Silicon Laboratories Discovers Inventory-Related Accounting Issue

Silicon Laboratories, a provider of mixed-signal chips, has experienced a significant drop in its shares following the announcement of a delay in reporting its December-quarter results. The delay comes as a result of the discovery of an inventory-related accounting issue.

The stock for Silicon Labs has seen a decline of 7.9%, currently trading at $123.57, while the S&P 500 remains relatively stable.

In a recent press release, Silicon Labs revealed the presence of "a material weakness in internal control related to the operation and documentation of certain inventory controls." As a result, the company has decided to postpone the release of its financial results from January 31 to February 7.

This delay allows Silicon Labs additional time to assess the potential impact of the material weakness on its financial reporting. The company aims to ensure accuracy when presenting its results for the quarterly period.

Similar to other chip makers serving the industrial and automotive markets, Silicon Labs has faced challenges due to high customer component inventories. CEO Matt Johnson acknowledged the difficulties during the company's third-quarter results announcement, stating that "the current demand environment remains quite weak as we navigate this cyclical inventory correction, and end-market visibility continues to be challenging."

During an interview at CES in Las Vegas in early January, Johnson mentioned that Silicon Labs was approaching its fifth consecutive quarter of declining revenue.

Despite these setbacks, Silicon Laboratories remains focused on resolving its accounting issue and looks forward to providing updated financial results in the near future.

The Impact of the Pandemic on the Industry

Silicon Labs, a prominent player in the tech industry, has experienced the effects of the pandemic firsthand. According to CEO Johnson, the pandemic has introduced a new element into an already cyclical industry. The initial surge in demand during the pandemic was viewed as sustainable, but it eventually revealed itself to be a temporary phenomenon. This was primarily due to customers carrying excessive amounts of inventory.

The issue of excess inventory has not been confined to a single market. Instead, it has affected various sectors, including PCs, handsets, automotive, and industrial. While the correction in inventory levels for consumer goods has largely taken place, the industrial sector is still in the process of correcting its inventory. Johnson predicts that this correction will take a couple more quarters to complete. It should be noted, however, that end-demand in the industrial sector remains stable; the problem lies in the anticipation of demand.

Silicon Labs had initially projected its fourth-quarter revenue to fall between $70 million and $100 million, with an adjusted loss per share ranging from $1.22 to $1.66. The loss under generally accepted accounting principles was expected to be between $1.95 to $2.23. In comparison, the Street consensus forecast predicts revenue of around $85 million for the fourth quarter. This represents a 67% drop from the same period last year and a 58% decrease from the previous quarter (September quarter level).

In conclusion, Silicon Labs, like many other companies, has faced challenges due to the pandemic. However, Johnson remains optimistic that the industry will recover from this unprecedented crisis in the coming quarters.