Executive Summary / Key Takeaways

• Differentiated Technology Driving Growth: Silicon Labs (NASDAQ: SLAB) is uniquely positioned in the rapidly expanding Internet of Things (IoT) market through its leadership in low-power wireless solutions, particularly with its Series 2 and emerging Series 3 platforms, which offer industry-leading security, energy efficiency, and AI/ML capabilities.
• Strong Design Win Momentum Translating to Revenue: The company is converting a robust pipeline of design wins into significant production ramps across key secular growth markets, including continuous glucose monitoring (CGM), smart metering, and electronic shelf labeling (ESL), driving consistent sequential and year-over-year revenue growth.
• Expanding Gross Margins and Operational Discipline: Silicon Labs is demonstrating impressive gross margin expansion, with non-GAAP gross margins reaching 58% in Q3 2025 and projected to be 62-64% in Q4 2025 (including a one-time benefit), supported by favorable product mix and disciplined operating expense management aimed at accelerating EPS growth.
• Strategic Investments in Future Growth: Investments in advanced development tools like the Simplicity AI SDK and strategic partnerships, such as the expanded manufacturing agreement with GlobalFoundries , are reinforcing its competitive moat and supply chain resilience for long-term market leadership.
• Resilient Against Macro Headwinds: Despite broader macroeconomic uncertainties and geopolitical tensions, the company's focused strategy and strong customer engagements indicate a path to outperform the semiconductor market, with end-customer inventory largely normalized.

The IoT's Wireless Core: Silicon Labs' Strategic Foundation

Silicon Laboratories Inc., founded in Austin, Texas, in 1996, has evolved into a fabless semiconductor powerhouse, singularly focused on secure, intelligent wireless technology for a more connected world. The company's core business revolves around analog-intensive mixed-signal solutions, including wireless microcontrollers and sensor products, which are integral to a vast array of Internet of Things (IoT) applications. This strategic pivot, marked by significant divestitures between 2018 and 2021, has sharpened its focus on high-growth segments within industrial IoT, commercial IoT, and connected health.

The IoT market itself is experiencing transformative growth, driven by pervasive smart connected devices and emerging trends like the rapid rise of artificial intelligence, which is increasing energy demand and the need for intelligent load balancing across electrical grids. Silicon Labs positions itself at the heart of this expansion, providing the foundational silicon, software, and tools that enable developers to overcome complex wireless challenges and accelerate time-to-market. The company's overarching strategy emphasizes deep technological differentiation, ecosystem leadership, and disciplined operational execution to capture market share in this dynamic environment.

Technological Edge: Fueling IoT Innovation

Silicon Labs' competitive advantage is deeply rooted in its differentiated technology, particularly its Series 2 and the next-generation Series 3 platforms. These platforms are designed for ultra-low power consumption, high performance, and industry-leading security, critical attributes for the diverse and often battery-powered devices at the IoT edge. The company's Series 2 platform has already achieved significant success, with over 1 billion units shipped to date and an additional 6 billion units secured in design wins, underscoring its status as a de facto standard in the market.

The introduction of the Series 3 platform marks a significant leap forward. The first Series 3 device, the SiMG301/SiBG301, is already ramping to production and achieved the world's first PSA Level 4 security certification by Q2 2025. This highest level of certification affirms Silicon Labs' security leadership and its commitment to embedding trust at the core of connected technology. Series 3 is designed to be even more impactful than Series 2, expanding the addressable market in Wi-Fi, compute, and AI inference, and offering higher content and increased memory scalability, which is expected to lead to overall higher average selling prices (ASPs). The co-compatibility between Series 2 and Series 3 platforms is a significant differentiator, simplifying development for customers.

Beyond hardware, Silicon Labs is innovating in software and development tools. At the Works with Austin Summit in Q3 2025, the company unveiled Studio 6, a revamped enablement platform, and the Simplicity AI SDK. The Simplicity AI SDK is a new platform leveraging Agentic AI, trained on Silicon Labs' software design rules, to deliver a step-function increase in the speed, quality, and efficiency of customers' code creation and testing. This innovation aims to lower the barrier to entry for new developers and enable experienced ones to be more efficient, ultimately accelerating wireless adoption and development cycles.

These technological advancements directly translate into a stronger competitive moat and enhanced financial performance. By offering superior energy efficiency, robust security, and advanced AI/ML capabilities, Silicon Labs can command premium pricing and capture market share in applications where reliability and performance are paramount. The expanded partnership with GlobalFoundries to manufacture Series 2 wireless SoCs in Malta, New York, further strengthens its supply chain resilience, adding needed U.S. capacity for competitive IoT wireless solutions for the next decade.

Business Momentum and Strategic Growth Engines

Silicon Labs' business model is built on a fabless approach, leveraging third-party semiconductor fabricators and assembly/test subcontractors primarily in Asia, with increasing U.S. capacity. This model allows for flexibility and focuses internal resources on design and innovation. The company's sales cycle for integrated circuits (ICs) can extend to 12 months or more, followed by an additional three to six months before significant customer product shipments.

The company's growth trajectory is fueled by several strategic initiatives and secular market drivers. In Q3 2025, revenues reached $206 million, a 24% increase year-over-year, driven by both the Industrial Commercial and Home Life segments. For the full year 2025, Silicon Labs anticipates revenue growth of 34% compared to 2024. This growth is not predicated on a broad market recovery but rather on the conversion of a robust design win pipeline into production ramps.

Key growth engines include:

• Continuous Glucose Monitoring (CGM): Silicon Labs is partnering with over a dozen CGM customers globally, with the application expected to comprise nearly 10% of revenue by the first half of 2026. This represents a significant incremental growth area, as CGM ramps have already begun across multiple customers.
• Smart Metering: As a global leader in smart metering, the company is benefiting from worldwide deployments. It is shipping millions of units into India's Smart Electric Metering Initiative, which is progressing faster than historical rollouts, and expects to capture a majority share of this 250 million-unit deployment. Additionally, it is gaining share in Japan's upcoming metering refresh cycle and sees higher content deployments in next-generation U.S. and European markets.
• Electronic Shelf Labeling (ESL): The company drove strong momentum in the ESL market in 2024, shipping significant unit volumes and bolstering partnerships with leading global ESL providers.
• Active Asset Tracking: Identified as a significant future growth opportunity, active wireless asset tracking leverages advanced radio location features like Bluetooth with channel sounding to deliver real-time, high-accuracy beaconing with ultra-long battery life at a fraction of GPS costs.
• Bluetooth and Wi-Fi: Bluetooth is currently Silicon Labs' fastest-growing technology by revenue and opportunity funnel, while Wi-Fi is its second fastest, growing 30-40% year-on-year. The Wi-Fi 6 device (917) enables industry-leading two-year battery life on a single AAA battery for applications like the Roku (ROKU) battery camera.
• Matter Adoption: Silicon Labs is seeing record momentum for 15.4 connectivity in anticipation of wider availability of Matter-enabled devices. Since the Matter specification was released, the company has secured more 15.4 design wins than in the prior five years combined.

Financial Performance and Outlook

Silicon Labs has demonstrated a strong financial recovery and disciplined management. In Q3 2025, the company reported $206 million in revenue, a 7% sequential increase and a 24% year-over-year increase. Non-GAAP earnings per share (EPS) for Q3 2025 was $0.32, surpassing forecasts. Gross profit increased by $28.7 million year-over-year, leading to a non-GAAP gross margin of 58%, an improvement of 170 basis points quarter-over-quarter. This margin expansion is driven by a favorable product mix, particularly from industrial applications, and increasing sales through the distribution channel, which constituted approximately 74% of revenue in Q3 2025.

For Q4 2025, the company projects revenue between $200 million and $215 million, implying a 25% year-over-year growth at the midpoint. Non-GAAP gross margins are expected to further expand to 62-64%, though this includes a one-time benefit of approximately 200 basis points. Excluding this, the normalized gross margin is expected to stabilize around 61% for the next few quarters before gradually returning to the long-term target range of 56-58%. Non-GAAP operating expenses are guided to be $110-112 million for Q4 2025, reflecting a commitment to limiting expense growth and focusing on EPS accretion faster than revenue growth. Non-GAAP diluted EPS is projected to be between $0.40 and $0.70 for Q4 2025.

The company's liquidity remains robust, with $439 million in cash, cash equivalents, and short-term investments as of October 4, 2025. Net cash provided by operating activities for the nine months ended October 4, 2025, was $87.4 million. Inventory levels have been effectively managed, with internal inventory at $82.2 million (85 days of inventory) and end-customer excess inventory largely resolved by Q3 2025. Distribution channel inventory, while still below the target of 70-75 days, is being gradually replenished.

Competitive Landscape and Strategic Positioning

Silicon Labs operates in an intensely competitive semiconductor market, facing rivals such as Broadcom (AVGO), Espressif, Infineon (IFNNY), MediaTek (MDTKF), Microchip , Nordic Semiconductor, NXP , Qualcomm (QCOM), Renesas (RNECF), STMicroelectronics (STM), Synaptics (SYNA), Telink, and Texas Instruments . These competitors often have longer operating histories, greater resources, and broader product portfolios.

Compared to larger, more diversified players like Texas Instruments (TXN), Silicon Labs differentiates itself through a singular focus on low-power wireless IoT solutions. While TXN excels in scale and cost efficiency across a wide range of analog and embedded processing chips, Silicon Labs' specialization allows for agility and deeper innovation in specific IoT use cases, such as energy-efficient designs for battery-powered devices. Similarly, against Analog Devices (ADI), known for precision signal processing, Silicon Labs' emphasis on seamless integration for wireless IoT ecosystems provides an edge in ease of deployment for connected devices. Microchip Technology (MCHP), a strong competitor in microcontrollers, offers cost-effective, general-purpose designs, whereas Silicon Labs focuses on advanced wireless features and secure, energy-efficient designs for specialized applications like medical instrumentation. NXP Semiconductors (NXPI), a leader in secure connectivity, particularly in automotive, competes with Silicon Labs in industrial and IoT, where Silicon Labs' power efficiency for sensor networks can be a key differentiator.

Silicon Labs' competitive advantages lie in its proprietary low-power wireless technology, industry-leading security features (like PSA Level 4 certification), and a comprehensive development ecosystem. The company's R&D investment, which was 45.7% of revenues for the nine months ended October 4, 2025, is a testament to its commitment to staying at the forefront of technological advancements. This focus enables premium gross margins compared to competitors. However, its smaller scale can lead to higher operating costs per unit and potential supply chain dependencies, which are vulnerabilities. The company mitigates these by focusing on differentiation and building strong partnerships, such as the GlobalFoundries (GFS) collaboration to enhance supply chain resilience.

Risks and Challenges

Despite a compelling growth story, Silicon Labs faces several risks. The global macroeconomic environment, characterized by inflationary pressures, high interest rates, and geopolitical tensions, introduces uncertainty that could impact demand. While direct impacts from tariffs have been modest, the potential indirect effects on global demand remain a concern. The semiconductor industry's cyclical nature, rapid technological change, and intense competition also pose ongoing challenges.

Operational risks include reliance on third-party manufacturers without long-term contracts, which could lead to capacity constraints or supply chain disruptions, particularly given geopolitical sensitivities in regions like China and Taiwan. The complexity of its products and the integration of third-party software increase the risk of errors, potentially leading to liability claims, especially in critical applications like medical devices. Furthermore, the company's growth depends on the timely development and market acceptance of new products, and the IoT market's reliance on evolving industry standards presents a continuous challenge.

Conclusion

Silicon Labs is a compelling investment opportunity, strategically positioned at the forefront of the burgeoning Internet of Things market. Its core investment thesis is anchored in its differentiated low-power wireless technology, particularly the Series 2 and the highly anticipated Series 3 platforms, which deliver industry-leading security, energy efficiency, and AI/ML capabilities. This technological leadership, combined with a robust pipeline of design wins in high-growth areas like CGM, smart metering, and ESL, is translating into strong sequential and year-over-year revenue expansion.

The company's commitment to operational discipline is evident in its expanding gross margins and controlled operating expenses, paving the way for accelerated EPS growth. While macroeconomic uncertainties and intense competition are inherent risks in the semiconductor industry, Silicon Labs' focused strategy, strong customer engagements, and continuous innovation in both hardware and software position it to outperform the broader market. Investors should recognize Silicon Labs as a specialized leader, leveraging its technological prowess and strategic execution to capture significant value in the evolving IoT landscape.