Silicon Labs Selling Infrastructure, Auto Business to Skyworks for $2.75B

Silicon Labs’ divestiture of its Infrastructure & Automotive business to Skyworks Solutions won’t affect its R&D efforts in IoT, executives said during Q&A on a Thursday investor call. The company announced Thursday a definitive agreement to sell the I&A business assets, including power/isolation, timing and broadcast products, intellectual property and associated employees to Skyworks for $2.75 billion.

Chief Financial Officer John Hollister said in Q&A the sale accomplishes two objectives: focusing on the IoT market and accelerating the company's investments in the space, including in growth areas such as Wi-Fi and Bluetooth. “We’re not sacrificing any R&D investments” but enhancing them instead, he said.

Silicon Labs initiated the sale, a process it began last fall, to address the “massive opportunity” in IoT, said CEO Tyson Tuttle. The IoT segment “requires focus” and investment and has been Silicon Labs’ area of concentration for the past decade, now generating 60% of revenue, Tuttle said. IoT is the largest and fastest growth opportunity, he said, and it's a “high quality” portion of the business due to the company’s ability to “control the integration path” by integrating components inside single devices, then differentiating with software, solutions, cloud and AI. Silicon Labs’ IoT strengths include a “rich pipeline,” diversity of applications and “tens of thousands of customers.”

Silicon Labs guided to 2021 revenue of $650 million. It believes it can grow to $1.5 billion-$3 billion long term, in IoT, “but that requires focus and leadership,” said Tuttle. The “solid offer” from Skyworks is also “solid home for the team,” he said. The company projected Q1 revenue at $255 million, a 5% sequential increase and 19% year on year due to growth in IoT, continued strength in bookings, and “durable demand trends.” It reports Q1 earnings Monday. Shares rose 6.9% Friday, closing at $154.60.

The company expects to receive $2.3 billion in net proceeds from the sale after taxes and transaction fees and to return about $2 billion to shareholders after closing. Hollister called the return of $2 billion to shareholders, through a mix of a special dividend and share repurchases, a “rational” use of proceeds. Silicon Labs' residual gross cash balance is about $1 billion, and it has about $500 million in 2025 convertible notes. The company has enough cash for “opportunistic M&A,” Hollister said.

Silicon Labs projects a 20% long-term growth rate from the IoT business, which takes into account semiconductor shortages, said Tuttle. He said Silicon Labs’ scale with Taiwan Semiconductor won’t suffer as a result of the sale of the I&A business because of expected growth in IoT. “We will not be losing scale with our primary foundry partner,” he said. “We’re working to secure the capacity that is required for long-term growth in the IoT business and see a clear path to achieving that" as it moves from 90-nanometer to 40 to 22-nanonmeter technologies, he said.

The IoT and I&A businesses are “fundamentally different,” with separate markets, customers, supply chains, R&D, and go-to-market strategies, executives said. After divesting I&A, Silicon Labs will focus on intelligent, wireless connectivity for the IoT. “The massive growth in connected devices makes this the right time for us to exclusively focus on the large, diverse, growing IoT opportunity,” said Hollister.

President Matt Johnson called Silicon Labs “more than a semiconductor company,” saying the firm's hardware, software, tools and partnerships “are designed to help IoT businesses get to market quickly with the world’s most secure, intelligent, energy-efficient edge devices.” Focusing efforts and resources on IoT enables the company to gain operating efficiencies and return on investment, Johnson said.

Silicon Labs and Skyworks will work together to ensure a “seamless transition” for customers, suppliers and employees, it said. The deal is expected to close in Q3. Silicon Labs doesn’t believe the transaction will require regulatory approval in China.