Silicon Laboratories Inc

NASDAQ:SLAB

Earnings Call Analysis

Silicon Labs' Q2 Growth and Future Outlook

Silicon Labs delivered strong Q2 results, achieving $145 million in revenue, marking a 37% sequential increase. The company's design win pipeline is robust, notably in the Smart Cities sector, home automation, and connected health. Key applications like insulin management devices and electronic shelf labels are gaining traction. The gross margin for Q2 was 53%, with operating expenses managed tightly. For Q3, Silicon Labs forecasts revenue between $160 million and $170 million and a gross margin range of 54%-56%. The company remains focused on driving sequential growth and profitability amidst uncertainties in market recovery and geopolitical challenges.

A Strong Sequential Recovery

Silicon Labs reported a remarkable second quarter with revenues hitting $145 million, representing a substantial sequential growth of 37%. This increase is attributed to the stabilization of inventory levels among customers, which has driven improved bookings patterns. However, year-over-year figures indicate a decline of 41%, which aligns with expectations as the company rebounds from a prior downturn.

Segment Performance

The industrial and commercial sectors generated $88 million in revenue, up 35% quarter-over-quarter but down 47% year-over-year. Key areas of strength included smart meters and electronic shelf labels, both contributing to double-digit growth. Meanwhile, the home and life segment recorded $57 million, an increase of 39% sequentially and a decline of 28% year-over-year, driven by advancements in home automation and connected health applications.

Outlook for the Next Quarter

Looking ahead to the September quarter, Silicon Labs anticipates revenue between $160 million to $170 million. Growth is expected in both the industrial and commercial sectors as well as in the home and life segments, with the latter expected to lead the growth trajectory. The company projects gross margins to improve, targeting a range of 54% to 56%.

Improvement in Profitability Metrics

Operating expenses are planned to be between $123 million and $125 million, suggesting careful management of costs despite ongoing operational losses. GAAP loss per share is forecasted to be between $0.95 and $1.25, while the non-GAAP loss per share is expected to be within $0.10 to $0.30, reflecting a more favorable financial position compared to previous quarters.

Continued Inventory Management

Silicon Labs has successfully reduced its inventory days to 217, representing a decrease that should further enhance liquidity. The company ended the quarter with $339 million in cash and short-term investments, illustrating a solid liquidity position. There is a clear focus on normalizing inventory levels, potentially allowing for a gradual return to the historical distribution mix, which favors a shift from 69% toward a more balanced 80% channel revenue composition.

Design Win Momentum and Market Growth

The company is experiencing a surge in design wins, especially in the smart cities and smart metering sectors, which positions Silicon Labs for substantial growth. Notably, the electronic shelf label market is evolving rapidly, with the company gaining traction among major global suppliers, leading to a forecasted increase in volume as deployments expand.

Challenges and Risks Ahead

Despite positive trends, uncertainties linger in the end markets, including geopolitical factors and ongoing issues in China. The company is not overly reliant on a rapid rebound in China, indicating a conservative outlook regarding that geography while still pursuing growth opportunities. The management anticipates achieving a careful balance between inventory levels and production to align supply with market demand.

Concluding Thoughts

Silicon Labs is poised for a robust recovery, underpinned by strategic financial management, strong design wins, and a focus on market-leading technologies. Investors should look for continued evidence of revenue growth, diligent cost control, and improvements in profit margins over the coming quarters, which may lead to a favorable long-term investment proposition.

Earnings Call Transcript 2024-Q2

[Operator]

Hello. My name is Tanya, and I'll be your conference operator today. Welcome to Silicon Labs Second Quarter 2024 Fiscal Earnings Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to turn the conference over to Giovanni Pacelli, Silicon Labs Senior Director of Finance. Giovanni, please go ahead.

[Giovanni Pacelli, executive]

Thank you, Tanya, and good morning, everyone. We are recording this meeting and a replay will be available for 4 weeks on the Investor Relations section of our website at investor.silabs.com. Our earnings press release and the accompanying financial tables are also available on our website. Joining me today are Silicon Labs, President and Chief Executive Officer, Matt Johnson; and Chief Financial Officer, Dean Butler. They will discuss our second quarter financial performance and review recent business activities. We will take questions after our prepared comments and our remarks today will include forward-looking statements that are subject to risks and uncertainties.

We base these forward-looking statements on information available to us as of the date of this conference call and assume no obligation to update these statements in the future. We encourage you to review our SEC filings, which identify important risk factors that could cause actual results to differ materially from those contained in any forward-looking statements. Additionally, during our call today, we will refer to certain non-GAAP financial information. The reconciliation of our GAAP to non-GAAP results is included in the company's earnings press release and on the Investor Relations section of the Silicon Labs website.

I'd now like to turn the call over to Silicon Labs' Chief Executive Officer, Matt Johnson. Matt?

[Robert Johnson, executive]

Thanks, Giovanni, and good morning, everyone. Silicon Labs delivered strong second quarter results with revenue reaching the top of the end of our forecast and earnings exceeding expectations. Many survey customers report that their excess inventory levels have normalized, although some significant outliers remain. Improved bookings patterns in the first half of the year indicates a continued recovery in the second half, even though weekly bookings are still below our target level.

Our design win pipeline is well on track for the year with record design wins in industrial commercial business unit with particular strength in the Smart Cities business. The home business also set a design on record in the quarter. We are also pleased to see numerous design wins ramping into production and shipping to customers, including insulin management devices, electronic shelf labels and smart meters. [indiscernible] management, we started shipping millions of units across multiple customers and regions. We expect this momentum to continue in the second half of the year and accelerate into 2025 as the market and our care for these products grow and large customers begin ramping new programs.

In smart retail, global deployments in the electronic self-label market are expanding. And we have a clear leadership position in the space. We're working with 4 of the top 5 global ESL providers to support their rollout to retail customers. Last time, we accumulatedly shipped 300 million units and ESL has become our fastest-growing business. We're meaningfully ramping our ESL unit volume and see this growth continuing to accelerate into the next year as this application gains further traction.

In smart metering, we are participating in all of the largest smart metering deployments globally outside of the China domestic market. We've secured designs with a major global meter suppliers, positioning us to capture significant share in upcoming metering deployments in new and emerging markets like India, Central America, Southeast Asia as well as to support next-generation deployments in more established markets like the U.S. and Europe. We've also just secured a significant smart metering design win with a possibility provider Japan. This one will enable us to support a majority of Japan smart meter market servicing both new and existing deployments with our multi-protocol solutions, including our award-winning WiFi 6 solution to 917 and our best-in-class sub gigahertz solution, the FG 25.

Our first WiFi 6 product at 917 has meaningful of power consumption and competing products in the market and we believe it has the potential to drive share gains similar to our Series 2 Blue 2 solutions over the past several years. The non-[indiscernible] continues to generate significant market opportunities and we're now seeing those opportunities to convert to dozens of design wins, including at 1 of the world's largest appliance manufacturers. As IoT devices proliferate, our Series C portfolio is well positioned to unlock new use cases through industry-leading power consumption, security, multiprotocol wireless performance and edge computing power. We were the first in our industry to integrate PSA Level 3 security into our Series 2 products. We're seeing its importance and are now securing new business as a result.

Similarly, our early integration of AI/ML into multiple Series 2 SSC is also going strong customer engagement as they seek to understand the potential use cases and applications for MLP edge and their product road maps. We continue to see strong momentum in the adoption of our current generation Series 2 products, while at the same time, we have started sampling the first product in our next-generation Series 3 platform. The strength of our current generation and potential of our next-generation platforms that are highly complementary is exciting and positions us extremely well going into the future.

Further, customers will be able to transition from Series 2 to Series 3 as needed through common code based, scalable memory architecture and significant advancements in our performance, power consumption and compute capability. We will be talking more about series 3 and our upcoming work with developers conference this September.

Overall, I'm proud of the team's execution last quarter. As anticipated, the main driver of our recovery so far this year has been many of our end customers managing down their excess inventory. The steadily improving inventory backdrop, combined with design win ramps in key focus areas, such as insulin management, DSL and metering positions us to continue driving sequential growth in the second half. The third driver of our future growth is an improvement in the end market demand. The timing which remains hard to predict. That said, as bookings improve and shipments into our channel increase, we will benefit from this catalyst and the combination of all 3 of these factors will provide momentum for us moving forward. Lastly, we remain laser-focused on returning to profitability as quickly as possible and executing for our long-term financial model.

Now I'll hand it over to Dean for the financial update. Dean?

[Dean Butler, executive]

Thanks, Matt. And it's great to be joining everyone this morning having officially stepped into the CFO role during Q2. Before discussing our results and outlook, I thought it'd be helpful to begin with some early observations. Those of you who know me know that I've long been an admirer of the Silicon Labs business, and I'm thrilled to be the newest member of such a great team.

Silicon Labs is a unique company in our semiconductor industry. We're in singular focus as a pure player for 1 of the fastest-growing end markets for semiconductors, the IoT. The characteristics of this market offer many compelling financial attributes such as a tremendously diverse customer base, long product life cycles, emerging new growth applications and the ability to command market-leading pricing with highly valued technology central to the end market application needs.

Having now joined and begun to integrate into the organization I'm pleased to share that the product depth and breath are even more impressive than I originally understood. I'm happy to report that the sales funnel is extremely robust with a pipeline of customer engagements and design wins as diverse as the IoT itself, bolster in my belief and future growth for years to come. A key focus area for us will be ensuring that we can convert this pipeline of design wins to measurable top line growth and importantly, delivering that sales growth to the bottom line in the form of EPS expansion.

We can do this by putting a renewed focus on our operational expenses and improving product margins which will become clear as our revenue continues to recover and our newest products are released to market.

Now moving forward to the June quarter results. Revenue was $145 million, up an impressive 37% sequentially and above the midpoint of our prior guidance as our recovery path takes hold. Year-over-year, revenue was down 41% as expected. In our Industrial and Commercial business, June quarter revenue was $88 million, up 35% sequentially and down 47% year-over-year. The sequential increase was driven by strength in applications such as smart meters, smart building controls, and retail electronic shelf labels, all delivering double-digit growth.

Home and Life, June quarter revenue was $57 million up 39% sequentially and down 28% year-over-year. During the quarter, we saw strength in home automation and security. In the life business, we're seeing continued tracking in connected health and fitness customers and has completed the qualification at several new continuous blood glucose monitoring customers and are now shipping products to multiple of these CGM customers globally. These medical and health-centric applications are forced to deliver future growth for Silicon Labs as customers begin to ramp their production.

We continue to focus on the level of inventory in our distribution channel, which has now declined to 55 days in the June quarter. Even more encouraging is the sequential growth in our distributor POS were pleased us to believe that some of the long-tail customers are beginning to work faster excess inventory conditions. Distribution made up approximately 69% of our revenue mix for the June quarter, an increase from the prior quarter, but still below our typical distribution versus direct sales channel mix.

Overall, ASPs were down slightly compared to the prior quarter but this is due to product and customer mix during the quarter, while unit volume was up significantly, driving our strong sequential growth. Geographically, we saw sequential increases in all regions with APAC being up more than EMEA and the Americas during the quarter. For the June quarter, our GAAP gross margin was 53%. Non-GAAP gross margin was also 53%, which was in line with our guidance range and reflected a mix tilted toward direct customers versus the channel as we previously discussed.

GAAP operating expenses were $125 million, which includes share-based compensation of $16 million and intangible asset amortization of $6 million. Non-GAAP operating expense of $102 million was in line with our guidance range. We continue our focus on diligent expense controls and converting our working capital back into cash while experiencing non-GAAP operating losses. GAAP operating loss for the quarter was $48 million and non-GAAP operating loss was $25 million. During the quarter, we reported a GAAP tax expense of approximately $37 million. Our non-GAAP tax rate remained at 20%. GAAP loss per share was $2.56, and non-GAAP loss of $0.56 per share was better than our guidance range.

Turning to the balance sheet. We ended the quarter with $339 million of cash, cash equivalents and short-term investments. Our days of sales outstanding was approximately 30 days. During the quarter, we depleted $32 million of our internal inventory, which ended the quarter down to $166 million of net inventory. Our days of inventory on hand improved to 217 days, and we expect further to reduce our balance sheet inventory position in the subsequent quarters as sales levels improve.

Now let me turn to our September quarter outlook. While this ability is somewhat limited, excess inventory to our customers is moving in the right direction and distribution POS and our bookings have rapidly improved throughout the course of the year. Although the rate and pace of the recovery is still somewhat uncertain, we remain confident in our ability to continue to drive sequential growth in the second half of the year. We anticipate revenue in the September quarter to be in the range of $160 million to $170 million. We expect both the industrial and commercial as well as the home and life business units to be up sequentially in the September quarter with growth being led by the home in life, but also returned broadly across products and applications. We expect our GAAP gross margin in the September quarter to be in the range of 54% to 56%. We expect our non-GAAP gross margin to also be in the range of 54% to 56%, both of which marked strong sequential improvement from the prior quarter.

As the [ M& ]A further recovers towards a more normal run rate, our distribution mix improves, and we would expect those margins to continue to increase. We expect GAAP operating expenses in the September quarter to be in the range of $123 million to $125 million. We expect non-GAAP operating expenses to be in the range of $101 million to $103 million. And finally, we expect GAAP loss per share to be in the range of $0.95 to $1.25 loss and we expect non-GAAP loss per share is expected to be in the range of $0.10 to $0.30 loss.

I'll now hand the call back over to Giovanni for the Q&A session. Giovanni?

[Giovanni Pacelli, executive]

Thank you, Dean. Before we open up the call for Q&A, I'd like to announce our participation in key banks, capital markets, technology, leadership form in Vail in Augusta. Jeffrey Semiconductor, IT Hardware and Communications Technology Conference in Chicago in light August and Evercore ISI's 2024 semiconductor IP Hardware and Networking Conference also in Chicago and [indiscernible]. We'll now open up the call for questions to accommodate as many people as possible before the market opens, I ask that you limit your time to 1 question and 1 follow-up. Tanya?

[Operator]

[Operator Instructions] which will come from Matt Ramsey of TD Cowen.

[Matthew Ramsay, analyst]

I guess for my first question, Matt, I wanted to dig into a couple of the end markets. I think we're all obviously following the cyclical recovery for your company, but there's some new drivers out of the back of this that I wanted to dig into a little bit. And the first 1 is on the electronic shelf labeling market. Maybe you could spend a couple of minutes on the size of the market, the growth trajectory of the market, unit economics? And then just a little bit about how that market works for a company like you guys. You go through an intermediary, do you go to the retailer directly, does you see retailers once they make the decision to go electronic, roll things out super fast, do they do it regionally, just trying to get my head around the growth dynamics and some of the unit economics of that market as it takes off.

[Robert Johnson, executive]

So maybe just starting at the top with electronic or digital shelf labels. Like a lot of areas that we focus on, these things don't happen overnight. So this has been a multiyear investment and multiyear partnerships with a lot of customers out there. So to answer some of those questions, first is we do work directly with our customers being the shelf label suppliers. So they would actually make the shelf label and then they would work with the retailers on the strategy, deployment and kind of roll off of those products and technologies.

Shelf labels are not new as a technology. They've been around for a long time, but we've seen a real increase in the adoption of those technologies really led by a few dynamics. One is, I think the technology maturity is now there in terms of the robustness, the interoperability, reliability. Another key factor that we've seen is battery life, where the battery life of these labels is enough that the retailers do not to worry about now round of replace. They can last years, depending on how they may use and then the software reliability is also critical. And then I think the key, key here is the return. Our retailers are seeing returns that are really attractive to them. And as a result of those things coming together, we're seeing the adoption of retailers globally really accelerate. And this is not a phenomenon that's unique to 1 retailer, all [indiscernible]. We're seeing this as a broad trend. And as we've said, we see ourselves as very well positioned in that space and as a leading supplier because of, one, our underlying technology, a lot of our customers deploy a proprietary implementation, which is 1 of the many areas we thrive in IoT. We know how to develop products that last a long time. From a battery life perspective, they're secure, they're liable, they work well, they work well together. All things are critical in a retail environment where consumers are actually going to be seeing new things and experiencing these products. So I think even though we've started shipping over the last few years, a lot of the unit volume. I still think we're early days in this market. And I'd also add that in terms of ways to think about these deployments, most of our customers in retail [indiscernible] stores project configuration. They'll see what's happening, and then they'll expand those within a region or within a geo and then keep going. So again, still early days, but we like the progress we see. We think this is a durable trend. And it's really because of, one, the maturity of the technology and the returns and our position here is strong. So we're excited about this.

[Matthew Ramsay, analyst]

Thank you, Matt, for all the details there. I think it's an important point on the returns for the customer. I guess as my second question, sort of similar, but on the smart metering market. You guys had a lot of success in the U.K. in some of their programs a few years ago, and it seems like there's some developments in different countries, you mentioned Japan and your prepared script, Matt. And maybe just kind of level set us on the different programs that your customers have in flight now in the different regions and what we should expect from that market in the next, I don't know, 24 months?

[Robert Johnson, executive]

Sure. maybe the compare contrast to DSL little more mature market in the grand scheme of things, market dynamic is very different in terms of the rate and pace at which it moves, these things can be out there for 10 or 15 years in terms of life cycles. But good picture. Again, very well positioned market leader. That market leadership is a function of having all the record technologies our customers need, not just 1 technology, it's multiple technologies that we are to bring together across sub gigahertz in Bluetooth, WiFi, all coming together, as we mentioned in the prepared remarks. And the way I started, as you mentioned, roll-ups we saw in the U.K., but a couple of [indiscernible]. One is the rollout you'd expect it takes years for these deployments to happen and then you could expect kind of a peak and then the business to roll off, what we're seeing is it's much more resilient and durable because once the rollout kind of gets to its saturation, if you will, they start renewing the meters on the back end of that. So we're seeing a lot more license stability in each deployment than I think what has been originally expected, and you only know that as this technology becomes more mature and you get to see it. And then we're also seeing new deployments go out globally. And that's important, right? So across new geos, new applications and this has brought -- this is gas, water and electric. And you can really just see again, that combination of the maturity of the technology, the reliability, the robustness and the return for those customers. Putting that intelligence inside the meters, give returns for those deployments. Anything different depending on the geo and their care abouts and what they're trying to accomplish, but the point is they see the returns and they see the technology maturity and we have a leadership position there. So we think that's a very long-term, robust and reliable space for us. And we don't take that for granted, and we're not doing a victory lot in the sense that this is done. It's still early days. But we're well positioned to continue bringing new technologies to the space and continuing that leadership with what we have in Series 2 and what's coming with Series 3.

[Operator]

And our next question will be coming from Thomas O'Malley of Barclays.

[Thomas O'Malley, analyst]

My first 1 was just on pricing over the last couple of quarters. It's really held in a lot better than some would have imagined kind of on the upswing. Could you guys talk about when you look at September, just kind of taking the assumption of just a little bit of pricing decrease, the midpoint of your guidance assumes another robust step-up in units. Is that how we should be thinking about the next couple of quarters on the revenue upswing. Is it largely driven by units? Or should we be seeing any sort of ASP tailwind as we get some of the upgrades to your newer products?

[Dean Butler, executive]

Yes, Tom, good question. This is Dean. Thanks for the warm welcome. On the ASP front, you were largely what we saw in the June quarter and then now it would look into the September quarter guidance is primarily a function of mix. In the June quarter, actually, we ended up shipping quite a bit more as direct customers than we typically would. What we find is that the mix of products and the ASPs between direct versus channel is just a little bit different in the nature of long tail versus large consolidated customers.

So I wouldn't read into that too much. Pricing continues to be relatively stable. There hasn't been a whole lot of change in the last couple of quarters from what I can ascertain, and as I look forward into probably the next couple of quarters, at least what we can see on the visibility front, I don't think you'll see much change at all from a sort of like-to-like, customer on customer ASP change if that helps Tom.

[Robert Johnson, executive]

I just add to that exactly. And the easy way to think about it is no big change in the price environment out there. And what we're seeing right now is, as we said, really a function of our mix. So as revenue goes up and that mix continues to change, you'll see the gross margin improve, and that's what we're guiding from Q2 to Q3, which is really important for people to understand.

[Thomas O'Malley, analyst]

Yes. And I think that the second part of that is obviously the mix back to [indiscernible]. So you said [indiscernible] was 55 days. If you look over the last 3 quarters, similarly, you've gone from like 63% to 66% to 69% of revenue. Can you just talk about like the cadence there? Like do you think 55 days is a place where you're going to start to see some of these guys being more aggressive? Like what's the right target for Disti and like in terms of how quickly you can get back to what was the norm, which is low [indiscernible] by math, like how long do you think that takes?

[Robert Johnson, executive]

Yes, that's right. I think that replenishment is probably -- I'll call it for roughly 2 quarters to sort of keep moving. Look, we've deliberately been shipping let into the channel to try to continue to burn down inventory as the channels and customers also look to burn down inventories. What has happened is that's gotten lower than we typically expect. Typically, some, we would obviously look at 70, 75 days as kind of the healthy sort of channel inventory mix -- like you said, we were at 55 today. Look, I think customers and distributors, they're all sort of watching it and nobody is going to [indiscernible] the replenish quickly, and we're not pushing for that. Just to be clear about it. I do think we ended the quarter at about 69% of our revenue coming from channel, typically, like you said, we're 80% kind of channel based and about 20% direct. So I do think as channel inventory come down, start to replenish those long tail end customers turn through their final access inventory and start coming back into a normal run rate, we'll keep moving up towards that more normal distribution versus direct your set of business. And then hopefully, over the course of the next couple of quarters, distributors are comfortable to holding a more normal inventory level. And we'd like to see that back to the 70, 75 days. But like I said, I would just reiterate, we're not pushing for that, and that is not something that we're contemplating in the September guide as we opted.

[Operator]

Our next question will be coming from Quinn Bolton of Needham.

[Unknown Analyst]

Just a quick clarification on your answer to Tom's question there. Dean, it sounds like you're sort of saying or implying that the Disti does normalize. I think you said over a couple of quarters, but I hoping to try to pin you down a little bit more. Do you think it normalizes kind of by the end of this year? Or do you think the Disty mix takes into calendar '25 before you get back to that more typical 80% sales level.

[Robert Johnson, executive]

Yes. I don't have a perfect crystal ball, Quinn. But if I were a betting person, I really would sort of put highest odds on early 2025 rather than you're getting all the way there back to normal by the end of this calendar year. So that's for what I can see on backlog and the way customers behave and it's probably an early 2025 rather than an end of '24.

[Thomas O'Malley, analyst]

I guess my first question is kind of knowing that the mix towards Disti is helping somewhat, but you're fully there in the September quarter, the roughly 200 basis point margin improvement in September. It feels like some of that probably is -- it's not entirely all disty mix. And so can you just kind of walk us through what are the biggest drivers of the gross margin improvement in the September quarter beyond the mix back towards Disti.

[Robert Johnson, executive]

Yes. I mean there's channel, there's product specifics and then there's absorption of overhead. So I think all 3 contribute to different levels. In the move from June quarter 53 to now guiding September quarter 55, that 200 basis points. It's largely around channel and product mix. So if I look at it, it looks like better margin products are likely to shift in the September quarter. Channel will continue to probably make some progress as an overall mix of the revenue. And then to a less degree, but is certainly a contributing factor in growing the revenue by $20 million sequentially that has an overhead absorption contribution as well. And when I think about September quarter, 200 basis points and then going forward for there -- I think about September is 55% is you sort of back into kind of the normal range. And then as we sort of essentially go from there, okay, channel sort of contributing and then overhead sort contributing and probably less so than a specific set of products or a specific set of customers as being probably third on the list as I look forward over the next few quarters.

[Thomas O'Malley, analyst]

Got it. And I guess just -- obviously, continuing to digest inventory albeit at a lower rate into the second half of the year. Any updated thoughts on when you think you'll largely be back to shipping in line with consumption. Is that something you think happens by year-end? Could you see some customers continuing to early '25. Just any updated thoughts on when you think you're largely back to shipping in line with consumption.

[Giovanni Pacelli, executive]

It's actually -- it's a tough question. I know a lot of people have that on the top of their list, when do we get back to sort of regular consumption. Look, for us, it's difficult to tell. I don't think anybody has any great precision on this one. look, we're looking at trends. They are things trending in the right direction, our bookings coming up, the POS coming back, our inventory and the customers that we surveyed coming down and, therefore, sort of the excess is bleeding off. Those indicators are all going the right direction. When we're back to full sort of call it, regular normalized consumption rate. I don't know. I don't have a great prediction. I think it's also clouded by a number of new designs that are now starting to hit production as well that are contributing, but also [ mass it ] to some degree. And you have to imagine a company like Silicon Labs with thousands of customers. There's no 1 generic answer that's going to be a great fit for everything.

So long story short, don't think we're quite there yet, but really tough to call when and what level that kind of normal consumption is.

I don't know, Matt, if you want to add anything.

[Robert Johnson, executive]

No, I think 100% of it. Maybe the only thing to add is clearly, Q2 is not at our consumption level and either is our Q3 guide. And as Dean said, I think the 3 kind of pillars we've talked about are, to drive growth. The inventory is stacking going in the right direction, but not done yet, design win ramps that's encouraging that we've been on an incredible design win pace over the last few years, we've been driving design win growth annually throughout this cycle, which is remarkable, and we're finally starting to see those design [ ramp ], it's early days, but they are ramping. So that's going to give us some lift moving forward in addition to the destocking as that starts to wind down at some point. And then the third pillar is the end market, which is obviously the most difficult to call. But like the progress on destocking, like the progress on design wins still watching the end market there's still a fair amount of uncertainty out there.

[Operator]

And our next question will be coming from Sony Pajari of Raymond.

[Unknown Analyst]

Maybe first one for Matt. Matt, you talked about design win momentum being here pretty strong. Maybe you can give us an update, in particular, on the WiFi market. I know you talked about some progress on the smart metering. Just curious as to what end market -- I mean, obviously, this is a very large market. When we talk about Wi-Fi, just curious as to outside of smart metering, what are your target markets with this product? And how much of the overall SAM do you think you're addressing? And how should we kind of think about revenue contribution from WiFi as you think about the next 12 to 18 months?

[Robert Johnson, executive]

Yes. I was just taking a lot of notes there. See if I can answer as much of that as possible. First, we are early days in WiFi. As we've said, we're introducing our first product in many in the space. What is exciting is that first product is getting a great market reception. We've shared that the opportunity funnel was record as we -- for us as a company, as we introduce that product, shared in the prepared remarks, we're starting to convert those opportunities to design, which is really often to see.

Once you have design wins, it's going to take depending on the product application customers , et cetera, you're going to see a year or 2 to start to see those ramp. So the quick answer is, I would expect to see WiFi growth continuing and just not accelerated going into '25 and '26. In terms of the sand, the product those types of questions. We are focused right now on for lack of a better term, our backyard. And our backyard is one-by-one WiFi 6 for IoT applications at the edge. And what we're bringing there is, as I've said a few times, is the world's leading power consumption which brands use the WiFi battery life sale applications. So where we're seeing design, we're seeing designs where someone needs longer battery life that's meaningful. And we're also seeing a lot of design wins in markets where the pull-through with our existing customers.

Because of our large base of customers and we serve a lot of other wireless technologies in those spaces. We see almost instant opportunity and interest in having 1 supplier put all these things together for those customers. So that's kind of the quick answer of the ware and that. And important way to think of it is as you said, this is a big market, and these things take time. So the first product like what we're seeing out of the gate, it's a lot of work, but it's going in the right direction, and you should expect to see multiple products coming as we move forward that continue to build out that position, expand the SAM and increase the capability and offering that we offer to customers in those markets.

[Unknown Analyst]

Got it. Very helpful. And then I have a question on competition, in particular, in China. You talked about smart metering. It sounded like you're not participating in the China smart mirroring market. Just wondering if there's any reason for that? And in general, we've been hearing about increased competition from domestic suppliers. So if you could talk about what you're seeing in that market, that will be very helpful.

[Robert Johnson, executive]

Yes, sure. So the quick answer is why not China in terms of the local market there. The quick answer is it's not for a lack of competitive solutions. We have full to the world's leading solutions for intelligent data. That's the one that you can imagine that they do not want a foreign supplier providing the technology behind the infrastructure. That's the fastest way to answer that question. We do see opportunities in China for export of meters that would go outside of China, but not the ones to be consumed inside of China. So I don't think that should be surprising anyone. It's a pretty common dynamic and similar to what we see in other deals within U.S. and Europe, where I don't think the Chinese supplier would be considered for smart metering infrastructure. In terms of kind of the next question on that, nothing new is in China, you only win if you have a solution that there's no alternative to and local suppliers are favored. That's not new. It's probably amplify over the last few years. What we're seeing right now is still a strong design win momentum in China. But in terms of strength of the end market, it's still relatively weak, although we have seen some improvement. It's gone up for us, but nothing that we're banking on or building into our forecast numbers.

So hopefully, that's helpful.

[Operator]

And our next question will be coming from Kyle Smith of Stifel.

[Unknown Analyst]

First off, congrats on the continued sequential growth and record design wins in multiple end markets this past quarter. Maybe I could start there. So maybe I don't -- we've talked about this a bit, but any additional color on the lifetime value of design wins in the prior quarter. And if you have any commentary on pricing trends you're seeing within leasing revenue streams that would be great.

[Robert Johnson, executive]

Okay. So I just try to -- let me try to the 1 design win piece. So the quick answer is, we've talked quite a bit about the trend of our design wins. We haven't shared the magnitude. But the way to think about the magnitude is we always look at our design win targets in the sense of what levels of design wins do we need all things considered to make sure we're driving the financial model that we talked about, which as you're well aware, is that 20% combinated revenue growth over time.

So we have been successfully securing those amount of design wins on an annual basis, if not more. And we've seen that continue to grow annually throughout this entire market cycle and over the last few years, which is really incredible when you consider that normally you do see, if you go through a trough or any part of the cycle, you usually see design wins somewhat correlate to revenue and go down, we're not seeing that. We've seen design wins growth in strength. So that's been exciting. That's encouraging. That's what we bought. I think the piece that's been maybe disappointing, the surgery is a lot of those design wins have [indiscernible] when we wanted those to or when they were expected to, we expected a lot of design wins that ramp last year. And that didn't happen for various reasons, supply constraints, product strategy to serve, not lost, not going away, but for the most part, delayed. But as we're sharing today, we are starting to see those wins and that's really exciting. We're not talking to 1 customer, 1 geo. We're starting to see as the market works through this last 3 years. We're starting to see a lot of those stock and the duration on there, right? Some last for decades, some last for 2 or 3 years, but those are starting to ramp and as we share it is broad across multiple applications.

So early days but we like the trend that we're seeing. And I think that will give us the confidence to say we can continue to drive sequential growth from here.

[Unknown Analyst]

Great. And for my follow-up, I would ask, I know you mentioned that both business segments are expected to grow in the September quarter. With growth being a little bit more by home and life. Maybe if you could add any additional color there on how you see that revenue split, both in September and exiting the year, that would be great.

[Robert Johnson, executive]

Yes. We don't [indiscernible] give specific quantified split between the 2 different areas when we guide going forward. But a couple of observations that we've seen as we look into the September quarter and sort of guidance up, we do see it the home and life is likely to grow a little bit faster in the upcoming quarters than the industrial commercial. A couple of factors, one, the home and life actually went into the down cycle earlier than the industrial commercial. So we're starting to see that emerge just to attach [indiscernible] to the ones what we can see even though June quarter, both of those businesses grew pretty much in line, 39% growth, 35% growth, so pretty consistent [indiscernible].

Home and Life does specifically has some new product ramps that are starting to take foot in the September quarter that we can see. And I think that has sort of pulled just the sequential growth between the 2 just to be a little bit more in favor of Home and Life rather than industrial commercial. Although in our prepared remarks, like we said, both are willing and both are growing across multiple of their end applications.

[Operator]

And our next question will be coming from Cody Acree of the Benchmark Company.

[Cody Grant Acree, analyst]

I guess you've taken a stab at when you start shipping back the new function. But any color on what that consumption level is currently or expected to be in September.

[Robert Johnson, executive]

PYes. I think the quick answer is, as I mentioned earlier, is Q2 levels are not a consumption and the Q3 guide is not a consumption. So that's as far as we've gone in trying to articulate that. I think the other piece is the end customer inventory which is improving. But as we said in the prepared remarks, we still -- while we see improvement in the number of customers getting to right levels of excess inventory or the level of inventory we still have some big customers out there who are caring more than they should. So we got to see how those factors play out, but not there yet in Q2 or Q3. And I guess, with your guidance, your $20 million sequential increase, that's obviously a very good number but it is somewhat of a deceleration from your Q2 growth. Anything to make that deceleration? And what does that say about your December outlook.

[Giovanni Pacelli, executive]

So, I would just take it as on a sequential basis, it's still probably 1 of the strongest sort of growth numbers. Probably you'll see across most of the semiconductor peers. We're early in the earnings cycle, so we'll see where everybody sort of shakes out for the September quarter. But I do think it's probably strong relative to probably many of this year that you'll see probably in the coming quarter. The other thing I would say is given that the downturn was very rapid in Q4 of last year, I think the team has made a really good fact progress and had sort of pretty big uptick in the March quarter and the June quarter. And I think you would logically see at some point, you just don't see such big jumps. And what we're starting to see is we're working out for the finer details of the jumps will actually be probably smaller from here, rather than continuing every quarter sort of a $40 million increase would be sort of my expectations, and we just normally see this.

[Robert Johnson, executive]

And it's important to remember that while we're trying to be very fairly consistent that we're seeing encouraging signs and the trends that are in the right direction. Between the 3 pillars of inventory stocking, design win ramp and then the end market itself, it's difficult to call. So -- and of course, that would be helpful if we had a perfect crystal ball there, but the trend is right in encouraging, which I think is the most important.

[Operator]

And our next question will be coming from Peter Puk of JPMorgan.

[Peter Thomas Puk, analyst]

I just want to follow up on the China point. We heard from a few of your peers that China market is rebounding, but it seems like you guys are not seeing yet. Last quarter, it was like 13% of sales. Maybe if you could just talk about what your expectations are for this market longer term?

[Robert Johnson, executive]

Sure. Yes. I think the quick answer is we are seeing some improvement there. But we're not banking on our future as a quick answer. I think that our lowest it was China is probably 10% of revenue going up to 13%, going up to 15%. So and our total revenue is growing as well. So we're seeing some improvement there. But I think it's really important that we set expectations accordingly, there's still a lot of uncertainty in that end market. There's still a lot of geopolitical challenges and headwinds. We talked about that earlier around favorite local supplier. So we will opportunistically do anything and everything we can to get design wins there and regain progress, but we're not banking on it for our future and we don't need it to deliver the numbers that we talk about.

So hopefully, that helps frame it.

[Peter Thomas Puk, analyst]

Great, Thank you. And then in your prepared remark, you talked about some integration of AI/ML into your Series T2 platform. Maybe you can spend some few minutes talking about what the use cases and so forth for you're seeing from your customers?

[Robert Johnson, executive]

Yes, sure. So as I said in the prepared remarks, and hopefully, that was helpful for people to understand. What we're seeing there parallels, what we've seen in a lot of other technology areas that we brought to market. So think of this recurring dynamic where we bring something to market that is ahead of the customer needs and over time, the customer moved into what that portfolio offers. Security is a great example. When we introduce securities levels that we had like the first half PSA Level 3 and Series 2 people like that's overkill.

Now we're winning design after design because of it. And we see the multiprotocol, the level of the multiprotocol and coexistent performance we got from the market. A lot of that, how many applications will meet all the different wireless technologies that's happening now [indiscernible] design competitive. You see AI/ML as the exact same thing. We've brought multiple solutions to markets that are in production that are AI, well specifically, the machine learning are core of our accelerators that we have built to allow machine learning interims at the edge on battery-powered applications. And we've really taken our expertise in ultra-low power to bear and brought that to this space.

So I still call it early days to be direct in terms of the customer adoption. But it will be what we see in these other areas. Customer interest is high because of the strength of our offering, we get working the front in terms of the engagement, and we're seeing customers work through how can they deploy machine learning and their applications, and we see that accelerating and the rate is increasing over the last year or 2. So I think you're going to see that continue, and we like the trend that we're seeing there. And as we've already announced in our Series 3 that will bring a whole new lot of machine learning capabilities to the IRP, which is also very exciting. But we already have the industry-leading solutions on an ML perspective to a production today.p

[Operator]

I'll now hand the call back to Giovanni Pacelli.

[Giovanni Pacelli, executive]

Thank you, Tanya, and thank you all for joining us this morning. This concludes today's call.

[Operator]

This concludes today's conference call. Thank you for participating. You may now disconnect.