Good morning everyone. My name is Jamie and I’ll be your operator today. Welcome to the Silicon Labs fourth quarter 2022 earnings release conference call. All participants are in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today’s presentation, there will be an opportunity to ask questions. To ask a question, you may press star and then one. To withdraw your questions, you may press star and two. Please also note today’s event is being recorded. At this time, I’d like to turn the floor over to Giovanni Pacelli, Silicon Labs’ Senior Director of Finance. Giovanni, please go ahead.

Thank you Jamie and good morning everyone. We are recording this meeting and a replay will be available for four weeks on the Investor Relations section of our website at silabs.com/investors. Our earnings press release and the accompanying financial tables are also available on our website. Joining me today are Silicon Labs’ President and Chief Executive Officer, Matt Johnson, and Chief Financial Officer, John Hollister. They will discuss our fourth quarter financial performance and review recent business activities. We will take questions after our prepared comments, and our remarks 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 on the Investor Relations section of the Silicon Labs website. I’ll now turn the call over to Silicon Labs’ Chief Executive Officer, Matt Johnson. Matt?

Thanks Giovanni, and good morning everyone. At our analyst day last March, I spoke about our singular focus on the IoT market and my confidence in our ability to lead and scale in this large and fast-growing market. In 2022, our strategy took hold. We achieved strong gains in market share and our growth accelerated. We surpassed $1 billion in revenue for the first time, which is a great milestone for the company. More importantly, in just two years, we’ve doubled our revenue organically and have significantly improved our profitability and earnings per share. I’m incredibly proud of the team for these achievements. We continue to secure major greenfield design wins and remain well positioned to outperform the market even amid macro uncertainty. The IoT market has incredible potential with thousands of new applications on the horizon. Silicon Labs is unmatched in the breadth of our product portfolio, the depth of our wireless expertise, and our singular focus on wireless connectivity solutions for the Internet of Things. Our leadership is driving an acceleration of growth in our design wins. Our design in lifetime revenue for 2022 is up more than 50% over 2021’s level, which is a leading indicator of future revenue growth. Design wins indicate that a customer has selected us for their socket and our metric requires us to have shipped at least $1,000 of parts into that design before it counts as a design win. Our opportunity pipeline is approaching $17 billion, nearly double the level of 2020. We strengthened our customer and supply relationships by the way we navigated the supply crisis together. Our singular focus on the IoT market proved to be a competitive advantage. As supply and demand come into alignment, we are well positioned to scale and capitalize, serve an increasingly diverse customer base, and capture future market share. I’ll now turn the call over to John to cover the financials before I make a few closing remarks. John?

Thanks Matt. Revenue for the fourth quarter was above our guidance range, ending at $257 million, up 23% year-on-year. Our industrial and commercial business ended at $157 million, up 36% year-on-year and establishing a new record for the I&C business. In terms of industrial end applications, we saw strong results in the fourth quarter in connected equipment and smart meters. As expected, the home and life business declined in the quarter on a sequential basis and ended at $100 million, up 8% versus the prior year. Smart home products had the largest sequential decline in the fourth quarter. Sales of products for life applications declined slightly. Geographically, we saw the strongest performance in the quarter in Europe, which grew slightly. The Americas and Asia-Pac were both down sequentially from the third quarter. Distribution sales were 81% of our total revenue, consistent with prior quarters. The absolute amount of channel inventory declined in Q4 and we held GSI flat at 59 days versus Q3, which is an excellent outcome. As Matt mentioned, we are very pleased that revenue for the full year exceeded $1 billion for the first time in our corporate history. Revenue in 2022 grew 42% over fiscal 2021, exceeding the top end of the growth goal we established back in March at our analyst day. As a reminder, we raised prices in late fiscal 2021 in response to meaningful increases in input costs from our suppliers. We believe that our price increases have been in line with similar actions from our competitors and we have approached commercial terms with our customers responsibly and fairly. I’d like to highlight that a significant portion of our ASP strength and top line growth is due to the strength of our Series 2-based product cycle and the growing diversity of our customer…

Thanks John. In addition to our outstanding financial results in fiscal 2022, we also made tremendous progress in our business and technology initiatives. From a business unit standpoint, the industrial and commercial business achieved its ninth consecutive quarter of record revenue in Q4, demonstrating resiliency amid current economic uncertainty. The value of wireless connectivity is increasingly clear in industrial applications such as connected equipment, where we hold a leadership position and grew revenue at double digit pace, both sequentially and year-over-year. Smart pallets are an example of a connected equipment application, and our FG23 sub-gigahertz SOC enables long range communication for logistics use cases. The FG23 is a single die, multi-core solution that offers industry-leading security, low power consumption with fast wake-up times, and an integrated power amplifier. Additionally, revenue from smart city applications grew by over 50% year-over-year with smart metering as a standout. We secured a significant design win with an industrial customer in the smart metering space, also using the FG23. Our chips RF range of performance and energy efficiency were key factors in winning the socket. Despite market softness in home and life attributable to certain consumer-oriented end markets, we remain bullish about the long term growth prospects in home and life. Specifically, we are seeing strength in the healthcare space with double-digit increases on a quarterly and annual basis. We recently secured several important design wins for portable medical devices, further bolstering our position in the life segment. We are also very excited about the launch of Matter 1.0, a significant industry achievement. Matter enables interoperability across major IoT ecosystems to offer developers and consumers a simpler, better experience which should boost demand for connected devices. Silicon Labs has played a significant role in Matter’s development. There from the start, we have contributed more code…

Thank you Matt. We’ll now open the call for questions. To accommodate as many people as possible before the market opens, I ask that you limit your time to one question with one follow-up inquiry if needed. Jamie?

[Operator instructions] Our first question today comes from Matt Ramsay from Cowen. Please go ahead with your question.

Thank you very much. Good morning guys, and congrats on the results. I guess for my first question, just thinking about the big picture in the model and in the business, I think the majority of the 40% growth or so that you guys showed in 2021 was unit-based, and a much smaller contribution from ASPs. This past year in ’22, I think it was essentially the opposite, right - the ASPs were up quite a bit and volume up maybe less than that. Matt, as you look forward to this calendar year, I think ASPs are up a bit in the first quarter again in the guidance, but how would characterize the year that you see ahead? Is this one more evenly balanced of growth between the two, any sort of characterization of the year you see coming on those two dynamics because we get asked about that, that mix of growth a lot.

Sure, thanks Matt. Understood. Yes, I think the simple and fast answer is 2023 will be much more characteristic of 2021 with a majority of the growth coming from units, not ASPs. As John mentioned in his remarks, we definitely have done some limited price actions on some increases that we’ve seen, but in general we expect the year to be vast majority driven by unit growth in 2023.

Hey Matt, this is John. I want to add another quick comment here. If you look at 2022, the ASP strength that we realized in the year actually had a combination of factors. We did increase prices, as we’ve talked about, but we also saw strength in the product and customer mix and on the back of the product cycle. I wanted to make that point as a contributing factor as well.

Yes, thanks John.

Thanks guys, I really appreciate it. Go ahead, Matt - sorry.

Yes, I was just going to make sure everyone understand what that means, because it’s important. Our customer mix expanded in the sense that not only did we see more customers, over the years we gained market share. We gained some large customers but we also gained a lot of customers in the tail, in the mid of the market which gave us some strength in our ASPs, and then the product cycle piece is with our Series 2, as we’ve mentioned multiple times, we have an unprecedented amount of products coming out in ’22 as well as ’23, which gives us a lot for our sales team to work with and in a lot of cases, there is no alternative to these leading products in the marketplace, so that helps give some strength to the ASPs as well.

Thanks guys, really appreciate it. Just as my follow-up question and then I’ll get back in the queue, I wanted to ask about China. Given the changes in COVID policy and the timing of Chinese New Year and whatnot, some of your peer companies have talked about some acute weakness in sort of sell-in to distribution in China for the first quarter, and you guys are guiding for a fairly strong quarter all the way around. I just wonder, how would you characterize that impact from what’s going on in China in your first quarter guidance, and if things normalize, how much of a tailwind could that be when things turn back on over there? Thanks.

Yes, understood. On China, China has been relatively weak for us in the last few quarters, and as we’ve mentioned, it’s down to around 15% of our total revenue. We haven’t seen any significant change in that or the outlook there, and our expectation for growth on the year is not predicated on a return in China. Of course, if there is increasing strength there, that would be a tailwind that we’d be happy to see, but our plan does not depend on it.

Thanks guys, appreciate it.

Our next question comes from Gary Mobley from Wells Fargo Securities. Please go ahead with your question.

Hey guys, good morning. Thanks for taking my question, and let me extend my congratulations on a strong fiscal year ’22 and similar to the good results. I wanted to ask about orders, order lead times, and whatnot. Can you give us an update on the uniformity of orders? I think last time, you mentioned week-to-week volatility - is that still the case? Maybe if you can give us an update on order lead times - I believe they were 26 weeks last quarter.

Yes Gary, no change in the lead time dynamic - it’s roughly in that neighborhood, and we have seen signs of greater stability in recent weeks, a bit less volatility. It’s, I would say, largely characteristic of what we’ve seen over the last quarter or so, but getting better, I think is a fair way to say it. We’ve seen that the order patterns show a bit more stability in the week-to-week experience.

That’s good to hear. I wanted to ask about your distribution inventory, since it is more than 80% of your revenue. You mentioned that 59-day metric for distributor inventories, flat sequentially so obviously no benefit quarter to quarter as you wrapped up the year, but what can that distribution inventory go in terms of days? Just trying to get a sense of the tailwind for distribution restocking, knowing that you’re benefiting to the tune of, what, $2.25 million a day in inventory.

Yes, similar dynamics, Gary, as what we’ve seen. Still see a bit of a geographical divergence with China high, rest of the world in pretty good shape. I think we can see this come up a bit and be comfortable with that, given that we’re seeing the revenue down a bit with expectations of growth ahead, so that would be normal and okay, not dramatically but that’s something that could happen.

All right, thank you guys.

Our next question comes from Tore Svanberg from Stifel. Please go ahead with your question.

Yes, thank you, and congratulations on the results. I wanted to come back to the ASP topic, and I do understand obviously you’ve had to increase prices because of your suppliers’ input costs. But it’s pretty clear that you are selling more value, right - I mean, you’re selling more security features, obviously you talked about the product cycles, especially with the Series 2, so can you just maybe elaborate a little bit on that, perhaps how much is coming from just pure price increases versus how much is coming from selling more value?

Sure. It’d be good to hear from John on specifics, Tore, but I think on Series 2, it’s really important that--it’s exactly what you mentioned, that this portfolio is really hitting the market at the right place and the right time with not only an unprecedented number of products coming out but it’s also what those products bring to the industry that wasn’t available before. That includes power consumption that is industry leading. Think about the solutions we’re talking about, where we’re talking about running a wireless solution on a watch battery for 10 years, or think of the latest Wi-Fi product we mentioned, the 917 that has half the power consumption of alternative solutions, so you can literally double the battery life of a battery-powered application, which is remarkable. Then in addition to that industry-leading RF performance, not just for that one technology but for all the technologies to work together, which is incredibly important for our customers. It’s not just about having one and working well, but to have all those different RF technologies working well together. Then security continues to take an increasingly important role in our space. Simply said, if our customers and consumers can’t trust the devices, it will stall the IoT growth, so this is elemental for us and we’ve been proud to be leading in that space for some time. The confluence of all these things coming together really creates a strong position that is, simply said, fueling the revenue growth we’ve seen over the last couple of years, which is, I think, a strong testament to the strength of that portfolio, but it’s also fueling that design win momentum that I mentioned in my earlier remarks, where that’s grown over 120% over the last two years, which is remarkable. That’s been almost entirely fueled by Series 2, so the combination of those speaks to that, I think, momentum and credibility of the portfolio. As I’ve said, we’re still midway through the product cycle with a lot more products to go that will give us even further lift, so we’re excited about it.

Yes Matt, I would just add--I just want to quickly add, that all resonates, and what you see in ’22 is contribution to ASP coming from, you could think of it as pure cost increase-driven, where we see ourselves in line with our competitors, we’re not unique in that regard, and what Matt was just referring to, the strength in the value, also the strength in the customer mix.

Great, and as my follow-up, the last two years have been a lot about share gains, especially with your new Bluetooth products. I know you’ve worked a lot at getting established more in Wi-Fi, you talked about the 917 probably having the largest opportunity going forward. Should we think of 2023 as being that first year of really big growth in Wi-Fi, or would that still be more like 2024?

2023, we expect solid growth in Wi-Fi in 2023.

Clear enough. Thank you Matt. Congrats again.

Thank you.

Our next question comes from Raji Gill from Needham & Company. Please go ahead with your question.

Thanks, and congrats on good results in light of a very volatile market. John, a question on the order trends. I know last quarter, you did see order volatility and lead times came in specifically around the home and life, and then you also kind of mentioned in the industrial commercial, some of the customers were more of in a holding pattern. I wanted to get a sense of what’s changing now in terms of where you’re seeing greater--where you’re seeing more order stability over the last few weeks. Do you see any potential risk as the lead times come in, as more supply comes online, that you kind of return back to some sort of order volatility that you saw in the last quarter?

Raj, thanks. It’s hard to call it on the last point. Of course, we could see more volatility, but we’re very encouraged by the strength of the design win momentum. As we’ve said, that is the best indicator we see of continued strong revenue performance. The supply chains are normalizing. We continue to see pockets of shortage, but we have nodes that are really more in balance between demand and supply now - that’s a good outcome and allows us to serve the demand. Back to the top of your question, simply put, we’ve seen more stable order patterns in the last several weeks. I wouldn’t say it’s completely, quote, back to normal, but getting better and we’re encouraged by that as we see it.

And on the gross margins, the gross margins have been kind of above plan for several quarters, above your long term plan. You did mention that this year, the growth will be less dependent on ASPs, more on unit growth. Wanted to understand how we should think about gross margins trending throughout the year, and with respect to that, what are your expectations for wafer costs? Is your main foundry, TSMC increasing capacity for Series 2 products? Just any thoughts in terms of your wafer cost expectations and how to think about the gross margins. Thank you.

Yes, thanks Raji, that’s good. As we said at the beginning of last year, we had a one-time effect, if you will, in the first quarter of 2022 that then bled off through the course of the year, and we saw gross margin sequentially declining throughout the year. We see a very similar pattern this year with a more modest version of that, but I guess similar effect as we see a lift in the first quarter, we expect that to moderate sequentially as we work our way through the year. We’ll have to stay tuned to the overall input cost landscape. Not aware of more forthcoming - that could change, but at this point we believe we’re reaching a degree of stability on the cost side as well.

And just on the capacity coming out of your foundry, maybe you could just elaborate on that? Thank you.

Yes, I can comment on the capacity side. It’s important, first of all, to mention that we still have supply constraints in the coming quarters, so as John said, it’s more mix. In some lines, we’re at parity, and in some lines we’re not, so we’re still working through that. Big picture, one thing that maybe more unique to us than the industry is because of our rate of growth, we’re hyper-focused on that capacity and supply not just this year, but in the coming years. Because of that design win momentum, one of the things that’s critical to our customers is an assurance that we can provide the supply that comes with that business. We’ve been fortunately very successful at partnering with our suppliers. As we said in the remarks, we’ve actually seen our relationships with our customers and suppliers improve over the last couple years through all this challenge, and that’s allowed us to position ourselves to continue scaling very quickly in the coming years, which is a key component to a lot of these wins. We couldn’t secure some of this business unless we could give our customers assurance that we’ll be able to do that. Never take it for granted. We’re watching it closely, we’re paranoid about it because of the rate of growth, but we do see a path and our customers see that path as well.

Appreciate it.

Our next question comes from Blayne Curtis from Barclays. Please go ahead with your question.

Hey, thanks for taking my question. I just want to follow up on Raji’s gross margin question. I thought last year, you had some one-time charges, you got some benefit, so I’m just kind of curious, in that 63, because I think you said limited pricing increases but you’re seeing two points of gross margin uplift, so is that just timing like you saw the prior year, and is there any kind of one-time benefit as well?

Yes Blayne, thanks for the question. No, there’s not a one-time aspect of that. It’s very similar to what we saw one year ago.

Got you, and then I wanted to ask, not to keep asking on pricing, but you do give the annual metric in the carryout. I was wondering if you would give us for the year in ’22, if you have that number for units and ASPs.

Yes Blayne, the contribution for revenue growth is mainly on ASP, which has a couple of components, as we talked about, both in terms of cost, input driven, price increase, as well as value, higher ASPs on strong product and customer mix, but it is fair that more than half of the contribution on revenue is from ASP.

Great, and then if I could just ask one last question on home and life, you mentioned the smart home down the most. I’m assuming there’s some component of inventory correction because that segment is down 19% sequentially. I’m just kind of curious, your projected margin said both down, so has that kind of correction that you saw in December cleared through and it’s more normal seasonal for the business? Just some color on that correction, particularly in the smart home.

Yes, sure. This is Matt. I think the most accurate and honest answer I can give you is that it varies quite a bit. We see some customers that are sitting on a lot of inventory and working their way through it. We see other customers who managed this really well and they’re still worried about their demand and working through that. But on a whole, we definitely see our customers in that space working down their inventory, but the key there is what does the demand profile look like and how long is that going to take for them to work through that. But like I said, pretty variable customer to customer, depending on how they’ve managed it and how their end markets are doing.

Got you, thanks.

Our next question is a follow-up from Gary Mobley from Wells Fargo Securities. Please go ahead with your follow-up.

Yes, thanks. I just had one follow-up question. I wanted to ask about the pace of the share buyback. If I’m not mistaken, in the past you mentioned that you would ideally like to maintain a billion-dollar cash position, gross cash position, and that would indicate that maybe there’s $200 million to $300 million of available buyback capacity. Am I summarizing that correctly?

Yes Gary, you have that exactly right. We’ve done a bit better than we contemplated at the onset, immediately following the divestiture. We have actually generated stronger cash flow in the intervening time period, and that is what has allowed us to both surpass the $2 billion goal and have another $200 million available for continued share repurchase. Looking further ahead as we continue to generate cash, we believe that will continue to be the case, and we’ll continue to work with the board of directors on capital allocation relative to this use versus strategic M&A, which we also continue to evaluate.

Got it, thank you.

Our next question comes from Tore Svanberg from Stifel. Please go ahead with your follow-up.

Yes, thank you. Just a housekeeping one. John, tax rate 23%, still pretty high, right, and I know it’s got a lot of different elements to it, but anything happening this year that could potentially cause that tax rate to come down? I know you’re working on some capitalization on R&D and so on and so forth, but any view on the tax rate for the year would be great.

Yes, you bet, Tore. As we called this a couple years ago, the capitalized R&D aspect of the Tax Cuts and Jobs Act has an inflationary effect on the tax rate. That’s true for us, that’s true for other companies and entities with a relatively high R&D spend. That’s kind of the fundamental situation. All things considered, it is down a little bit from last year and we expect over the next couple of years, it will come in a bit further, come down a bit further as the amortization ladder builds, and you can essentially build up that stack of amortization periods into the future. But that’s the main thing that’s going on.

Perfect, thank you John.

Ladies and gentlemen, with that, we will be concluding today’s question and answer session. I’d like to turn the floor back over to Giovanni Pacelli for any closing remarks.

Yes, thank you Jamie, and thank you all for joining this morning. This concludes today’s call.

Ladies and gentlemen, with that we’ll conclude today’s conference call and presentation. We do thank you for joining. You may now disconnect your lines.