Why Silicon Laboratories Jumped on Wednesday

Silicon Labs markets a line of IoT microcontrollers under the highly photogenic Gecko brand. Source: Silicon Labs.

What: Shares of Silicon Laboratories jumped as much as 12.4% higher on Wednesday morning. The mixed-signal specialist's third-quarter results came in ahead of both analyst estimates and management's own guidance.

So what: In the third quarter, Silicon Labs' sales declined 1.3% to land at $156 million and adjusted earnings fell by a penny to $0.51 per diluted share.

If those results don't sound impressive, you should note that analysts would have settled for earnings of $0.43 per share on something like $145 million in top-line sales. And those Street estimates were actually slightly above the midpoints of Silicon Labs' own guidance for the quarter.

Now what: Silicon Labs CEO Tyson Tuttle pinned the strong quarter on strong demand for automotive and Internet of Things products. The company is a leading provider of multimedia solutions for in-car infotainment systems, and is taking an active part in the surging Internet of Things megatrend.

The solid bottom-line performance was also helped by a 5% reduction in operating expenses, as R&D budgets increased while other selling, general, and administrative (SG&A) costs plunged. There's still more work to do on that front. Year to date, Silicon Labs' total operating costs consumed 43% of incoming revenues, but management hopes to take that ratio as low as 37% in the long run.

The company's largest customer is Samsung, whichaccounted for 12% of Silicon Labs' revenues in 2014.

In fact, you could consider Silicon Labs a pretty close ally to Alphabet and the Android ecosystem, since its chips are found in teardowns of important Alphabet products such as the Nest Protect smoke alarm and the OnHub wireless router. These devices rely on Silicon Labs for their Internet of Things low-power networking chips under the ZigBee standard.

So the Internet of Things is an increasingly important part of the Silicon Labs business model, with that division's sales accounting for 33% of total sales in the year-ago quarter but 40% today. Hitching its wagon to end-market horses like Alphabet and Samsung, Silicon Labs is sure to increase that ratio even further.

The article Why Silicon Laboratories Jumped on Wednesday originally appeared on Fool.com.

Anders Bylund owns shares of Alphabet (A shares). The Motley Fool owns shares of and recommends Alphabet (A and C shares). The Motley Fool recommends Silicon Laboratories. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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