On Thursday, Silicon Labs, the publicly listed maker of silicon and software products for Internet of Things (Iot), infrastructure and “industry 4.0” applications, announced that it is selling its Infrastructure & Automotive (I&A) division to semiconductor maker Skyworks Solutions for $2.75 billion in cash. Silicon Labs’ power/isolation, timing and broadcast products, intellectual property and associated employees are all included in the transaction.
“The outcome of this deal is a measurable testament to the industry-leading solutions and strong financial performance the world-class infrastructure and automotive team delivered the last 25 years,” said Silicon Labs CEO Tyson Tuttle in an official statement on the deal.
Silicon Labs expects to receive around $2.3 billion in net proceeds after taxes and transaction fees. It intends to return approximately $2.0 billion to shareholders through a combination of special dividends and/or share buybacks after the transaction closes. The boards of directors of both companies have approved the transaction, which is expected to close in the third quarter of 2021 subject to customary closing conditions and regulatory approvals in various jurisdictions. Silicon Labs does not believe this transaction will require regulatory approval in China.
The company said proceeds from the deal will provide an “ideal opportunity to return value directly to its shareholders,” while also increasing the company’s ability to fully participate in strong, expected IoT market growth.
In connection with the announcement, Silicon Labs provided preliminary revenue results for its first fiscal quarter, which ended April 3, 2021. Silicon Labs is projecting total Q1 revenue of around $255 million, up roughly 5 percent sequentially and 19 percent year-over-year. Silicon Labs attributes the forecasted revenue increase to solid growth in IoT, continued strength in bookings, and durable demand trends.
So why sell?
According to Silicon Labs, its two core businesses, IoT and I&A, are fundamentally different, each with unique markets, customers, supply chains, R&D, and go-to-market strategies. After the I&A divestiture, Silicon Labs will be a pure-play leader of intelligent, wireless connectivity for the IoT. The company’s resulting focus on IoT comes at a time when the overall market and its own growth opportunities are accelerating, as industry projections anticipate a multi-year ramp in connected devices.
“The massive growth in connected devices makes this the right time for us to exclusively focus on the large, diverse, growing IoT opportunity,” said Silicon Labs CFO John Hollister. “Our updated operating model for the IoT business indicates a long-term revenue growth rate of 20 percent, outpacing the forecasted industry CAGR of mid-teens for our combined target IoT end markets of Industrial & Commercial and Home & Life.”
With the investments it is making in the IoT business, the company expects to drive sustainable growth and deliver long-term 20-25 percent non-GAAP operating margin, demonstrating what it calls “the inherent leverage potential as a standalone IoT-focused company.”
Silicon Labs has developed what it terms the industry’s most comprehensive IoT ecosystem, serving tens of thousands of customers, thousands of applications and hundreds of leading partners, including Project Connected Home over IP and Amazon’s “smart neighborhood” application, Amazon Sidewalk.
“We believe the growing demand indicates the power of the IoT to deliver real, measurable value, transforming industries, growing economies and improving lives,” said Tuttle. “Customers are using our solutions to build a smarter, more sustainable, and more connected world.”
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