Shares of Silicon Laboratories (NASDAQ: SLAB) fell as much as 19% early Wednesday, then partially recovered to close down 5.4% as disappointing forward guidance overshadowed a better-than-expected quarter from the semiconductor specialist.
On Silicon Labs' strong execution, weak demand
Silicon Labs' quarterly revenue declined 24.5% year over year to $203.8 million, translating to non-GAAP (adjusted) net income of just under $20 million, or $0.62 per share (up from $0.60 per share in the same year-ago period). Analysts, on average, were only expecting earnings of $0.61 per share on revenue of $200 million.
CEO Matt Johnson touted the company's strong execution, noting the company achieved a record number of design wins during the quarter. Quarterly revenue and earnings were also above the respective midpoints of the company's guidance provided in late July.
At the same time, however, Johnson admitted the "current demand environment remains quite weak" amid a cylical inventory correction, and end-market visibility remains "challenging."
What's next for Silicon Labs stock?
As such, Silicon Labs provided a wide guidance range for fourth-quarter revenue to be between $70 million and $100 million, with an adjusted net loss per share of between $1.66 and $1.22. Both ranges were far below Wall Street's consensus expectations, which called for fourth-quarter earnings of $0.67 per share on revenue of $204.9 million.
Silicon Labs could be underpromising with the intention of overdelivering when all is said and done in Q4. But given the wide disparity between forward guidance and consensus estimates, it's obvious the market was far too optimistic in trying to predict how the company would end the year. Silicon Labs stock is responding in kind today -- and I suspect shares will remain under pressure until investors see more tangible signs of increased end-market visibility and a potential return to growth.
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Steve Symington has no position in any of the stocks mentioned. The Motley Fool recommends Silicon Laboratories. The Motley Fool has a disclosure policy.
