SILICON LABORATORIES INC.

Previous wording

The following discussion and analysis of financial condition and results of operations should be read in conjunction with the Condensed Consolidated Financial Statements and related notes thereto included elsewhere in this report. This discussion contains forward-looking statements. Please see the “Cautionary Statement” above and “Risk Factors” below for discussions of the uncertainties, risks and assumptions associated with these statements. Our fiscal year-end financial reporting periods are a 52- or 53-week fiscal year that ends on the Saturday closest to December 31. Fiscal 2025 will have 53 weeks with the extra week occurring in the first quarter of the year. Fiscal 2024 had 52 weeks. Our first quarter of fiscal 2025 ended April 5, 2025 and our first quarter of fiscal 2024 ended March 30, 2024.

Current wording

The following discussion and analysis of financial condition and results of operations should be read in conjunction with the Condensed Consolidated Financial Statements and related notes thereto included elsewhere in this report. This discussion contains forward-looking statements. Please see the “Cautionary Statement” above and “Risk Factors” below for discussions of the uncertainties, risks and assumptions associated with these statements. Our fiscal year-end financial reporting periods are a 52- or 53-week fiscal year that ends on the Saturday closest to December 31. Fiscal 2025 will have 53 weeks with the extra week occurring in the first quarter of the year. Fiscal 2024 had 52 weeks. Our second quarter of fiscal 2025 ended July 5, 2025 and our second quarter of fiscal 2024 ended June 29, 2024.

Previous wording

In recent years, the global economic environment has experienced inflationary pressure, high interest rates, and geopolitical tension, and we have experienced declines in revenues as our customers slowed purchases to reduce existing inventories in response to a softening market. There currently is increasing uncertainty regarding global macroeconomic conditions as a result of recent changes to U.S. trade policies, including tariffs on foreign imports to the U.S. The extent and duration of tariffs and the resulting impact on general economic conditions and our business are uncertain and depend on various factors, such as negotiations between the U.S. and affected countries, the responses of other countries (such as the retaliatory tariffs imposed by China), exemptions or exclusions that may apply, and any additional cost which may be borne by us, our suppliers, and/or our end customers. Additionally, increased geopolitical tensions, the risk of inflation and a recession, and the weakening U.S. dollar, have added to the uncertainty. The extent of the impact, or any new impact, of macroeconomic conditions on our operational and financial performance will depend on future developments, their impact to the businesses of our suppliers and/or customers, and other items identified under “Risk Factors” below, all of which are uncertain and cannot be predicted. Any extended period of global supply chain and economic disruption could materially affect our business, results of operations, access to sources of liquidity, and financial condition.

Current wording

In recent years, the global economic environment has experienced inflationary pressure, high interest rates, and geopolitical tension, and we have experienced declines in revenues as our customers slowed purchases to reduce existing inventories in response to a softening market. There continues to be uncertainty regarding international trade relations and trade policy, including those related to tariffs. The situation concerning the imposition of additional tariffs and trade restrictions by the U.S. and other jurisdictions continues to evolve, and we cannot be certain of the outcome, which could adversely impact demand for our products, costs, customers, suppliers, and general economic conditions. Additionally, continued geopolitical instability, including the ongoing war in Ukraine and conflicts in the Middle East, as well as the risk of inflation, slower GDP growth, or recession, and the weakening U.S. dollar, have added to the uncertainty. The extent of the impact of the macroeconomic and geopolitical environment on our operational and financial performance will depend on future developments, which are uncertain, but could materially affect our business, results of operations, access to sources of liquidity, and financial condition. See the section entitled "Risk Factors” in Part II, Item 1A of the Form 10-Q for further discussion.

Previous wording

Revenues increased $71.3 million in the recent quarter compared to the first quarter of fiscal 2024 due to increased revenues from our Home & Life products and our Industrial & Commercial products. Gross profit increased $42.7 million during the same period primarily as a result of the increase in revenues. Gross margin increased to 55.0% in the recent quarter compared to 51.8% in the first quarter of fiscal 2024 as our indirect and overhead expenses remained relatively constant but decreased as a percentage of revenues. Operating expenses increased by $15.7 million in the recent quarter compared to the first quarter of fiscal 2024 primarily due to higher personnel-related costs. Operating loss in the recent quarter was $32.1 million compared to operating loss of $59.1 million in the first quarter of fiscal 2024. Refer to “Results of Operations” below for further discussion.

Current wording

Revenues increased $47.5 million in the recent quarter compared to the second quarter of fiscal 2024 due to increased revenues from our Home & Life products and our Industrial & Commercial products. Gross profit increased $31.5 million during the same period primarily as a result of the increase in revenues. Gross margin increased to 56.1% in the recent quarter compared to 52.7% in the second quarter of fiscal 2024 as our indirect and overhead expenses decreased as a percentage of revenues. Operating expenses increased by $6.4 million in the recent quarter compared to the second quarter of fiscal 2024 primarily due to higher personnel-related costs. Operating loss in the recent quarter was $22.9 million compared to operating loss of $48.0 million in the second quarter of fiscal 2024. Refer to “Results of Operations” below for further discussion.

Previous wording

We ended the first quarter of fiscal 2025 with $424.8 million in cash, cash equivalents, and short-term investments. Net cash provided by operating activities was $48.1 million during the current year three-month period. Accounts receivable were $52.1 million at April 5, 2025, representing 26 days sales outstanding (“DSO”). Inventory was $83.4 million at April 5, 2025, representing 94 days of inventory (“DOI”).

Current wording

We ended the second quarter of fiscal 2025 with $415.5 million in cash, cash equivalents, and short-term investments. Net cash provided by operating activities was $53.0 million during the current year six-month period. Accounts receivable were $56.5 million at July 5, 2025, representing 26 days sales outstanding (“DSO”). Inventory was $80.9 million at July 5, 2025, representing 86 days of inventory (“DOI”).

Previous wording

During the three months ended April 5, 2025, we had no customer that represented more than 10% of our revenues. In addition to direct sales to customers, some of our end customers purchase products indirectly from us through distributors and contract manufacturers. An end customer purchasing through a contract manufacturer typically instructs such contract manufacturer to obtain our products and incorporate such products with other components for sale by such contract manufacturer to the end customer. Although we actually sell the products to, and are paid by, the distributors and contract manufacturers, we refer to such end customer as our customer. Two of our distributors who sell to our customers, Arrow Electronics and Edom Technology, each represented more than 10% of our revenues during the three months ended April 5, 2025.

Current wording

During the six months ended July 5, 2025, we had no customer that represented more than 10% of our revenues. In addition to direct sales to customers, some of our end customers purchase products indirectly from us through distributors and contract manufacturers. An end customer purchasing through a contract manufacturer typically instructs such contract manufacturer to obtain our products and incorporate such products with other components for sale by such contract manufacturer to the end customer. Although we actually sell the products to, and are paid by, the distributors and contract manufacturers, we refer to such end customer as our customer. Two of our distributors who sell to our customers, Arrow Electronics and Edom Technology, each represented more than 10% of our revenues during the six months ended July 5, 2025.

Previous wording

The percentage of our revenues derived from outside of the United States was 91% during the three months ended April 5, 2025. All of our revenues to date have been denominated in U.S. dollars. We believe that a majority of our revenues will continue to be derived from customers outside of the United States.

Current wording

The percentage of our revenues derived from outside of the United States was 89% during the six months ended July 5, 2025. All of our revenues to date have been denominated in U.S. dollars. We believe that a majority of our revenues will continue to be derived from customers outside of the United States.

Previous wording

Provision for Income Taxes. Provision for income taxes includes both domestic and foreign income taxes at the applicable tax rates adjusted for non-deductible expenses, research and development tax credits, global intangible low-taxed income, Subpart F income inclusions, and other permanent differences. See Note 10, Income Taxes, to the Condensed Consolidated Financial Statements.

Current wording

Provision for Income Taxes. Provision for income taxes includes both domestic and foreign income taxes at the applicable tax rates adjusted for non-deductible expenses, research and development tax credits, deemed foreign income inclusions, and other permanent differences. See Note 10, Income Taxes, to the Condensed Consolidated Financial Statements.

Previous wording

The increase in revenues in the recent three-month period was due to increased revenues of $30.7 million from our Industrial & Commercial products and increased revenues of $40.6 million from our Home & Life products. Revenues increased in the recent three-month periods as a result of increases in unit volumes and average selling prices of our products. The average selling prices of our products may fluctuate significantly from period to period due to changes in product mix, pricing decisions and other factors. In general, as our products become more mature, we expect to experience decreases in average selling prices.

Current wording

The increase in revenues in the recent three-month period was due to increased revenues of $21.7 million from our Industrial & Commercial products and increased revenues of $25.8 million from our Home & Life products. The increase in revenues in the recent six-month period was due to increased revenues of $52.5 million from our Industrial & Commercial products and increased revenues of $66.4 million from our Home & Life products. Revenues increased in the recent three and six-month periods as a result of increases in unit volumes and average selling prices of our products, as the current demand environment has improved relative to the prior year, which was impacted by customers reducing inventory levels relative to amounts they held during the period of widespread supply chain disruptions. The average selling prices of our products may fluctuate significantly from period to period due to changes in product mix, pricing decisions and other factors. In general, as our products become more mature, we expect to experience decreases in average selling prices.

Previous wording

Gross profit increased during the recent three-month period primarily as a result of increases in revenues in the periods. Gross margin increased as our indirect and overhead expenses remained relatively constant but decreased as a percentage of revenues in the recent three-month period as a result of the increase in revenues.

Current wording

Gross profit increased during the recent three and six-month period primarily as a result of increases in revenues in the periods. Gross margin increased as our indirect and overhead expenses decreased as a percentage of revenues in the recent three and six-month period as a result of the increase in revenues.

Previous wording

Research and development expense in the recent three-month period increased, with an increase of $12.1 million for personnel-related costs as a result of lower expenses in the prior year period due to cost containment measures, partially offset by $2.7 million of government incentives, and decreases for new product introduction and software expense and amortization of intangible assets of $1.0 million and $0.6 million respectively.

Current wording

Research and development expense in the recent three-month period increased, with an increase of $8.5 million for personnel-related costs as a result of lower expenses in the prior year period due to cost containment measures, partially offset by $2.5 million of government incentives, and decreases for amortization of intangible assets and new product introduction and software expense of $2.7 million and $1.3 million respectively. Research and development expense in the recent six-month period increased $20.6 million for personnel-related costs as a result of lower expenses in the prior year period due to cost containment measures, offset by $5.2 million of government incentives and decreases of $3.3 million for amortization of intangible assets and $2.3 million for new product introduction and software expense.

Previous wording

The increase in selling, general and administrative expense in the recent three-month period was primarily due to a $7.8 million increase in personnel-related costs as a result of lower expenses in the prior year period due to cost containment measures.

Current wording

The increase in selling, general and administrative expense in the recent three-month period was primarily due to a $3.9 million increase in personnel-related costs as a result of lower expenses in the prior year period due to cost containment measures and a $0.5 million increase in IT-related costs. The increase in selling, general and administrative expense in the recent six-month period was primarily due to a $11.8 million increase in personnel-related costs as a result of lower expenses in the prior year period due to cost containment measures and a $0.8 million increase in outside services.

Previous wording

Interest income and other, net for the three months ended April 5, 2025 was $3.8 million compared to $2.7 million for the three months ended March 30, 2024. The increase in interest income and other, net in the recent three-month period was primarily due to a higher cash and cash equivalents balance in the current year period as compared to the prior year period as well as higher interest rates earned on the investments.

Current wording

The increase in interest income and other, net in the recent three and six-month period was primarily due to a higher cash and cash equivalents balance in the current year period as compared to the prior year period.

Previous wording

Interest expense for the three months ended April 5, 2025 was $0.3 million, compared to $0.5 million for the three months ended March 30, 2024. The decrease was primarily due to a balance outstanding on the revolving credit facility for a portion of the prior year period.

Current wording

Interest expense for the three and six months ended July 5, 2025 was $0.3 million and $0.5 million, respectively, compared to $0.3 million and $0.8 million for the three and six months ended June 29, 2024, respectively. The decrease in the recent six-month period was primarily due to a balance outstanding on the revolving credit facility for a portion of the prior year period.

Previous wording

The change in the provision for income taxes for the three months ended April 5, 2025 is primarily due to tax expense associated with the increase in the U.S. and Singapore valuation allowance in the three months ended April 5, 2025, whereas the valuation allowance had not yet been established in the three months ended March 30, 2024. Because of the valuation allowance, we are unable to recognize the full tax benefit of the pre-tax losses incurred in those jurisdictions in the current year. A valuation allowance is required to be established when it is more likely than not that some portion or all of a deferred tax asset will not be realized. We identified a need for the valuation allowance due to the presence of significant negative evidence, including recent operating losses and uncertainty around the timing of recovery in economic conditions within both the semiconductor industry and the broader economy. We intend to maintain the valuation allowance until our ability to forecast sufficient future sources of taxable income is reestablished.

Current wording

The decrease in the provision for income taxes for the three and six months ended July 5, 2025 is primarily due to a decrease in tax expense related to the U.S. and Singapore valuation allowance in the three and six months ended July 5, 2025 in comparison with the three and six months ended June 29, 2024. Because of the valuation allowance, we are unable to recognize the full tax benefit of the pre-tax losses incurred in those jurisdictions in the current year. A valuation allowance is required to be established when it is more likely than not that some portion or all of a deferred tax asset will not be realized. We identified a need for the valuation allowance due to the presence of significant negative evidence, including recent operating losses and uncertainty around the timing of recovery in economic conditions within both the semiconductor industry and the broader economy. We intend to maintain the valuation allowance until our ability to forecast sufficient future sources of taxable income is reestablished.

Previous wording

Our principal sources of liquidity as of April 5, 2025 consisted of $424.8 million in cash, cash equivalents and short-term investments, of which $204.1 million was held by our U.S. entities. The remaining balance was held by our foreign subsidiaries. Our cash equivalents and short-term investments consisted of government debt securities, which include U.S. government securities; corporate debt securities, which include asset-backed securities and corporate bonds; and money market funds.

Current wording

Our principal sources of liquidity as of July 5, 2025 consisted of $415.5 million in cash, cash equivalents and short-term investments, of which $195.7 million was held by our U.S. entities. The remaining balance was held by our foreign subsidiaries. Our cash equivalents and short-term investments consisted of government debt securities, which include U.S. government securities; corporate debt securities, which include asset-backed securities; and money market funds.

Previous wording

Net cash provided by operating activities was $48.1 million during the three months ended April 5, 2025, compared to net cash used of $71.8 million during the three months ended March 30, 2024. Operating cash flows during the three months ended April 5, 2025 reflect our net loss of $30.5 million, adjustments of $29.9 million for depreciation, amortization, stock-based compensation, and deferred income taxes, and a net cash inflow of $48.7 million due to changes in our operating assets and liabilities.

Current wording

Net cash provided by operating activities was $53.0 million during the six months ended July 5, 2025, compared to net cash used of $55.7 million during the six months ended June 29, 2024. Operating cash flows during the six months ended July 5, 2025 reflect our net loss of $52.3 million, adjustments of $62.6 million for depreciation, amortization, stock-based compensation, and deferred income taxes, and a net cash inflow of $42.7 million due to changes in our operating assets and liabilities.

Previous wording

Accounts receivable decreased to $52.1 million at April 5, 2025 from $54.5 million at December 28, 2024. The decrease in accounts receivable resulted primarily from normal variations in the timing of collections and billings. Our DSO decreased to 26 days at April 5, 2025 from 29 days at December 28, 2024.

Current wording

Accounts receivable increased to $56.5 million at July 5, 2025 from $54.5 million at December 28, 2024. The increase in accounts receivable resulted primarily from normal variations in the timing of collections and billings. Our DSO decreased to 26 days at July 5, 2025 from 29 days at December 28, 2024.

Previous wording

Inventory decreased to $83.4 million at April 5, 2025 from $105.6 million at December 28, 2024. Our inventory levels will vary based on the availability of supply and the impact of variations between forecasted demand used for purchasing inventory and actual demand. Our DOI was 94 days at April 5, 2025 and 125 days at December 28, 2024.

Current wording

Inventory decreased to $80.9 million at July 5, 2025 from $105.6 million at December 28, 2024. Our inventory levels will vary based on the availability of supply and the impact of variations between forecasted demand used for purchasing inventory and actual demand. Our DOI was 86 days at July 5, 2025 and 125 days at December 28, 2024.

Previous wording

Net cash used in investing activities was $3.9 million during the three months ended April 5, 2025, compared to net cash provided of $81.5 million during the three months ended March 30, 2024. The decrease in cash inflows was principally due to a decrease in cash provided by net purchases, sales, and maturities of marketable securities of $70.2 million in the current period, and proceeds received in the prior year of $12.4 million for the sale of an equity investment.

Current wording

Net cash used in investing activities was $14.1 million during the six months ended July 5, 2025, compared to net cash provided of $121.1 million during the six months ended June 29, 2024. The decrease in cash inflows was principally due to a decrease in cash provided by net purchases, sales, and maturities of marketable securities of $114.8 million in the current period, and proceeds received in the prior year of $12.4 million for the sale of an equity investment. Purchases of property and equipment increased $8.0 million during the six months ended July 5, 2025 compared to the six months ended June 29, 2024.

Previous wording

Net cash used in financing activities was $1.0 million during the three months ended April 5, 2025, compared to $45.7 million during the three months ended March 30, 2024. The decrease in cash outflows was principally due to a $45.0 million repayment of borrowings under the revolving credit facility in the prior year period.

Current wording

Net cash used in financing activities was $6.1 million during the six months ended July 5, 2025, compared to $52.1 million during the six months ended June 29, 2024. The decrease in cash outflows was principally due to a $45.0 million repayment of borrowings under the revolving credit facility in the prior year period.

Previous wording

As of April 5, 2025, we had a $400 million revolving credit facility. We have an option to increase the size of the borrowing capacity of the revolving credit facility by up to the greater of an aggregate of $250 million and 100% of EBITDA, plus an amount that would not cause a secured net leverage ratio to exceed 3.50 to 1.00, subject to certain conditions. As of April 5, 2025, no amounts were outstanding on the revolving credit facility. We were granted a waiver of compliance for the minimum interest coverage ratio through October 4, 2025. In the event we are not able to achieve compliance by the end of the waiver period, we may need to obtain an additional waiver in order to access the revolving credit facility.

Current wording

As of July 5, 2025, we had a $400 million revolving credit facility. We have an option to increase the size of the borrowing capacity of the revolving credit facility by up to the greater of an aggregate of $250 million and 100% of EBITDA, plus an amount that would not cause a secured net leverage ratio to exceed 3.50 to 1.00, subject to certain conditions. The credit facility contains various conditions, covenants, and representations with which we must be in compliance in order to borrow funds, including financial covenants that we must maintain a consolidated net leverage ratio (funded indebtedness less cash and cash equivalents up to $750 million and divided by EBITDA) of no more than 4.25 to 1, and a minimum interest coverage ratio (EBITDA/interest payments) of no less than 2.50 to 1. We were granted a waiver of compliance for the minimum interest coverage ratio through October 4, 2025. As of July 5, 2025, we were in compliance with all of the covenants and no amounts were outstanding on the revolving credit facility.

Previous wording

We are exposed to foreign currency exchange rate risk primarily through assets, liabilities and operating expenses of our subsidiaries denominated in currencies other than the U.S. dollar. Our foreign subsidiaries are considered to be extensions of the U.S. parent. The functional currency of the foreign subsidiaries is the U.S. dollar. Accordingly, gains and losses resulting from remeasuring transactions denominated in currencies other than U.S. dollars are recorded in the Condensed Consolidated Statements of Operations. We may use foreign currency forward contracts to manage exposure to foreign exchange risk. Gains and losses on foreign currency forward contracts are recognized in earnings in the same period during which the hedged transaction is recognized.

Current wording

We are exposed to foreign currency exchange rate risk primarily through assets, liabilities and operating expenses of our subsidiaries denominated in currencies other than the U.S. dollar. Our foreign subsidiaries are considered to be extensions of the U.S. parent. The functional currency of the foreign subsidiaries is the U.S. dollar. Accordingly, gains and losses resulting from remeasuring transactions denominated in currencies other than U.S. dollars are recorded in the Condensed Consolidated Statements of Operations. We may use foreign currency forward contracts to manage exposure to foreign exchange risk. Gains and losses on foreign currency forward contracts designated as hedging instruments are recognized in earnings in the same period during which the hedged transaction is recognized.

Previous wording

Our website address is www.silabs.com. Our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 are available through the investor relations page of our website free of charge as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission (“SEC”). Our website and the information contained therein or connected thereto are not intended to be incorporated into this Quarterly Report on Form 10-Q.

Current wording

Our website address is www.silabs.com. Our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, are available through the investor relations page of our website free of charge as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission (“SEC”). Our website and the information contained therein or connected thereto are not intended to be incorporated into this Quarterly Report on Form 10-Q.