Seeking Alpha: With The Pullback, Silicon Labs' IoT Opportunity Looks More Interesting

There aren't many sectors doing especially well right now in the stock market, so the pullback in semiconductor stocks isn't exactly surprising, let alone unique. As about a quarter of the industry's revenue comes from industrial markets, and meaningful amounts come from computing, consumer devices, and phones, it is not so surprising that investors are worried about the outlook for 2016 even though multiple semiconductor CEOs have opined that the slowdown will be briefer and shallower than past downturns.

This brings me to Silicon Labs (NASDAQ:SLAB). The shares of this microcontroller, sensor, and RF chip company have fallen around 15% since my last update, more or less matching the decline in Microchip Technology (NASDAQ:MCHP) and outperforming NXP Semiconductors (NASDAQ:NXPI) over that period. While the company has definitely had some challenges with more commoditized competition in segments like TV tuners, the company's Internet of Things (IoT) business continues to grow nicely.

Valuation is still mixed, though the shares are now below both my cash flow and margin/revenue-based fair values. IoT is still a somewhat sexy topic in the chip space, and the company's combination of MCU/sensor/RF capabilities and relatively high operating expenses (fueled by aggressive R&D spending) could generate some potential M&A interest. Although there are other chip companies I like better (including Microchip and Microsemi (NASDAQ:MSCC)), I won't pretend that Silicon Labs is trading at a more attractive level if you believe in the long-term potential of IoT applications.

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With The Pullback, Silicon Labs' IoT Opportunity Looks More Interesting