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Item 7. Management’s Discussion and Analysis

2026-02-10 compared with 2025-02-04 · 60 added, 57 removed, 169 unchanged (41% of the section changed)

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Our fiscal year-end financial reporting periods are a 52- or 53-week fiscal year that ends on the Saturday closest to December 31.

Fiscal 2025 had 53 weeks with the extra week occurring in the first quarter of the year.

Fiscal 2024 and 2023 had 52 weeks.

Fiscal 2024, 2023, and 2022 ended on December 28, 2024, December 30, 2023 and December 31, 2022, respectively.

Fiscal 2025, 2024, and 2023 ended on January 3, 2026, December 28, 2024, and December 30, 2023, respectively.

Recent Developments

As announced on February 4, 2026, we entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Texas Instruments Incorporated (“Parent”) and Caldwell Merger Corp., a wholly-owned direct subsidiary of Parent (“Merger Subsidiary”), pursuant to which Merger Subsidiary will merge with and into Silicon Laboratories Inc.

(the “Merger”), and we will survive the Merger as a wholly-owned direct subsidiary of Parent.

At the effective time of the Merger, each share of our common stock outstanding as of immediately prior to the effective time (other than dissenting shares or any shares of our common stock held by us as treasury stock or owned by Parent or any of our or Parent’s subsidiaries) will be cancelled and converted into the right to receive $231.00 in cash, without interest.

The transactions contemplated by the Merger Agreement were unanimously approved by our board of directors, and the Merger is expected to close in the first half of 2027, subject to customary closing conditions, including approval by our stockholders and the receipt of required regulatory approvals.

In connection with the proposed Merger, we have incurred significant costs in the first quarter of fiscal 2026 and expect to continue to incur financial advisory, legal, accounting, and other professional fees prior to the completion of the Merger, which could be significant.

Impact of Macroeconomic Conditions

In recent years, the global economic environment has experienced inflationary pressure, high interest rates, and geopolitical tension, and we have experienced declines in revenues as our customers slowed purchases to reduce existing inventories in a softening market.

While certain conditions improved during fiscal 2024, including deceleration of inflation and lowering of interest rates in certain geographies, there continues to be uncertainty regarding overall macroeconomic conditions, including increased geopolitical tensions, risk of recessions, and the effects of potential trade policies including tariffs.

There continues to be uncertainty regarding international trade relations and trade policy, including those related to tariffs.

The situation concerning the imposition of additional tariffs and trade restrictions by the U.S.

and other jurisdictions continues to evolve, and we cannot be certain of the outcome, which could adversely impact demand for our products, costs, customers, suppliers, and general economic conditions.

Additionally, continued geopolitical instability, including the ongoing war in Ukraine and conflicts in the Middle East, as well as the risk of inflation, slower GDP growth, or recession, and the weakening U.S.

dollar, have added to the uncertainty.

The extent of the impact of the macroeconomic and geopolitical environment on our operational and financial performance will depend on future developments, which are uncertain, but could materially affect our business, results of operations, access to sources of liquidity, and financial condition.

Although we saw sequential improvements in revenues over the course of fiscal 2025, the extent of the continued impact, or any new impact, of macroeconomic conditions on our operational and financial performance will depend on future developments, their impact to the business of our suppliers and/or customers, and other items identified under “Risk Factors” above, all of which are uncertain and cannot be predicted.

Any extended period of global supply chain and economic disruption could materially affect our business, results of operations, access to sources of liquidity, and financial condition.

We are a leader in secure, intelligent wireless technology for a more connected world.

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Each wafer contains numerous die, which are cut from the wafer to create a chip for an IC.

We rely on third parties in Asia to assemble, package, and, in most cases, test these devices and ship these units to our customers.

We rely on third parties in Asia to

assemble, package, and, in most cases, test these devices and ship these units to our customers.

Testing performed by such third parties facilitates faster delivery of products to our customers (particularly those located in Asia), shorter production cycle times, lower inventory requirements, lower costs and increased flexibility of test capacity.

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Current Period Highlights

Revenues decreased $197.9 million in fiscal 2024 compared to fiscal 2023 due to decreased revenues from both our Industrial & Commercial products and Home & Life products.

Gross margin decreased to 53.4% in fiscal 2024 compared to 58.9% in fiscal 2023 primarily due to variations in customer and product mix.

Operating expenses decreased $7.1 million in fiscal 2024 compared to fiscal 2023 due primarily to continued efforts to contain costs.

Revenues increased $200.4 million in fiscal 2025 compared to fiscal 2024 due to increased revenues from both our Industrial & Commercial products and Home & Life products.

Gross margin increased to 58.2% in fiscal 2025 compared to 53.4% in fiscal 2024 primarily as our indirect and overhead expenses decreased as a percentage of revenues.

Operating expenses increased $49.8 million in fiscal 2025 compared to fiscal 2024 due primarily to higher personnel-related costs.

Operating loss in fiscal 2025 was $70.5 million compared to operating loss of $165.5 million in fiscal 2024.

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We ended fiscal 2025 with $443.6 million in cash, cash equivalents, and short-term investments.

Net cash used in operating activities was $13.9 million during fiscal 2024.

Accounts receivable were $54.5 million at December 28, 2024, representing 29 days sales outstanding (“DSO”).

Inventory was $105.6 million at December 28, 2024, representing 125 days of inventory (“DOI”).

During fiscal 2024, 2023, and 2022, we had no customer that represented more than 10% of our revenues.

Net cash provided by operating activities was $95.7 million during fiscal 2025.

Accounts receivable were $64.5 million at January 3, 2026, representing 28 days sales outstanding (“DSO”).

Inventory was $95.6 million at January 3, 2026, representing 113 days of inventory (“DOI”).

During fiscal 2025, 2024, and 2023, we had no end customer that represented more than 10% of our revenues.

In addition to direct sales to customers, some of our end customers purchase products indirectly from us through distributors and contract manufacturers.

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costs of personnel and equipment associated with manufacturing support, logistics and quality assurance;

costs of software royalties, other intellectual property license costs and certain acquired intangible assets;

costs of software royalties, other intellectual property license costs and amortization of certain acquired intangible assets;

and an allocated portion of our occupancy costs.

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Provision for income taxes includes both domestic and foreign income taxes at the applicable tax rates adjusted for non-deductible expenses, research and development tax credits, global intangible low-taxed income, Subpart F income inclusions, and other permanent differences.

Equity-method Earnings (Loss).

Equity-method earnings (loss) represents income or loss on our equity-method investment.

The following table sets forth our Consolidated Statements of Operations data as a percentage of revenues for the periods indicated:

2024 2023 2022

Revenues 100.0 % 100.0 %

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Operating expenses 67.2 81.7

Operating income (loss) (28.3) (3.1) 11.6

Operating loss (9.0) (28.3)

Other income (expense):

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Interest expense (0.1) (0.2)

Income (loss) before income taxes (26.5) (1.3) 12.4

Loss before income taxes (7.4) (26.5)

Provision for income taxes 0.9 6.2

Equity-method earnings (loss) — (2.0) 0.3

Net income (loss) (32.7) % (4.4) % 8.9 %

Net loss (8.3) % (32.7) %

Comparison of Fiscal 2025 to Fiscal 2024

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$ 784.8 $ 584.4 $ 200.4 34.3 %

The decrease in revenues in fiscal 2024 was due to decreased revenues of $158.1 million from our Industrial & Commercial products and $39.8 million from our Home & Life products.

Unit volumes and average selling prices of our products decreased compared to fiscal 2023.

The weakness in the overall demand environment for our customers’ products we experienced in the second half of fiscal 2023 continued into fiscal 2024 as customers sought to reduce inventory levels that had become elevated as a result of the supply chain disruptions during fiscal 2021 and 2022.

The increase in revenues in fiscal 2025 was due to increased revenues of $106.4 million from our Industrial & Commercial products and $94.0 million from our Home & Life products.

Revenues increased as a result of increases in unit volumes and average selling prices of our products, as the current demand environment has improved relative to the prior year, which was impacted by customers reducing inventory levels relative to amounts they held during the period of widespread supply chain disruptions.

The average selling prices of our products may fluctuate significantly from period to period due to changes in product mix, customer mix, pricing decisions, and other factors.

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Gross margin 58.2 % 53.4 % 4.8 %

Gross profit decreased in fiscal 2024 due primarily as a result of a decrease in revenues in the period.

Gross margin decreased primarily due to variations in customer and product mix, with the percentage of revenues attributed to direct customers increasing as compared to revenue from distributors in fiscal 2024.

Gross profit increased in fiscal 2025 primarily as a result of an increase in revenues in the period.

Gross margin increased as our indirect and overhead expenses decreased as a percentage of revenues in fiscal 2025 as a result of the increase in revenues.

We may experience variations in the average selling prices of certain of our products.

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Percent of revenue 45.0 % 56.9 %

The decrease in research and development expense in fiscal 2024 was primarily due to a decrease of $7.2 million for personnel-related expenses as a result of our workforce reductions implemented in the fourth quarter of fiscal 2023.

Other decreases to research and development expense in fiscal 2024 were $2.3 million for the amortization of intangible assets, $2.0 million for technical services, and $1.4 million for IT-related costs, partially offset by an increase of $7.8 million in software expense.

The increase in research and development expense as a percent of revenues in fiscal 2024 was due to our decreased revenues.

Research and development expense in fiscal 2025 increased $43.4 million for personnel-related costs as a result of lower expenses in the prior fiscal year due to cost containment measures, offset primarily by $8.5 million of government incentives and decreases of $9.6 million for amortization of intangible assets and $6.2 million for new product introduction and software expense.

Selling, General and Administrative

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Percent of revenue 22.2 % 24.9 %

The decrease in selling, general and administrative expense in fiscal 2024 was primarily due to a $2.0 million decrease in outside services, a $1.4 million decrease in IT-related costs, and a $0.8 million decrease in occupancy costs, partially offset by a $2.9 million increase in personnel-related costs.

The increase in selling, general and administrative expense as a percent of revenues in fiscal 2024 was due to our decreased revenues.

The increase in selling, general and administrative expense in fiscal 2025 was primarily due to $26.4 million for personnel-related costs as a result of lower expenses in the prior fiscal year due to cost containment measures and a $1.8 million increase in IT-related costs.

Interest Income and Other, Net

Interest income and other, net in fiscal 2025 was $13.6 million compared to $12.0 million in fiscal 2024.

The decrease in interest income and other, net in fiscal 2024 was primarily due to lower interest-bearing investment balances as a result of the sale of investments to fund the settlement of our 2025 convertible senior notes in the second quarter of fiscal 2023, stock repurchases in the first three quarters of fiscal 2023, and repayment of borrowing from our credit facility in the third quarter of fiscal 2023.

The increase in interest income and other, net in fiscal 2025 was primarily due to a higher cash and cash equivalents balance in the current fiscal year as compared to the prior fiscal year.

Interest Expense

Interest expense in fiscal 2025 was $1.0 million compared to $1.3 million in fiscal 2024.

The decrease was primarily due to the settlement of our 2025 convertible senior notes in the second quarter of fiscal 2023.

The decrease was primarily due to a balance on the revolving credit facility for a portion of the prior fiscal year.

Provision for Income Taxes

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Effective tax rate (12.1) % (23.4) %

The increase in the provision for income taxes for fiscal 2024 as compared to fiscal 2023 was primarily due to the establishment of a valuation allowance against the majority of our U.S.

and Singapore deferred tax assets during the second quarter of fiscal 2024.

There is a need for a valuation allowance in the U.S.

and Singapore due to a forecasted three-year cumulative pre-tax loss for the current and two preceding years in conjunction with the recent downturn in the semiconductor industry.

We intend to maintain the valuation allowance until sufficient future sources of taxable income are forecasted to realize the benefit of the deferred tax assets.

Equity-method Loss

Equity-method loss in fiscal 2023 was $16.0 million.

Our equity-method investment was sold in the fourth quarter of fiscal 2023.

The decrease in the provision for income taxes for fiscal 2025 as compared to fiscal 2024 was primarily due to a decrease in tax expense related to the U.S.

and Singapore valuation allowance.

Because of the valuation allowance, we are unable to recognize the full tax benefit of the pre-tax losses incurred in those jurisdictions in the current year.

A valuation allowance is required to be established when it is more likely than not that some portion or all of a deferred tax asset will not be realized.

We identified a need for the valuation allowance due to the presence of significant negative evidence, including recent operating losses and uncertainty around future economic conditions within both the semiconductor industry and the broader economy.

We intend to maintain the valuation allowance until our ability to forecast sufficient future sources of taxable income is reestablished.

Liquidity and Capital Resources

Our principal sources of liquidity as of December 28, 2024 consisted of $382.2 million in cash, cash equivalents and short-term investments, of which $194.1 million was held by our U.S.

Our principal sources of liquidity as of January 3, 2026 consisted of $443.6 million in cash, cash equivalents and short-term investments, of which $218.6 million was held by our U.S.

The remaining balance was held by our foreign subsidiaries.

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government securities;

corporate debt securities, which include asset-backed securities, corporate bonds, and Yankee bonds;

time deposits;

and money market funds.

Operating Activities

Net cash used in operating activities was $13.9 million during fiscal 2024, compared to net cash used in operating activities of $30.3 million during fiscal 2023.

Net cash provided by operating activities was $95.7 million during fiscal 2025, compared to net cash used in operating activities of $13.9 million during fiscal 2024.

Operating cash flows during fiscal 2025 reflect our net loss of $64.9 million, adjustments of $119.3 million for depreciation, amortization, stock-based compensation, and deferred income taxes, and a net cash inflow of $41.3 million due to changes in our operating assets and liabilities.

Accounts receivable increased to $54.5 million at December 28, 2024 from $29.3 million at December 30, 2023.

Accounts receivable increased to $64.5 million at January 3, 2026 from $54.5 million at December 28, 2024.

The increase in accounts receivable resulted primarily from an increase in shipments during the last quarter of fiscal 2025 compared to the last quarter of fiscal 2024.

Our DSO was 29 days at December 28, 2024 and 30 days at December 30, 2023.

Inventory decreased to $105.6 million at December 28, 2024 from $194.3 million at December 30, 2023, due to an intentional reduction of inventory holding levels in response to reduced demand.

Our DSO was 28 days at January 3, 2026 and 29 days at December 28, 2024.

Inventory decreased to $95.6 million at January 3, 2026 from $105.6 million at December 28, 2024.

Our inventory levels will vary based on the availability of supply and the impact of variations between forecasted demand used for purchasing inventory and actual demand.

Our DOI was 125 days at December 28, 2024 and 407 days at December 30, 2023.

Our DOI was 113 days at January 3, 2026 and 125 days at December 28, 2024.

Investing Activities

Net cash provided by investing activities was $113.1 million during fiscal 2024, compared to $469.8 million during fiscal 2023.

The decrease in cash inflows was principally due to a decrease in cash provided by net purchases, sales, and maturities of marketable securities of $380.1 million in fiscal 2024.

Net cash used in investing activities was $12.0 million during fiscal 2025, compared to $113.1 million net cash provided during fiscal 2024.

The decrease in cash outflows was principally due to a decrease in cash provided by net purchases, sales, and maturities of marketable securities of $91.2 million in fiscal 2025.

Purchases of property and equipment increased $18.2 million during fiscal 2025 compared to fiscal 2024.

Financing Activities

Net cash used in financing activities was $1.1 million during fiscal 2025, compared to $45.1 million during fiscal 2024.

The decrease in cash outflows was principally due to $571.2 million in debt repayments and $217.1 million for repurchases of common stock, partially offset by $80.0 million in proceeds from our revolving line of credit, in fiscal 2023.

As of December 28, 2024, we had a $400 million revolving credit facility.

The decrease in cash outflows was principally due to a $45.0 million repayment of borrowings under the revolving credit facility in the prior fiscal year.

As of January 3, 2026, we had a $400 million revolving credit facility.

We have an option to increase the size of the borrowing capacity of the revolving credit facility by up to the greater of an aggregate of $250 million and 100% of EBITDA, plus an amount that would not cause a secured net leverage ratio to exceed 3.50 to 1.00, subject to certain conditions.

As of December 28, 2024, no amounts were outstanding on the revolving credit facility.

We were granted a waiver of compliance for the minimum interest coverage ratio through March 29, 2025.

In the event we are not able to achieve compliance by the end of the waiver period, we may need to amend the covenant or obtain an additional waiver in order to access the revolving credit facility.

The credit facility contains various conditions, covenants, and representations with which we must be in compliance in order to borrow funds, including financial covenants that we must maintain a consolidated net leverage ratio (funded indebtedness less cash and cash equivalents up to $750 million and divided by EBITDA, as defined within the covenants) of no more than 4.25 to 1, and a minimum interest coverage ratio (EBITDA/interest payments) of no less than 2.50 to 1.

As of January 3, 2026, we were in compliance with all of the covenants and no amounts were outstanding on the revolving credit facility.

Capital Requirements

Our future capital requirements will depend on many factors, including the rate of sales growth, market acceptance of our products, the timing and extent of research and development projects, potential acquisitions of companies or technologies and the expansion of our sales and marketing activities.

We believe our existing cash, cash equivalents, investments, credit under our credit facility, and cash generated from operations are sufficient to meet our short-term (i.e., over at least the next twelve months) and long-term capital requirements, although we could be required, or could elect, to seek additional funding prior to that time.

We may enter into acquisitions or strategic arrangements in the future which also could require us to seek additional equity or debt financing.

Contractual Obligations

Our purchase obligations primarily include contractual arrangements in the form of purchase orders and purchase commitments with suppliers.

As of December 28, 2024, such purchase obligations were $39.5 million.

Our purchase obligations primarily include contractual arrangements in the form of purchase orders with suppliers.

As of January 3, 2026, such purchase obligations were $75.8 million.

For a description of other contractual obligations, see Note 9, Debt , and Note 10, Leases , to the Consolidated Financial Statements.

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As part of this process, we analyze the performance obligations in a customer contract and estimate the variable consideration we expect to receive.

The evaluation of performance obligations requires that we identify the promised goods and services in the contract.

The evaluation of performance

obligations requires that we identify the promised goods and services in the contract.

For contracts that contain more than one promised good and service, we then must determine whether the promises are capable of being distinct and if they are separately identifiable from other promises in the contract.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis