Good morning. My name is Keith and I will be your conference operator today. At this time, I would like to welcome everyone to Silicon Labs’ Fourth Quarter Fiscal 2019 Earnings Conference Call. All participants will be in a listen-only mode. [Operator Instructions]. After today's presentation there will be an opportunity to ask questions. Please note, this event is being recorded. I would now like to turn the call over to Jalene Hoover, Director of Investor Relations and International Finance. Jalene, please go ahead.

Thank you, Keith and good morning everyone. Tyson Tuttle, Chief Executive Officer; and John Hollister, Chief Financial Officer, are on today’s call. We will discuss our financial performance and review our business activities for the fourth quarter. After our prepared comments, we will take questions. Our earnings press release and the accompanying financial tables are available in the Investor Relations section of our website at www.silabs.com. This call is also being webcast, and a replay will be available for four weeks. Our comments today will include forward-looking statements subject to risks and uncertainties. We base these forward-looking statements on information available to us as of the date of this conference call and assume no obligation to update these statements in the future. We encourage you to review our SEC filings, which identify important risk factors that could cause actual results to differ materially from those contained in any forward-looking statements. Additionally, during our call today, we will refer to certain non-GAAP financial information. A reconciliation of our GAAP to non-GAAP results is included in the company’s earnings press release and also in the Investor Relations section of Silicon Labs’ website. I would now like to turn the call over to Silicon Labs’ Chief Financial Officer, John Hollister.

Thanks Jalene. Revenue for the fourth quarter ended at $219 million up 2% year-on-year and within our guidance range. For the full year revenue was $838 million down about 3.5% from 2018 reflecting several challenges in 2019. Weak industrial and automotive markets combined with changes in certain trade policies have been disruptive to customers and suppliers alike causing a broad based slowdown in orders from end market and channel customers. While we are disappointed that revenue declined in 2019 we believe we outperformed the broader semiconductor industry due to secular growth drivers in IoT and infrastructure. IoT revenue for the fourth quarter was $128 million representing 7% growth year-on-year. This result was slightly lower than we expected primarily due to seasonality in the smart home market following a strong Q3 partially offset by strength in broader industrial IoT end markets. For the full year IoT revenues increased 5% to $488 million led by growth in wireless products of around 14%. For comparison World Semiconductor Trade Statistics or WSTS estimates that revenue for the broader wireless industry for 2019 declined more than 16%. Infrastructure revenue for the fourth quarter was $48 million representing 5% year-on-year growth. We saw particular strength in isolation in Q4 with some improvement in the broad industrial markets driving growth in power supplies and industrial automation as well as strengthened solar. For the full year infrastructure revenue was $183 million or down about 8%. Broadcast revenue for Q4 was $28 million down about 20% year-on-year. This decline was slightly more pronounced than we had expected primarily due to weakness in automotive. Full year broadcast revenue was $115 million or down 19%. Access revenue for the fourth quarter was $15 million which was about flat year-on-year and slightly better than expected based on strengthened communications. Access revenue for…

Thank you, John. 2019 was a challenging year with macro weakness in broad based industrial and automotive markets, as well as trade policy volatility and export controls on key customers impacting growth. Total 2019 revenue declined 3.5% from 2018 with wireless leading growth and IoT offset by declines in infrastructure, broadcast, and access. Although these results are disappointing we are pleased to have outperformed the market with secular growth drivers in IoT and infrastructure, providing some offset to macro weakness. In 2019 we saw a strong design win activity which increased more than 30% year-on-year in lifetime revenue, providing a tailwind for future growth and a validation of our strategy in IoT, infrastructure, and automotive markets. As we enter 2020, we anticipate continued design win strength backed by a large and robust opportunity pipeline as we continue to drive funnel conversion and growth. Turning now to product and market updates, IoT delivered $488 million in revenue for full year 2019, up 5% from 2018. In 2019 wireless products achieved more than 1 billion units shipped to date and now represent more than 65% of total IoT revenue. Secular drivers contributed to 14% growth in wireless products for fiscal 2019 growth including ramps in smart home security and high volume lighting customers, progress in the UK smart metering market, continued integration of connectivity into gateways, and adoption of IoT in the broader industrial market. Growth in wireless IoT more than offset declines in MCUs which were impacted by broad based macro weakness. Silicon Labs is the leading provider of IoT wireless technology for the smart home market, which offers a tremendous opportunity. According to Navigant Research, global annual revenue from smart home platforms is forecast to grow from $3.2 billion in 2019 to $14.3 billion in 2028 achieving a compound annual…

Thank you Tyson. Before we open the call for the question and answer session I'm excited to announce that we are hosting an Analyst Day at our corporate headquarters in Austin, Texas on Thursday, March 12th. We would now like to open the call up for your questions. To accommodate as many people as possible before the market opens we ask that you please limit your questions to one with one follow-up.

Yes, thank you. [Operator Instructions]. And the first question comes from Cody Acree with Loop Capital.

Thank you guys for taking my questions. Tyson if you could just maybe drill down into those segments that you believe are still being impacted, if there is such a thing, still being impacted by inventory drawdown where the churn that you expect to see this year if that's the case and then those that you're more shipping organically to?

If you look at our inventory situation heading into Q1 we actually came in with a very light level inventory and we believe that our customers and this is based on feedback from numerous channel partners and customers directly that the inventory situation in the channel is actually quite healthy. We don't believe that we have significant inventory build and actually as we exited Q3 there were some inventory management which negatively impacted our Q4 revenue by a couple of million dollars. But overall we came out very light on inventory and we see as we go through the year that actually there's going to be the need for additional inventory to be built both in the channel and at customers as demand picks up.

And then in your infrastructure business was that term that you're seeing somewhat here, do you believe that's also shipping in demand or has there been stocking after quite a bit of a pause?

I think that overall this is kind of across the Board in the industrial space, in the automotive space, and in the communication space. I think that we are in good shape in terms of channel inventory where we're certainly in a lot better shape than we were a year ago.

Okay, thank you.

Thank you. And the next question comes from Blayne Curtis with Barclays.

Hey guys thanks for taking my question. Just on gross margin I feel bad asking this because usually it's why aren't you raising the range. I guess as you look into March guidance both sequential and year-over-year it's down a bit but yet it seems like mix kind of goes in your favor. So I am just kind of curious to color there and any perspective on the rest of the year?

Hey Blayne, this is John. We're pleased with the result we had in 2019 on gross margin and the guide we're seeing for the first quarter is towards the top end of our target model range. So overall happy with that. There are a lot of puts and takes in that and mix within our categories as fairly dynamic from that perspective. But overall a good result in 2019 and the Q1 guide is appropriate for beginning the year.

Thanks and then you probably want to leave annual guide to the Analyst Day but I'm just kind of curious you look at access and broadcast particularly with a flat Q1 it's up year-over-year, you typically call those down for the year, I'm just kind of curious if that's still right range to think about those segments?

Yeah, you know we think the long-term trends are persisting here with the IoT and infrastructure categories poised for continued growth in 2020 and with broadcast and access on a more steady decline mode we do expect the automotive market for broadcast to be healthier here this year in 2020 than was the case in 2019. As you know if the forecasts hold that will be a positive change for the broadcast business in 2020.

Thanks guys.

Thank you. And the next question comes from Gary Mobley of Wells Fargo Securities.

Good morning everybody. Thanks for taking my question. I want to ask about the seasonal progression throughout 2020 and more specifically with the extra week in the first quarter. Is it unreasonable to expect the normal mid single digit percent sequential improvement in the second quarter on the top line?

Yeah Gary, this is John. We do expect to see the 14 week quarter have an effect where you know heading into the second quarter you will lose a week essentially making that transition. The other thing to think about relative to the second half is the potential for some seasonality in the fourth quarter primarily on the broadcast consumer side. So as you're looking at the shape of 2020 those are some items to keep in mind.

Okay, and based on your full year 2020 OPEX guide growth of roughly 6% and just given where we're starting the year, is it fair to assume that we'll see some step -- sharp step down in the second quarter in non-GAAP OPEX to roughly what $92 million and then sort of progressing flat for the balance of the year?

Yeah, so of course the additional week does have an effect on OPEX which would account for about two percentage points on an annual basis of OPEX increase and then the balance of our estimate is driven by hiring and merits etcetera. For the first quarter to second quarter transition we do expect that to result in a downshift in Q2 to a certain extent and then that would continue in the third quarter. We would expect third quarter to step down a bit more and then fourth quarter to be flat to up from Q3 as a rough estimate. And part of what's going on with that as well Gary is some of the restructuring actions we undertook in fourth quarter are going to be fully implemented by mid-year. So you've got both the combined effect of the extra week as well as final completion and closure on the restructuring actions coming into effect in the first half of this year.

Okay, alright. I'll hop in the queue. Thanks guys.

Thank you. And then next question comes from Alexander Vecchi with William Blair Hi.

Hi, thanks for taking my question. I believe last quarter you guys launched Gecko 2. I was wondering if you could update us on the traction you've been seeing there and then also if that's been primarily targeted at the lighting segment or how we should think about the target applications?

We announced the Gecko 2 platform last quarter or last year the first member of that family was targeted at the high volume lighting market so that that product has ramped into production actually in lighting in a number of different other applications. It includes industry leading cost as well as security features and was a big success. We got very strong design win traction with that first part. The BG 22 part that we just announced at CES is the second member of that family that we have introduced and that is targeted at the low cost Bluetooth market and that's got industry leading power. A number of very good features like the location services that I mentioned in the script as well as security features and other things there. So the BG 22 is an industry leading part of one of our top priorities this year to go out and take share in the Bluetooth market. And we believe that we've got both the part -- the software and the cost position to do that. I would also say that on the Bluetooth side we've already got about a $2 billion opportunity pipeline that we're actively working. So we are -- we are actively engaged out in the market both with our series 1 devices which continue to ramp and now our series 2 devices we are filling out the portfolio of parts and working hard on the software and the tools to make that easy to convert the large opportunity pipeline that we see in front of us.

Great, that was actually extremely helpful. And then just lastly on the access line obviously trending better than expected, is that really a function of continued share gains, a better TV market, or are you seeing less ASP degradation and sort of what's been driving the upside there especially in the second half?

The China pawn market in the second half of 2019 which drove some of the upside there. So that's in the access area. I think you were mentioning also the traction that we're seeing on the broadcast side. So the TV tuner market in Q4 is traditionally down a bit, Q3 being the peak there and we see continued stability in our share on the broadcast side. We exited 2019 with about 80% of the global television market. But you have ASP declines over time and we do still see that business in that 10% decline range, that's been our long-term goal. We underperformed that in 2019 just because of the macro situation that was out there but we do see our share gain this year remaining stable. But as we go into Q1 it's actually a good thing to see the revenue in Q1 and broadcast popping up a little bit. And I think that probably reflects a bit of inventory build on the end customer basis just because we came into the year so lean.

Great, thank you so much.

Thank you. And the next question comes from Sam Rajvindra Gill with Needham and Company.

Yes. Thanks for taking my questions. A question on the IoT business, so the growth rate decelerated this year to about 5.5% to 6% from 17% in 2018 related to the softness in microcontrollers. Should we expect the overall IoT business to kind of reaccelerate in terms of its growth rate, you are kind of indicating that some of the situation in the China trade war is improving so that could help the broad base MCU business, and then you obviously got a strong pipeline of wireless IoT solutions, just any help in terms of understanding IoT reaccelerating? Thank you.

If you look at 2019 overall in the IoT market the wireless business was actually up 14% in a down year WSTS as well as the wireless and that includes a little more than IoT. It's the closest thing we can get. The overall market is down about 16% year-on-year. So we continue to see very strong traction in wireless continuing and accelerating into 2020 because of the secular growth drivers around the smart home, lighting, metering, and the industrial IoT. So the opportunity in wireless is very strong, the design win traction we talked about Bluetooth and the new parts that we have -- that we've just recently introduced so we feel very good about our growth prospects in IoT wireless. And especially when you look at the ecosystems and the growing momentum that's happening in the smart home it's very exciting activity there. And that wireless business is about 65% [ph] of the overall IoT business. The MCU business is -- a portion of that in 2019 was adversely affected by the macro situation. We saw similar results to other microcontroller vendors like S2 and microchip, that business was down and the overall result was about 5% overall IoT growth. As we go into 2020 we do see in the fourth quarter some resumption of strength in the MCU business reflecting a bit of a macro recovery that is positive. But we'll see how that turns out. So we do think that certainly MCU should not be the headwind that it was last year and 2020 as we're looking at it right now and continued strength in IoT wireless which -- there wasn't a macro impact on the wireless portion but we were able to grow significantly during the year despite that. So I think when you look at 2020 we're set up pretty well. We've got the Q1 seasonality that we're experiencing with some of the consumer applications within IoT to take a bit of a pause. But we feel good about how we're positioned right now for growth in IoT. Our overall growth target, long-term growth target 20% on the IoT business and we stand behind that. And by the way that is not the forecast for 2020, that is our long-term target but we will see how it turns out.

And then last question for me, just you mentioned that the Coronavirus that you expect to return to normal productions in China following the Lunar New Year with no major disruptions. I think I heard that correctly. Could you maybe elaborate on kind of what you've been seeing, has there been any impact, any kind of color there would be helpful?

Yes, so we went into China, Chinese New Year kind of all on a fairly regular pace. And so Chinese New Year and Coronavirus kind of happened almost simultaneously and we're reading the news just like everybody else and we are currently -- our forecast and guidance takes a normal return from Chinese New Year into account. We have things to shut down and we're going to see if things start back up on a normal pace. Our hope is that that's the case but right now I think it's anybody's guess.

Thank you.

Thank you. And the next question comes from Tore Svanberg with Stifel.

Yes, thank you. So Tyson I understand why you opened up ZWave standard. But I was curious on the timing so, why end of 2019 or whether any sort of industry inflection points as to why the declining and perhaps you could talk a little bit about how the design activity has been since then?

So, we have been looking at opening up ZWave for quite some time. We are big believers in open standards and to be able to drive broad adoption and there was some feedback from customers. I mean the adoption has actually been quite strong. ZWave performed very well in 2019. It was one of our fastest growing product lines within wireless so it has very strong market traction. We saw an opening and it wasn't specifically the timing but it all kind of came together at the same time. So the Connected Home over IP project and that going into the ZigBee alliance and a number of customers and companies looking for the right solution for a sub gigahertz standard. So if you think ZigBee is on, ZigBee, Thread, Bluetooth, and Wi-Fi are all on 2.5 gigahertz which is a higher frequency. ZWave is the standard down at the sub gigahertz band which has longer range and less interference. And so it's a very robust standard and it's widely deployed. You've got a hundred plus million units of devices deployed out in the market. And as companies are looking for a sub gigahertz standard it was our belief that we have an opportunity to make sub gigahertz the wireless standard for the IoT. And in order to do that it needs to be an open standard and we felt like the right thing to do both to drive consumer adoption and for the industry was to put that out there with us being certainly the leading provider of those solutions today and standing to benefit from the adoption of that as the standard at around sub gigahertz. So that's going to be a big topic of discussion within the ZigBee alliance this year. It's certainly going to be a big topic of discussion at our Works With Conference that we hold later in Q3. And we're really excited about being able to unify the smart home market with all the ecosystem players coming in and the growth in consumer adoption that we're seeing.

That's very helpful and as my follow up on the CHIP project, you mentioned there's two semiconductor companies yourself and NXP. Should I read into that as you guys being exclusive there or can any other semiconductor company join that working group to define products?

Yes, so this was just these were the founding members of the working group. So these were the chip companies and we also have Apple, Google, and Amazon, and IKEA, and a number of other companies that I mentioned in the earnings in our prepared remarks. So you have a lot of leading companies that have been working on this within the ZigBee alliance and coming together to figure out exactly how devices will talk to one another. It is an open standard and actually the layer that sits on top of the wireless standards is going to be developed as an open source framework. Think about that as basically the language that devices talk to one another regardless of the wireless protocol. That is actually going to be based primarily on the ZigBee application profiles. So think about a door lock. Each door lock has to talk the same language or a light bulb has to talk the same language so that when something tries to control light bulbs they know exactly what to say. And everyone realized that that was a major obstacle to the adoption and interoperability within the smart home. So this is going to be done in an open framework and I anticipate multiple other companies jumping into this as the big companies really drive the standard and start driving the market.

Good, thank you.

Thank you. [Operator Instructions]. And the next question comes from Suji Desilva with ROTH Capital.

Hi Tyson, hi John. First question on the infrastructure side the timing and wireless infrastructure, those four customers I was curious are they all 5G or is there some 4G there and is there a quarter or timeframe in which there'd be an inflection in the order patterns from your perspective or would it be steady more 2021 versus 2020 benefit, any color there would be helpful? Thank you.

We have quite a bit or a number of wins on the 4G side. The four customers that we or the four out of five that we mentioned those are 5G applications and those are beginning ramps right now so that will be a continued ramp as we go through 2020.

Okay, great. And I know you may cover this at the Analyst Day but you talked about OPEX being up 6% year-over-year. I know you're not guiding 2020 revenues but I just want to get a sense how you're managing, are you managing toward an operating margin target, you're at 19% now you target 20% to 25% is that the way to think about it and would the OPEX flex depending on the revenue, just some color there would be helpful?

Yes Suji, this is John. So our operating margins are going to be below model here in the first quarter. We do see an opportunity to get closer to a model if not at model in the second half as the OPEX can tail off according to the factors we talked about earlier in the call. But our goal is to return to the model, operating margin profitability as soon as we can taking into account that we are coming off of the downturn here and need to continue to invest for success for the long-term.

Okay, thanks guys. Looking forward to the Analyst Day.

Thank you. And the next question comes from Matt Ramsay with Cowen. Please go ahead. Mr. Ramsay, your line is open.

Thank you very much, sorry, a tech analyst that can't use a phone. Tyson I wanted to ask in your script you had mentioned growth in Bluetooth and Bluetooth LE as being I think you called it out as being really important in 2020 as a driver of the business, maybe you could -- has the importance there gone up and if so why and maybe you could talk a little bit about the competitive position and the market dynamics there in the Bluetooth market? Thank you.

Yeah, let me let me give you a little bit of background. So we entered the Bluetooth market in 2015 with our Series 1 devices. In our Series 1 devices we are highly flexible. They addressed sub gigahertz, they addressed Bluetooth, they addressed ZigBee, sub gigahertz a lot of different stuff. So -- but they did not have -- they were not cost optimized. In fact we had a number of customers that would use ZigBee and Bluetooth together in various combinations. So over that time we were really maturing our software stacks and the interoperability and coexistence and performance of Bluetooth. But we did not have a solution that really could address the low cost high volume segments of the market. So with the BG 22 that's coming in and actually the first member of the family the 21 both of those support Bluetooth. But the BG 22 now has the cost that's required to be able to really go after the heart of the Bluetooth market. And so we didn’t chase the low cost stuff but now we have got a solution, the cost is about half of what we had before. So, we can go after the broad market for Bluetooth devices and feel really excited about having huge market opportunity, share gain. We've got competitors in there. Nordic Semiconductor is the leading supplier. You've got TI and others in the Bluetooth market. And we think that given the maturity of our solution, the cost, the feature set, the energy consumption, the battery life you can get 10 years off of a coin cell, watch battery, the direction finding capabilities. I mean, we've got a fantastic solution and we've got channel and customers that are really pumped to be able to design those parts. And so we think, given the size of the market, given the fact that we have a modest share today, that share gain there it's one of our top priorities in 2020. And we were quite optimistic about our future in the Bluetooth market.

Got it, thanks for all the color there. I guess a follow-up question and maybe a similar type of question on your automotive business, I know there's a radio business and also the isolation business for EVs. Maybe you could just kind of tease out what you're seeing -- you mentioned I think in the script about that business being stronger than 2019, there was obviously some automotive macro headwinds but if there's any way to break out that business, just the concentration and those two buckets and drivers for 2020, that would be helpful? Thanks guys.

Yeah, if you look at -- and let me break this down. We basically, in automotive we're targeting the automotive radio, targeting EVs with our isolation products. And we just last year introduced a whole set of products for timing in automotive. As you see, a lot of the higher speed data networks and AI capabilities going in. There's a lot of need for additional electronics and timing in car. The automotive radio sells into all cars and because the automotive market was soft in 2019 in particular in Europe where we've got some designs and in China, our automotive radio business was down year-on-year. So that was disappointing results. We landed some very good design wins for automotive radio, but those take time to ramp into the market. But we do see some return of strength in the automotive radio market as we're entering 2020 so I think that's a healthy sign. On electric vehicles we have just a fantastic solution. In electric vehicles our isolation products go into battery monitoring systems, battery charging systems, and the motor controls that converts the battery voltage to the electric, to the motor. And we've been working in motor controls and a lot of these high voltage systems for a long time. But as we see the adoption of electric vehicles increase the Tesla and BYD, we've landed some very nice wins in future electric vehicle programs that are going to be ramping in 2020 and into the future. It's a tremendous opportunity for us. Our technology is perfectly aligned to the requirements. You've got 400, 800 volt batteries, you need protection, you need high reliability, and you need a high level of functionality to optimize the efficiency of these systems. So the isolation products going to EV is big opportunity for us, it was one of the reasons why we were able to offset some of the macro weakness in our infrastructure business this year. I'd say on the timing side that the automotive those are it's fairly nascent. We do have some revenue in there, but that would be the third largest category within automotive.

Thanks Tyson, I appreciate it.

Thank you. And it ends question-and-answer session so now I would like to turn the floor to management for any closing comments.

Thank you Keith and thank you all for joining us this morning. This concludes today's call.

Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.