Jalene Hoover - Head-Investor Relations Tyson Tuttle - Chief Executive Officer John Hollister - Chief Financial Officer Bill G. Bock - President & Director.

Suji Desilva - Topeka Capital Markets Matthew D. Ramsay - Canaccord Genuity, Inc. Craig A. Ellis - B. Riley & Co. LLC Anil Kumar Doradla - William Blair & Co. LLC John N. Vinh - Pacific Crest Securities Blayne Curtis - Barclays Capital, Inc. Ryan C. Goodman - CLSA Americas LLC Ian L. Ing - MKM Partners LLC Amanda M. Scarnati - Citigroup Global Markets, Inc.

(Broker) Ruben Roy - Piper Jaffray & Co (Broker) Harsh V. Kumar - Stephens, Inc..

Good morning. My name is Heather and I will be your conference operator today. At this time, I would like to welcome everyone to the Silicon Labs Third Quarter 2015 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, we will have a question-and-answer session.

I would now like to turn the call over to Ms. Jalene Hoover..

Thank you, Heather. Good morning, everyone. We appreciate you taking the time to dial in. Tyson Tuttle, Chief Executive Officer; Bill Bock, President; and John Hollister, Chief Financial Officer are on today's call. We will discuss our financial performance and review our business activities for the third quarter.

After our prepared comments, we will take questions. Our earnings press release and the accompanying financial tables are available on the Investor Relations section of our website at www.silabs.com. This call is also being webcast and a replay will be available for four weeks.

Our comments today will include forward-looking statements or projections that involve substantial risks and uncertainties. We base these forward-looking statements on information available to us as of the date of this conference call, and that information will likely change over time.

By discussing our current perceptions of our markets, the future performance of Silicon Labs and our products with you today, we are not undertaking an obligation to provide updates in the future.

There are a variety of factors that we may not be able to accurately predict or control that could have a material adverse effect on our business, operating results and financial condition.

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. In addition, the non-GAAP financial measures discussed today are not intended to replace the presentation of Silicon Labs' GAAP financial results.

We are providing this information because it may enable investors to perform more meaningful comparisons of operating results and more clearly highlight the results of core ongoing operations. I would now like to turn the call over to Silicon Labs' Chief Executive Officer, Tyson Tuttle..

Thanks, Jalene, and good morning, everyone. Strong top line performance, combined with favorable OpEx, drove a solid beat in third quarter EPS. Despite a challenging macro environment, we delivered another record quarter in Infrastructure with continued strength in IoT and Broadcast automotive, and a less than expected decline in Broadcast consumer.

I'll talk more about our product developments, market opportunities and business trends shortly. But first, I'd like to turn the call over to John who will review our third quarter financial results and fourth quarter guidance.

John?.

Thank you, Tyson. We are pleased to announce that third quarter revenue was just above the high end of our guidance range of slightly more than $156 million, and we delivered solid non-GAAP earnings of $0.51 per share, exceeding top end of our guidance.

Following a number of sequential record revenue quarters, our IoT products declined 5% sequentially to $65 million, or 42% of our total Q3 revenue, delivering growth of 25% year-on-year.

In Infrastructure, including our timing and isolation products, we achieved a record $31 million, reflecting 20% of third quarter revenue and 10% year-on-year growth. Third quarter Broadcast revenue was $37 million, or 23% of total revenue, declining less than the 15% we expected, with the video market showing signs of greater stability.

Broadcast automotive delivered another quarter of strong results. We are delighted to report that on September 29, the International Trade Commission issued a final determination that all patent claims asserted against our TV tuner products by Cresta Technology are either invalid or not infringed.

The ITC also found that Cresta failed to satisfy the ITC's domestic industry requirement. In addition to regaining lost U.S. TV tuner market share with a top customer as a result of this ruling, last week, we also received a favorable final decision from the United States Patent and Trademark Office.

All patent claims asserted by Cresta against Silicon Labs have either been invalidated by the U.S. Patent and Trademark Office or determined not infringed by the ITC.

While we have some ongoing legal activity on this topic in district courts, we anticipate the bulk of the legal spending on this matter is behind us and that our SG&A expenses are now reflecting that benefit. Access revenue declined 6% year-on-year to $23 million, or 15% of total revenue.

During the quarter, we saw a reduction in SLIC optical networking revenue in China combined with the normalization of the revenue trend for these products. The importance of our sales distribution channel continues to grow, with third quarter channel revenue share increasing 4 percentage points sequentially to 71%.

We had no customer greater than 10% of total revenue for the quarter. Geographically, in Q3, we saw particular softness in sales into the Asia Pacific region, fueled by the decline in our Broadcast consumer revenue in Korea and China. Sales into the Americas and Europe were relatively stable.

Third quarter non-GAAP gross margin was at the high end of our guidance range, and flat to Q2 at 60.2%. With the decline in our third quarter revenue, we tightened expense controls, including some moderation of head count growth. Accordingly, Q3 non-GAAP operating expenses were lower than we expected, ending at $68 million.

R&D expenses were down slightly to just under $37 million, reflecting lower new product introduction costs. SG&A expenses improved to approximately $31 million, with favorable fringe and variable compensation. Non-GAAP operating margin was 16.7%, which exceeded expectations.

Our non-GAAP effective tax rate was slightly better than we expected at approximately 14%, due to the geographical mix of income for the quarter. With favorable revenue performance, stable gross margins, and positive OpEx results, our earnings for the third quarter ended at $0.51 per share well above the $0.45 high end of our non-GAAP guidance range.

On a GAAP basis, third quarter gross margins were 59.8%. R&D expenses declined slightly to approximately $46 million, and SG&A expenses declined to just under $36 million. GAAP operating income was $11 million, or 7.2% of revenue. GAAP EPS for the quarter ended at $0.23 per share, which was well above our guidance range.

Turning now to the balance sheet, we have a number of excellent results to report. During the quarter, we successfully executed more than $60 million of share repurchases under our existing $100 million buyback program, and also received approval from the Board of Directors to implement an additional $100 million share repurchase authorization.

Our third quarter diluted share count is at a three-year low as our repurchase activity has significantly offset dilution from our employee equity grants. Year to date, we have completed over $70 million of stock repurchases and we have approximately $120 million remaining authorized.

We ended the quarter with cash, cash equivalents and investments totaling $256 million. Cash flow in Q3 was very strong, bringing our year to date cash flow from operations to $87 million. Accounts receivable ended at $61 million, or 35 day sales outstanding, which is a multi-year low.

Inventory levels improved significantly in Q3, declining to around $52 million and reflecting turns of 4.8 times. This is exceptionally strong performance given recent industry volatility and speaks to the efficiency and agility of our fabless model and operations team. Channel inventory increased in Q3 to 44 days, up from 41 days at the end of Q2.

We view this as a positive sign, indicating healthy demand for our products. I will now cover fourth quarter guidance. We expect fourth quarter revenue to be between $156 and $161 million, with growth in Broadcast, modest growth in Infrastructure, IoT flat, and a decline in Access.

Fourth quarter non-GAAP gross margins are expected to remain stable at 60%, plus or minus 50 basis points. With continued expense controls, we estimate that our non-GAAP operating expenses will be $70 million. Our non-GAAP effective tax rate is expected to be stable at approximately 15%.

We estimate fourth quarter non-GAAP EPS will be in the range of $0.45 to $0.51 per share, and GAAP EPS will be in the range of $0.05 to $0.11 per share. Now, I'll turn the call back to Tyson..

Thanks, John. Our strategic growth products now represent more than two-thirds of our revenue, up from just over 50% one year ago. We continue to target large, diversified growth markets, and have developed a well-positioned product portfolio to address these opportunities.

During the quarter, revenue from our expanding portfolio of IoT products grew 25% year-on-year. We're seeing increasing momentum in the adoption of our MCU, wireless connectivity and sensor products across our target markets, with particularly strong performance in smart metering.

In Q3, a large metering manufacturer joined our top 10 customer list, and our participation in the industrial market segment continued to grow, ending the quarter at more than one-third of total revenue.

Despite some weakness in the second half revenue, due to macro trends and seasonality, our new IoT product development pipeline remains strong, responding to the needs of this emerging market and continuing to fuel record design win activity.

As we execute on our product roadmap of energy-friendly solutions for a smarter, more connected world, we expect our IoT products will continue to deliver annual growth rates of greater than 20%. Earlier this year, we acquired Bluegiga to gain market-proven Bluetooth and Bluetooth Smart stacks, as well as a leading wireless module business.

We've made substantial progress in the Bluetooth market, accelerating our roadmaps, growing our customer base, and greatly expanding our SAM. Silicon Labs modules provide a pre-certified plug-and-play RF design that integrates the antenna, speeding time to market, and reducing cost, complexity and compliance effort.

Our customers also have the option of migrating from modules to cost-efficient SoCs for high volume applications with minimal redesign and full software reuse.

As an increasing number of consumers use their smartphones to control and monitor Internet-connected devices, the Bluetooth Smart market has become the largest and fastest growing, low power wireless connectivity opportunity in the IoT. To meet this growing market demand, during the quarter, we introduced a pre-certified Bluetooth Smart module.

Combined with our best-in-class scripting language and software stack, this new module enables our customers to develop their applications with the lowest R&D investment to get their products to market quickly.

In the connected home market, we are seeing a growing trend in voice control, which provides an easier, hands-free way to search, explore and experience content and services. To address this trend in Q3, we introduced a reference design that reduces the cost and complexity of creating voice-enabled wireless remote controls.

Based on our comprehensive portfolio of software stacks and wireless SoCs, our new reference design provides an industry standard way to bring the power of voice to TVs, set-top boxes and connected home products. Moving on to Infrastructure, our timing and isolation products delivered a new record, growing 10% year-on-year.

In the timing market, Silicon Labs offers the highest performance, lowest jitter and most flexible clocks and oscillators.

We continued to deliver a solid pipeline of new products, which are producing strong market traction in core network applications where the bulk of our timing business exists today, and we are expanding our SAM into data center and wireless applications.

Networks are transitioning from circuit to packet switch systems to increase efficiency and flexibility while reducing cost. During the quarter, we introduced a groundbreaking synchronization clock family offering the world's smallest form factor, highest performance, and lowest power.

As Synchronous Ethernet and IEEE 1588 standards become more widely adopted, network and equipment designers are demanding timing solutions like our new clocks that easily integrate into existing hardware architectures and infrastructure applications, broadband networks and data centers.

During the quarter, our isolation products established record revenue. Our digital isolators are used in power supplies for high-speed switches, servers and base stations. They are widely deployed in industrial automation and green energy applications, which demand higher product reliability and longevity.

During Q3, we introduced an isolated amplifier, delivering best-in-class performance and supporting product lifetimes of up to 100 years.

Our new isolated amplifier provides a robust current measurement solution for power control systems operating under demanding conditions, such as industrial motor drives, solar inverters, power converters and electric vehicles. In Broadcast, third quarter revenue declined 7% sequentially to $37 million.

While we believe macro trends continue to curtail the global demand for TVs, we saw increasing orders during the quarter from our primary Tier 1 customers in Korea and we expect continued improvement in Q4. Broadcast automotive continues to deliver, including record design win activity based on performance, scalability, and integration.

We anticipate share gains in all regions to fuel revenue growth for these products. Despite the challenging macro environment, we are confident in our strategy and proud of our accomplishments.

Over the past three years we have transformed Silicon Labs into a leading IoT solutions provider, including the successful completion of three strategic acquisitions. Our growth products now generate two-thirds of our total revenue. We have a rich product pipeline and see strong demand for our silicon and software.

We're engaging with top industry leaders who are rapidly adopting our IoT solutions and propelling our design win activity to record levels. We're executing on our vision and strategy and excited about what lies ahead.

Before closing, I would like to thank Kurt Hoff, our Senior Vice President of Sales, who will be leaving the company in Q4 to pursue other opportunities. Over the past decade, Kurt has played an integral role in the growth and transformation of Silicon Labs revenue as well as the development of our distribution channel.

We wish him luck in his future endeavors. Our sales organization will now report to Bill Bock while we complete the search for Kurt's replacement. Bill's background includes sales management as well as 15 years of association with Silicon Labs. We expect to have the Senior Vice President of Sales position filled during the first quarter.

Thank you for your time and attention. Before we take your questions, I'd like to turn the call back to Jalene.

Jalene?.

Thank you, Tyson.

Before we open the call for the question-and-answer session, I would like to review the investor conferences we will participate in this quarter, including the Credit Suisse 19th Annual Technology Conference in Scottsdale on December 3, and Barclays Global Technology, Media and Telecommunications Conference in San Francisco on December 8.

We would now like to open the call up for your questions. To accommodate as many people as possible before the market opens, we ask that you please limit your questions to one with one follow-up..

Your first question comes from the line of Suji Desilva with Topeka. Your line is open..

Nice job on the quarter here.

Can you talk about the IoT segment in terms of the quarter-on-quarter growth drivers in 2016 to keep the momentum going here? And was the distribution increase really driven by IoT increasing?.

Yeah, Suji, this is Tyson.

If you take a look at the IoT segment we were up about 25% year-on-year and that's been driven by significant design wins across our microcontroller portfolio, in particular, 32-bit as well as our wireless connectivity solutions which have been up strongly over the year, both organically and with the addition of Bluegiga earlier in the year.

If you look going in the next quarter, we do have some level of consumer business in there, as well as some specific China-oriented revenue within the microcontroller portfolio, which has provided a little bit of headwind on the IoT segment.

But if you look at the design win trajectory that we have going into next year, we believe that the IoT segment is going to be growing quite strongly. And I'll let John comment on the channel..

Yeah, Suji, certainly the channel mix was aided by the performance of IoT as well as Infrastructure, a fair amount of the Infrastructure business is in the channel. And just in general, the lower portion of the mix for the Broadcast consumer which tends to be more direct. Those are the key drivers..

And I just did want to point out that in the call, we did mention that we expect the IoT segment, which includes all of the microcontrollers, connectivity and sensors, we expect that to continue to grow at 20% or greater growing forward..

Great. And my other question is around the Broadcast business. I know Samsung's a tailwind for you there.

Does that continue into the first half of 2016? And do you broadly expect the television demand market to stabilize in that timeframe from your current look?.

Right, we believe that actually, the TV revenue is stabilizing now that we took a step down from the higher revenue levels that we were seeing in the first quarter. That was partly due to some loss of share in the – due to the CrestaTech lawsuit. We did lose some share at Samsung and we have now won that back.

We also have seen our Korean customers potentially lose some overall share within the overall TV market where we have 100% share, high share within the Korean segment, a little bit lower share in China. We've been increasing our share there as well.

So if you look just kind of going into 2016, we think that Q4 is going to stabilize but this is probably kind of a new normal of revenue for the Broadcast consumer given that we've got annual changeover into new model year as well as some level of ASP declines and some – that's balanced a little bit by the share gain that we'll get at the Korean customers in within the rest of the market.

But overall, we think that this will be fairly stable as we move into 2016 at these revenue levels..

Very helpful color. Thanks, guys..

Your next question comes from the line of Tore Svanberg with Stifel. Your line is open..

Yeah, hi. Thanks. This is Eric (22:14) calling in for Tore. Nice results. Wanted to just circle back with that last question on the Broadcast consumer.

What do you think your percentage of revenues will be from that Broadcast video business next year? You talked about some stability but obviously some growth in other areas, which would probably assume then that – to be a lower percentage of your business..

Yeah, Eric (22:47), this is Tyson. The Broadcast consumer this year will be about 50% of the overall TV market share. We do believe that we'll be able to increase that market share next year. We haven't given a specific target yet at this point.

So our share this year has gone down a little bit relative to last year because of the effect of Cresta and also some of the share transitions going on, potentially between Korea and China. And I'll let John make (23:18) some comments..

Sure. For Q3, Broadcast was around 23%, and Tyson just commented on how the consumer portion of that would be stable at these levels as part of a new normal, whereas we do expect continued growth in both IoT and Infrastructure. So I think the thesis of your question is sound.

It would be accurate to predict the mix for Broadcast, Broadcast consumer in particular, to decline over time..

Great. Thanks for that. And maybe just on the Infrastructure business. Obviously, you have new products to address that market in possibly data center and wireless base station, but what are the market dynamics you're seeing right now in the comm space? There's obviously some conflicting data points that we're seeing out there.

I guess is it just how the bottoming process works? And maybe what might be driving your confidence in your Infrastructure business as we head into 2016?.

Yeah, this is Tyson. We mainly sell into the core network applications, optical networking applications, and we've seen consistent demand in that market. We've seen some softness within our Chinese customers, but we've seen that balanced by strength in some others.

So, it's basically been fairly stable, the revenue, with a slight upward trend due to the design win momentum and the new product introductions, and what we believe is some level of share gain in some of these new applications.

We do not have a strong exposure in the Infrastructure segment to the Chinese wireless build-out, and so that has not been something that we have been subject to. We've certainly seen others in there.

But we do believe that the market traction that we have in base station applications, wireless and in data center applications, both for our clock and oscillator products, as well as our isolation products, is going to continue to propel this Infrastructure segment going forward..

Thanks so much..

Your next question comes from the line of Matt Ramsay with Canaccord Genuity. Your line is open..

Thank you very much. Good morning, gentlemen. Tyson, maybe you could talk a little bit about the Broadcast automotive business. There's been a few questions about the TV tuner business obviously, but what percentage of that Broadcast revenue bucket is now automotive? And how do you see that growing into next year? Thanks..

Okay, yeah, I'd be happy to talk about it. The automotive segment now is about 8% of our overall revenue. So, it has continued to rise as a percentage of our revenue. And we have continued to ramp a number of Tier 1 automotive makers in the U.S. and Europe, as well as some of the aftermarket in Japan and China.

So, we have had a nice revenue ramp, consistent revenue ramp, in automotive. This is a high-quality business, in terms of margins and in terms of longevity. And we expect that that growth will continue on a measured pace as we go into 2016 and into 2017.

As I've said in the past, I believe that this business can be well north of $100 million annual revenue in automotive. Whereas today, it's less than that.

And so we think that the differentiation in the products, the flexibility, the performance, the feature set that we've been able to deliver, the Tier 1 automotive makers and the Tier 1 automotive radio makers are quite excited about having us in the market.

Overall – if you look, the overall market's $300 million, $400 million, and with a nice set of products in a disciplined – or a limited competitive environment, it's mostly NXP and a little bit of ST in there, we think that we can continue to gain our fair share of this market..

Thank you for that. That's helpful. John, in follow-up, you talked about OpEx being relatively clear of some of the legal expenses. It sounds like there's still a little residual in there. Through this year, you guys had taken down OpEx growth guidance for the full year from 9% into 7%. Looks like 5% now.

Maybe you could talk about what to expect from a sort of organic OpEx growth rate into next year would be really helpful. Thank you..

Sure thing, Matt. I mean, yeah, we had indicated 9% earlier in the year. We certainly had expectations of stronger revenue performance this year. We had the issues arise in the worldwide video market that we've talked about at length, and we did make a concerted effort to slow down that growth in OpEx.

We have added heads this year, but we wanted to preserve profitability, in light of the declines, in the business opportunity on video. We do need to continue to invest for success in the Internet of Things market.

And one thing we've done over the last number of quarters is continue to transition resources internally from some of these more mature product lines, onto the IoT roadmap effort. So we have increased the investment level on IoT, and we'll continue to do that.

Heading into next year, some of the trends to keep in mind is that in the first half in particular, we have a high seasonality with our fringe and compensation costs, so that's one thing to keep in mind.

And we'll be better positioned on the January call to give more color on what we see for the full 2016 year, as we are now deep into our annual operating plan process. So, hopefully that helps some..

Understood. Thank you very much..

Your next question comes from the line of Craig Ellis with B. Riley. Your line is open..

Thanks for taking the question, and nice job on the quarterly execution. Just following up on the comments on the $60 million in buyback in the quarter.

Tyson, can you just give us your perspective on how you're viewing the portfolio and your desire to add further technologies through acquisition versus really being more patient there, and maybe letting some of the cash that the model is generating flow back to investors through buybacks, as we saw in the third quarter?.

Yeah, Craig, we continue to be opportunistic about our buybacks, and we saw that with the pull back in the share price that this was a good time for us to increase our buyback, both in terms of execution to our plan. As the price came down, we were buying back more.

So the Board of Directors authorized another $100 million, and we fully anticipate to continue to execute on that. The overall strategy of the company is sound. We've pivoted the company towards IoT. We've transitioned internal resources. We've added incremental resources. And we've done three strategic acquisitions around IoT.

And we now feel like we have a critical mass of technology there, and are really focused on execution. It's my belief that executing on this strategy is the best way to deliver value to the shareholders.

And we've got our head down and are in the process of doing that with product developments and market activities, and tremendous engagement out into the ecosystem. That being said, we continue to be active in looking at potential M&A targets.

We just do not see – there are not that many out there that really fit with our strategy and fit into what we consider to be a high-quality accretive type of situation. So, we continue to be looking, but overall, we've got our head focused on execution and delivering value, the best way we know how..

That's helpful. And the follow-up is on the IoT segment. The company had another quarter of very strong design win activity.

Can you give us some qualitative color on the end market profile that you're seeing as design wins continue to build, whether it's portable consumer electronics, in-home or around home, as you described today with the automated meter example, or other end markets like industrial and others? Thank you..

Right. I would say that the majority of the design win activity in IoT, it's more biased towards the industrial segments. Home automation and home security both are quite strong. Metering has been quite strong and we're finally starting to see some of the ramps, some visibility into the ramps for some of the smart meter deployments in Europe.

In UK, we see quite good traction on the wearables side, and other types of consumer applications. But if you really sit down and look at where these design wins are coming, we've seen quite a spike or quite a ramp in the number and breadth of these design wins. It is quite broad.

It's surprising, sometimes, the applications that you see people adding, connectivity, and cloud connectivity, and apps, and how that can influence things. There's some consumer applications and a lot of industrial applications. Everything from retail, supply chain, monitoring of goods and agriculture.

I mean, it's really exciting to see some of the vision of IoT, and the benefits that that can have to the economy, and see those products getting designed and starting to sell. So, it's quite broad, but I would say mostly biased towards the industrial segment..

Thank you..

Your next question comes from the line of Anil Doradla with William Blair. Your line is open..

Hey, guys. Thanks for taking my question. Well, first of all, I want to congratulate Bill. Clearly, Bill, you're proving out to be a man of multiple talents. So, congratulations on this new role, and perhaps you're one of the only executives who've come out of retirement and taken more roles than before retirement.

So that said, so wanted to double check on the – my calculations.

So you said Tyson about 8% Broadcast audio revenue, so does that mean that it declines 20%-plus sequentially and year-over-year? And also, does that mean Broadcast video sequentially grew?.

Yeah, so that 8% was the amount of automotive revenue for the company in Q3..

Oh, okay..

Yeah. So in Broadcast automotive – or Broadcast total was 23% of revenue in Q3. So, no, we are not seeing declines. We are actually guiding Broadcast up in Q4..

So what was the contribution of Broadcast video in the quarter?.

Yeah, Anil, we don't specify that specifically. Broadcast overall was 23%, as Tyson indicated; automotive was 8%and most of the automotive business is related to the Broadcast product line, but not 100% of it. And that's the level of granularity we provide..

Okay, great. And finally, Tyson, congrats on getting back Samsung, the Koreans, looks like Cresta is out of the mindset for some of these guys. But as you were gaining share back, was there any irrational pricing from incumbents? I know some of your competitors got some design wins who were not involved in this litigation.

Did they resort to any kind of aggressive pricing as you won back these designs?.

Anil, this is Bill. The design wins were really strictly a function of eliminating the overhang of the lawsuit, so this did not produce any unusual pricing behavior, and our customers were anxious to quickly switch back once that overhang dissipated..

Great. And congrats on the results and, Bill, congrats to you again..

Thanks..

Your next question comes from the line of John Vinh with Pacific Crest Securities. Your line is open..

Hi. Thanks for taking my question. Just a question on Infrastructure. Looks like you're on pace to kind of grow double digits in 2015, given your guidance for Q4.

Tyson, what's the right way to think about Infrastructure growth going into 2016? You think you can sustain this double-digit growth rate next year?.

Yeah, this is Tyson. We've got two primary growth drivers within Infrastructure. We've got our timing products, clock and oscillator products, where we continue to gain share in new applications like data centers, and wireless, and also continue to gain share in core network applications.

We have a strong product portfolio, a strong product pipeline, with very nice performance and integration features there. So that has been one of the growth drivers for the year.

Potentially, or a stronger overall growth driver but at a lower base is our isolation products, so these are power products going into power supplies and motors, but the predominant amount of that revenue, is going into data center type applications. There are some motor control applications as well but it helps to make power supplies more efficient.

And that has been growing even stronger than the timing products. But both have growth double digits this year, and we do expect that growth to continue on both of those vectors as we move into 2016.

So these are high-quality, long-lived products as well as high margin products, so we are quite bullish about our prospects in these markets and continuing to invest in new product development and channel activities, as well..

Great. Thanks. And my follow-up is, if you look at all your segments, you've got IoT growing 20%, continued growth in Infrastructure, looks like Broadcast has stabilized.

Do you think you can get back to your 10% to 15% growth model next year?.

Hey , John, this is John. That certainly is our goal. We will have some tough first half compares heading into 2016. Clearly, the Broadcast revenue levels were at a higher point in the first half. We've seen an adjustment down, and as we've indicated on the call today, see this as more of the new normal.

So moving into the second half of next year, we should be better positioned, but for the first half, we'll have tough compares out there..

Yeah. I'd also want to add that our Access products, they also had quite a strong first half. And as those being legacy products, we will continue to see some level of declines in the Access category as well.

So if you do the year-on-year compares, I would say Access and Broadcast are going to decline, especially due to the first half compares, with the growth in the IoT and the Infrastructure segments as we just talked about..

Great. Thank you..

Your next question comes from the line of Blayne Curtis with Barclays. Your line is open..

Hey, good morning, guys. Thanks for taking my question. Tyson, I just wanted to follow back up on IoT segment, if you could just talk about the roadmap. I think you've introduced a ZigBee SoC, but you have a grander plan there.

Just kind of timeline to get more of these SoC products out, and any indications that you're going to be successful with your Bluetooth Smart effort. Thanks..

Yeah, Blayne, this is Tyson.

We acquired Bluegiga back in January of this year and that brought on a full Bluetooth stack, and that comes on top of the ZigBee activity that we've had that came in through Ember, as well as all developments that we've been doing with Google Nest, and ARM around Thread, which is a low-power wireless mesh networking technology that we've been working on with them for several years as the leading partner, and with driving the standard there.

And we've got tremendous interest from the market in Thread. We've launched the 1.0 version of that out into the market, together with our next gen SoC. Our next gen SoCs are multimode. They will provide Bluetooth Smart.

They will provide ZigBee, Thread and a lot of the sub gigahertz proprietary standards and those are out in the hands of about 40 alpha customers right now and we've been just working through all of that design win activity as we've marched through the year.

We anticipate to be doing a more broad-based launch of that platform here towards the end of the year and early into next year and that will take that to the next level.

But currently, we're working through all the alpha customer engagements and working a number of large opportunities in the ZigBee space and the sub-Ghz space, and in the Thread, and Bluetooth Smart. So it's quite exciting.

We also announced our modules, so the Bluegiga acquisition heralded our entry into the module market and they had a leading position in Bluetooth Smart modules and then we have put our SoC into that module and that one is now out on the market, and we continue to expand our module portfolio, drive costs, drive size on that.

And I believe that that's critical to serving a lot of the smaller customers and then we can move to serve a broad market and to streamline our support activities, and then as higher volumes come up, we can move those customers into SoC applications.

So there's a lot of activity on the wireless connectivity side, and quite excited about the roadmap that we have, the low power platform and the roadmap that we have and are delivering on. I'd also like to say that our microcontroller, our 32-bit microcontroller portfolio has been doing extremely well.

We have a leading low power microcontroller set of products, and are working on the next generation of those, and so that will be rolled out as part of the overall platform in low power.

And then earlier this year, we also introduced our EFM8, the 8-bit microcontroller and are getting a lot of traction for lower end applications on 8-bit so we actually believe that the 8-bit segment is a rich opportunity pipeline as well.

And then we have sensor solutions in optical sensors and environmental sensors and some new sensor developments under way and that piece of revenue has also been growing this year.

So if you just look across 8-bit, 32-bit, wireless connectivity, modules, sensors, we believe that we've got well positioned in all of those to continue growth as we come into the new year..

Thanks. Then I just wanted to ask, within Broadcast, I want to understand the moving pieces, and particularly auto. That business has been in ramp mode for several years.

Was that business down in September? And is that now getting to the size, or the timing in the ramp that you're now seeing seasonality? And as you look to December, is video the only segment up or is auto growing still? Thanks..

Yeah, if you look into the fourth quarter, the automotive and the consumer are both going to continue to grow. Well, automotive's going to continue to grow, and consumer is going to resume some growth as well.

So, both of those are strong, and we expect going into next year that automotive is going to have a steady growth path as we move through the year..

Thank you..

Your next question comes from the line of Ryan Goodman with CLSA. Your line is open..

Hey, guys. Thanks for taking the question. Congratulations on the strong quarter. Question one is in IoT. I mean, we're talking about this 20%-plus growth rate.

I'm just looking at kind of the implied year-over-year growth for Q4 is kind of in that 10% to 15% range, and the comps get a little bit tougher in the first half of next year, just because you have Bluegiga in first half 2015 numbers.

So, I guess the question is, should we be thinking of that 20%-plus target for IoT as a 2016 target? Is it further out? And just, basically, how quickly you think you can get back there? I know you've kind of talked about some of the drivers already..

Yeah, this is Tyson. That may vary a little bit quarter to quarter, but that's, overall, we're thinking a 2016 growth over 2015. So that comment, relative to 20%, is the growth we think we can see next year, over this year..

Okay. And then just for a follow-up on the OpEx, you mentioned the litigation. I was just looking to see if you could quantify that a bit. Like what the litigation costs were maybe in Q2 to Q3? And then are all the savings from that going down in the numbers now, in the Q4 outlook or is there more room to go on that? Thanks..

Yeah, Ryan, the large amount of spend there was in 2014. We had some of that lingering into the first half of 2015. By Q3 of 2015, you're seeing it materially down from where we were in 2014, in particular. So, at this point, we would view this as fairly normalized, in terms of the effect of legal spending on our overall OpEx profile.

So you can consider that the beneficial effect of this rolling off is already in our numbers..

Okay, great. Thank you..

Your next question comes from the line of Ian Ing with MKM Partners. Your line is open..

Yes, thank you. My question's more on this consumer Broadcast recovery.

Where do you think the Korean OEMs are seeing demand? Is it in some of the recently weaker areas, like Latin America, Europe, Russia, where you sell some of the higher end hybrid parts?.

Yeah, this is Tyson. We have basically an inventory correction in Q3. So, they built too many units in the first half. They didn't sell through. They had to sell those through. They stopped ordering parts towards the latter half of Q2 and into Q3, and now they've resumed orders.

I don't believe that there is any particular region that's driving that, other than the fact they work through inventory. I don't have any information beyond that. I do know that we will be getting back the U.S. models for Samsung.

But we do have a little bit higher concentration of content within the European models and the South American models, and that looks like that also is returning to somewhat of a normal level. But I don't have any view on that being driven by any sort of macro return or anything, other than just the fact that they've been working through inventory..

Thanks. And for my follow-up, could you just talk more about the state of channel sales in greater China? It looks like EDAM in Taiwan, a distributor, about 20% of sales for you. I mean, had a record revenue month in September.

So, for EDAM, are you seeing some of that strength? And is the framework here that product cycles offsetting the overall trend of macro environments?.

So, EDAM has been a distribution partner of our company for over a decade, and has always been one of our leading channels into Asia. We don't see that there is a unique spike or improvement in demand in China at this point in time, and the business results that EDAM itself reports are not necessarily directly correlated to our own.

So, presently, we see China as relatively soft. We expect that that dynamic is going to continue through the fourth quarter, and into the first part of next year..

Thanks. So navigating a tough environment. That's all I had. Thank you..

Your next question comes from the line of Atif Malik with Citi. Your line is open..

Hi, this is Amanda Scarnati for Atif. So a question on kind of the decision tree, if any, for exiting the Access business or the non-automotive Broadcast business and focusing on IoT and auto and any other growth areas..

Yeah, Amanda, this is Tyson. You look at the – the Access business has been a 15-year business for us and continues to generate strong profitability for the company and we believe that it is relatively stable over the long haul.

And so, as a good cash generation business and one that is not likely to go away, we believe that that is an important part of our portfolio.

We actually part – some of the Access parts in the slicks in voice over IP and some of the power over Ethernet actually fit somewhat into our IoT strategy, and we sell those to common customers and into common applications so we do see some level of synergy there even though these are older parts.

On the Broadcast consumer side, we see a similar thing, that business generates a nice profit stream. While it has been somewhat more volatile, we do believe that that tuner business is going to persist over a long period of time. It's not going to be integrated into other SoCs.

That being said, if we did see, with the termination of the legal activity and if there was interest, it's certainly something that we would consider but we're also comfortable with holding on to that business long-term if we need to write it down..

Then another question on IoT, we talked a lot about it today but as IoT continues to kind of grow in the semi-market, does Silicon Labs have the scale to compete as this business continues to go across semis or do we need more scale in the business?.

Yeah, if I look at what we're trying to achieve, we're going after low power connectivity and microcontrollers in IoT, and we do have a substantial investment in the platform that with the resources that we've been able to apply both transferring internally, some limited amount of organic hiring, as well as the three acquisitions that we've done, we believe that we have critical mass and the scale to execute both on the product development, on the software, the stacks, the tools, and within the channel.

So we believe that this business can thrive and can continue to grow, and we're extremely well positioned in a market that is really what I consider to be one of the sweet spots of the semiconductor market in terms of growth over the next decade.

And so while sometimes scale helps, but given our size and given our focus and energy, we believe that we've got the chance to significantly outgrow the market if we can execute on the product developments and design wins that we've got going on right now..

Perfect. Thank you..

Your next question comes from the line of Ruben Roy with Piper Jaffray. Your line is open..

Thank you. Just a quick question, Tyson. A lot of discussion obviously around IoT. My question, and you addressed some of this in some of the previous answers, but it's nice to see industrial growing as a percentage of your total revenue and the design activity around IoT.

I'm wondering, when you think about the layering different technologies within your IoT portfolio, connectivity, sensors, et cetera, are the design wins that you've been seeing over the last let's call it six months being done from a platform approach already? Are you selling a number of technologies into these industrial design wins or is that something that's still to come?.

Yeah, a lot of these applications are where we either have both microcontroller and wireless connectivity content or where that is now getting integrated into a single SoC.

Those developments are being driven off of a silicon platform and a software platform, and in general, our customers are then connecting that into the cloud ecosystem, so we are not providing the cloud platform that they are using, although that is an interesting topic of discussion.

So I believe that our platform approach – I mean, this is a way to get leverage across a broad range – the IoT market is broad. I mean, you have applications with lots of different requirements. It requires a portfolio of products, and to do that efficiently, you have to build it on a platform of both silicon and software.

And so all of the developments that we have going forward, I mean, today on our 32-bit micros, going forward on our connectivity and our 32-bit micros, those are all going to be on the same platform, and that is what is driving the majority of our engagements today..

Okay. Thanks, Tyson. Just a very quick follow-up. To your point on cloud, there have been some partnerships recently around data analytics and IoT.

Is that something that you'll need to continue to progress in the industrial and cloud-related areas of IoT or is it something that you're working on already today?.

Yeah, I mean, I think that you look at what Amazon is doing and what Microsoft is doing, what ARM is doing, and we are working with all of those companies and more to integrate our solutions into those cloud platforms.

And certainly, when you're in IoT, you're dealing with data and cloud and apps and you have to have strong partnerships and decide what you need to offer and what's cost effective for us to offer, where we can make money and where we can enable partners to be successful.

So we're working throughout that entire ecosystem to plan the best path forward..

Very good. Thank you, Tyson..

Thank you..

Your next question comes from the line of Harsh Kumar with Stephens. Your line is open..

Hey, guys, thanks for the opportunity to ask a question. The semi market is sort of all over the place.

I know you provided guidance for the December quarter, but I'm curious, as you guys look out a little bit ahead, perhaps in the first half, maybe even March, how do you see some of your end markets playing out? You don't have to give me numbers; I know you can't. But if you can just give us some color, that would be really appreciated..

I think we are cautious at this point in time looking into first half of next year. We watched our peers report throughout last week and into this week and there were a number of surprising guides for substantial reductions in revenue performance in fourth quarter. That concerns us.

We feel fortunate and confident to deliver a guide that is slightly up for 4Q but the industry in general is not reflecting that. So I think we would look into next year, right at the moment, viewing the macro environment as not particularly encouraging.

So we'll track this very carefully, and try to bake our view of the macro world into what we provide for you in the January call about 2016..

Got it. And as my follow-up, there's a variety of parts you sell within your IoT portfolio.

Is there one that is perhaps coveted by your customers, one that's sort of the hook for the rest of the sale than some of the others, or is it more of a system sell?.

Well, I would say that our integrated wireless connectivity with microcontroller set of products is, in general, in extremely high demand, and is highly differentiated versus everything else in the market. So if I had to put one on top, it would be when you integrate microcontrollers and wireless connectivity, it is hard.

It is especially hard to do it with robust software stacks, with multimode where you're dealing with multiple wireless protocols at the same time, getting that integration to work in high-performance and robustly in a network.

And that is where we think we have the highest differentiation from a silicon and system perspective and being able to deliver that in an easy to use way, and for instance into modules or with tools, that also creates an additional level of stickiness and differentiation..

Got it, guys. Thank you for your time..

And your next question comes from the line of Rajvindra S. Gill with Needham & Company. Your line is open..

Hey, this is Josh (58:25) on behalf of Raj. Thanks for squeezing me in. Just piggybacking on a previous question, how has the recent consolidation in semiconductor universe kind of – how has that changed or affected or not affected your competitive position versus your peers? Thank you..

Yeah, Josh, (58:25) I view consolidation actually as an opportunity for us. For instance, if we look at Broadcom going into Avago they're going to find let's say a billion dollars worth of synergies, which means a lot fewer engineers. They went from being a company that I was somewhat concerned about.

They're a high quality company executing and they could have come after IoT. I believe that that's not going to be the case now. So that's favorable to us.

If you look at companies like Atmel and NXP and Freescale that are going through significant mergers, and have challenges themselves in some ways, I think they're going to be distracted over the next couple of years as they merge roadmaps, merge cultures, and I also view that as an opportunity for us.

That being said, I view our main competitors as TI, ST and Nordic in the IoT space, and all three of those have stayed out of the M&A fray, and I believe that they will all remain focused.

So, I think it's overall a net positive for us, but long-term, I do believe that some of those companies may come out strong, if they can achieve the benefits of scale. But you just look at the overall reduction in the R&D expenses. TI is now below 10%. I think they're at 9% R&D.

And I think that the level of innovation in the industry is going to decline, and that's an opportunity for us to go and take share..

That's very interesting. Thank you. I guess, similar to that, how should we think about OpEx now that the legal expenses are sort of winding down heading into 2016? Maybe how will they grow in relationship to revenue, or any direction you can help us with the model? Thank you..

Yeah, Josh, (58:25) we kind of touched on this earlier, but the OpEx was looking at a 5% increase in 2015. The key points right now are to view the first half of 2016 as seasonally high as our fringe factors reset, and we'll be able to provide more color on the January call for the overall annual profile for OpEx next year..

Thank you, and congratulations on the results..

Thanks, Josh. (58:25).

Thank you..

There are no further questions at this time. I would now like to hand the call back over to Jalene Hoover..

Thank you, Heather, and thanks to everyone for joining us this morning. This concludes today's call..