CGM. Where are you in the ramp of your CGM wins? Maybe can you talk about in context of maybe what inning we’re in at this point in time?

Dean Butler, CFO, Silicon Labs: Yes. CGM is a new application that the business has been involved. And in 2024, I think it’s important to know, in 2024, we had almost no sort of CGM related business. We foresee that application becoming 10% of revenue. And when we sort of made that statement that we said, hey, in April, we think it can go basically 0% to 10% of revenue.

We’re about halfway into that sort of ramp up. It’s still pretty early, even at 10%. I’m not sure that’s the cap. We continue to engage with more and more customers there that are continuing to drive that even higher, I think, as you go forward. But as you recall, we have about a dozen customers in sort of the CGM space that we’ve won that are various stages of qualifications and ramps.

Some started at the 2024, many started early in 2025 and some are sort of starting to ramp now. What I would say is like any new production ramps, like the timing is sort of not always perfect and people are still working on some of the qualification work. But that looks like that’s still on track to drive 10% of revenue or more as we sort of look a couple of quarters out.

John Van, Analyst, KeyBanc Capital Markets: Great. Of those 12 customers, can you give us a little bit more color on who these customer profiles are? Obviously, you’ve announced DexCom. But do you of these 12 customers, are they in the top five, top 10 in the world? Just how large are the scale of these customers?

Dean Butler, CFO, Silicon Labs: Yes, there’s one that we’ve named that you got right, John. And what if you look at the makeup of that industry, there’s about four or five that hold like the dominant portion of the market size, and they drop off relatively fast after that. We’ve only got one of those sort of top players. And fortunately for us, it actually happens to be a very good one, a very fast growing customer. Beyond that, they drop off pretty fast into that next sort of Tier two type designs.

But I think what’s important to know is, and we said it on this last public call, is we have confidence that, that’s not all we can win. We have confidence that we can win more. We’ve said previously we’ve engaged with 60 now in total. And I think given the technology advantage that we’ve brought into that application set, it looks like we have a pretty good shot in converting some of those others into design wins, which would be in addition to that 10% sort of ramp up.

John Van, Analyst, KeyBanc Capital Markets: Great. Maybe we can talk about kind of the other big growth driver for you, which is ESL. Can you give us an update on kind of what you’re seeing within ESL? Yes. ESL is a

Dean Butler, CFO, Silicon Labs: good business that the company has been in the last few years. The last two or three years in a row, electronic shelf labels have been one of our fastest growing applications. We continue to lead the market in a lot of respects here. I think over the last couple of years, you’ve seen a lot of trial deployments in the retail space. I think what is starting to happen now is you’re starting to see bigger, broader deployments where people may have been deploying in a specific geography, maybe it’s a state or a province or a city to now saying, hey, we’re going to start to roll this out nationwide or globally in some cases.

ESL as a market, I think, will continue to grow. I think you’ll continue to see these in the future. I think eventually, a lot of these shelves are going to get switched over. And we are pretty early. So like if you walk around in our everyday lives, if you go in a grocery store or a retailer, you’re not yet seeing broad deployment.

I think that’s still coming. So I think there’s a lot of room to grow and that market has been a very fast grower and I think it’s continued to be a very fast grower into the future.

John Van, Analyst, KeyBanc Capital Markets: I have seen ESL, not often. I see it more outside The U. S. Where are you seeing geographically ESL being most aggressively deployed and what’s the TAM? Can you size it for us?

Dean Butler, CFO, Silicon Labs: I mean you can multiply a lot of things to get a huge TAM for ESLs like how many SKUs in a store times that’s how many labels you need times how many stores. It actually quickly adds up into billions and billions of units like pretty quickly. I think what we end up seeing is in The Americas, it tends to be sort of big box retailers that tend to deploy this. I think if you look at like a Best Buy, they’re sort of pretty heavy users. Whole Foods is a pretty heavy user.

Like Walmart has announced plans to roll out more ESLs across their stores big box wise. Target, I think, has become more vocal about sort of their deployments. In Europe, interestingly enough, you see them a lot with grocers. And Europe, I think, has gotten a bit more uptick, specific grocers. And I think it’s interesting to see sort of different use cases on, hey, just food waste versus maybe simplicity at retail.

In Asia Pacific, that one hasn’t quite taken off. I think in The Koreas, like South Korea, you see that a little bit more, but not sort of broadly across Asia yet. Okay.

John Van, Analyst, KeyBanc Capital Markets: You guys talk a lot about your work with Matter, Thread, Sidewalk. Can you just talk about what the importance of these standards are and why it’s important for SLAB?

Dean Butler, CFO, Silicon Labs: Yes. So Matter, Thread, 15.4, ZigBee, Z Wave, they’re all sort of in the same family. These tend to be probably the most well suited smart home sort of communication link that there is. And Matter is the communication protocol that essentially lets different end devices that are made by different manufacturers theoretically talk together as just sort of one unified system. I mean, think that’s probably the biggest frustration as sort of smart home evolves is, hey, how does this all come together in sort of one control plane?

And matter has the potential to do that. And the key here is you need all of those end devices to be speaking the same language, this matter protocol, so that they can all communicate and share instruction sets if if that’s what they need to do. What you have seen and what we’ve witnessed is we’ve won more fifteen four, so matter, you know, enabled applications in the last twenty four months than we have in the entire six years before that combined. So there is certainly an acceleration in interest and adoption in Matter. Although as sort of an everyday citizen, it’s not sort of yet apparent.

What’s happening, we believe, is in the background, people are deploying these radios and, you know, making them capable of, you know, like over the air, sort of turning them on, you know, as sort of the employment reaches a critical mass. You see this, I think, with a lot of the handset, you know, makers now have sort of matter. A lot of them might call it thread. TVs actually are increasingly deploying this as well, as well as like home gateways. So basically, hey, the end sort of control points and then all the client devices are making headway and sort of deploying more and more of these in the marketplace.

I think what we’re sort of in waiting is, hey, when’s the year of the matter? And I think that’s probably coming soon. I don’t think it’s sort of this year, but we have certainly seen signs of increasing interest.

John Van, Analyst, KeyBanc Capital Markets: Okay. Can we talk about Series two and Series three? I could be wrong here, but my understanding is that Series three isn’t just the next generation of Series two that all these Series two devices you have are going to be replicated on Series three. It seems like there’s some differences between the two platforms. But I’m wondering if you could just clarify how those products are doing?

And then what are the differences between Series two and Series three?

Dean Butler, CFO, Silicon Labs: At the most simplistic level, I would say Series three increases the compute capability of almost everything that’s in Series two. I mean I think what we see is across all the thousands of applications that we support and all these customers, the increasing importance of customer software code actually running in these applications. It seems like no matter what you do, customers writing more and more software, their end applications are getting more complicated. And so series three is really around hey, enabling a larger compute capability within these customer sets. And then it sort of ups the level of engagement in things like security.

We actually see increasing you know, government regulatory things that are coming down that are increasing the requirements for security on embedded microcontrollers, and Europe has several standards that are coming down. The U. S. Has a standard that’s getting rolled out. Several of the APAC countries actually are proposing sort of different standards that are, you know, in various progress.

And I think that is one of the things that Silicon Labs has really stood out in its Series two is actually security capabilities and low energy capabilities that we’re sort of pushing forward into the next frontier into Series three. So our very first Series three is out and selling to customers now. It is also the very first device in the world that’s actually qualified as PSA Level four secondurity. We were the first at PSA Level three. In fact, many of our competitors are still trying to achieve level three, and we’re sort of already on the four with Series three.

So I think the intent is you give customers, hey, the upgrade path, especially as sort of AI eventually sort of comes to the edge, more and more software will get run at the edge, more and more inference is going to get run at the edge, hence, more compute capability. So it gives sort of that upgrade path and then sort of next generation sort of all the forms and features that we support, security like and energy management.

John Van, Analyst, KeyBanc Capital Markets: Great. Are there ASP and gross margin implications for Series two and Series three? I assume they’re going to be accretive.

Dean Butler, CFO, Silicon Labs: Yes. I mean, generally speaking, the more cutting edge features we make available, we price to that. The more compute we make capable for customers, we’ll price to that. I think it’s noteworthy that not every customer actually will need Series three. So I think Series two is a great platform for a lot of applications that maybe are not going to require, like post quantum level, you know, cryptography.

Maybe there’s some gonna be some applications that, you know, won’t end up running AI at the edge and don’t need sort of the compute sort of step up. Maybe there’s applications that, hey. They’re sufficient in their battery usage and energy, you know, today that they sort of don’t need the next step. We actually think Series two is likely to continue to win sort of designs for a long, long time. And Series C will certainly step up as features step up in ASP, but they won’t cannibalize each other.

I think they’ll live together actually for a long time.

John Van, Analyst, KeyBanc Capital Markets: Great. Your $10,000,000,000 design win pipeline, is there a way to think about just how much that pipeline converts to revenue in the next twelve to twenty four months? Is there kind of a rule of thumb that we can think about in terms of what you think the conversion rate is going be?

Dean Butler, CFO, Silicon Labs: Yes. So the like here’s the easiest way I think to think about sort of the company’s 10 billions and wins. So that is $10,000,000,000 in lifetime value design wins that the company has won. The best rule of thumb I think I would give people is that’s a lifetime value. And the easiest way for most people to think about it is you have to divide kind of an average lifespan of four to five years.

So basically it says, hey, you have $10,000,000,000 that’s equivalent of somewhere in the $2,000,000,000 to $2,500,000,000 in annual revenue sort of equivalent. Now as a company, we’re we just guided $200,000,000 a quarter, two zero five for this quarter. We’re like at $800,000,000 So basically, where we are and what the potential is of this $2,000,000,000 $800 to 2,000,000,000 to $2,500,000,000 gives us ample headroom to continue to grow for quite some time. And even ample headroom to say, look, hey, I want to de rate this by a certain degree. You can use any sort of level of de rating that you might think is appropriate.

But there’s a bunch of headroom is actually the way I would say it is from where we are to what the awards that we have already won. The easiest way to think about where are we maybe in that journey and sort of converting them, it on the Series two, which sort of is the bulk of those wins, but not all, we have $17,000,000,000 in units. We’ve shipped 1,000,000,000 out of that seven. So we were about, you know, call it, you know, one one six or one seven of the way in from converting that. And there’s there’s a curve.

Right? So you sort of qualify and start low and and things, you know, sort of keep ramping up and keep layering in over time. So I think we’re we’re relatively early in deploying all that 10,000,000,000 out there, But I think there’s ample room for us to grow. And that’s before really Series three starts kicking in, before these next level of blood glucose medical things that we’re working on starts kicking in. So I think those are all additive.

John Van, Analyst, KeyBanc Capital Markets: Great. So when I think about the $10,000,000 pipeline, you guys clearly have a lot of opportunities that you’ve won that are still ahead of you. But as you think about investing to continue to sustain this growth, how are balancing the trade off between getting back to profitability, maybe getting back to mid teens op margins versus investing enough to sustain this pipeline growth?

Dean Butler, CFO, Silicon Labs: Yes. I mean the company has invested quite a bit over the years, which has sort of gotten to us where we are, getting sort of this big design win pipeline in hand. The company sort of goes in phases. Like every, I’m going to call it, five years or so, the company attacks sort of a next vertical to add on. The company generally started with sub gigahertz and then we went into 15.4 and ZigBee and Z Wave and then we went into Bluetooth and now latest we’ve sort of gone into WiFi as sort of our big invest areas.

The way I see it, I think we’re investing on everything we need to, to sort of capture that superset of opportunities. We’re probably in a point in time where we’re digesting you know, those, you know, 10,000,000,000 in design wins and focus primarily on bringing those into revenue. And then as they come into revenue, not reinvesting, you know, dollar for dollar sort of back in the R and D. Our intention is to significantly move that toward the bottom line and by taking operating expenses to grow only at a third the rate of revenue. So that will very quickly accelerate sort of the bottom line.

Basically, the if you sort of just run the quick and dirty math on the back of the envelope, you can actually quickly get to earnings per share will grow significantly faster than top line growth. And already top line growth, we feel very, very good about and with the design wins in hand. So I think the next focus of the company is taking that to bottom line on EPS. Great.

John Van, Analyst, KeyBanc Capital Markets: And then just maybe last question, just touch on gross margins. What’s been driving the improvement there? And what’s are you still thinking high 50s is the right long term model?

Dean Butler, CFO, Silicon Labs: Yes. So we rolled out sort of an update, which we bumped up the gross margins a little bit from what we had historically. Our stated financial model is 56% to 58% gross margin. And all the benchmarking we do around peers and people that are in sort of similar industries as us selling similar technology. We think that’s sort of leader in the pack for the most part.

Gross margins are driven primarily on mix and scale with us. So right now, what we’re seeing, we’re turning toward the higher end of that range. We just guided 57% to 58, so right at the high end of our long term model. That’s driven on distribution mix, which is close to 70% and industrial mix, which tends to be a little higher gross margin for us. As we look sort of longer term out, I don’t think we’re going to be as heavy industrial because a lot of the design wins that we have like that are ramping up, will sort of keep us somewhere in this sort of high 50s range.

I think there’s higher is always better, but I think this is actually a very reasonable expectation as to 56% to 58%. And like absent some weird mixed dynamics, I think our intention is probably to stay in that range.

John Van, Analyst, KeyBanc Capital Markets: Great. Looks like we’re out

Dean Butler, CFO, Silicon Labs: of time. Thank you. Okay. Super. Thanks, John.

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