What happened
Silicon Labs (NASDAQ: SLAB) investors lost ground to the market this week. The semiconductor tech specialist's stock fell 18% through Thursday trading compared to a flat result for the S&P 500, according to data provided by S&P Global Market Intelligence. This move pushed Silicon Labs' shares to flat returns so far in 2023, compared to an 8% increase in the wider market.
The decline was sparked by a Q1 earnings update that left many tech investors wanting more.
So what
Silicon Labs said in a Wednesday announcement that sales rose by just 6% in the quarter that ended in early April. That result marked a sharp slowdown from the 23% revenue increase that shareholders saw in the previous quarter. Management described a challenging selling environment as economic growth rates slowed and companies became more cautious around tech spending.
Yet Silicon Labs remained profitable even as it invested in key growth initiatives like research and development. "The...team executed well in the first quarter," CEO Matt Johnson said in a press release.
Now what
The main pressure on the stock came from management's cautious short-term outlook. Silicon Labs should see sales land between $238 million and $248 million in Q2, representing declines of as much as 10%.
Cyclical downturns like this are common in the semiconductor industry, and they are not reasons to abandon a stock. Yet the slump does mean shareholders are likely to see muted sales and earnings trends over the next few quarters.
Silicon Labs will also shift its focus more toward cutting costs, which raises the risk profile of the business as management seeks to balance priorities like profitability, cash flow, and growth investments. These factors combined to pressure the stock over the last few days, even if the wider outlook is bright for this tech specialist.
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Demitri Kalogeropoulos has no position in any of the stocks mentioned. The Motley Fool recommends Silicon Laboratories. The Motley Fool has a disclosure policy.
