Silicon Laboratories Inc. (SLAB) Earnings Call Transcript & Summary

Good afternoon, everybody. Welcome to Silicon Labs' 2022 Analyst Day. It's great to be back in New York, and we had a great time this morning opening the market over at the NASDAQ, where we've been a publicly listed company for 22 years now. I'm John Hollister. I'm the Chief Financial Officer. I've been with the company for 18 years, and I've been in this role for the past 9 years. I'm joined today by several members of our executive team. Some of whom you all know, and some of you will be meeting for the first time, and I'll quickly walk through our agenda. Matt Johnson, our President and CEO, will kick things off with an introduction and overview of the tremendous opportunity we have in the IoT market. Next, you'll hear from our Chief Technology Officer, Daniel Cooley, who will cover our technologies and platform strategy. After that, you'll hear from Ross Sabolcik and Jake Alamat, who will cover our business units and dive deeper into specific applications, understand how our technology is put to work with our customers. After Jake's presentation, we'll have a short break and give you a chance to have a Q&A session with Daniel, Ross and Jake, and then we'll have a short break. Following the break, Brandon Tolany, our SVP of Sales and Marketing, will cover our journey and evolution to a broad-based business model as well as our go-to-market strategies. And finally, I'll wrap it up with some comments on sustainability and a financial overview. So with that, let's get started. And I'd like to hand it over to Matt for the intro.

Thank you, John. Everyone, welcome. Good afternoon. Glad you're here for our 2022 Analyst Day. For those of you who do not know me, I'm Matt Johnson, the new President and CEO here at Silicon Labs. Prior to this role, I led our IoT business. And prior to that, I spent the last almost 20 years in the industry in the mobile handset space, in the automotive space. And in both of those markets, it was an awesome opportunity to see the growth and transformation that they drove globally. But I can honestly say that what we experienced there is not as exciting as what we see right now in the IoT and the position we find ourselves in the IoT. So we're going to share more about that today in terms of the company and the opportunity we see moving forward. But before we do that, I'd just like to pause for a minute and recognize what's going on in the Ukraine. And just to share that our prayers and support are going out to all the people impacted there and at the same time, it's important that we share that we do not have any employees that are directly impacted, but we definitely have multiple employees who are indirectly impacted by what's going on there. At the same time, we've made a donation to help out with the humanitarian efforts there, and we're going to stay focused on this like I think everybody is as this progresses. So with that, I'm going to transition and talk a little bit about big takeaways. If you think about all the materials you're going to see today, there's some fantastic content. But I want to make sure if you take away one thing it's remembering that Silicon Labs is the largest IoT wireless pure play company in the world. And there's 3 reasons that, that is so exciting. The first is the market we're focused on has at least a couple of decades of amazing growth in front of it. We're looking at a market that's already large, but it's accelerating. So think of a large secular growth opportunity. The second is our position in that market. We've been focused on this space now for almost 15 years. And with that, we find ourselves in an incredible position to grow, scale and capture that opportunity. At the same time, we are now 100% focused on this and nothing else. So think of that large market with a couple of decades of growth well positioned in that market and focused on nothing else but capturing and maximizing that opportunity. It's a very exciting time to be at Silicon Labs. So I thought it'd be good to start and just give some overview on what we do as a company and who we are. For those of you who are not aware -- give me 1 second here. Slides progressing for anyone? I'll wait for that to -- so I'm not moving. I'm kind of stuck. So I'll give it a second. If it moves forward, I need to go to the next slide. If it doesn't, I know most of it in my head, so I can just keep going. So while we're waiting for that to transition, I'll give you some high-level context and perspective on the company. So the first thing to remember when you think of Silicon Labs is we're focused. We're focused on end or edge nodes for IoT wireless. Think of embedded computing and wireless performance for the billions and billions of devices that sit on the end or the edge of the network. This is a space that -- we don't cover automotive or handsets or PCs. We're really focused on everything else that sits on the edge of that network that needs wireless connectivity. And as part of that, we provide complete solutions for that space. we provide, obviously, the silicon, we're a semiconductor company, but we also provide the software, the tools and all the service and support that are required to go with that solution, which is very important because some customers -- our experts at wireless, others are just learning about wireless and need a turnkey solution. At the same time, we do this with incredible breadth and depth of technology. A lot of companies have a tendency to focus and support 1 or 2 wireless technologies. At Silicon Labs, when we started this, we committed ourselves to making the IoT successful. And as part of that, supporting the requisite wireless technologies needed for the IoT. So we've been the foundation of multiple technologies, and I'll share more about that with you later. But it's important to remember, we support multiple technologies, and we know how to make them work well and work well together. At the same time, we do this across an incredible diversity of customers, literally think about tens of thousands of customers, thousands of applications and over 100 different ecosystems. This creates billions and billions of connections. It's really important because we figured out how to do mass market wireless and that's the where the market is in terms of us being positioned to capture this opportunity. How we do that is with a platform approach. Think of a platform that includes hardware, software tools and was purpose-built for the IoT, purpose-built to scale. And that's how we address this. But ultimately, we do it with our people and team. We have an amazing team, culture and values as a company that ultimately will allow this all to happen and be possible. And I'll share more about this with you today. Here we go. So the first thing is we have big expectations for future growth. But these future expectations are underpinned by historical performance. The numbers you see are our historical IoT revenue, which is total Silicon Labs now. And you can see that over the last decade, we 4x-ed our revenue growth. And what's even more amazing is during that time, the transformation that happened within that revenue. Think of the diversity of customers I just mentioned that exist within this revenue number. Or another example is when we started out, this was around 20% wireless business back 10 years ago. This is now more than 70% wireless business today in all IoT. So it's really a remarkable transition and transformation that's happened during this time frame. Also, at the same time, our confidence in the future has been increasing every year. Our opportunity funnel has been increasing. Our design win momentum has been increasing and our position within the market has been improving. And as a result of that, I'm really excited that here at our Analyst Day, we're going to give you full year guidance on what our 2022 outlook looks like. And the reason is we're seeing performance that is ahead of our expectation, and we're really excited to share that with you. You'll hear more about that from John later. But I think it's the best proof point you can see in terms of the momentum we're talking about. So as part of that, though, it's not just about the revenue growth, it's about our performance relative to the market. How is that revenue compare to the market? So if you look, you can see that over the last decade, we've been outperforming the market almost that entire time frame. Specifically, we've been gaining market share or outperforming the market the last 8 years. So the last 8 years, we've been gaining Share. And we expect this to continue. So we're not immune to the movement in the market but we have a consistent track record of outperforming it. And for sure this doesn't guarantee that we'll be able to do it in the future, but we do believe it speaks to our position and ability to execute in the space and we are confident that we'll be able to continue driving this moving forward. So what about the market itself? The IoT. Everyone talks about the IoT. It means different things to different people. What's the big deal, right? So for us there's a couple of things I'd like to start with that make this such a big deal. The first is, think of the sheer scale and volume and quantity devices that we're thinking about and talking about here. Think of other transformational markets, think of PCs, handsets, automotive, and then think of the size of the IoT today already. It's already significantly larger just in terms of the actual size of the market, in terms of unit volume. And then think these devices are already so pervasive and ubiquitous in our lives, right? They're on your -- you wear them, they're in your home, your office, your schools, hospitals, factories, job sites, you name it. And that's why we're just seeing the tip of the iceberg in terms of the growth to expect moving forward. The expectation is end devices are going to grow to somewhere around 40 billion to 50 billion units per year in the next decade. So think about how big this market is already and think about the future growth potential that we haven't even realized yet. But that's the quantitative side of it. If you want to think of it that way. What about the qualitative side of it? What's the impact of this? What's it doing? So I think that's the most exciting piece. If you think about the impact this will have and make, right? It's always difficult to imagine before it happens, all the ways the world will change with these technologies. Think of, like I mentioned, PCs and handsets. But think about the IoT in terms of some of the biggest trends that are underpinned or supported IoT technology. For example, think about the digitalization that was accelerated so much during the pandemic. You're going to hear from Jake soon about health and life and time and well-being in the way the IoT can make a huge impact on that. You're going to hear from Ross talking about the environmental impact and sustainability that the IoT can help accelerate as well as just Industry 4.0 or the fourth industrial revolution in terms of the way the IoT can help and is such an integral part of that. The point is each of these has a key role in terms of how the IoT helps it and accelerates it. And that's another reason the IoT is so exciting. So it's not just the quantity, but it's also the quality of the impact and what it's going to do. So simply put, it's an exciting time in place for the IoT. But we're a wireless technology company. So the market is big. It's going to make a big impact. It's going to do great things. But as a wireless technology company, what wireless technologies are going to underpin this. What wireless technologies are going to drive this. We can't ask that question all the time. And I hate to disappoint, but the answer is not what people want. It's not that there's going to be one wireless technology to rule them all. There are multiple wireless technologies that are critical and integral to the IoT. They are needed to make it work and needed to make it succeed. And the reason is they each have their purpose, they each have their reason. They were made for a reason to help the IoT. So there won't be just one but there are some clear trends that you can see within that. One of those is low-power wireless technology. And when I say low-power wireless technology, I mean technologies like Zigbee, Z-Wave, Bluetooth Thread, Wi-Fi, these technologies were made for these that types of applications. And why that matters is, they can help drive and accelerate adoption within the IoT. So specifically, over 75% of edge devices today are driven or utilized low-power wireless, and that's expected to continue moving forward. And why that matters so much is it helps people understand the underlying technology performance that is needed to drive the IoT. So just to compare, take cellular technology. Cellular, by comparison, can cost 10x more and have a fraction of the battery life. So wireless, low-power wireless allows more than 10x battery life at a fraction of the cost. And in doing so, it opens up the door to so many applications that couldn't otherwise benefit and utilize wireless technology. So that's not to say there won't be a place for cellular. In fact, they'll coexist, and it will work very well, but the bulk of the market will be driven by low power, and that's where we are incredibly well positioned, and that's why we're focused there. An easy way to think of the coexistence to think of a cellular handset, right? The cellular handset has multiple wireless technologies, including 4G or 5G, Wi-Fi, Bluetooth, GPS. And the reason is they each bring a benefit, they each play a role and make a better experience. This is an easy way to conceptualize the IoT in terms of multiple technologies being needed and coexisting well together. So a key takeaway here is low-power wireless, the majority of the market and the major driving force and that's where we're focused because that's where we see the biggest opportunity. So if you put this all together, it's really incredible in terms of the size of the market and the opportunity. When we had our last Analyst Day a couple of years ago, we did anticipate that the market would accelerate. We didn't anticipate how much. We just saw an incredible acceleration over the last year or 2. And as a result of that, we expect the market in 2025 for our served available market will be over $17 billion, which is really exciting. But also, at the same time, we saw our position meaningfully improve in the market. We saw our ability to capture this market and improve, our ability to serve this market and improve, and that's what I want to talk about next. The reason I'm going to focus on this a little bit is it's getting more difficult, right? As the IoT gets bigger, it gets more attractive, more shiny, you see more people in the IoT. More people claiming IoT positions, right, that we have IoT and it's getting difficult to understand how everyone is different, what their roles are, how they're positioned, what they do. So I'm going to walk through a few reasons Silicon Labs sticks out and is differentiated versus other companies in the space. So think of it as why us? The first one is our focus. We are 100% focused on IoT and nothing else. The reason this matters is the IoT is incredibly complex. It's large. It has an unprecedented scale. It's diffuse across so many customers' applications, technologies, markets, you name it. It's unlike anything we've ever seen. We didn't start this way. We decided to make ourselves this way as a company because we realize this is what it would take if we were going to capture this opportunity. Specifically, we believe that this has to be your #1 thing and the thing that you do if you're going to capture this. And we're going to talk more about why that's so important given the market diversity and all the technologies out there. So the first is 100% focused. The second is that unmatched wireless breadth and depth. As I said earlier, we've been focusing on this space for almost 15 years now. Before people even believed or knew what the IoT was, we were buying and building technology for this application and this purpose. And we talked about the importance of low-power wireless for the IoT. Why this matters is think about our customers and what they need, right? The solutions that are not one technology. They need solutions that integrate Wi-Fi and sub-gig or solutions that integrate Bluetooth and 15.4. Our goal is not to make one wireless technology or 2 wireless technologies succeed. Our goal is to make the IoT succeed, and that's an important distinction. So we support the requisite technologies our customers need to make this successful. It's another reason that it's getting more complicated when you look at our market because of the way our customers are using multiple wireless technologies, it's really hard to report. We get asked all the time, hey, how is Bluetooth doing? How is Wi-Fi doing? How is Zigbee doing? How's Z-Wave doing? We want that information, too, and we track that to the extent we can, but they're increasingly getting blended together. Customers want multiple technologies. So it's increasingly difficult to share each one because they want combo devices. They want multiprotocol devices, which isn't surprising. The way we are going to report moving forward, and we'll share more with you today is by application segment. This is the way we're structured. This is the way we focus. And we believe this is the right way to approach the market because we're looking at those applications and saying, how do we make them successful, not how do we drive a particular technology into those applications. It's a very important distinction. And just so people know, many of these technologies, either we acquired, we built or we were the foundation of and we have meaningful positions in each, which is important. We don't just say we support them. We actually have them and know how to make them work well and work well together, which is incredibly important for our customers. So if you were to think about a way to take away this concept, think of this as the IoT is not a point solution play. Not about one technology, it's not about one customer. It's not about one application. It's about a platform. You need a platform approach to be able to serve and really maximize your exposure and ability to serve this market. The next concept is diversity. And this one is really exciting for us because, as I said earlier, as a company, we have figured out how to do mass market wireless, which is really a tremendous accomplishment if you think about it. And the first way to break it down is our application segments that I mentioned before. So we're now structured with a Home & Life focus. That's one of our business units. You'll hear more from Jake, who leads that, in a few minutes. And the other is industrial and commercial, very different market, very different careabouts. That's led by Ross Sabolcik, who will be up here in a few minutes. Each of those roughly represent about half of our business. And that in itself represents a lot of diversity, but it's much bigger than that. We have geographic diversity, we have tens of thousands of customers, we have those thousands of applications I mentioned, over 100 different ecosystems. And why that matters? If you look at donor chart. That's a breakout of our customers. There's no customer over 5%, and the tail that we serve is remarkable. And the reason that matters so much is we found a way to service experts in wireless as well as newcomers who need a turnkey solution. And Brandon is going to share more with you how we use that as a competitive advantage. Another reason this matters. It's not just that we've figured out how to service so much market and we have so much broad exposure. It also helps us competitively. One of the biggest challenges in the IoT, and you may know this as consumers, is interoperability. Getting things to work well and work well together easily, quickly, think of user experience, developer experience, customer experience, it matters so much. And think of our positioning. We support all these technologies, all these customers, all these applications. If there's any company in the world that is -- has a front and center problem with interoperability, it's us. That's why we've dedicated ourselves for the last few years to improving that experience. We want wireless that just works. We want wireless that everybody can use. We want wireless that people don't have to think about. And we've made huge strides towards that, given the diversity we've already been able to accomplish, and we're far from done. And like I said, because of that exposure we have with so much diversity it's an advantage to keep improving the interoperability in that experience each time. So think of wireless that just works. The way we accomplish that is with our platform. I mentioned the platform earlier and why it's so important. Think of a platform that is custom-built for the IoT. We're not trying to repurpose anything and push it into the IoT. It is made for the IoT. At the same time, it's made to scale for the IoT. We knew since the beginning that the IoT was going to explode in its growth and would be very large and diffused. So we needed a way to scale, address and capture that market. The way we did that is we turned software into our core competency. And in doing so, we've been able to integrate software and hardware in a way that makes our platform an important competitive advantage for us. Three reasons to take away. The first is efficiency. By using this approach, we can do so much more in terms of addressing more market with less effort. We'll use the same wireless SoC to address multiple markets, multiple applications, multiple customers, multiple technologies. And at the same time, our customers also benefit from that efficiency. You'll hear from Brandon later that when a customer uses us once, it's easier for them to use us the second time, third time, fourth time, which creates a reused paradigm in an R&D efficiency for them as well, which is really important. So efficiency is a first. The second is adoption. We talked about that wireless that just works, ease of use. We focus on making this experience so easy that if there's a customer that's never used wireless before and they have a great application that they want to connect to the cloud, we can do that for them. And we can do it with low effort, low touch and a great experience for them. That's important if we're going to scale and maximize this opportunity and capture as much of the market as possible. And third is differentiation. It's really important when you do a platform that you can still differentiate. And why that matters so much is we use the platform to differentiate because we can quickly and we can easily update software for our customers' needs and wants and the way they want to differentiate, so that helps them differentiate their product and allows us to differentiate our product. And this is one of the reasons that our gross margins are at the high end of our peers in the space because we're able to operate this way. The last reason is critical. And we differentiate on our people, our talent, our culture and our values. And this isn't something that the tech industry talks about as much, but it's foundational. Everything you see that we do it's because of our team and their ability to do this, deliver it and execute. And so many things that we talk about, ability to innovate, integrity, ability to make great decisions, ability to be agile and adjust, it all comes from that culture, and it all comes from the team. And this is going to be increasingly important in our industry moving forward. And we think and we like our position here. And the reason is, we've been focused on this from the beginning. From the very beginning, people have been our #1. And our team knows this. And this is why we're recognized consistently at the Great Place to Work or we receive industry recognition as a great company. It's because we put our team first. It doesn't mean we're ever done, but we believe that this is going to matter incredibly in our industry from a competitive perspective. And we also know internally, it matters incredibly that if we're going to maximize this amazing opportunity, that market that is so big and growing, we need to have the team that's ready to go maximize and capture it, and that's what we have, which is really exciting. So those are a few of the reasons we see ourselves so well positioned, and the team is going to share more about these and fill in the next level of detail. But before I transition, I want to talk to you about something we call SLAB 4.0. At our last Analyst Day a couple of years ago, we introduced this concept. And the reason we had this initiative internally is because we saw that the market was going to accelerate. And we knew as a company, if we wanted to capture this, if we wanted to maximize this, we'd have to change. It was just too big for our size to go after. So we came up with what we call SLAB 4.0, Silicon Labs 4.0, which was a substantial transformation that we embarked on. And we're not done yet, but we took this incredibly seriously, and it resulted in some really big changes for us as a company. The first was the divestiture of anything that was not IoT. That resulted in the sale of what we call our I&A business to Skyworks last year so we could focus on this and nothing else because we believe that's what it would take to get and maximize the opportunity. The second was simplifying our structure. It was less layers, more simple organizations, less complexity and getting to 2 business units that represented all our business in the 2 segments that you're going to hear about in a few minutes. And the last one was increasing our productivity or output of our R&D. We found a way to increase our silicon or SoC output by 2x over the last couple of years. And at the same time, for our software, we call our software product, we were able to increase it by more than 2x. And why that matters is those are impacts that are massive that haven't even been seen yet that will impact future growth and future revenue, and that's incredibly exciting. So simply put, this transformation is substantial. It's allowing us to be so well positioned, you're seeing our results accelerate and it's making a big difference. But we are not done. We're just getting started on this because we believe this is an integral part of capturing the IoT space and market. So simply put, it, for us, is a really exciting time to be in the IoT, and we're excited to share more with you about that in the next few minutes. So I'm going to take a pause. I'm going to turn it over to the team to talk to you and share with you the next level of detail, starting with Daniel Cooley, our CTO. Daniel?

Thank you, Matt. Good afternoon, everyone. My name is Daniel Cooley. I'm the CTO of Silicon Labs. This is my 17th year at the company and I've had the pleasure in serving various R&D business and corporate roles. Believe it or not, the majority of that time, however, was leading up to now. I'm really excited to be here today to talk about the world's best wireless technology, purpose-built for the IoT. You're going to hear a lot of people say that purpose-built, and we're going to go into that in a lot of depth here on the technology and then later into the customers. We'll see here that we've spent decades building our portfolio, and we are simply best at delivering it in a software friendly way, that really matters. In our platform, these things combine to form the most complete and scalable one in the market. So the IoT is really about connecting embedded computers to the Internet. And before we go deeper there, it's worth taking a step back and seeing how it lives in the context of other markets that connect to the Internet, like data center, PC and mobile. First, we look at device volume and number of customers. You can see that PC data center and mobile are fairly consolidated at this point. The volume is large and reasonable, but there are typically only about 5 to 10 customers that matter. When you get to embedded, however, the volume and number of customers absolutely explodes. This is really unique. This is really because of the unique application needs and the diversity that we see there. To make that real, earlier today, I came in and counted how many IoT sockets could there be in this room? And believe it or not, it was well into the hundreds. I got some notes here. There are 116 light bulbs in this room, 26 plugs, 14 speakers, 12 window and screen motors, 8 PIR sensors, 6 lights switches, 6 microphones, 3 projectors, 3 fire detectors, 2 exit signs, 10 access points, and I could keep going. That's before we get to smartwatches on your wrist, whatever is in your bag, maybe you have a tile or something like that sitting in there, it goes on and on and on. That's one room in one building in one city. The volume here is going to be massive. Moving on to the constraints. I selected storage, power, lifetime and cost. There are others, but I think this really encapsulates a lot about the technology. And if you start scanning across the page, you'll see orders of magnitude difference there. In the data center, and on the far left, this is really the most unconstrained platform. It's the cloud. It forms the central nervous system for all of the other platforms. And the further you get out of that cloud, the more constraints that you see. When you get to embedded, our engineers deliver breathtaking technology with a fraction of the resources of the other platforms. And this is key. This is key to how we build and deliver our technology, nothing can go to waste, and it's at the core of what we do. Probably most importantly on this is the networking time line. The data centers connected in the '80s, PCs from about '95 to 2005 and smartphone the decade after that. The IoT and embedded is making that transition now. We're still in the early days, and we have a lot of work left to do, but the global impact of driving the majority of these embedded applications online is going to be massive. This unique combination of market size, customer diversity, application constraints and connectivity is really at the core of how we architect, build and deliver that technology to the customer. Let's take a deeper look. So we've been in this business for a very long time, long before it was called the IoT. In the mid-2000s, we saw our customers pulling together early embedded connectivity with simple 8-bit MCUs and subgigahertz transceivers. These are multichip solutions with things that you know like garage door openers. The applications were fairly well established. These cases were well established, volume was not very large. Around the end of the decade, we launched the first systems on chip for the IoT. Networking standards that were purpose-built for the IoT came to the stage to address smart home applications and metering applications, things like that. With the introduction of these products, it was exciting for our customers. It was the first time they saw the CPU, the transceiver and the full software stack together into one solution. It was finally getting easier to use this stuff. The volume started ramping, and we could see that the IoT was clearly going to be no fact. So in 2012, we made the strategic decision to focus the company on IoT and subsequently set out to develop the first multiband, multiprotocol SoCs in the market. Launched around 2015, these chips brought much more functionality connectivity and integration to the table. We added protocols, peripherals, power management, modules and even cryptographic acceleration to the chips. This took everything to the next level. Our customers began shipping product in the tens of millions of units and really starting to turn their eyes towards the hundreds of millions or billions, but we weren't finished there, of course. Our next generation took it up a notch. Launched around 2020, these brought more, more connectivity like Wi-Fi, Wi-SUN and matter, more security with a slew of functions, secure programming, secure boot and debug, heat storage and management, anti-tamper and even new services like -- sorry, and even advanced cryptography. Crucially, these are also the first wireless SoCs in the market with hardware-accelerated machine learning. So machine learning is not just going to be for the data center, for auto, for the PC and the handset. It's going to be all around us and our customers are starting to use it today. So these chips are ramping right now, and we're not done there. So to date, the company has over 1,400 patents. We're developing our next generation, and they're really excited about what we're going to be delivering. This is a very hardware-centric view, we spent decades building up what we believe is the best hardware portfolio in the industry. We're very proud of what we accomplished there. It's unique, it's scaling, it's exciting. But what tends to get a lot less airtime is the software, the amount of code we're writing. So we're going to take a look there. Simply put, we have the most complete, robust and secure software platform for the IoT. We spent the past decade -- you heard Matt talk about this. We spent the past decade turning software from an afterthought into a core competency that our customers rely on every day. Our M&A strategy here that you see is just an example of that. With each transaction, software, IP and capabilities were a key factor in the process. With the teams and learning that came in, we not only accelerated our product portfolio faster than anybody else. We steadily added to the bench of talent inside. At this point, we actually have far more software engineers at the company than hardware engineers and that's a trend we expect to continue in perpetuity. So what are all these software engineers doing? Well, they're writing code. They're writing code across all 4 of those compute platforms that I mentioned. Embedded up there, you see is the core of what we do. These are the wireless connectivity stacks, real-time operating systems and other system utilities that our customers use. But it really doesn't end there. We're writing mobile software for demonstration and production. We're writing PC software for tools to speed the customers' time to market. And then there's the cloud itself. This is crucial because this is where the IoT comes together. It's connected to the cloud in that dance that lasts for decades. We're writing more and more software up there to help our customers as they manage large-scale deployments, things like life cycle management, securing their supply chains and the services that we've built up like secure programming. It's this combination, this package, that's the complete product of what we do. And that's how we view it, a complete product. This is not sample or demonstration code. We test this software obsessively to ensure the highest levels of quality. And every software release, which happens monthly, we put it through millions of regression tests. We do this in a production environment with large networks to find those one in a million or one in billion corner cases and fix them before they get to the customer. This is where that decades of learning and understanding really comes in. We know what they're going to do. We know what to look for and we find it first. On top of this, we run the code through strong internal and third-party quality and security testing. When we deliver the software, it's battle-tested and ready to scale. That's really key differentiator. No one does that in embedded. Getting a few parts up and running on the bench is trivial, but shipping in the hundreds of millions or billions of units on a continuous basis is not. So all this is building up to one thing. Our customers are primarily software developers. 99% of the product is experienced through software. It's on the bench and then later in the cloud. If we're really going to win and that's what we intend to do, we have to meet those customers where they are. We have to deliver what they need. Let's talk about that. First and foremost, they need wireless that just works. These embedded and cloud developers are not wireless experts nor should they have to be. When they come to us, they need to know we have the wireless covered that we worry about it so they don't have to. Next, they want to move quickly. They're in a race just like us. Embedded is going, scaling, ramping very, very quickly now, and they're racing. They need tools. They need to get to market quickly. They need to know that we can help them debug as they get there. We provide unique tools to help do that. Embedded has come a long way in the last 20 years, but wireless is new here, and it's harder, debugging that wireless link can be a mystery for a software developer or how to get the last bit of energy out of the battery is just as tough. We provide unique tools to help demystify, clarify and then make it reproducible. Moving on, connecting anything, embedded device, a car, whatever to the Internet brings security requirements that simply don't exist in airgap systems. Our platform provides the most secure environment for our customers to debug and deploy their product and protect it from remote and local attacks. And this is crucial because they're putting more and more software IP into these products. And then they manage them for -- up to a decade or more from the cloud. continuously, they need secure links to make that stuff happen seamlessly. Next, this is where the reuse comes in. We deliver predictable releases on that monthly cadence, Maximizes reuse, runs on all the operating systems and integrate deeply with unmatched ecosystem support. Last, but certainly not least, these developers want long-term support. This isn't 2 years on a phone or 4 years on a computer or 8 years in the data center, it has got to last for a decade. We provide the industry's only guaranteed 10-year software development kit, match that with at least 10-year availability. All those SoCs you saw on the last page, more than a dozen of them, we're shipping them, tend to ship them as long as customers are willing to buy them. So we're doing the best at meeting these embedded and cloud developers where they are today and into the future. So we can pull the technology together, stack it up against the competition. We come out on top. Top to bottom of this page, we deliver the most protocols. And that's really important. These customers buy many kinds of wireless technology, just like they buy many kinds of processors. Think about it that way. The analogy is a really good one. They need to know they can get the Bluetooth, the Wi-Fi, the Wi-SUN, Zigbee the threat, that matter today and in the future, we got that for them. And then we can support them as they ramp, ramping from 0 to 1 million to 10 million to 100 million units, each have its own challenges. We're there for them. So we bring them to market quickly. We provide the ecosystem support, all the tools that they need, and importantly, the performance, ruggedness and security today and in the future. So a lot of our customers are doing it for the first time, and then they want to reuse it over and over across their portfolio, devices they haven't even imagined yet, and they need to know that we have them covered that, that performance angle, that temperature angle, the long life, the security, that's kind of the big thing right now is how to secure an infield deployment. So bringing this home, our platform is the key to make the IoT work. We deliver the right combination of chips, software and tools, each purpose-built for connecting embedded devices to the Internet. And the platform is built to scale. Through very careful choices, we can sell virtually the same chip into almost any end application. We have real-world examples of selling the same chip into a light bulb, a smart meter a home gateway or even low-cost, low-power smart home sensors. Each has its own set of constraints, and we've thought them through. Our customers can then reuse this design over and over and over across their portfolio. Think about the tools manufacturer who has 100 or 1,000 SKUs, shelf label company, Smart-home company, how many sensors can there be? They have to be able to reuse their designs. Finally, the flexibility and modularity of the platform allows us to rapidly respond to the market. It's evolving now. Security standards are changing. Wireless standards are changing. The ML standards are about to hit us really hard. Our flexibility through those platform choices allow us to do it better than anybody else. Simply put, we win because we sell to everybody. If the customer needs security, long life, low power, adaptability, low cost, high safety, ruggedness or privacy, we have them covered. So wrapping up, I'll leave you with 3 key points. First, unlike most, our technology is purpose-built for connecting embedded applications to the Internet. This is really important. We don't repurpose IP from other platforms and try to sell it in here. Those constraints really matter. You have to know what your customers are going to do with it and we built it for them. We have decades of understanding their needs. This is actually crucial in knowing what technology to bring to the table at what time in what form. That chart that you saw from Matt that had that diversity, you can't service it unless you think about it this way. We think we're the best. Finally, we delivered the most complete and scalable platform of hardware and software, period. It's not one, it's not the other, it's both. Our customers are really asking us only for one thing and have to do it faster. It's a great spot to be in. So thank you for your time today. I'm now going to turn it over to Ross Sabolcik, who heads our Industrial and Commercial business. [Presentation]

Good afternoon, everyone. My name is Ross Sabolcik. I'm the Senior Vice President and General Manager, in charge of our Industrial and Commercial business unit. I've been with Silicon Labs now for over 23 years in a variety of engineering, management and business roles. And in my 23 years, I've never been more excited than I am today about the opportunity we have in the industrial and commercial space. Matt talked earlier a lot about the market opportunity, and I'm going to talk to you specifically about the market opportunity in I&C. Some of the underlying forces that are causing the market to grow and why we think these forces are long-lived and durable. We also heard from Daniel a lot about our platform, and I'll give you some specific examples of how we use that platform with industrial and commercial customers to solve their problems the best in the industry. If you look at the industrial and commercial IoT space, we are servicing business-to-business applications that are transforming the way cities, retailers and employers operate to maximize their return. The industrial IoT is a massive market that is driving significant ROI for customers who are adopting it today. The value of these applications that are being unleashed with the industrial and commercial IoT is estimated to be $8 trillion in 2030, up from $2 trillion today. And there are underlying market forces that are global and durable that are causing that market to grow at that kind of rate. I'll talk to you about how Silicon Labs with our decades-long experience in this market is incredibly well positioned to capture that opportunity. Upfront, though, I'd like to talk a little bit about those mega trends that I mentioned earlier. We service multiple verticals, but one thing we see across all those verticals is the need for energy efficiency. Energy efficiency can take multiple forms. Consider, for example, the global electric grid. The grid is seeing demands on it that have never been there in the past from new loads like electric vehicles and new energy sources like solar, and utilities need to adapt so that the grid can handle those new challenges. Consider that there's about $100 billion that's going to be invested in the next decade in smart grid technology. That technology will not only allow utilities to run their grids more efficiently, but also greener, resulting in about an 18% reduction in greenhouse gases from smart grid technology. Or we could look at building automation, where about 40% of all the energy in the U.S. is in buildings and that by deploying IoT technology, building operators can reduce that energy consumption by up to 20%. This theme of energy efficiency, you'll see across multiple applications. Next, we could talk a little bit about what I call operational excellence. Operational excellence is ways that businesses can use insights from to improve the way they run their businesses and get greater efficiency out of it. Consider that up to 40% -- 42% of unplanned downtime for manufacturers is due to equipment failure. And that for every hour a machine is down, that's $0.25 million in lost productivity. That can add up to about $50 billion annually, and 82% of manufacturers will experience this at some point during the year. Predictive maintenance and that maintenance often built on top of the AI/ML technology that Daniel mentioned earlier, can be crucial to identifying those failures before they occur. Applications like these are driving the industrial IoT spending to over $20 billion in the next 5 years. Let's also look at commercial spaces. So buildings are becoming connected, smart and aware and building operators are demanding more and more insights into how those spaces are being used and how to use them more efficiently. In a typical commercial space, only about 37% of the space is actually utilized most effectively. And by building out an IoT network, building operators can understand what is the most valuable space, and which space could be utilized more effectively. Daniel gave you that great example of all the light bulbs in this room when he talked about it earlier. When you look at these industrial and commercial applications, oftentimes, what you'll see is customers deploy a network like that for one primary purpose, controlling the lights in the room. But once you've build out that network, you can offer additional value-added services on top of it. So commercial lighting, for example, is being used to track people, objects and things through commercial spaces. Consider that by 2025, it's expected that the market will be about 500 million units a year for smart Bluetooth devices that will track people in commercial spaces. This theme you'll also see in the I&C of using networks that are deployed for one primary purpose to deliver other value-added services is pretty pervasive. And then finally, let's look at retail. COVID-19 fundamentally accelerated the shift to online shopping. But now as we're coming back to a more normal condition, customers are returning to brick-and-mortar stores and they're demanding a different experience when they return to those stores. And retail operators facing severe staffing shortages are looking for ways to reduce their costs. This is driving the demand for systems like self-checkout, electronic shelf labels and on-shelf inventory management and loss prevention. Over 50% of retailers see staff-free stores as the norm in the next 5 years and automated checkout solutions can reduce staffing by up to 75%. These megatrends are driving a significant in IoT devices to service those applications. These underlying megatrends are common across all the verticals, the verticals that we service are very different and diverse. Industrial and commercial were broken up into 3 main verticals. The first is what we call smart cities. These are the large networks that are deployed across the entire metro area. Think of smart metering, street lighting, electric vehicle infrastructure and even applications like agriculture. This is a large market for us and we are well positioned in this market with well over a decade worth of experience selling to these customers. Next, we have the industrial market. These are the rugged, reliable networks that are being deployed for the industrial IoT for those applications that Matt alluded to earlier around Industry 4.0. These are applications like predictive maintenance, asset tracking, professional tools and worker access and safety. And finally, we have the commercial space. These are covering applications in the commercial, retail and clinical setting, applications such as building automation, electronic shelf labels, loss prevention, commercial lighting and clinical medical. In 2021, all of these verticals grew for us well north of 30%. Daniel talked a lot about the need for long-term reliability and the durability of these applications. If you consider building out one of these networks and the costs associated with all of the installation, customers expect these networks to last 5 to 20 years or more, which results in an incredibly sticky customer and application base for us. We've talked some about the applications, let's look a little more closely at the market. The industrial and commercial space that we're serving is a $5 billion market opportunity today that is growing to over $9 billion in 2025. That growth is fueled by those megatrends I mentioned earlier that we believe are long-term and durable and is driving growth across all the verticals that we service, resulting in about a 15% CAGR from 2021 through 2025. But while these markets are large and diverse, they're also incredibly difficult to service. And if we look at these industrial and commercial applications, there's a few reasons why. Let's think about some of those applications, street lighting or electric meters, connected lighting in a building, electronic shelf labels. These networks share some common traits. The first is they have incredible scale. Daniel gave the 200 device example of the connected lighting in this room, multiply that and consider this entire building and all the buildings that are in Manhattan. These networks can be very, very large, ranging from hundreds of devices for connected lighting in a room to tens of thousands of devices for electronic shelf labels in a store up to hundreds of thousands or millions of devices and a smart utility network. Industrial and commercial networks have scale. They also cover very long distances, be it hundreds of feet in an industrial complex, up to kilometers that would be required for a smart city application. They're also complex. Daniel talked about the need for having multiple wireless standards. And Matt talked about there won't be one standard to rule them all. But if you just consider the humble electric meter that's on the side of your house today, it's a pretty complicated device. There's probably 3 networks in it. There's what we call the field area network for the meter to talk back to the utility. There's a Wi-Fi network where customers can get much more detailed data from the meter, and there might be a Bluetooth network where a technician can walk up and service the meter. Those 3 networks have to work together and work together flawlessly. There also can be combinations of line and battery-powered applications. The lighting example Daniel gave, all the lights in the room have line power but an occupancy sensor or a door sensor would be battery operated. So we need to have both devices that can work off-line power and be extremely power-efficient to work off batteries. Also, these networks must be compatible. If you've deployed a smart utility network that maybe took you 5 years to roll out in the field and you want to upgrade it, you can't just rip the network out in one go and replace it. So customers often need a solution that will be backwards compatible with what they have already installed, but also future proofed, so they can upgrade it. The platform that Daniel talked about earlier and all the tools that support it are critical for delivering that compatibility. And finally, networks are mission critical. If you think about the utility grid monitoring system going down or a retailer or losing their electronic shelf labels, these have severe consequences if the networks fail. That means reliability and security are mission-critical. But while these are increasingly challenging applications to service, we are incredibly well positioned to service them. We have decades of deployment and billions of devices in the field. We're deployed in the largest wireless utility networks on the planet, and we have some hard-earned lessons from all of those deployments. We offer an industry-leading portfolio. Daniel talked about all of the products but we've built those products up over 5 generations. So we understand the customers, we understand the applications and we understand how to service them. We have a complete portfolio from Bluetooth for short-range connectivity through Wi-Fi and what we call LPWAN, long-range networks. And we've given examples of why you need all those networks and how they have to work together and why that's so important. The flexible platform that Daniel mentioned earlier is also not just words that we use, our customers appreciate that. They don't have to rip and replace a design and relearn tooling, relearn the products, they can use what they've already learned and bring our latest technology to bear. And we do all this with security built in from the ground up. So in summary, the industrial and commercial space is a large and growing market. So $5 billion market -- $5 billion market today, growing to $9 billion in the future and this is driven by solid ROIs for the applications that our customers deploy. This is a diverse, high-quality and sticky customer base that we service with our complete wireless technology our portfolio and our platform. We solve customers' immediate needs in areas like energy efficiency, while allowing them to do value-added services over top of the wireless networks that they build. I've given you my impression of why we think we are the best positioned in the market on this but I think it'll be great to hear from some of our customers. Let's hear what they have to say. [Presentation]

And so with that, you can see some of the reasons why we're so excited about this opportunity, and why our customers are excited to work with us. Thank you. And with that, I'd like to turn it over to Jake Alamat, who's going to talk about our Home & Life business unit.

Thanks, Ross. Home & Life applications, like the ones that you just saw in this video, they're forecasted to unlock up to $2.5 trillion per year of economic value by 2030. What that means to the average person is lower energy and health care bills, more time and better health and real reductions to our impact on the planet. Today, you are much more likely to have a smart watch on your wrist or a voice assistant in your home than at any other time. And that trend is only accelerating. As more and more people see the benefits that IoT can have in their daily lives, it's only served to accelerate demand. Over the last 5 years, the installed base of IoT devices in home and life Internet of Things applications has grown at a 20% CAGR. And that growth is forecasted to continue through the next decade with the total installed base of IoT devices in home and life applications forecasted to be greater than 35 billion units by 2030. My name is Jake Alamat, I manage the Home & Life business for Silicon Labs. I've been in the semiconductor industry for over 20 years, leading businesses for greater than 12 of them, and I've been with the company now for a little over 2 years. Our part of the business is focused on providing wireless solutions to developers of products that land in the hands of everyday people like you or I, making our lives safer and more efficient. And today, what I'll be walking you through is our vision and the impact it's having on the world, the opportunity and what's driving it and our value proposition to the market. so that you'll clearly see how and why Silicon Labs is truly in a strong and unique position to enable and capitalize on this massive opportunity. Now when Matt talked about our goal in IoT at the company level being to enable the market, not to enable a wireless technology, it's the same in the Home & Life business. Our ultimate vision is to make smart connected devices as commonplace to you as the smartphone in your pocket or the electricity in your home. The application segments we focus on, they represent a large growing durable opportunity because they solve real-world problems, making our lives safer and more efficient. For example, these applications are reducing our energy consumption, saving people money while reducing waste in the environment through applications like home automation. In a study by Fraunhofer it was estimated that if all U.S. residential homes leverage home automation, it would save greater than 200 million metric tons of CO2 from being released into our atmosphere every year. To put that number into perspective, that would be equivalent to offsetting the carbon impact of greater than 30 million people or the equivalent of charging greater than 25 trillion cell phones. These applications are also improving safety and security, keeping our family safer. In a study of convicted burgers, 60% of them said they would stay away from homes with security systems installed. These applications are also reducing health care costs and improving patient outcomes through real-time monitoring and drug delivery that comes from portable medical applications. As more and more people have begun to realize the benefits that IoT can have in their daily lives, it has only driven further adoption and accelerated demand. That accelerated demand creates a strong, growing durable opportunity for us at Silicon Labs. The Home & Life markets that we service represents a greater than $5 billion serviceable opportunity in 2021, and that's forecasted to grow at a very healthy 12% CAGR from 2021 through to 2025. Now as Daniel said, we've -- this is not us being a new entrant in the market. We've been in the market for a very long time since its inception, and we are recognized as a leading provider of wireless IoT solutions across a diverse set of applications and ecosystems. Our products can be found across thousands of applications and tens of thousands of customers with more applications coming on every single day as developers and device makers identify new and unique ways of adding value to people through the inclusion of wireless in their products from smart lawn mower saving time to continuous glucose monitor saving lives. Our wireless solutions enable a wide range of use cases that is improving our overall quality of life. Now the value that we add to the market, it's not just driven by our portfolio alone. At Silicon Labs, we are actively shaping the future of the wireless market. Our strategy has been to lead in IoT wireless by actively defining and driving the market by working with organizations and groups of companies that are defining the future like wireless ecosystems and wireless alliances and standards bodies. Now when you think of what these organizations are and what they represent, I'll spend a little bit of time talking through that. Wireless ecosystems, these are the companies who are providing the IoT platforms that enable devices to communicate with each other, enabling better value at a system level. Daniel talked about all the different lights in this room. While there's companies that have to come together to say, how do all these lights talk together with the switch, talk together with the cloud. Think of programs like the Google Smart Home platform or the works with XFINITY program. And when you think of wireless alliances and standards bodies, these are the groups of companies that come together to define, develop and promote the enabling technologies that drive wireless connectivity for the Internet of Things. Think of organizations like the Bluetooth SIG or the Connectivity Standards Alliance formerly ZigBee Alliance. Now we take those engagements, and we leverage it to influence the future direction of the market and get better knowledge of where the market is going. We take that knowledge and we use it to develop differentiated easy-to-use wireless solutions that we take and enable our customer base with. Now when it comes to engagement with the market at Silicon Labs, we don't just follow, we lead. We are engaged across major standards bodies worldwide, and we were founding members of the ZigBee CSA, Z-Wave and Threat Alliances. And we're actively partnered with companies and groups of companies to define future standards and ecosystems like Matter and Amazon Sidewalk. Now while the opportunity spans across many different customers and applications and ecosystems and the careabouts of each individual device category and ecosystem can vary, there are 4 main themes that are present across all of them driven by end customer demand. First, people want to purchase products that are going to add material value to their lives and are going to be affordable. And device makers, they want to be able to provide this value quickly without having to reinvent the wheel every single project. Second, people want to know that they're going to be able to trust the products that they purchase with their personal data and device makers, they want people to trust their products and their brand. Third, people and device makers, they want wireless that just works without having to have a PhD in wireless connectivity. The vast majority of device makers that we work with they're not RF experts nor do they care to be. They want to be experts in the problems that they solve and the value that they add to the market. And last but not least, people want to know that the products just going to work with the other products that they already have. And device makers, they want that to be as easy as possible. And at Silicon Labs, if you looked at how we've performed, we've consistently outperformed the market because of our relentless focus to address these needs. Our industry-leading wireless platform offers optimized solutions at a system level that reduce product and development costs, enabling device makers to get to market quickly with products that add value. It offers industry-leading hardware, software and services that enable device makers to easily provision trust in their products. It supports major wireless protocols in a common platform, enabling device makers to deploy connectivity with ease across technologies, all with built-in integration to major wireless ecosystems enabling frustration-free development and improved end-user experience. The differentiation that we provide here, it's truly unique in the industry. Device makers know that when they're working with Silicon Labs, they're going to be able to get to market quickly with highly robust, optimized secure products that will just work across ecosystems. As you can see, Silicon Labs truly is in a strong and unique position to enable and capitalize on this massive opportunity. If you take nothing away from this presentation, take these 3 things. First, the Home & Life markets that we service, they represent a large growing opportunity across a wide range of applications and use cases. Second, the growth is strong, and it's going to continue to be strong because of the impact these applications are having on our daily lives. And third, Silicon Labs has and will continue to outperform the market because we address market needs better than anybody else, and we are actively shaping the future of how wireless -- how the market adds wireless connectivity to their products. As you can see, we're super excited about what the future is going to bring and the things that we're doing in the Internet of Things for Home and Life, and so are our customers and ecosystem partners. I'd like you to hear from some of them now. [Presentation]

That is the first half. We are now going to transition break things up a little bit and move into a short Q&A, followed by a break. Just a short announcement also. We have 2 microphones in the room. And when you get that microphone, please announce your name and your organization just so we have that. Thank you.

This is -- my name is Gary Mobley with Wells Fargo Securities. I had a couple of questions. Since we just got an overview from both the consumer and industrial markets. Curious on the consumer side of the market, how do you maintain R&D efficiency or in general expense efficiency with your customers that typically renew their products -- product designs every year are a lot of those IoT connectivity design wins reusable cycle-after-cycle? And in this supply-constrained environment, how do you balance shipping to consumer or industrial customers? I would presume it's tempting to shift to industrial more since it's probably higher gross margin product?

Why don't I just start with the R&D part? I think that's an easier answer than those other ones. The leverage that we get is extremely high on our platform. There's a lot of modularity, a lot of reuse, not just for our customers but also internally. So we, for example, build on quality assurance as software quality -- network and system that we use for all wireless standards. So we're actually amortizing it enable to address it with more efficiency than anybody else. And those SoCs that you see as well. There's a lot of reuse there on each of those generations that Ross was pointing to. So we believe there's a tremendous amount of reuse, not just for consumer, but actually between consumer and in the industrial. And I'll turn it over to Jake for the next.

Yes. And beyond the reuse side, because that reuse gives us the ability to be able to be very, very efficient in our R&D expenditure to support multiple protocols. But when that gets in the customers' hands, the actual implementation of wireless connectivity in their projects, that takes a bunch of work. And once you get that working, you want that to stay there. So we stay fairly sticky in the applications that we get in. So even though they may be -- our customers may be refreshing their products from year to year, because they have a robust working wireless system that works across it, once we're in, we typically stay in. So that's really important. And that goes to the value proposition that we talked about earlier in my section is addressing these needs, making it easy to deploy and making it get easy to get in those ecosystems. That's what keeps customers with us long term.

Yes. And on the split between the businesses. I think if you look at our goal, our goal is to win and be the largest supplier for IoT devices.

That's right.

So we're not optimizing in a short-term window here. We believe we're going to need both businesses to be strong and growing going forward. And we're placing the best bets that we have in both businesses. The short that we get on the other side of this, we're with the customers that we think are going to drive that growth. So we're -- it's a long-term play for us, and we're doing allocation decisions with that long-term view.

It's John Vinh from KeyBanc. A couple of questions for you guys. In terms of multiple protocols, you're starting to see some of the more Wi-Fi established incumbents introduced kind of multiple protocol radios and start to move into kind of 15.4. Conversely, you coming at it from the other side with the acquisition of Redpine. How do you guys see that kind of playing out from a competitive perspective? And then Ross, on the commercial IoT side, I'd love to get your thoughts on 5G cellular really hasn't been a commercial IoT play in the past, but you hear a lot more about it these days. How does that intersect what you do? Is it more complementary? Are there areas of overlap?

Do you want to start?

So first on the multi-protocol, really excited to see that. We felt from the beginning that there wasn't going to be 1 wireless standard to win. So first and foremost, our platform is built to incorporate more standards over time. Second, from the kind of more established Wi-Fi players coming into the fold. What we see now is that Wi-Fi standard has evolved into servicing more than just PC and cellular applications, which is really what it was built for the longest time into IoT friendly portions. Wi-Fi 6 is a perfect example of that. A lot of tech there, but target wait times, BSS coloring, there's a lot of things there for IoT. So I'm not surprised to see them coming in. I see a lot of M&A on that front. There's countless examples of Wi-Fi in the last few years. And we are very -- we believe very passionately that our understanding of the use cases -- because the use cases are the same as they've always been. They're connecting to Wi-Fi now. It's not fundamental what technology you're using then, but the power drill is a power drill, a microwave is a microwave regardless of what wireless they're using. And our customers trust us. We're sampling the product in them and ramping pretty high now.

Yes. On the cellular front, I think it's a great question. Cellular is going to have a place. There's 2 things I would say about cellular. The large number, the disparity between the end node devices and the cellular devices, we think is going to persist. We see a lot of applications that are wildly complementary. If you take asset tracking, you might have one cellular modem on a refrigerated truck, but then every pallet in there has a Bluetooth device that's talking back to the backhaul. So we think it will be complementary. In our space, there's -- I think there's 2 -- there's 3 real challenges with cellular. One, customers typically don't want to pay for access, so that's been a challenge. Two, if you're deploying a network that's going to last for a decade, I don't know if anyone else has had this experience, but I just got a note yesterday from Audi that because the 3G network shut down in the U.S., my car can't talk to the cloud anymore. So if you build a utility network and the cellular shuts off on you, that's a real challenge. So cellular will have its place, but whether or not it will be the predominant kind of end node device technology, I think those challenges are going to persist.

Why don't we go to this side?

Raji Gill from Needham & Company. So Daniel, you mentioned your expertise in multiple wireless protocols. But what about on the embedded processing side? Where do you see the processing going? Because it seems like the -- kind of the second generation of IoT devices are going to be processing different types of data, whether it's vision, whether it's voice, whether it's just pure straight data streams. So having the ability to be kind of multimodal and process different types of data streams is going to be, I would imagine, important in addition to kind of dominating the different wireless connectivity technologies. Wondering if you could speak to that.

Absolutely. That's a great question. So first, we think about the 4 key technologies in IoT is compute, connect, secure and smart. I mean that's how we frame this internally, and we have like the 4 pillars there. On the compute side, the I think 2 most exciting things that are happening is we're starting to get to the memory and kind of MIPS in these products that allow for real-time operating system-only applications. So no more bare metal if you all know what that means. So it's very rich from a software developer experience that it wasn't simply like 5 years ago. So that's driving a lot more compute. The second thing is machine learning. So these data streams that are coming in that are connecting to almost any sensor, an image sensor, a microphone, a camera, aren't necessarily storing all that data there. They want to do the classification on the device and then transmit only the important information. How many people are in a room, for example, like a PIR sensor might do that. Or that, hey, someone has come to your door and it's Jake or it's Ross, and not the data stream going all the way back to the cloud where it has to get stored and secured and a bunch of other stuff. So those 2 things are happening, driving a lot of compute needs today in the future. We see a lot of evolution in the ISAs that are out there, both on ARM and RISC-V and the memory that's coming into the fold.

I'll just add on to that. Building on what Daniel said, what you have to take into account as you're putting more effort into identifying what's going around you in a sensor. Being able to do that in a very optimized system solution and with the right energy efficiency is critical. And we just released a device, our xG24 line, that is the world's first wireless SoC with a built-on AI/ML accelerator. And what that does is it actually provides some of these capabilities that Daniel is talking about directly to developers today, where they're going to be able to do some signal processing that they would not have been able to do before in terms of detections, classifications and all that stuff. But in a form factor that still makes it affordable in a thermal thing that gives them the ability to have long battery life, but stay in a really, really tiny form factor, that's critical. So the parts are going to get a lot smaller, but where the volume is going to be is how do you do that in the most system optimized way. And with some of the accelerators that we're bringing into our devices, that's completely changing the game.

I think we have time for 1 more question before we break. And we will have a second Q&A session at the end.

It's Blayne Curtis of Barclays. Two questions, one for Daniel. I just wanted to ask about your decisions to invest in all these wireless technologies. If you look at the return on investment, I think if you look at the profitability IoT in 2020, it was basically breakeven, you've seen some leverage and we'll get to the financial model later. But I'm assuming you're talking about heavy software load, and I think some of these wireless technologies might remain kind of niche technologies, and it might be a negative investment. The more mainstream wireless technologies that could sell millions of units might be -- you might have more competition. But obviously, you benefit from the higher units. So I'm just trying to think about how you look at the investment, and you can't do everything for everyone. And then just for Jacob, just quickly, I mean, you have big TAMs, but I think a lot of your segment might play into the more mainstream technologies, talking to cell phones and PCs, and it might just be a vanilla Wi-Fi chip or combo chip.

So first on the technology. I mean, I'll let others handle the business model aspect of it. But it's actually that we have such a rich infrastructure to support all these standards that we can do at lower cost. So we reuse a lot in our development for Wi-Fi, for Bluetooth, for Z-Wave, for Zigbee, for Thread, for Matter, for Wi-SUN. I mean -- and others, we have more than 100 wireless stacks, believe it or not running on our stuff. So we actually think we're doing it better than others because of that and that the OpEx that we have to put in is very, very efficient on this.

Yes. And I'll just make one comment on the wireless standards, and we've just seen this. We just started to support a standard called Wi-SUN. So Wi-SUN is an open standard for utility networks. If you look at the R&D effort we had to put into that, it was actually relatively low because we were able to leverage so much of the underlying infrastructure and tools from the other technologies that we could bring it on in a really cost-effective manner. So I think we talk a lot about the platform, but that's where we'll see it. As these new standards come along, we're able to support them in a pretty efficient way because we have a decade worth of building all of that underlying plumbing. So we think that will let us do it in a way we can scale.

I just want to add one follow-on before you get to Jake's Park. Our investment in software actually makes the business go faster. We see investment in software here accelerating revenue. I don't see it as a drag or anything else like that. But the more we're able to deliver for software, not just in the function we deliver, but the ease of use and the form factor of that actually makes the business go.

Yes. So on the Bluetooth Wi-Fi thing, we're super excited about Bluetooth and Wi-Fi. With the acquisition of Redpines a couple of years ago, that gives us the ability to bring power levels that no one's ever seen in the market, and we've been extending our position there immensely. As we continue to integrate that into our portfolio, we've got a huge room for upside given how small a share we are in that general market. Bluetooth, the interesting thing is in our core markets where we're really strong today, Bluetooth is becoming more and more integrated for commissioning and debug and all that stuff. So our ability to do that dynamically with the other protocols gives us a really strong lock. Plus as some of the more traditional personal electronics grow and start getting integrated into these ecosystems, we see our value proposition in terms of ecosystems and systems optimizations to give us an edge to really grow in those areas. So I'm actually super, super excited about the trajectory that we've seen in the businesses on the Bluetooth and Wi-Fi side and expect that to continue. I think the only hard part for me is that because some of those are more established, you see the SAM not moving as fast, but we still are outperforming every single year.

So thank you. We're going to take a 5-minute break. So please come back in 5 minutes, and we'll get started with Brandon Tolany, our Head of Sales and Marketing. [Break]

Welcome back. Thank you very much. I got to get Daniel to stop talking about technology here and we'll get started. My name is Brandon Tolany, and I'm responsible for the sales and marketing organization for Silicon Labs. I've got great news I am the last speaker that you will hear before the financial update from John, so I appreciate your patience. I've been with Silicon Labs just over 6 years now. And I'm responsible for the sales and marketing organization. My entire career has been in product, in sales and marketing roles in the semiconductor industry for the last 25 years. I know that's surprising with my youthful face. I'm here today to talk about this -- one of the best assets that we have as a company, and I feel we're going to get the best gig on the stage today because I get to talk about our customers. You've heard from Matt and Daniel, really all of us, about this purpose-built hardware and software platform for the Internet of Things. From the beginning, the Silicon Labs culture has always been -- in fact, our founders wrote it down on a piece of paper that sits in our headquarters today beyond some glass, it's always been about hiring outstanding engineers to solve complex problems and to allow our customers to simplify their designs. That is rooted in the platform we've been talking about all day today. And from the beginning, through hard-earned knowledge, we've learned the value of customer diversification. And today, we're stronger because of that. But to understand the shape of our customers today and how we go to market, it's really helpful to go back and look at how the go-to market strategy has evolved over the last 20-plus years. The company was founded in 1996. It was funded in 1997 and just 3 years later, had our initial public offering in March of 2000. That timing is rare, and it was rare then as well. The first product we built was for the modem market. It was an absolute home run right out of the gate, so much so that in that year 2000, we shipped on a run rate of 100 million units. We did so by following the foundational culture of the company by hiring outstanding engineers. At that time, though, there were only around 10 customers, and 1 customer represented greater than 75% of our revenue, and all of you know what that risk could represent for a company. So the need to diversify was obvious. And with [ fantastic ] engineers, the first thing that came was product diversification. The next product we built was for the cellular market, once again, found something complex, simplified it, absolute home run out of the gate. But the modem market would evolve over time. We saw that the cellular market would evolve over time, and we did not control the integration path. So we had to continue to diversify. Rinse and repeat. We continue to build home run products, time and again. And at the end, we had a remarkably broad portfolio. The challenge within this broad portfolio is these products were largely siloed. They were great individually, but they weren't complementary. There was very little leverage across the individual products and technology. This complicated the selling motion. All of our sales organization, all of our field organization, the go-to-market organization, had to spend time and training on each of the individual products, and depth is very difficult on any of these individual products when you're spread so thin. But at that time, through all of this development, we started to see a trend emerging, this Internet of Things market. We had a platform. We had connected microcontrollers. We had embedded connectivity that we saw if we could foundationally add protocols. And build on top of the foundation, it would enable scale and reuse both in our customer base as well as our R&D motion and our selling motion. So that's what we did. And what that opened up in the IoT market was literally thousands of applications, tens of thousands of customers and billions and billions of connectivity sockets. And I call them sockets because those are opportunities for us to go win designs. If we could build that common software platform, a common hardware platform, we would become sticky to our customers. And it answers some of the questions we heard earlier, as you become sticky to your customers, it enables reuse on your platform. They build the first design, they scale to the second and the third and the fourth. So that's what we embarked on. This platform drove focus in our R&D efforts. It drove simplicity in our selling motion and scalability as we gained more and more customers over time. At the same time, the specific focus on embedded wireless systems simplified the selling motion. That is what we focused on in the field. It narrowed the focus of the training and allowed that expertise to develop on our specific platform and throughout our go-to-market organization. And here is what it delivered. This is our open opportunity funnel. It is the combined lifetime revenue of all open and qualified opportunities in our sales funnel. If a design is won or it begins to ship revenue, it is removed from the funnel. This is just opportunities to be won. We've delivered a 22% compound annual growth rate over this period of time. And, as a sales guy would, if you just shift it and start in 2013, that's a 30% compound annual growth rate, and it's accelerating. In this last year, in 2021, our funnel grew more than 40%. These are open opportunities to be won. It's now at $14 billion. So the open funnel feeds the design win. The design win funnel, for us to flip something as a design win, our process is, it has to ship $1,000 of revenue. We do not flip designs based on award letters or verbal commitments for our customers. We only flip those designs when we start to ship volume. $1,000 might not seem like much, but average selling price just north of $1, that's production volume. So these are designs that are won into production. Over this period of time, our compound annual growth rate in our design portfolio was 27%, and that is also accelerating. In the last year, our design wins grew year-on-year 44%. So back to the IPO. We had 1 customer that represented greater than 75% of our revenue. We had to, we wanted to and we needed to diversify our customer base. It's this funnel and design win and connectivity that is feeding our revenue growth. And as we look at our revenue growth, I'll show you the shape of the customers as we really embarked on this journey into IoT. So 2012, we had already started to build diversification in our customer base. Our largest customer was 19% of our revenue. It's still fairly concentrated, but certainly a different picture than the beginning. We had $31 million or more customers, and our top 10 customers represented 35% of our overall revenue. What you see on the left side of that donut, that long tail, that's more than 2,000 customers. So diversification was already taking hold a decade ago. So thousands of customers, a little bit of concentration. Looking at our regional diversification, still pretty concentrated with 60% of our revenue coming from the Asia Pacific region. So let's fast forward now to 2021. Our largest customer was less than 5% of our revenue. We had more than 125 $1 million or more customers, and the top 10 customers were less than 20% of our overall revenue. That's diversification. And that long tail that you see on the left side, represents tens of thousands of customers. The regional diversification is balanced as well. And in this geopolitical environment, and frankly, any geopolitical environment, this is ideal balance. Our largest region, is 37% of our revenue, and China within the APAC region is 25% of our revenue. That is different than what the rest of the complexion of the industry. So when we put all this together, and I saw this chart, I thought to myself, if I could draw it up, what is the ideal state for the shape of the business, it would look a lot like this. We have built a diverse business, both in customers and markets addressing those thousands of applications and tens of thousands of customers. And this is how we will continue to scale. We have figured out mass market wireless that is hard and it's unique. But there's so much more that we can do. And this is the focus of my organization right now. The mass market wireless is uniquely difficult. The first design is infinitely harder with your customers than the second design. And it's just complex. Anybody who has served as the home IT director in their own homes over the last decade or 1.5 decades, recognizes that wireless hasn't always been easy. If you imagine, 2 little kids running around in the yard playing with walkie-talkies and one of them goes behind the house or gets a little bit out of range, compound that by dozens of nodes or hundreds of nodes, and think about -- it has to be running commercial data. And that commercial data, your customers rely on it, and it could be hot or it can be cold or it can be humid or it can be dry, or it can be driving through thick walls and buildings in Europe. And it has different protocols layered on top of it. And all of the developers are developing in different languages all around the world. It's hard to do this in the mass market. But we've gotten very good at it. We're sticky to our customers. 14 of our 15 largest customers 5 years ago remain partners with us. But what I'm showing you here is that it's clear when our direct field resources, Silicon Labs resources, FAEs and salespeople, are driving focus accounts, our conversion rate from opportunity to design win is higher. The gap is narrowing, and this is the secret to how we'll continue to scale our business. We have to use and leverage a distributed sales force. We have partnered with the best distributors in our industry. These are long-standing partnerships, executive commitment both ways. We trust them. They're important to us and we're important to them. And the reason is they make money selling our product. They recognize that our platform is scalable and sticky to our mutual customers, and they recognize that once they win that first design with us, there's a clear path to the second and the third and the fourth design. That is the whole value of the platform that we've been delivering. And the side benefit of that is we continue to drive cost out of our selling motion and the support infrastructure as we make it easier and easier to get onto our platform. This is how we will scale: Ease of use. Ease of use is everything: Bluetooth, proprietary, Wi-Fi, Zigbee, Z-Wave, no matter the protocol, all of our products use common software and development tools. If you start with Zigbee and then you move to Bluetooth or Z-Wave, you'll already be familiar with our tools and our workflows. This is ease of use. Another real competitive differentiator for us is our Works With Conference. This conference started a few years ago. We bring together software developers, hardware engineers, executives, ecosystem partners. This community. And these thousands and thousands of people are all focused on the same thing, and that is accelerating the adoption and ease of use and interoperability in our industry. The annual event then generates hundreds of hours of on-demand content. We can then leverage that content to onboard new distributors, new field engineers, new salespeople, and it's a virtuous cycle. All of this content then allows us to continue to scale our selling motion. We meet our customers and our potential customers where they seek us through this digital outreach, and it's never been more evident and valuable than the past few years when you're no longer going and seeing customers face-to-face. So whether it's digital or a community or an ecosystem, we meet them where they seek us. This relentless focus by the company on making it easier to use our products drives cost out of our selling motion, it enables reuse in our R&D, it drives diversity in our markets and our customer base, and it continues to expand the lower touch scale in our distribution channel. This will continue to allow us to accelerate our revenue. So Silicon Labs today through this journey, our customer base is healthy and it's diverse. We have a fantastic platform upon which to scale, rinse and repeat. Scale, rinse and repeat with our customers. That makes us important and it makes us sticky to these customers as they continue to leverage it generation after generation after generation. And we've got hard-earned expertise over this 1.5 decades through all of those complex environments through which we function across all of these protocols to continue to attack what is an explosive market opportunity right in front of us. We've already gotten an identified $14 billion funnel for us to go in. So I thank you for your time today. And with that, I'm going to hand it back over to John Hollister, our Chief Financial Officer, for our finance update.

Thanks, Brandon. I'm going to cover several topics to wrap up. First, I'm going to talk about corporate sustainability. I'll recap some of the business comments you heard from my colleagues. Then I'll touch on our capital deployment and supply chain dynamics, and then I'll wrap up with an overview of our financials and an update to the financial model. So Silicon Labs is very much committed to operating a sustainable business. We're a global company with a global team. We have operations in more than a dozen countries. One of our most important values from our Board of Directors through the global team is to do the right thing, and we strive to live that value in our approach to sustainability. And we approach sustainability throughout the commercial life cycle, from our suppliers who exercise sound environmental practices, have fair labor practices and excellent quality control systems. To our internal operations, where we're focused on carbon reduction, we have strong programs to support diversity, equity and inclusion as well as employee wellness and development. And then, of course, on to our customers where the very nature of the products and solutions we provide the market are used at scale to drive sustainable activities out of the market. Our products operate on low power. They're used to optimize precious resources like electricity and water. They're used to drive better safety and security, health and wellness and enhanced productivity and efficiency in the economy. We are a very attractive, sustainable business to invest in. So looking ahead, we're going to continue to set goals for ourselves on sustainability and measure our progress. Our second corporate sustainability report is now ready, and we intend to publish that along with our proxy statement here in about a week. Also, in 2022, we plan to adopt the SASB standard for ESG tracking and reporting. And I also want to note that starting last year, we began to incorporate specific ESG metrics in our executive compensation program, and that's something we intend to continue with going forward. So let me now turn to the financial update. As many of you know, last year, we divested our non-IoT product lines, the Infrastructure and Automotive business to Skyworks Solutions for $2.75 billion. This transaction has proceeded smoothly and with a high degree of collaboration with the Skyworks team and I want to thank them for that. It's been very well received by our employees, our customers and our suppliers, which is an important point I'll talk about a little more. Now that we're a pure-play company, we're focused, one team with one mission on the IoT opportunity. And for the past decade, as you heard from Matt earlier, we've been growing very much. You can see on this chart, this is quarterly revenue, we've been operating at a near 20% CAGR over the past 10 years, achieving more than a 4x increase in revenue. And as you can see from the colored segments of the pie charts here, the technology mix, represented by wireless on the colored segments, has grown from around 20% in 2012 and to around 70% in 2021. Wireless has been leading the charge as we've added additional connectivity portfolios and built out the platform organically and inorganically. And as you just heard, for the past several years, our business has been organized into 2 market-facing business units: Home & Life; and Industrial and Commercial. Each of these are addressing very large SAM opportunities with attractive growth rates, and we've been taking share in both of them and intend to continue to take share in both of them. We also have a very diverse set of customers, tens of thousands of customers, address -- themselves addressing thousands of different types of applications in a very diverse, well-represented global footprint of business, with strong representation in the North American and European markets and around 25% of the business in Mainland China. Next, I'll turn to capital deployment. Silicon Labs for a long time has had a successful track record of capital deployment, rested on the twin pillars of capital return to our shareholders as well as investment in strategic M&A to augment our growth. We've deployed about $1.5 billion in total over the last 10 years in share repurchase and about $900 million in strategic M&A. Since we announced the divestiture last year, we concluded that we had an additional amount of capital available to return. So we set forth to do that, and that's exactly what we did last year. We initiated a series of transactions, from open market repurchases, to a $640 million successful tender offer completed in the third quarter, quickly followed by a $400 million accelerated share repurchase launched in the fourth quarter and just concluded in January. And the Board of Directors has authorized an additional $250 million of open market repurchase this year, which, if fully deployed, would represent $1.4 billion since we announced the divestiture. Since the announcement, we indicated that we would return a significant amount of the capital from the divestiture, and that's exactly what we've done and what we plan to continue doing. Looking ahead, we expect to continue to return capital through share repurchase and look for opportunities to augment our growth and grow our share of market through strategic M&A. Let me turn to the supply chain. As we all know, it's been a challenging time in terms of capacity and demand outpacing supply. We're very proud that we've been able to leverage the strong relationships we have with our suppliers going back decades to meaningfully increase our unit output in fiscal 2021 by nearly 40%. Looking ahead, we will continue to work with our suppliers to drive our growth, and we're confident that we can do that. Our inventory levels are lean and we are taking steps, both with existing sources of supply and new sources of supply to expand our capacity, serve our demand and build inventory over time. I expect we'll make some progress in terms of our distributor inventory levels in the first quarter, as we indicated on the January call. It may be a while before we get our in-house inventory where we need it to be, but we're very committed to doing that and working aggressively with our suppliers to drive that outcome. So when we set out with the divestiture, we put forth a model to help guide our future, and the target levels that we set in the early fiscal '21 are indicated on the right-hand part of this chart. You can see that we have outperformed the targets that we set, both in terms of top line growth, where we delivered 41% growth in fiscal '21; and in profitability where we ended with 10% operating margin in 2021 versus our initial target in the mid-single digits. This is driven by sustained strong demand, and we see the opportunity now to continue to leverage our OpEx and drive further accretion in margins as we move forward. As a result of all the trends you've heard about today, we are scaling the company faster, and we see the ability this year to continue to outperform our model with the opportunity to grow top line, again, 35% to 40% in fiscal 2022. We're also maintaining our long-term revenue CAGR of 20%. And please note that, that's coming off of what is now a significantly larger base of business. In summary, as we look at these dynamics, we see the opportunity to become a multibillion-dollar company over the coming decade, and that's exactly what we plan to do. That brings me to my last slide. Looking ahead, longer term, our model calls for sustained 20% compound annual growth, outperforming the market, which, as you saw, is in the mid-teens. We're supported by a $14 billion opportunity pipeline you heard Brandon just referred to, very strong design win momentum and premium gross margins in the mid-50s over time. Near term, as we see the opportunity to do so, we can see the ability to outperform that model, with 35% to 40% growth this year, margins in the high 50s and operating margins on target. We're very excited about the opportunity that we have, and we think the financial returns are showing. With that, let me turn it to Matt for the conclusion.

Thank you, John. I'd also just like to thank the whole team for presenting and sharing so well about the company and the opportunity and why we're excited about it. If you step back to the beginning and remember what we talked about first and making sure that, that takeaway is clear, right, that if you step back, Silicon Labs is the largest IoT wireless company in the world. And we're so excited about that for the 3 reasons I mentioned, right? We have a large and fast-growing market that just has a couple of decades of incredible potential moving forward. The second is the position we have in that market, right? It's our ability to capture that, our exposure to that market, our ability to scale. We've spent literally almost 15 years getting ready for this. And the last piece is that 100% focus. This is the only thing we are focused on capturing, maximizing and executing on moving forward. And you're seeing that momentum build, right? You see the results in 2021. You just heard the update from John about 2022. It's exciting. So what I'd like to do is have the team come up on stage. Please join me, and we'd love to open the door to some M&A -- I'm sorry, Q&A.

Okay. So while the team is assembling, we'll start with a question that came in online, from Tore Svanberg with Stifel. How is SLAB delivering more intelligence to the edge? You focused a lot on connectivity, but what is your development on the MCU side?

Great question, Tore. It's one we think about because , again, as wireless is core to what we do, there is so much more. There's the compute, secure and the smart element that comes here. So we're seeing a lot of advancement on the core compute side these days, more coming in, like I said, from ARM and from RISC. Those are our primary kind of compute platforms that we run on. What we're seeing in that is a lot of real-time operating systems coming to the fold with a lot more software and the machine learning that's going to be arriving the next, kind of, 5 to 10 years. Beyond that, though, what we've seen is that we strike the balance between RF and compute, we think, better than anybody else. If you're a pure RF trying to add an MCU or if you're an MCU trying to add RF, they're 2 very different things here. And if you're starting on the MCU side, which a lot of big companies are, it's really, really hard to integrate these things together. The wireless that's running on that chip touches everything. It's not just the stack running on the CPU, it's spur management. It's kind of core RF stuff, it is the bread and the butter of the company. So we feel like we're in a really, really good position, having this integrated solution, forming the middle, not starting from 1 connectivity standard or pure connectivity or from the MCU front.

Joe Moore from Morgan Stanley. I wonder if you could talk a little bit to the competitive chart that you showed versus the analog companies. I think you guys made a very compelling case that the focus really matters that you have. But just to give you a chance to respond to how those big companies would answer this. They have other building blocks that you guys may not have. They may not have the depth of IoT-type portfolio, but they have other things. How do you see the benefit of competing with the focus that you guys have versus some only competing with a broader portfolio that maybe doesn't have all those capabilities?

Why don't I start, and then I'll let you go because it's your chart. The first thing is -- we like the position we see ourselves in with literally a 10- or 15-year head start from a lot of these companies, which is not trivial. And also the 100% focus, we really think that matters. In terms of other companies, we never take that for granted. We're humble about that. We're always watching the competitive landscape and being, I'd say, just productively paranoid about that. But at the same time, we do not see another company that has a larger scale than us in the IoT space, which I think is really important. And we feel comfortable we have the building blocks, the capability that we need to go capture and maximize this market. So that's the first level of answer, and it would also be important to hear from Daniel on the next piece of it.

Sure. So yes, we run into those companies. We run into many in the market. It's very fragmented right now. They're -- it's kind of reflective of the embedded market itself, also fragmented. We do start to see the pooling of technology, though, as these things are starting to connect to the cloud, things like how to secure a device, how to run the connectivity or standard no matter what you do as an example there. The -- you call them analog companies, the -- I'm assuming you're referring to NXP and TI on that chart. So they're coming at it traditionally from more of the compute -- pure compute side, and adding more wireless into that portfolio over time. But this is where I kind of come back to the -- it's really hard to add wireless into a compute platform. These things didn't necessarily co-grow together on the way up that -- like ours did. So we know how to balance our software versus the customer software running on chip. Remember, we write a ton of the software of the chips on our product, all those connectivity stacks, the security stack, the machine learning that runs on the device. So getting that co-development that you heard the customers in Jake and Ross' presentation together really matters. Not everybody approaches it that way in partnership. And the constraints. I'll just kind of come back to that. There's a reason I led with that. I mean when you update the app on your phone, calculator apps, hundreds of megabytes, I have no idea why, we have to do really hard stuff with very little resources. And that doesn't necessarily -- if you're starting from the compute side, well, it doesn't really work that way. So we feel like we're really in a good spot from where we started and where we're going to go and the sales funnel is reflective of that. Our customers are asking for more over time, if anything.

Just add to that, getting something to run over 10 years on a watch battery fit wirelessly is very difficult, right? And there's a real capability there. But on the competitive landscape, it's probably worth pausing and talking about that a little bit for everyone because we get that question a lot and it's difficult for people to understand. The question would be, who's your biggest competitor? Or who do you see the most? And the reason that matters is we don't have that 1 competitor. And let me be clear, there's a lot of competition, and we expect it will only continue to increase as this market becomes more attractive to many. But the reason we don't have the 1 competitor is it depends on the technology area, right? Some companies are hyper-focused on Bluetooth, some on Wi-Fi, some on subgig, and that's where we see them the most. But there's no one company we see in a majority of our opportunities, and that's very important. It's because we focus on bringing these together, and that's where we thrive. And when we're doing that, we don't see the same type of competition versus when it's one technology. And that's an important point for people to understand.

Building on that point, it's not just the wireless level. It's the full system level. We've been partnered with folks making light bulbs, making tiny door and window sensors. So it's not just a wireless component, but how all those things come together to make it as optimized for that particular end system as anything that you can do. So while, as Matt said, many folks will come at it from, it's this technology or it's that technology. We're really looking at it saying, hey, how do we make the best, most optimized ESL or the best most optimized like over door and window sensor or things of that nature?

This question is perhaps more for John. Again, Gary Mobley from Wells Fargo Securities. Looking at your fiscal year '22 revenue growth outlook, it looks like you're forecasting about $50 million more revenue than what the current consensus sets at. And so the question is related to that, is it better supply that's driving that upside? Is it a better demand profile? Is it both? Are you calling for upside to the first quarter as well?

Yes. Thanks, Gary. Yes, no updated guidance on Q1. And yes, you're right about comparing to the consensus. I would also note that at the top end of that range would put us at $1 billion for the first time in the company's history, which is really exciting. I would also like to note that this is for today, the annual indication moving forward, starting with the April call, we'll be reverting to normal quarterly guidance. But it really is supply driven. I mean the demand profile we have is significantly outpacing our supply. We've been working with our suppliers to expand our capacity. And also with our customers, in some cases, to target their designs to areas of available supply to better optimize the match of demand and supply.

And I want to be like crystal clear on it. We've got a lot of demand. And I'm staring at our ops guy. I'm wondering why he's here and not out getting us more silicon. So it is a supply answer right now in the shorter term.

Gary, I just want to add one more point because we touched on this in the January call as far as the shape of the quarter, we do expect more upside in the second half to think about it that way.

John Vinh, KeyBanc. A question for you, John, and maybe for you, Matt, as well. When I look at your business model and even longer term, why aren't you guys more profitable? And I wonder that because you guys have clearly established what you do is very complex, the software, the multiple protocol integration. And Matt, you talked about having experience selling into the smartphone business, right? So when you look at the smartphone business, a very competitive business, but your peers who focus on your smartphone business have significantly higher operating margins because -- but then on the gross margins, maybe you could argue it's a little bit lower because they've got higher volumes. But for you guys, your customers are so fragmented. Why aren't you guys seemingly being compensated for that? And why aren't we seeing more leverage in the model? Or do we just need to go further out and you expect a little bit more increase there?

John, just the simple answer really is that. I mean, we have been building the portfolio for years and now we're scaling the portfolio. It's really exciting, and we're seeing the returns coming. We're seeing the improvement in profitability. We set forth a model when we first announced the divestiture, and we're on or above that model in profitability. So we feel that it's coming together well to be the leader to continue to have a strong leadership position in this market. We need to do a lot, as you heard, but the opportunity is massive. And for us to get to where we are to becoming this multibillion dollar top line company, which we absolutely believe is possible, it is taking some investment, the returns we believe will come in time.

Raji Gill from Needham again. Just on the fiscal year '22 guidance of kind of 35% to 40%, a question we get from investors, not only as it pertains to SLAB, but in general, is how much of the growth is being driven by kind of unit growth versus ASP growth? And I think you mentioned in 2021 that you grew units nearly 40%. Your Iot business, I think, grew 41%. So maybe there's a little bit of ASP, maybe 2% improvement on top of that. But when you're looking at your 35% to 40% growth in 2022 and then you're looking at your 1.2 to 1.5 long-term target, how much price increases are you baking in this year as well as in your future contracts? And I have one follow up after that.

Yes. It definitely is relevant in the current environment. We had visibility to rising input costs that emerged in the second half of last year. And we implemented a series of price increases late last year. So you've got a little bit of price benefits in the fourth quarter and really throughout the year in 2021 in various forms. We're not breaking it out specifically, but suffice to say we see units and pricing up solid double digits in fiscal '22. And another point that's really worth commenting on is given the strength in the demand and the tight capacity situation, pricing and units are inextricably linked. If we didn't have the tight capacity, units would be up, perhaps pricing would not be where it's at. So they're really -- it's a combination effect that's going on. Overtime, as pricing will moderate to more steady-state behavior as we're all more accustomed to, customer inventories get more replenished, we see more of a reversion to the long-term growth trajectory that we call out at 20%, which again is still ahead of the SAM growth rates that we see out there.

Yes. And I'd just add, it's probably important to step back and just frame the demand supply environment because that's a very common question and make sure everyone understands that Brandon touched on this. Our goal and what we've been able to do is to continue increasing our supply to our customer base. And we were able to do that last year. We expect we're going to be able to do that this year. At the same time, demand has remained incredibly strong, and that gap is significant. So we haven't seen that change. Even as we make progress increasing our supply, the demand remains incredibly robust, and we're going to continue working on that gap for our customers. But it's exciting to see the demand, and it's painful to have the discussions is the easiest way I can describe it. So that environment situation hasn't changed at all for us.

And just one quick follow-up, John. You mentioned your capital redeployment. You're sitting on about a little over $2 billion of cash. Currently you generated about $90 million of cash flow from operations. But historically, it's been maybe $130 million, $150 million. So you still have a lot of dry powder to deploy. So I'm just -- and you spent about $1 billion for -- or over $1.4 billion in buybacks since the divestment. How are you balancing M&A versus stock buyback, given you have these kind of new longer-term higher revenue targets and higher operating margin targets, if you do more buyback, it could be accretive to the earnings versus adding more strategically in M&A?

Yes. We're continuing to evaluate that, Raj. We're pleased with the work we've done in this area since the divestiture, we feel like we've really been on a front foot there and aggressively deploying. And at the same time, we're mindful of opportunities to grow our share, perhaps inorganically, and we'll continue to work on that. So I see us continue to be active in both portions of that as we move forward here.

Blayne Curtis, again. Just, John, if you can just help us with the gross margin a little bit, the shape for the year. So you guided 63%. But then for the full year, it's high 50s. Want to figure out how literal to take that. And a lot of companies saw a benefit as the wafer costs hadn't caught up yet. So does it come down and then kind of normalize off Q2? Or has it come down throughout the year? Just any help on that, and any perspective getting to that mid-50s long term.

You bet, Blayne. We implemented price increases late last year in anticipation of cost increases that are forthcoming and they're beginning to materialize now. What you're seeing in the first quarter that led to our guide was the asynchronicity between ASP and cost where we're selling through legacy cost of material, right now in the first quarter, the inventory is turning very fast. So that's really going to clear out in the first quarter, starting in second quarter moving forward, we'll be on more 2022 cost structure. So we expect a meaningful drop in the second quarter and further drops through the course of this year as more cost increases are forthcoming in the model. And to the second part of your question, we view ourselves as a premium gross margin play in the IoT space and that's also relative to our long-term model as well given the differentiation and additional features that we offer in the market.

Okay. We'll take a question from online from Tore Svanberg from Stifel. Several semi companies are writing big checks to their wafer suppliers to guarantee supply. How is SLAB positioned to guarantee enough wafer supply to continue to grow?

Yes. We have very strong relationships with our suppliers going back decades. And while we have entered into some modest arrangements to secure supply, for the most part, we're relying on the strength of those relationships, and it's been working. And we think that's going to continue to work for us going forward. We also have diversity in our supply chain with additional fabs, new sources of supply coming in to fold. And that's really our strategy.

Another question from online from [indiscernible]. Can you specifically address competition with Nordic Semi, which has similar scale, similar focus, et cetera, as SLAB does.

I'll start there. Before you -- what was the last piece of that? Similar...

Yes. Similar focus and systems. I'm not quite sure what that means.

Okay. Got it.

I'll just start on the technology side. That's fairly easy. I know what the business is, I'll take that. We do see Nordic in the market. They kind of got off the ground earlier in the IoT than most, like us, but we see them really in one spot, and that's in Bluetooth. So there's a lot of legacy there. We don't typically see them in the other wireless protocols. They are building out cellular. They have done some work in WiFi, but we have yet to run into them there. We do see them doing well. They're growing. They're a fierce competitor. They also have focus. So all the things that we said, they probably benefit from as well. We just don't see them in the other technologies.

Yes. That covers it. Go, Ross.

I would maybe just add to that. On the Bluetooth side as well, a lot of the focus has been more on that point-to-point connectivity. So that's a large market. They're incredibly successful there. But when you get into these mesh networks, the complexity gets quite a bit higher. It's no longer just a point-to-point data stream. Now you have to worry about numerous devices working over the network. And that's an area where I think we're incredibly well positioned and incredibly strong.

Yes. The only thing I'd add what Ross or Daniel brought up is with the latest releases that we've had in our line of products, we feel really good about our opportunity to grow, both in the mainstream point-to-point as well as, as Ross said, the meshing side. And if you look at what's happening to some of the end equipments that are traditionally in these market segments, they're starting to adopt some of the things that are just directly in our wheelhouse in terms of ecosystem engagements and security and all these areas, which is allowing us to not only have something that's really strong in just the core traditional but also is going to help us scale and grow faster. So we're -- with the portfolio we have today and where we see those end equipments going in the markets, we're pretty happy about where we stand and where we'll be able to end up.

Can I just add one more thing? This is really a important point. Yes, sorry. It's not Nordic-specific, but it is that the use cases in the IoT are evolving. They're getting more complex, more feature rich. That point-to-point link now has to be secured. An example, we have blood -- continuous glucose meters. Imagine the data that's going from the phone mobile app to that continuous glucose meter and the amount of security and privacy that you have to have. A doctor is administering medicine based on this data. We bring that to the forefront. We have the mesh networking that Ross is talking about. We have the fact that it starts with Bluetooth and then it adds something else. We need Bluetooth plus WiFi, Bluetooth plus subgig, Bluetooth plus something else. And machine learning, we're getting there. So we're hitting it on so many fronts. The IoT use cases are getting rich, they're getting high value. Someone launches the product for one reason and they find dozen reasons to use it for other stuff. Those are all in our wheelhouse on a competitive basis.

We'll take one last question.

I want to deconstruct your long-term gross margin view of mid-50%, roughly down 700 basis points from where you're running right now, and deconstruct it from a perspective of mix contribution, right? So you have your Gecko modules, you have discrete RF transceivers, you have microcontrollers, sensors, the radio, you have consumer versus industrial. What are all those different variables, the way you see it in deconstructing or contributing to that mid-50% gross margin?

We have a very diverse business, and it cuts across technologies, customers, geographies, applications, literally serving tens of thousands of customers. And probably the best way to think about it at a summary level is between the 2 business units. And we clearly see both business units offering premium gross margin profiles for their respective areas. Ross' gross margins are a little higher, clearly, but both of them are offering premium gross margin. And we expect that to continue to be the case. And as industry conditions warrant, it's dynamic. There could be various factors at work that would push the industry up or down. And the point is whether it's going up or down, we expect to be delivering a premium as we've done in the past. And that's a compelling part of the story. Sure.

All right. I think that's a wrap. So first of all, just a quick recap for everybody because I know we covered a lot of material, and we've been here a while. Think back to the beginning of what we said. So Silicon Labs is now the largest IoT wireless pure play in the world. And that focus is on that large, fast-growing market. So we have long-term secular growth, and we're extremely well positioned, and honestly excited about that position to go capture that market. And we are now 100% focused to go maximize that. So -- and you're seeing that come through last year, this year, and each time we see ourselves in a better and better position. So we want to thank you for making and taking the time to be here. I really appreciate it, and that goes to everyone who is joining us remotely as well. And I'd also like to thank this team right here and everyone else for all the time and effort that went into this. Really appreciate it. So thank you.

Thanks, everyone.

Before we fully wrap, the presentation that we delivered today will be posted on our website on the Investor Relations section of silabs.com. And for those of you on the live audience, we'll have an opportunity for a brief reception in the room next door here. Thanks, everybody.