Silicon Labs Has 10% Q2 Revenue Rise, but Huawei Ban Hits Its Timing-Product Business

Infrastructure revenue was $44 million, 21 percent of Q2 revenue, said Chief Financial Officer John Hollister, down 4 percent sequentially, with China trade issues “negatively impacting” timing-product sales. Responding to a question on Silicon Labs’ relationship with Huawei and whether it will be able to restart shipments to the Chinese electronics manufacturer, Hollister called it a “complex issue” with different products having different types of export control designations.

Silicon Labs has been working with the Semiconductor Industry Association and outside counsel “to understand the landscape,” and it has resumed some shipments, “where possible, with Huawei,” said CEO Tyson Tuttle. Hollister viewed the Q3 guidance it gave Wednesday -- $213 million-$223 million with a decline in infrastructure -- as reflecting “more of a normalized level of business with Huawei.” The China ecosystem remains important to the company, Hollister said, and it continues to “gain traction out of the market with Xiaomi and others.”

Tuttle cited Huawei’s inability to ship some products because it doesn’t have access to some components required for its solutions. China is pausing the 5G rollout, he said, to “wait for Huawei to catch up.” He referenced an anticipated slowdown in deployment of 5G infrastructure in China, “which drives a lot of the overall” capital expenditure with China.

Globally, there’s political pressure to move away from Huawei to other vendors, causing “churn” in market share, Tuttle said. That’s favorable to non-China equipment vendors, he said, but overall demand felt an impact. Silicon Labs ships timing products to all major vendors of telecom equipment, with most shipments in traditional optical high-speed wireline applications. The company has a “growing opportunity in wireless and 5G,” with four of the top five vendors, he said. “As share shifts change, we view that as fairly neutral to our business, but overall the market is challenged given the trade tensions and the ban on Huawei.”

Tuttle noted Silicon Labs announced in Q2 adoption of its microcontrollers in smart lock products from Yunding, a China-based smart device and cloud-based service provider that’s part of Xiaomi’s Mi Ecosystem. Silicon Labs is working with Yunding and “leading Chinese companies” on an initiative to develop safety standards for smart locks and innovation guidelines for IoT technologies across global markets.

Target markets where the company sees growing opportunity include home automation, security, smart metering, smart lighting and gateways, said Tuttle. IoT ecosystems are gaining strong traction with Alarm.com, Amazon, Comcast, Google Home, Signify, Samsung SmartThings, Tuya, Xiaomi and others, he said

Tuttle highlighted Zigbee’s role in smart lighting, where it's used in 80 percent of all LED bulbs, and noted Silicon Labs’ Q2 announcement of a collaboration with Signify to help its partners develop Zigbee-based smart light switches that work with Philips Hue systems (see 1905220075). Silicon Labs worked with Signify to provide compliant Zigbee software enabling advanced light switch functionality, he said, citing the company’s 20 years’ experience in mesh networking.

Zigbee has a majority share of the smart lighting market because of its ability to support very high temperatures, said Tuttle. “When you optimize the cost of the bulbs, you want to run them as close to the limit as possible,” and Silicon Labs solutions have been among “the few that have supported the requirements of lighting,” he said. Zigbee's benefit over Wi-Fi for smart lighting is in robustness, he said, and “that it works without a mobile phone.” He cited growing integration of Zigbee gateways with Amazon’s Alexa ecosystem and internet provider solutions, and the growing attachment of smart functionality in LED bulbs.

In its Z-Wave business, Silicon Labs is “aggressively promoting" the Z-Wave Alliance to push increased adoption across multiple ecosystems, market expansion into new device types and the convergence of standards in end nodes and gateways “to simplify the end user experience,” said Tuttle. He also pushed Silicon Labs’ strength in Bluetooth, and said having multiple connectivity standards under one roof “strengths our influence on the evolution and adoption of wireless standards and targeted IoT market segments.” A Silicon Labs differentiator is being able to combine multiple wireless capabilities under a single platform, he said. Shares closed 6.5 percent higher Wednesday at $113.74.