LIVING INNOVATION
S I L I CO N L A BO R ATO RI ES 20 05 A N N UA L REP O RT
S I L I CO N L A B O R ATO R I ES 2 0 05 A N N UA L R E P O RT /
Silicon Laboratories Inc. is a global leader in the innovation of mixed-signal integrated
circuit (IC) technology. The company applies its renowned design expertise to develop
proprietary analog-intensive, mixed-signal ICs that are implemented in CMOS. These
products offer significant advantages in performance, size, cost and power consumption
over traditional solutions. The company’s product portfolio targets a broad range of
markets including consumer, communications, computing, industrial and automotive.
The company, founded in 1996, has over 600 patents issued or pending. Based in
Austin, Texas, Silicon Laboratories’ common stock is traded on the NASDAQ ® under
the ticker symbol “SLAB.”
FI N A N CIAL H I G H L I G HTS (I N m I L L I O N S)
REVENUE
NET INCOME
ADJUSTED NET INCOME*
CASH AND SHORT-TERM
INVESTMENTS
q1 2 0 0 4
q 2 2 0 0 4
q 3 2 0 0 4
q 4 2 0 0 4
q1 2 0 0 5
q 2 2 0 0 5
q 3 2 0 0 5
q 4 2 0 0 5
$114
20
21
204
126
23
24
223
121
21
22
241
95
13
14
277
105
17
17
304
107
16
18
330
104
-1
14
335
110
15
18
364
*Reconciliation from GAAP to non-GAAP Financials provided at the back of the 10K
L E T T E R T O O U R S H A R E H O L d E R S
THE ELEmENTS OF m ARkET LEAdERSHIP
In my experience, organizations that have an intense focus on
execution and results tend to achieve sustained success in their
markets. Market leadership results when this focus is combined
with superior technology and a commitment to deliver differentiated
solutions that significantly improve customers’ products. Our strategy
reflects these key ingredients, which have driven our success
in the past and which we believe will be the foundation of our
success in the future.
S TAk I N G A CL A I m O N m IxEd -SI G N AL
The semiconductor market continues to expand, and ICs are
proliferating into our daily lives more rapidly than any other
time in our history. The demand for miniaturization and lower
cost driven by consumer electronics is becoming prevalent
industry wide and is the catalyst for increased integration while
preserving performance.
This trend represents a high-growth, long-term market opportunity
for a mixed-signal company like ours. I believe we are one of very
few companies who possess the ability to combine mixed-signal
expertise with digital-centric architectures in CMOS to replace
pure analog approaches and drive the highest level of integration
without compromise.
S I L I CO N L A B O R ATO R I ES 2 0 05 A N N UA L R E P O RT /
I NTEG R ATI O N wITH O UT COm PROm ISE
we have sustained a market leadership position for several
We have a long track record of product successes that exemplifies
years. It is also apparent in our ProSLIC® products for VoIP
our unique capabilit y to provide market-leading integration
and our MCU products where we have outgrown the market
without performance compromises. Just a few examples in 2005
and believe we have the por t folio to create a long-term
include the AeroFONE™ single-chip phone, a complete cell
leadership position.
phone in a single chip that offers the same gold standard in RF
performance we provide in our stand-alone Aero ® transceiver;
LO O k I N G A H E A d
our SiRX™ set-top box receiver that integrates the entire RF front
This essence of our market leadership is our approach to
end in a satellite set-top box while providing a significant boost
engineering. Our world-class team of engineers has built a level
in key performance metrics that improve satellite reception;
of mixed-signal design expertise that we believe is extremely
digital power, where we integrated both digital management
difficult for competitors to replicate. This team and the support
and control, maximizing flexibility and performance all in a
around them understand the art behind mixed-signal design. The
single, tiny 5x5 mm chip; and our FM tuner, a complete FM radio
result is a rich new product pipeline backed by patents, trade
implemented in 100 percent CMOS that dramatically improves
secrets and cycles of learning that allow us to create long-term
the end-user experience.
barriers to entry.
We introduced a dozen new products in 2005 with the
We are entering 2006 with a singular focus on new product
same no-compromise characteristics. These products double
execution and a strong commitment to return to sustained
our portfolio and enable us to significantly diversify our markets
growth. I believe we have the technology, the people and the
and customers served. They also increase the size of our total
drive to become one of a select few industry leaders in the
available market, and we believe they will drive revenue growth
coming decade.
in the second half of 2006 and beyond. These products also
have in common disruptive technology that solves problems in a
very different way, enabling us to enter established markets and
Necip Sayiner
rapidly gain share. Our track record amply demonstrates this
President and Chief Executive Officer
from our first PC modem products to our RF transceivers where
S I L I CO N L A B O R ATO R I ES 2 0 05 A N N UA L R E P O RT /
THE ESSENCE OF mIxEd-SIGNAL dESIGN
At Silicon Laboratories, we believe there are four key pillars to our
mixed-signal design expertise that together enable us to develop
products that consistently surpass competing solutions. The first is
a deep understanding of analog circuit design. There are few rules
when designing analog circuits. Success comes from knowledge
of the many variables impacting the design, experience solving
problems and an innate ability to see the design in a new way.
The second pillar is expertise in digital circuit design. This requires
knowledge of digital architectures, process technologies and
an intuitive understanding of how noisy digital circuits impact
sensitive analog components. The third pillar is signal processing.
A strong foundation in signal processing plays a key role in the
early, conceptual phase of the design enabling us to look at the
chip architecture at the block level. By understanding the complete
system, we can design architectures in new ways, divide functional
blocks to optimize performance and establish the root cause of any
problems to develop a permanent solution that can be replicated
throughout future designs. The final pillar is an understanding of
physics, which is a key component of the science, but also the
art, of mixed-signal circuit design.
The presence of all four elements sets us apart. This depth of
knowledge enables us to select products where we can apply
our core competency with the greatest possible return.
S I L I CO N L A B O R ATO R I ES 2 0 05 A N N UA L R E P O RT / 0
AT THE HEART OF mIxEd-SIGNAL INNOVATION
Innovation is the successful exploitation of
are then viewed with an eye toward finding
new ideas incorporating new technologies
a way to put analog and digital functions
and best practices. The spark that ignites
together in a single design where the sum
an innovative design breakthrough is as
is greater than the individual parts.
likely to come from a flash of insight over
Our FM broadcast radio tuner, one of
lunch as it is in a design review meeting.
several flagship products introduced in 2005,
At Silicon Laboratories, we recognize that
is a great example of this capability in action.
there is no handbook on innovation. At the
Incumbent solutions are bulky, analog-centric
heart of it is a willingness to question the
products that require 30 or more external
rules, try unconventional approaches and to
components in a larger footprint. By using a
listen to your instincts. Silicon Laboratories’
patented digital architecture that leverages
engineers are any thing but conformists.
the expertise developed in the design of
They challenge, question and deb ate.
our world-class Aero transceiver family, the
They also teach, mentor and share. They
Silicon Laboratories FM tuners significantly
demand excellence from themselves, and we
im p rove p e r fo r m a n c e w hil e re d u cin g
believe they represent the finest mixed-signal
component count to a single chip and one
designers in the industry.
external bypass capacitor. Cellular phone
An underlying objective of our engineer-
and MP3 makers benefit from simplified
ing te am is to ensure that the analog
design, lower bill- of-materials cost and
component of our products can stand on
faster time to market while being able to
its own merit, requiring the customer to make
offer their end-customers a better listening
no performance compromise when taking
experience due to the improvements in FM
advantage of further integration. All projects
radio performance.
S I L I CO N L A B O R ATO R I ES 2 0 05 A N N UA L R E P O RT / 2
A L ASTING AdVANTAGE
The mixed-signal technology we develop has
amplifiers and our recently introduced
a lasting impact on the market. It is a key
Aero FO NE single - chip phone enables
enabler of market trends, customers’ success
handset makers to meet the cost require-
and differentiation and of our sustainable,
ments of emerging, high-growth markets
competitive advantage.
like Brazil, Russia, India and China. These
Our technology supports the trend in
products also help customers to meet the
consumer electronics towards converged
p er formance and p ower re quirements
functionality. Our ability to integrate analog
of high- end phones and will continue
and digital in a low power, low cost, digital
to do so as the market adopts new air
process technology enables customers to
interface standards.
make smaller, lighter products with more
T h e s e e x a m p l e s a n d m a n y o t h e r s
features and longer battery life.
demonstrate that by focusing on commer-
Accounting for over 60 p ercent of
cially viable, disruptive innovations for large
semiconductor consumption, the PC and
established markets, we can create market
wireless segments continue to be important
discontinuities and barriers to entr y that
end-markets. Our por t folio of wireless
we believe will enable us to extend our
technology, including RF transceivers, power
leadership position for years to come.
FINANCIALS
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
⌧⌧ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2005
Or
""
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from
to
Commission file number: 000-29823
SILICON LABORATORIES INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
4635 Boston Lane, Austin, Texas
(Address of principal executive offices)
74-2793174
(I.R.S. Employer
Identification No.)
78735
(Zip Code)
(512) 416-8500
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None.
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.0001 Par Value
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
⌧ Yes " No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
" Yes ⌧ No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ⌧ Yes " No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. "
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.
See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer ⌧
Accelerated filer "
Non-accelerated filer "
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
" Yes ⌧ No
The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference
to the price at which the common equity was last sold as of the last business day of the registrant’s most recently completed
second fiscal quarter (July 1, 2005) was $1,222,304,855 (assuming, for this purpose, that only directors and officers are
deemed affiliates).
There were 55,117,300 shares of the registrant’s common stock issued and outstanding as of February 1, 2006.
Portions of the Proxy Statement for the registrant’s 2006 Annual Meeting of Stockholders are incorporated by reference
DOCUMENTS INCORPORATED BY REFERENCE
into Part III of this Form 10-K.
SILICON LABORATORIES INC.
FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
PART I.
ITEM 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 1A. Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 1B. Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 2.
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 3.
Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 4.
PART II.
ITEM 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selected Consolidated Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 6.
ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 7A. Quantitative and Qualitative Disclosures about Market Risk . . . . . . . . . . . . . . . . . . . . . . . .
Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 8.
ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 9A. Controls and Procedures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 9B. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PART III.
ITEM 10. Directors and Executive Officers of the Registrant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 13. Certain Relationships and Related Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 14. Principal Accountant Fees and Services. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Page
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PART IV.
ITEM 15. Exhibits and Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
55
2
CAUTIONARY STATEMENT
EXCEPT FOR THE HISTORICAL FINANCIAL INFORMATION CONTAINED HEREIN, THE
MATTERS DISCUSSED IN THIS REPORT ON FORM 10-K (AS WELL AS DOCUMENTS
INCORPORATED HEREIN BY REFERENCE) MAY BE CONSIDERED “FORWARD-LOOKING”
STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933,
AS AMENDED, AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED. SUCH FORWARD-LOOKING STATEMENTS INCLUDE DECLARATIONS
REGARDING THE INTENT, BELIEF OR CURRENT EXPECTATIONS OF SILICON
LABORATORIES INC. AND ITS MANAGEMENT AND MAY BE SIGNIFIED BY THE WORDS
“EXPECTS,” “ANTICIPATES,” “INTENDS,” “BELIEVES” OR SIMILAR LANGUAGE. YOU ARE
CAUTIONED THAT ANY SUCH FORWARD-LOOKING STATEMENTS ARE NOT
GUARANTEES OF FUTURE PERFORMANCE AND INVOLVE A NUMBER OF RISKS AND
UNCERTAINTIES. ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE
INDICATED BY SUCH FORWARD-LOOKING STATEMENTS. FACTORS THAT COULD CAUSE
OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE THOSE DISCUSSED UNDER “RISK
FACTORS” AND ELSEWHERE IN THIS REPORT. SILICON LABORATORIES DISCLAIMS ANY
INTENTION OR OBLIGATION TO UPDATE OR REVISE ANY FORWARD-LOOKING
STATEMENTS, WHETHER AS A RESULT OF NEW INFORMATION, FUTURE EVENTS OR
OTHERWISE.
3
Item 1.
Business
GENERAL
PART I
Silicon Laboratories Inc. designs and develops proprietary, analog-intensive, mixed-signal integrated
circuits (ICs) for a broad range of applications. Mixed-signal ICs are electronic components that convert
real-world analog signals, such as sound and radio waves, into digital signals that electronic products can
process. Therefore, mixed-signal ICs are critical components in numerous applications, including mobile
handsets, cable and satellite set-top boxes, personal computer modems, Voice over Internet Protocol
(VoIP) on data networks, voice over digital subscriber line (DSL) modems, satellite tuners and FM radio
tuners, personal video recorders, telephone equipment and optical networking equipment. We also design
and develop mixed-signal 8-bit microcontrollers (MCUs) which are incorporated in a broad range of
applications in a variety of markets, including automotive, communications, consumer, industrial, medical
and power management.
Our world-class, mixed-signal design engineers typically use standard complementary metal oxide
semiconductor (CMOS) technology to create our innovative ICs that can improve the performance and
dramatically reduce the cost, size and system power requirements of devices that our customers sell to their
end-user customers. Our expertise in analog-intensive, mixed-signal IC design in CMOS allows us to
develop new and innovative products that are highly integrated, which simplifies our customers’ designs
and improves their time-to-market.
INDUSTRY BACKGROUND
According to market research firm Gartner, personal computers (PCs) and mobile handsets are
expected to remain the most significant market drivers for semiconductor consumption through 2008. In
wired communications, increased enterprise equipment spending and capital expenditures by service
providers combined with broadband and Voice over Packet technology continue to represent growth areas
in the communications IC market which Gartner expects to top $80 billion by 2008.
Recent growth in the market for ICs has been due to a number of factors, including the growth of
Internet usage, development of new communications technologies, availability of improved
communications services at lower costs, broad deployment of optical networks and remote access
requirements for corporate networks. This demand has fueled tremendous growth in the number of
electronic devices. For example, in mobile handset markets, the demand for wireless phones and other
wireless devices, such as personal digital assistants, has grown steadily as wireless services have become
increasingly popular and affordable. In other markets, demand has increased for a wide range of electronic
products, including PCs, cable and satellite set-top boxes, fax machines, digital cameras, satellite radios and
personal video recorders (PVRs). Consumers increasingly demand higher capacity connections at their
residences using cable modems or high speed DSL. Voice over Internet Protocol technology, which
enables voice traffic over data networks, is emerging as a viable alternative to traditional telephone
networks. The demand for greater and faster Internet access by households and businesses has increased
the need to significantly upgrade the communications backbone to handle this traffic, increasing the need
for smaller, faster and better performing networking systems that route this traffic.
4
This intersection between the analog world we live in and the digital world requires numerous analog-
intensive, mixed-signal circuits. Traditional designs for electronic devices have used mixed-signal solutions
built with numerous, complex discrete analog and digital components. While these traditional designs
provide the required functionality, they can be inefficient and inadequate for use in markets where size,
cost, power consumption and performance are increasingly important product differentiators. In order to
improve their competitive position, electronic device manufacturers need advanced mixed-signal ICs that
reduce the number of discrete components and required board space to create smaller products with
improved price/performance characteristics. Additionally, these manufacturers require programmable ICs
that can be reconfigured to comply with numerous and constantly evolving international electronic
standards without altering the fundamental design of a product.
Manufacturers of electronic devices face accelerating time-to-market demands and must adapt to
evolving industry standards and new technologies. Because analog-intensive, mixed-signal IC design
expertise is difficult to find, these manufacturers increasingly are turning to third parties, like us, to provide
advanced mixed-signal solutions. Mixed-signal design involves great complexity and difficulty, because the
performance of the IC depends on the creative analog expertise of engineers to optimize speed, power,
amplitude and resolution despite the noisy digital environment and within the constraints of standard
manufacturing processes. The development of analog design expertise typically requires years of practical
analog design experience under the guidance of a senior engineer, and engineers with the required level of
skill and expertise are in short supply.
Many third-party IC providers lack sufficient analog expertise to develop compelling mixed-signal ICs.
As a result, manufacturers of electronic devices value third-party providers that can supply them with
mixed-signal ICs with greater functionality, smaller size and lower power requirements at a reduced cost
and shorter time-to-market.
PRODUCTS
We provide analog-intensive, mixed-signal ICs for use in a variety of electronic products in a broad
range of applications including mobile handsets, PC modems, satellite set top boxes, automotive controls
and sensors, radio tuners, personal video recorders, industrial monitoring and control, central office
telephone equipment and optical networking equipment. Our products integrate complex mixed-signal
functions that are frequently performed by numerous discrete components in competitive products into
single chips or chipsets. By doing so, we are able to create products that when compared to many
competitive products:
• Require less board space;
• Reduce the use of external components;
• Can offer superior performance;
• Provide increased reliability;
• Reduce system power requirements;
• Are easier for customers to use; and
• Reduce costs.
5
We group our products into two categories: mobile handset products and broad-based mixed-signal
products. Mobile handset products include the Aero® Transceivers, the AeroFONE™ single-chip phone,
Power Amplifiers (PA) and to the extent incorporated into handsets, the FM radio tuners. Broad-based
mixed-signal products include our silicon Direct Access Arrangement (DAA), ISOmodem® embedded
modems, ProSLIC® telephony interface circuits, microcontroller products, DSL analog front end,
SiPHY® optical physical layer transceivers, precision clock & data recovery ICs (CDRs), XM satellite
radio tuner, digital power products, FM broadcast radio tuners for non-handset applications, oscillators
(XOs), voltage-controlled oscillators (VCXOs), general purpose RF Synthesizers and SiRXTM satellite
receivers. The following table summarizes the diverse product areas and applications for the various ICs
that we have introduced to customers:
PRODUCT AREAS AND DESCRIPTION
APPLICATIONS
MOBILE HANDSET PRODUCTS
Aero Transceivers
The Aero Transceiver family provides highly integrated
transmit and receive radio functionality that is found between
the antennae electronics and the digital baseband section of a
GSM/GPRS/EDGE mobile handset or wireless data
communication device. These solutions require a smaller
footprint than most competing solutions in this form-factor
sensitive market and can be paired with virtually any
baseband. The Aero Transceivers are designed using 100%
standard CMOS process technology which facilitates cost
reduction and integration. The Aero IIe product is still in the
early stages of customer adoption and is not yet being
produced in volume.
AeroFONE
Our AeroFONE single-chip phone is an integrated, high
performance solution for GSM/GPRS handsets. The
AeroFONE is based on patent pending, breakthrough
innovations enabling a fully-functional single-chip phone that
integrates the power management unit (PMU), battery
interface and charging circuitry, digital baseband, analog
baseband and a quad-band RF transceiver in a single
monolithic CMOS IC. This product is still in the early stages
of customer adoption and is not yet being produced in volume.
Power Amplifiers
Our Power Amplifiers for dual and tri-band cellular handsets
are monolithic GSM PA solutions implemented in CMOS,
creating high levels of integration and performance without
sacrificing quality or reliability. Our PA integrates power
control circuits, innovative temperature and overvoltage
protection circuits, input and output matching networks and
harmonic filters. Our PA provides customers with flexibility to
meet key specifications for low cost phones.
• GSM/GPRS/EDGE wireless
phones, smart phones and
personal digital assistants (PDAs)
• GSM/GPRS/EDGE data
communications devices
• GSM/GPRS wireless phones
• Dual and tri-band GSM/GPRS
handsets
6
PRODUCT AREAS AND DESCRIPTION
APPLICATIONS
FM Radio Tuners for Mobile Handsets
Our FM tuner delivers the entire FM tuner from antenna
input to audio output in CMOS. Using a digital architecture,
the FM tuners significantly improve performance while
reducing component count and saving board space. The FM
tuner integrates selectivity filtering, automatic gain control,
frequency synthesizer and audio processing making it ideal for
portable audio applications.
BROAD-BASED MIXED-SIGNAL PRODUCTS
Silicon Direct Access Arrangement (DAA)
Our DAA provides the functionality of both a direct access
arrangement and a codec in a single chipset. A direct access
arrangement provides electrical isolation between a wireline
device, such as a modem, and the telephone line to guard
against power surges in the telephone line, while the codec
provides analog-to-digital and digital-to-analog conversion.
• All wireless phones
• PDAs
• Desktop and notebook modems
• Modem Riser Cards
• Mobile Daughter Cards
• Modem on motherboard
• Mini PCI cards
• Handheld organizers
• Set-top boxes
• Video conferencing systems
• PBXs and IP telephony products
ISOmodem Embedded Modems
The ISOmodem combines an analog modem with a silicon
DAA, resulting in a complete modem implemented in a very
small form factor. The ISOmodem products are designed for
embedded modem applications, outside of the personal
computer area such as set-top boxes and PVRs. The
ISOmodem contains a programmable line interface that meets
global telephone line requirements, allowing manufacturers to
implement a single modem design world-wide. The
ISOmodem family includes embedded modem solutions for
speeds ranging from 2400 bps to 56Kbps, suitable for a wide
range of applications.
• Set-top and digital cable boxes
• Industrial monitoring
• Postage meters
• Security systems
• Remote medical monitoring
• Gaming consoles
• PVRs
• Point of sale (POS) terminals
• Fax machines and multi- function
printers
ProSLIC Telephony Interface Circuits
The ProSLIC provides the analog telephone interface on the
source end of the telephone which generates dial tone, busy
tone, caller ID and ring signal. Our ProSLIC product family
has offerings for short-haul applications suitable for the
customer premises as well as long-haul applications suitable
for the traditional telephone company central office.
• IP telephony
• Wireless local loop providing
remote access for a wireline
system
• Voice over broadband modems
and terminal adapters
• VoIP residential gateways
• PBXs
• Wired long loop and central
office systems
7
PRODUCT AREAS AND DESCRIPTION
APPLICATIONS
Microcontroller Products
Our C8051F family of 8-bit mixed-signal microcontrollers
integrates intelligent data capture in the form of high-
resolution data converters, a traditional MCU computing
function, Flash memory and a highly programmable set of
communication interfaces in a single system on a chip. The
combination of configurable high-performance analog, up to
100 Million Instructions Per Second (MIPS), 8051 core and in-
system field programmability provides the user with design
flexibility, improved time-to-market, superior system
performance and greater end product differentiation. These
products are designed for use in a large variety of end-
markets, including the automotive, communications,
consumer, industrial, medical and power management
markets.
DSL Analog Front End
The DSL Analog Front End (AFE) is designed to provide the
connectivity functions for business or residential asymmetric
digital subscriber line (ADSL) connection at the user end in
customer premises equipment. Such a connection addresses
the business and residential demand for high-speed
connectivity. The DSL AFE supports several ADSL
communication standards enabling various upload and
download data rates.
SiPHY Optical Physical Layer Transceivers
We offer a family of high-speed physical layer ICs that meet
the high-speed fiber Synchronous Optical Network (SONET)
and Synchronous Digital Hierarchy (SDH) specifications. The
transceiver IC provides both the receive path deserialization
and transmit path serialization as required by the
SONET/SDH physical layer. We also offer a family of clock
and data recovery chips to provide specific functions at
multiple speeds up to the OC-48 rate. All of our physical layer
products utilize our proprietary digital signal processing
technology to reduce the device’s sensitivity to board-level
noise and improve performance.
• Industrial automation and control
• Automotive sensors and controls
• Medical instrumentation
• Electronic test and measurement
equipment
• Power management
• Weigh scales
• Optical line cards
• Digital cameras
• Computer peripherals
• Wireless headsets
• Magstripe readers
• Gaming consoles
• Electronic toys
• Personal computer modems
• External modems
• Residential gateways
• Network interface devices
• Optical port cards for
SONET/SDH optical networking
equipment
• Optical test equipment
• High speed serial back plane
interfaces
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PRODUCT AREAS AND DESCRIPTION
APPLICATIONS
Precision Clock Integrated Circuits
Our precision clock product family includes various products
ranging from general purpose clock multiplier products up to
high performance multi-port, redundant, multiple frequency
range clock multipliers and regenerators. Network systems
require very high precision, low jitter, clock sources. Our
knowledge gained in developing the physical layer transceiver
subsections provided us the technology to offer these high
performance clock products. Traditionally, these clock sources
have been implemented using expensive, bulky modules,
numerous crystal sources, complicated discrete circuitry
requiring numerous components, or hybrid IC/discrete
solutions that offer limited functionality. The frequency agility,
performance, and integration offered by these devices are key
design features for our customer base.
Satellite Radio Tuner
Our satellite radio tuner combines our RF Synthesizer with a
highly integrated tuner for a complete XM satellite radio
tuner chipset. By leveraging CMOS technology, our satellite
radio tuner minimizes the use of external components such as
external voltage-controlled oscillators (VCOs), varactor
diodes, and loop filters. The tuner provides strong system
performance, meets stringent quality standards and fits into a
very small footprint.
Digital Power Products
Our Si8250 family of digital power products are specifically
designed for power control applications. Based on a patented
architecture, the family of single-chip digital power supply
controllers combines the flexibility and programmability of a
DSP with the fast response of a hardware-based controller.
This unique architecture enables the family of products to
provide both digital power control and power management
functions for most isolated and non-isolated switch-mode
power supply topologies while consuming significantly less
space and supply current than typical DSP solutions. These
products are still in the early stages of customer adoption.
General Purpose FM Radio Tuners
Our FM tuners (described above) are also deployed in
applications other than mobile handsets.
Oscillators
Our families of oscillators (XOs) and voltage-controlled
oscillators (VCXOs) for applications up to 1.4 GHz include
the industry’s first quad frequency XO and VCXO devices.
Leveraging our patented DSPLL® technology, both families
are easy to design in and provide superior reliability and
performance. These products are still in the early stages of
customer adoption and are not yet being produced in volume.
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• Optical port cards for
SONET/SDH optical networking
equipment
• Networking test equipment
• Short and long haul networking
equipment
• Consumer and automotive XM
satellite radios
• Networking and servers
• Medical instrumentation
• Power bricks
• Industrial applications
• Stand-alone FM radios
• PCs
• Portable audio devices
• MP3 players
• Networking equipment
• Base stations
• Test and measurement equipment
• Storage area networks
• Video systems
PRODUCT AREAS AND DESCRIPTION
APPLICATIONS
General Purpose RF Synthesizers
A RF synthesizer generates high frequency signals that are
used in wireless communications systems to select a particular
radio channel. We provide general purpose RF Synthesizers
for a variety of wireless communications devices, including the
industrial, science, medical (ISM) band applications and
satellite radio applications. Our synthesizers are well-suited to
meet the increasing requirement for highly-integrated
electronics that reduce component count and consume less
power.
SiRX Satellite Receivers
The SiRX product family is a fully-integrated single-chip
satellite RF front-end for direct broadcast satellite (DBS).
Leveraging our world-class RF expertise in CMOS, the SiRX
satellite RF front-end integrates a high-performance satellite
L-band RF tuner, a dual-mode DVB-S/DSS digital
demodulator and a power-efficient, step-up supply controller
for the low-noise block converter (LNB) into a single 6 x 8 mm
CMOS solution. These products are still in the early stages of
customer adoption and are not yet being produced in volume.
• Satellite radio
• Wireless local area networks
• Cordless phones
• Wireless headsets
• Wireless LAN (802.11b) modems
• FTA and pay TV DBS equipment
• Satellite set-top boxes
• PC Cards
• DVD Recorders
• Televisions
During fiscal 2005, sales of our mobile handset products and broad-based mixed-signal products
accounted for 44% and 56% of our revenues, respectively. During fiscal 2004 and 2003, sales of our mobile
handset products and broad-based mixed-signal products each accounted for approximately 50% of our
revenues.
CUSTOMERS, SALES AND MARKETING
We market our products in various markets through our direct sales force, a network of independent
sales representatives, and electronics distributors. Direct and distributor customers buy on an individual
purchase order basis, rather than pursuant to long-term agreements.
We consider our customer to be the end customer purchasing either directly from a distributor, a
contract manufacturer or us. An end customer purchasing through a contract manufacturer typically
instructs such contract manufacturer to obtain our products and incorporate such products with other
components for sale by such contract manufacturer to the end customer. Although we actually sell the
products to, and are paid by, the distributors and contract manufacturers, we refer to such end customer as
our customer.
Two of our distributors, Edom Technology and Uniquest, each selling products to customers in Asia,
represented 29% and 11% of our fiscal 2005 revenues, respectively. Distributors are not considered end
customers, but rather serve as a sales channel to our end customers. No other distributor accounted for
10% or more of revenues for fiscal 2005.
During fiscal 2005, our ten largest end customers accounted for 51% of our revenues. We had one end
customer, Samsung, which represented 14% of our revenues. No other single end customer accounted for
more than 10% of our revenues. Our major customers include Advanced Digital Broadcast, Agere
Systems, Apple, Conexant, Intel, LG Electronics, Motorola, Sagem, Samsung and Thomson.
10
We maintain five sales offices in North America. We provide European sales support through our
subsidiaries in the United Kingdom, France, Germany, Italy and Sweden. Our Asia Pacific sales are
supported through our subsidiaries in Japan, Hong Kong and Singapore, as well as sales offices in South
Korea, Taiwan and China. Revenue is attributed to a geographic area based on the end customer’s
shipped-to location. The percentage of our revenues to customers located outside of the United States was
91% in fiscal 2005, 89% in fiscal 2004 and 80% in fiscal 2003. In fiscal 2005, South Korea, Taiwan and
China accounted for 17%, 17% and 13% of revenues, respectively. In fiscal 2004, South Korea, Taiwan and
China accounted for 28%, 16% and 10% of revenues, respectively.
Our direct sales force includes regional sales managers in the field and area business managers to
further support customer communications. Many of these managers have engineering degrees. We
maintain a dedicated website for our field sales organization, which includes technical documentation,
backlog information, order status, product availability and new product introduction information to
support our communications with that organization. Additionally, we provide direct communication to all
field sales personnel as part of a structured sales communications program.
We also utilize independent sales representatives and distributors to generate sales of our products.
We have relationships with many independent sales representatives and distributors worldwide whom we
have selected based on their understanding of the mixed-signal IC marketplace and their ability to provide
effective field sales applications support for our products.
Our marketing efforts are targeted at both identified industry leaders and emerging market
participants. Direct marketing activities are supplemented by a focused marketing communications effort
that seeks to raise awareness of our company and products. Our public relations efforts are focused on
leading trade and business publications. Our external website is used to deliver corporate information and
product information. We also pursue targeted advertising in key trade publications and we have a
cooperative marketing program that allows our distributors and representatives to promote our products
to their local markets in conjunction with their own advertising activities. Finally we maintain a presence at
strategic trade shows and industry events. These activities, in combination with direct sales activities, help
drive demand for our products.
Due to the complex and innovative nature of our ICs, we employ experienced applications engineers
who work closely with customers to support the design-win process, and can significantly accelerate the
customer’s time required to bring a product to market. A design-win occurs when a customer has designed
our ICs into its product architecture. A considerable amount of effort to assist the customer in
incorporating our ICs into its products is typically required prior to any sale. In many cases, our innovative
ICs require significantly different implementations than existing approaches and, therefore, successful
implementations may require extensive communication with potential customers. The amount of time
required to achieve a design-win can vary substantially depending on a customer’s development cycle,
which can be relatively short (such as three months) or very long (such as two years) based on a wide
variety of customer factors. Not all design wins ultimately result in revenue. However, once a completed
design architecture has been implemented and produced in high volumes, our customers are reluctant to
significantly alter their designs due to this extensive design-win process. We believe this process, coupled
with our intellectual property protection, promotes relatively longer product life cycles for our ICs and
high barriers to entry for competitive products, even if such competing products are offered at lower
prices. Finally, our close collaboration with our customers provides us with knowledge of derivative
product ideas or completely new product line offerings that may not otherwise arise in other new product
discussions.
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RESEARCH AND DEVELOPMENT
Through our research and development efforts, we apply our experienced analog and mixed-signal
engineering talent and expertise to create new ICs that integrate functions typically performed inefficiently
by multiple discrete components. This integration generally results in lower costs, smaller die sizes, lower
power demands and enhanced price/performance characteristics. We attempt to reuse successful
techniques for integration in new applications where similar benefits can be realized. We believe that
reliable and precise analog and mixed-signal ICs can only be developed by teams of engineers that
coordinate their efforts under the direction of senior engineers who have significant analog experience and
are familiar with the intricacies of designing these ICs for commercial volume production. The
development of test methodologies is a critical activity in releasing a new product for commercial success.
We believe that we have attracted some of the best engineers in our industry.
Research and development expenses were $101.2 million, $78.1 million and $51.9 million in fiscal
2005, 2004, and 2003, respectively.
TECHNOLOGY
Our product development process facilitates the design of highly-innovative, analog-intensive, mixed-
signal ICs. Our senior engineers start the product development process by forming an understanding of
our customers’ products and needs and then design alternatives with increased functionality and with
decreasing power, size and cost requirements. Our engineers’ deep knowledge of existing and emerging
standards and performance requirements help us to assess the technical feasibility of a particular IC. We
target areas where we can provide compelling product improvements. Once we have solved the primary
challenges, our field application engineers continue to work closely with our customers’ design teams to
maintain and develop an understanding of our customers’ needs, allowing us to formulate derivative
products and refined features.
In providing mixed-signal ICs for our customers, we believe our key competitive advantages are:
• analog design expertise in CMOS;
• digital signal processing design expertise;
• microcontroller and system on a chip design expertise; and
• our broad understanding of systems technology and trends.
To fully capitalize on these advantages, we have assembled a world-class development team with
exceptional analog and mixed-signal design expertise led by accomplished senior engineers.
ANALOG DESIGN EXPERTISE IN CMOS
We believe that our most significant core competency is our world-class analog design capability.
Additionally, we strive to design substantially all of our ICs in CMOS processes. There are several modern
process technologies for manufacturing semiconductors including CMOS, Bipolar, BiCMOS, silicon
germanium and gallium arsenide. While it is significantly more difficult to design analog ICs in CMOS,
CMOS provides multiple benefits versus existing alternatives, including significantly reduced cost, reduced
technology risk and greater worldwide foundry capacity. CMOS is the most commonly used process
technology for manufacturing digital ICs and as a result is most likely to be used for the manufacturing of
ICs with finer line geometries, which enable smaller and faster ICs. By designing our ICs in CMOS, we
enable our products to benefit from this trend towards finer line geometries, which allows us to integrate
more digital functionality into our mixed-signal ICs.
12
Designing analog and mixed-signal ICs is significantly more complicated than designing stand alone
digital ICs. While advanced software tools exist to help automate digital IC design, there are far fewer
tools for advanced analog and mixed-signal IC design. In many cases, our analog circuit design efforts
begin at the fundamental transistor level. We believe that we have a demonstrated ability to design the
most difficult analog and RF circuits using standard CMOS technologies. For example, our ProSLIC
product family integrates subscriber line interface circuit (SLIC), codec and battery generation
functionality into a single low-voltage CMOS IC. Similarly, bulky wireless phone components such as
voltage controlled oscillators and intermediate frequency surface acoustic wave filters are replaced by our
AERO transceiver products.
DIGITAL SIGNAL PROCESSING DESIGN EXPERTISE
We consider the partitioning of a circuit’s functionality to be a proprietary and creative design
technique. Our digital signal processing design expertise maximizes the price/performance characteristics
of both the analog and digital functions and allows our ICs to work in an optimized manner to accomplish
particular tasks. Generally, we surround core analog circuitry with digital CMOS transistors, which allows
our ICs to perform the required analog functions with increased digital capabilities. For example, our
ProSLIC product is designed to function more efficiently than traditional products for the source end of
the telephone line, which involve a two chip combination requiring more board space and numerous
external components. The ProSLIC product is partitioned by combining a core analog design that provides
analog-to-digital conversion and digital-to-analog conversion with optimized digital signal processing
functions such as data compression, data expansion, filtering and tone generation. In this manner, we can
isolate the higher voltage required to ring a telephone in low-cost, off-chip high voltage transistors or a
small, complementary high voltage chip, thereby enabling us to fulfill the remaining core functions with a
single CMOS chip. As a further example, our SiPHY Optical Physical Layer Transceivers utilize an
architecturally advanced phase locked loop circuit based principally on digital signal processing. By
performing a significant portion of this function in the digital domain in a monolithic chip, the circuit has
been able to satisfy the demanding specifications of the optical network SONET standard using
inexpensive CMOS transistors.
MICROCONTROLLER AND SYSTEM ON A CHIP DESIGN EXPERTISE
We have expanded our system on a chip expertise to include the talent and circuit integration
methodologies required to combine precision analog, high-speed digital, Flash memory and in-system
programmability into a single, monolithic CMOS integrated circuit. Our microcontroller products are
designed to capture an external analog signal, convert it to a digital signal, compute digital functions on the
stream of data and then communicate the results through a standard digital interface. The ability to
develop standard products with the broadest possible customer application base while being cost efficient
with the silicon area of the monolithic CMOS integrated circuit requires a keen sense of customer value
and engineering capabilities. Additionally, to manage the wide variety of signals on a monolithic piece of
silicon including electrical noise, harmonics and other electronic distortions requires a fundamental
knowledge of devices physics and accumulated design expertise.
We also recently demonstrated our system on a chip capabilities with the introduction of the
AeroFONE single-chip phone, a fully functional and completely integrated single-chip phone. This
solution provides superior integration and software flexibility and demonstrates our capability to design
our own software that works with our customer and software partner solutions.
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UNDERSTANDING OF SYSTEMS TECHNOLOGY AND TRENDS
Our focused expertise in mixed-signal ICs is the result of the breadth of engineering talent we have
assembled with experience working in analog-intensive CMOS design for a wide variety of applications.
This expertise, which we consider a competitive advantage, is the foundation of our in-depth
understanding of the technology and trends that impact electronic systems and markets. Our expertise
includes:
• isolation, which is critical for existing and emerging telecom networks;
• frequency synthesis, which is core technology for wireless and clocking applications;
• enabling integration of third-party software with our ICs to create combined solutions; and
• signal processing and precision analog, which forms the heart of consumer, industrial, medical and
automotive electronics applications.
Our understanding of the role of analog/digital interfaces within electronic systems, standards
evolution, and end market drivers enables us to identify product development opportunities and capitalize
on market trends.
MANUFACTURING
As a fabless IC manufacturer, we conduct IC design and development in our facilities and
electronically transfer our proprietary IC designs to third-party semiconductor fabricators who process
silicon wafers to produce the ICs that we design. Our IC designs typically use industry-standard CMOS
manufacturing process technology to achieve a level of performance normally associated with more
expensive special-purpose IC fabrication technology. We believe the use of CMOS technology facilitates
the rapid production of our ICs within a lower cost framework. Our IC production employs submicron
process geometries which are readily available from leading foundry suppliers worldwide, thus increasing
the likelihood that manufacturing capacity will be available throughout our products’ life cycles. We
currently partner principally with Taiwan Semiconductor Manufacturing Co. (TSMC) to manufacture our
semiconductor wafers. We believe that our fabless manufacturing model significantly reduces our capital
requirements and allows us to focus our resources on design, development and marketing of our ICs.
Once the silicon wafers have been produced, they are shipped directly to our third-party assembly
subcontractors. The assembled ICs are then forwarded for final testing, either to our third-party test
subcontractors or our facilities in Austin, Texas, prior to shipping to our customers. We have increasingly
utilized offshore third-party test subcontractors, typically in Asia where the parts are assembled and where
the products are frequently delivered to our customers. During the fourth quarter of 2005, more than 80%
of our units shipped were tested by offshore third-party test subcontractors. We expect that our utilization
of offshore third-party test subcontractors will remain at this level during fiscal 2006.
BACKLOG
As of December 31, 2005, our backlog was approximately $98.0 million, compared to approximately
$69.9 million as of January 1, 2005. We include in backlog accepted product purchase orders from
customers and worldwide distributor stocking orders. We only include orders with an expected shipping
date from us within six months. Product orders in our backlog are subject to changes in delivery schedules
or cancellation at the option of the purchaser typically without penalty. Our backlog may fluctuate
significantly depending upon customer order patterns which may, in turn, vary considerably based on
rapidly changing business circumstances. Backlog from distributors is not recognized as revenue until the
products are sold by the distributors. Additionally, our arrangements with distributors typically provide for
price protection and stock rotation activities. Accordingly, we do not believe that our backlog at any time is
necessarily representative of actual sales for any succeeding period.
14
COMPETITION
The markets for semiconductors generally, and for analog and mixed-signal ICs in particular, are
intensely competitive. We believe the principal competitive factors in our industry are:
• Product size;
• Level of integration;
• Product capabilities;
• Reliability;
• Price;
• Performance;
• Intellectual property;
• Customer support;
• Reputation;
• Ability to rapidly introduce
new products to market; and
• Power requirements.
We believe that we are competitive with respect to these factors, particularly because our ICs typically
are smaller in size, are highly integrated, achieve high performance specifications at lower price points than
competitive products and are manufactured in standard CMOS which generally enables us to supply them
on a relatively rapid basis to customers to meet their product introduction schedules. However,
disadvantages we face include our relatively short operating history in certain of our markets and the need
for customers to redesign their products and modify their software to implement our ICs in their products.
We anticipate that the market for our products will continually evolve and will be subject to rapid
technological change. For example, the mobile handset market is transitioning to more advanced air
interfaces including Enhanced Data Rates for Global Evolution (EDGE) and Wideband Code Division
Multiple Access (WCDMA) in addition to the Global System for Mobile Communications (GSM)/General
Packet Radio Services (GPRS) standard. We will also need to develop ICs that meet transitioning
standards within each air interface category. Our GSM/GPRS mobile handset products have accounted for
substantially all of our mobile handset revenue to date. If we are not able to develop EDGE and/or
WCDMA compliant products that gain similar acceptance, our mobile handset revenue and overall
operating results would be adversely affected. In addition, as we target and supply products to numerous
markets and applications, we face competition from a relatively large number of competitors. Across our
product offerings, we compete with Agere Systems, Atmel, Analog Devices, Broadcom, Conexant, Cypress,
Freescale, Fujitsu, Infineon Technologies, Legerity, Maxim Integrated Products, MediaTek, Microchip,
National Semiconductor, Philips, Renesas, RF Micro Devices, Semtech, Skyworks Solutions, Texas
Instruments and others. We expect to face competition in the future from our current competitors, other
manufacturers and designers of semiconductors, and innovative start-up semiconductor design companies.
Our competitors may also offer bundled chipset kit arrangements offering a more complete product, which
may negatively impact our competitive position despite the technical merits or advantages of our products.
In addition, our customers could develop products or technologies internally that would replace their need
for our products and would become a source of competition. As the markets for electronic products grow,
we also may face competition from traditional electronic device companies. These companies may enter
the mixed-signal semiconductor market by introducing their own products, including components within
their products that would eliminate the need for our ICs, or by entering into strategic relationships with or
acquiring other existing IC providers.
Many of our competitors and potential competitors have longer operating histories, greater name
recognition, access to larger customer bases, complementary product offerings, and significantly greater
financial, sales and marketing, manufacturing, distribution, technical and other resources than us. Current
and potential competitors have established or may establish financial and strategic relationships between
themselves or with our existing or potential customers, resellers or other third parties. Accordingly, it is
possible that new competitors or alliances among competitors could emerge and rapidly acquire significant
market share.
15
INTELLECTUAL PROPERTY
Our future success depends in part upon our proprietary technology. We seek to protect our
technology through a combination of patents, copyrights, trade secrets, trademarks and confidentiality
procedures. As of December 31, 2005, we had more than 600 issued or pending United States patents in
the IC field. We also frequently file for patent protection in a variety of international jurisdictions with
respect to the proprietary technology covered by our U.S. patents and patent applications. There can be no
assurance that patents will ever be issued with respect to these applications. Furthermore, it is possible that
any patents held by us may be invalidated, circumvented, challenged or licensed to others. In addition,
there can be no assurance that such patents will provide us with competitive advantages or adequately
safeguard our proprietary rights. While we continue to file new patent applications with respect to our
recent developments, existing patents are granted for prescribed time periods and will expire at various
times in the future.
We claim copyright protection for proprietary documentation for our products. We have filed for
registration, or are in the process of filing for registration, of the visual images of certain ICs with the U.S.
Copyright Office. We have registered the “Silicon Laboratories” logo and a variety of other product and
product family names as trademarks in the United States and selected foreign jurisdictions. All other
trademarks, service marks or trade names appearing in this report are the property of their respective
owners. We also attempt to protect our trade secrets and other proprietary information through
agreements with our customers, suppliers, employees and consultants, and through other customary
security measures. We intend to protect our rights vigorously, but there can be no assurance that our
efforts will be successful. In addition, the laws of other countries in which our products are sold may not
protect our products and intellectual property rights to the same extent as the laws of the United States.
While our ability to effectively compete depends in large part on our ability to protect our intellectual
property, we believe that our technical expertise and ability to introduce new products in a timely manner
will be an important factor in maintaining our competitive position.
Many participants in the semiconductor and electronics industries have a significant number of
patents and have frequently demonstrated a readiness to commence litigation based on allegations of
patent and other intellectual property infringement. From time to time, third parties may assert
infringement claims against us. We may not prevail in any such litigation or may not be able to license any
valid and infringed patents from third parties on commercially reasonable terms, if at all. Litigation,
regardless of the outcome, is likely to result in substantial cost and diversion of our resources, including
our management’s time. Any such litigation could materially adversely affect us. For further information
regarding patent litigation, please see “Part I, Item 3. Legal Proceedings.”
Our licenses include industry standard licenses with our vendors, such as wafer fabrication tool
libraries, third party core libraries, computer-aided design applications and business software applications.
EMPLOYEES
As of December 31, 2005, we employed 651 people. Our success depends on the continued service of
our key technical and senior management personnel and on our ability to continue to attract, retain and
motivate highly skilled analog and mixed-signal engineers. The competition for such personnel is intense.
We have never had a work stoppage and none of our employees are represented by a labor organization.
We consider our employee relations to be good.
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ENVIRONMENTAL REGULATION
Federal, state and local regulations impose various environmental controls on the storage, use,
discharge and disposal of certain chemicals and gases used in the semiconductor industry. Our compliance
with these laws and regulations has not had a material impact on our financial position or results of
operations.
Item 1A. Risk Factors
RISKS RELATED TO OUR BUSINESS
WE MAY NOT BE ABLE TO MAINTAIN OUR HISTORICAL GROWTH AND MAY EXPERIENCE
SIGNIFICANT PERIOD-TO-PERIOD FLUCTUATIONS IN OUR REVENUES AND OPERATING
RESULTS, WHICH MAY RESULT IN VOLATILITY IN OUR STOCK PRICE
Although we have generally experienced revenue growth in our history, we may not be able to sustain
this growth. We may also experience significant period-to-period fluctuations in our revenues and
operating results in the future due to a number of factors, and any such variations may cause our stock
price to fluctuate. It is likely that in some future period our revenues or operating results will be below the
expectations of public market analysts or investors. If this occurs, our stock price may drop, perhaps
significantly.
A number of factors, in addition to those cited in other risk factors applicable to our business, may
contribute to fluctuations in our revenues and operating results, including:
• the timing and volume of orders received from our customers;
• the timeliness of our new product introductions and the rate at which our new products may
cannibalize our older products;
• the rate of acceptance of our products by our customers, including the acceptance of new products
we may develop for integration in the products manufactured by such customers, which we refer to
as “design wins”;
• the time lag and realization rate between “design wins” and production orders;
• the demand for, and life cycles of, the products incorporating our ICs;
• the rate of adoption of mixed-signal ICs in the markets we target;
• deferrals or reductions of customer orders in anticipation of new products or product
enhancements from us or our competitors or other providers of ICs;
• changes in product mix;
• the average selling prices for our products could drop suddenly due to competitive offerings or
competitive predatory pricing, especially with respect to our mobile handset and modem products;
• the average selling prices for our products generally decline over time;
• changes in market standards;
• impairment charges related to inventory, equipment or other long-lived assets;
• the software used in our products and provided by third-party software providers must meet the
needs of our customers;
• significant legal costs to defend our intellectual property rights or respond to claims against us; and
• the rate at which new markets emerge for products we are currently developing or for which our
design expertise can be utilized to develop products for these new markets.
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The markets for mobile handsets, personal computers, satellite television set-top boxes and VoIP
applications are characterized by rapid fluctuations in demand and seasonality that result in corresponding
fluctuations in the demand for our products that are incorporated in such devices. Additionally, the rate of
technology acceptance by our customers results in fluctuating demand for our products as customers are
reluctant to incorporate a new IC into their products until the new IC has achieved market acceptance.
Once a new IC achieves market acceptance, demand for the new IC can quickly accelerate to a point and
then level off such that rapid historical growth in sales of a product should not be viewed as indicative of
continued future growth. In addition, demand can quickly decline for a product when a new IC product is
introduced and receives market acceptance. For example, mobile handset transceivers that provide some
of the functionality provided by our RF Synthesizers have been introduced to market by us and our
competitors. The introduction of these competing transceivers, including our Aero Transceiver, resulted in
a rapid decline in our sales of RF Synthesizers for mobile handsets. Due to the various factors mentioned
above, the results of any prior quarterly or annual periods should not be relied upon as an indication of our
future operating performance.
WE DEPEND ON A LIMITED NUMBER OF CUSTOMERS FOR A SUBSTANTIAL PORTION OF OUR
REVENUES, AND THE LOSS OF, OR A SIGNIFICANT REDUCTION IN ORDERS FROM, ANY KEY
CUSTOMER COULD SIGNIFICANTLY REDUCE OUR REVENUES
The loss of any of our key customers, or a significant reduction in sales to any one of them, would
significantly reduce our revenues and adversely affect our business. During fiscal 2005, our ten largest
customers accounted for 51% of our revenues. We had one customer, Samsung, which represented 14% of
our revenues. Most of the markets for our products are dominated by a small number of potential
customers. Therefore, our operating results in the foreseeable future will continue to depend on our ability
to sell to these dominant customers, as well as the ability of these customers to sell products that
incorporate our IC products. In the future, these customers may decide not to purchase our ICs at all,
purchase fewer ICs than they did in the past or alter their purchasing patterns, particularly because:
• we do not have material long-term purchase contracts with our customers;
• substantially all of our sales to date have been made on a purchase order basis, which permits our
customers to cancel, change or delay product purchase commitments with little or no notice to us
and without penalty;
• some of our customers may have efforts underway to actively diversify their vendor base which
could reduce purchases of our ICs; and
• some of our customers have developed or acquired products that compete directly with products
these customers purchase from us, which could affect our customers’ purchasing decisions in the
future.
While we have been a significant supplier of ICs used in many of our customers’ products, our
customers regularly evaluate alternative sources of supply in order to diversify their supplier base, which
increases their negotiating leverage with us and protects their ability to secure these components. We
believe that any expansion of our customers’ supplier bases could have an adverse effect on the prices we
are able to charge and volume of product that we are able to sell to our customers, which would negatively
affect our revenues and operating results.
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WE ARE SUBJECT TO RISKS RELATING TO PRODUCT CONCENTRATION AND LACK OF
REVENUE DIVERSIFICATION
We derive a substantial portion of our revenues from a limited number of products, and we expect
these products to continue to account for a large percentage of our revenues in the near term. Continued
market acceptance of these products, is therefore, critical to our future success. In addition, substantially
all of our products that we have sold include technology related to one or more of our issued U.S. patents.
If these patents are found to be invalid or unenforceable, our competitors could introduce competitive
products that could reduce both the volume and price per unit of our products. Our business, operating
results, financial condition and cash flows could therefore be adversely affected by:
• a decline in demand for any of our more significant products, including our Aero Transceiver,
modem products or ProSLIC;
• failure of our products to achieve continued market acceptance;
• an improved version of our products being offered by a competitor;
• technological standard or change that we are unable to address with our products;
• a failure to release new products or enhanced versions of our existing products on a timely basis;
and
• the failure of new products, such as our recently introduced AeroFONE and FM tuner products, to
achieve market acceptance.
We are particularly dependent on sales of our mobile handset products, which constituted 44% of our
total revenues in fiscal 2005 and 50% of our total revenues in fiscal 2004. In particular, our Aero
Transceiver mobile handset product and its subsequent derivatives represented 44% of our total revenues
in fiscal 2005 and 48% of our total revenues in fiscal 2004. If the market for the Aero Transceiver or the
market for GSM/GPRS or EDGE mobile handsets in which these products are incorporated deteriorates,
our operating results would be materially and adversely affected.
IF WE ARE UNABLE TO DEVELOP OR ACQUIRE NEW AND ENHANCED PRODUCTS THAT
ACHIEVE MARKET ACCEPTANCE IN A TIMELY MANNER, OUR OPERATING RESULTS AND
COMPETITIVE POSITION COULD BE HARMED
Our future success will depend on our ability to reduce our dependence on a few products by
developing or acquiring new ICs and product enhancements that achieve market acceptance in a timely
and cost-effective manner. The development of mixed-signal ICs is highly complex, and we have at times
experienced delays in completing the development and introduction of new products and product
enhancements. Successful product development and market acceptance of our products depend on a
number of factors, including:
• changing requirements of customers;
• accurate prediction of market and technical requirements, such as the shift of GSM/GPRS to
EDGE and WCDMA;
• timely completion and introduction of new designs;
• timely qualification and certification of our ICs for use in our customers’ products;
• commercial acceptance and volume production of the products into which our ICs will be
incorporated;
• availability of foundry, assembly and test capacity;
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• achievement of high manufacturing yields;
• quality, price, performance, power use and size of our products; availability, quality, price and
performance of competing products and technologies;
• our customer service, application support capabilities and responsiveness;
• successful development of our relationships with existing and potential customers;
• changes in technology, industry standards or end-user preferences; and
• cooperation of third-party software providers and our semiconductor vendors to support our chips
within a system.
We cannot provide any assurance that products which we recently have developed or may develop in
the future will achieve market acceptance. We have introduced to market or are in development of many
ICs. If our ICs fail to achieve market acceptance, or if we fail to develop new products on a timely basis
that achieve market acceptance, our growth prospects, operating results and competitive position could be
adversely affected. For example, in October 2005, we introduced the AeroFONE single-chip phone. This
product is in the early stages of customer adoption and we cannot be certain that it will achieve market
acceptance.
OUR RESEARCH AND DEVELOPMENT EFFORTS ARE FOCUSED ON A LIMITED NUMBER OF
NEW TECHNOLOGIES AND PRODUCTS, AND ANY DELAY IN THE DEVELOPMENT, OR
ABANDONMENT, OF THESE TECHNOLOGIES OR PRODUCTS BY INDUSTRY PARTICIPANTS,
OR THEIR FAILURE TO ACHIEVE MARKET ACCEPTANCE, COULD COMPROMISE OUR
COMPETITIVE POSITION
Our ICs are used as components in electronic devices in various markets. As a result, we have devoted
and expect to continue to devote a large amount of resources to develop products based on new and
emerging technologies and standards that will be commercially introduced in the future. Research and
development expense during fiscal 2005 was $101.2 million, or 23.8% of revenues. A number of large
companies are actively involved in the development of these new technologies and standards. Should any
of these companies delay or abandon their efforts to develop commercially available products based on
new technologies and standards, our research and development efforts with respect to these technologies
and standards likely would have no appreciable value. In addition, if we do not correctly anticipate new
technologies and standards, or if the products that we develop based on these new technologies and
standards fail to achieve market acceptance, our competitors may be better able to address market demand
than we would. Furthermore, if markets for these new technologies and standards develop later than we
anticipate, or do not develop at all, demand for our products that are currently in development would
suffer, resulting in lower sales of these products than we currently anticipate. For example, we have
introduced to market the Aero Transceiver product for use in wireless phones operating on the
GSM/GPRS standard. We believe this market is now in the early stages of adopting the EDGE and
WCDMA standards, which allow for enhanced data generation and transmission using mobile handsets.
Forecasters expect the EDGE and WCDMA markets to further develop and expand in 2006 and 2007. In
September 2005, we extended our Aero family to meet the EDGE standard with the Aero IIe single-chip
EDGE Radio. However, we cannot be certain that the use of this technology will not change in the future
and thereby make our products unsuitable. Furthermore, we cannot be certain that any product we
develop for these standards will achieve market acceptance.
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WE HAVE INCREASED OUR INTERNATIONAL ACTIVITIES SIGNIFICANTLY AND PLAN TO
CONTINUE SUCH EFFORTS, WHICH SUBJECTS US TO ADDITIONAL BUSINESS RISKS
INCLUDING INCREASED LOGISTICAL AND FINANCIAL COMPLEXITY, POLITICAL
INSTABILITY AND CURRENCY FLUCTUATIONS
We have established additional international subsidiaries and have opened additional offices in
international markets to expand our international activities in Europe and the Pacific Rim region. This has
included the establishment of a headquarters in Singapore for non-U.S. operations. The percentage of our
revenues to customers located outside of the United States was 91% in fiscal 2005, 89% in fiscal 2004 and
80% in fiscal 2003. We may not be able to maintain or increase international market demand for our
products. Our international operations are subject to a number of risks, including:
• increased complexity and costs of managing international operations and related tax obligations,
including our headquarters for non-U.S. operations in Singapore;
• protectionist laws and business practices that favor local competition in some countries;
• multiple, conflicting and changing tax laws and regulations that may impact both our international
and domestic tax liabilities and result in increased complexity and costs;
• longer sales cycles;
• greater difficulty in accounts receivable collection and longer collection periods;
• high levels of distributor inventory subject to price protection and rights of return to us;
• political and economic instability;
• greater difficulty in hiring and retaining qualified technical sales and applications engineers and
administrative personnel; and
• the need to have business and operations systems that can meet the needs of our international
business and operating structure.
To date, all of our sales to international customers and purchases of components from international
suppliers have been denominated in U.S. dollars. As a result, an increase in the value of the U.S. dollar
relative to foreign currencies could make our products more expensive for our international customers to
purchase, thus rendering our products less competitive.
FAILURE TO MANAGE OUR DISTRIBUTION CHANNEL RELATIONSHIPS COULD IMPEDE OUR
FUTURE GROWTH
The future growth of our business will depend in large part on our ability to manage our relationships
with current and future distributors and sales representatives, develop additional channels for the
distribution and sale of our products and manage these relationships. As we execute our indirect sales
strategy, we must manage the potential conflicts that may arise with our direct sales efforts. For example,
conflicts with a distributor may arise when a customer begins purchasing directly from us rather than
through the distributor. The inability to successfully execute or manage a multi-channel sales strategy could
impede our future growth. In addition, relationships with our distributors often involve the use of price
protection and inventory return rights. This often requires a significant amount of sales management’s time
and system resources to manage properly.
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WE ARE SUBJECT TO INCREASED INVENTORY RISKS AND COSTS BECAUSE WE BUILD OUR
PRODUCTS BASED ON FORECASTS PROVIDED BY CUSTOMERS BEFORE RECEIVING
PURCHASE ORDERS FOR THE PRODUCTS
In order to ensure availability of our products for some of our largest customers, we start the
manufacturing of our products in advance of receiving purchase orders based on forecasts provided by
these customers. However, these forecasts do not represent binding purchase commitments and we do not
recognize sales for these products until they are shipped to the customer. As a result, we incur inventory
and manufacturing costs in advance of anticipated sales. Because demand for our products may not
materialize, manufacturing based on forecasts subjects us to increased risks of high inventory carrying
costs, increased obsolescence and increased operating costs. These inventory risks are exacerbated when
our customers purchase indirectly through contract manufacturers or hold component inventory levels
greater than their consumption rate because this causes us to have less visibility regarding the accumulated
levels of inventory for such customers. A resulting write-off of unusable or excess inventories would
adversely affect our operating results.
OUR PRODUCTS ARE COMPLEX AND MAY CONTAIN ERRORS WHICH COULD LEAD TO
PRODUCT LIABILITY, AN INCREASE IN OUR COSTS AND/OR A REDUCTION IN OUR REVENUES
Our products are complex and may contain errors, particularly when first introduced or as new
versions are released. We rely primarily on our in-house testing personnel to design test operations and
procedures to detect any errors prior to delivery of our products to our customers. Because our products
are manufactured by third parties, should problems occur in the operation or performance of our ICs, we
may experience delays in meeting key introduction dates or scheduled delivery dates to our customers.
These errors also could cause us to incur significant re-engineering costs, divert the attention of our
engineering personnel from our product development efforts and cause significant customer relations and
business reputation problems. Any defects could require product replacement or recall or we could be
obligated to accept product returns. Any of the foregoing could impose substantial costs and harm our
business.
Product liability claims may be asserted with respect to our products. Our products are typically sold
at prices that are significantly lower than the cost of the end-products into which they are incorporated. A
defect or failure in our product could cause failure in our customer’s end-product, so we could face claims
for damages that are disproportionately higher than the revenues and profits we receive from the products
involved. Furthermore, product liability risks are particularly significant with respect to medical and
automotive applications because of the risk of serious harm to users of these products. There can be no
assurance that any insurance we maintain will sufficiently protect us from any such claims.
An increasing number of our new product developments are being designed in even more complex
processes. For example, our Aero II was designed in a .13 micron CMOS process, which adds cost,
complexity and elements of experimentation and development, particularly in the area of advanced mixed-
signal design.
22
OUR CUSTOMERS REQUIRE OUR PRODUCTS TO UNDERGO A LENGTHY AND EXPENSIVE
QUALIFICATION PROCESS WITHOUT ANY ASSURANCE OF PRODUCT SALES
Prior to purchasing our products, our customers require that our products undergo an extensive
qualification process, which involves testing of the products in the customer’s system as well as rigorous
reliability testing. This qualification process may continue for six months or longer. However, qualification
of a product by a customer does not ensure any sales of the product to that customer. Even after successful
qualification and sales of a product to a customer, a subsequent revision to the IC or software, changes in
the IC’s manufacturing process or the selection of a new supplier by us may require a new qualification
process, which may result in delays and in us holding excess or obsolete inventory. After our products are
qualified, it can take an additional six months or more before the customer commences volume production
of components or devices that incorporate our products. We experienced this lengthy introduction to
volume production cycle time with our CMOS Power Amplifier, which was introduced in the early part of
fiscal 2004 and did not contribute to our revenues until the fourth quarter of fiscal 2005. Despite these
uncertainties, we devote substantial resources, including design, engineering, sales, marketing and
management efforts, toward qualifying our products with customers in anticipation of sales. If we are
unsuccessful or delayed in qualifying any of our products with a customer, such failure or delay would
preclude or delay sales of such product to the customer, which may impede our growth and cause our
business to suffer.
WE RELY ON THIRD PARTIES TO MANUFACTURE, ASSEMBLE AND TEST OUR PRODUCTS AND
THE FAILURE TO SUCCESSFULLY MANAGE OUR RELATIONSHIPS WITH OUR
MANUFACTURERS AND SUBCONTRACTORS WOULD NEGATIVELY IMPACT OUR ABILITY TO
SELL OUR PRODUCTS
We do not have our own wafer fab manufacturing facilities. Therefore, we rely principally on one
third-party vendor, TSMC, to manufacture the ICs we design. We also currently rely principally on two
Asian third-party assembly subcontractors, Advanced Semiconductor Engineering (ASE) and Amkor
Technology, to assemble and package the silicon chips provided by the wafers for use in final products.
Additionally, we rely on these offshore subcontractors for a substantial portion of the testing requirements
of our products prior to shipping. We expect utilization of third-party subcontractors to continue in the
future.
The cyclical nature of the semiconductor industry drives wide fluctuations in available capacity at
third-party vendors. On occasion, we have been unable to adequately respond to unexpected increases in
customer demand due to capacity constraints and, therefore, were unable to benefit from this incremental
demand. We may be unable to obtain adequate foundry, assembly or test capacity from our third-party
subcontractors to meet our customers’ delivery requirements even if we adequately forecast customer
demand.
There are significant risks associated with relying on these third-party foundries and subcontractors,
including:
• failure by us, our customers or their end customers to qualify a selected supplier;
• potential insolvency of the third-party subcontractors;
• reduced control over delivery schedules and quality;
• limited warranties on wafers or products supplied to us;
• potential increases in prices or payments in advance for capacity;
• increased need for international-based supply, logistics and financial management;
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• their inability to supply or support new or changing packaging technologies; and
• low test yields.
We typically do not have long-term supply contracts with our third-party vendors which obligate the
vendor to perform services and supply products to us for a specific period, in specific quantities, and at
specific prices. Our third-party foundry, assembly and test subcontractors typically do not guarantee that
adequate capacity will be available to us within the time required to meet demand for our products. In the
event that these vendors fail to meet our demand for whatever reason, we expect that it would take up to
twelve months to transition performance of these services to new providers. Such a transition may also
require qualification of the new providers by our customers or their end customers.
Since our inception, most of the silicon wafers for the products that we have shipped were
manufactured either by TSMC or its affiliates. Our customers typically complete their own qualification
process. If we fail to properly balance customer demand across the existing semiconductor fabrication
facilities that we utilize or are required by our foundry partners to increase, or otherwise change the
number of fab lines that we utilize for our production, we might not be able to fulfill demand for our
products and may need to divert our engineering resources away from new product development initiatives
to support the fab line transition, which would adversely affect our operating results.
OUR PRODUCTS INCORPORATE TECHNOLOGY LICENSED FROM THIRD PARTIES
We incorporate technology (including software) licensed from third parties in our products. We could
be subjected to claims of infringement regardless of our lack of involvement in the development of the
licensed technology. Although a third party licensor is typically obligated to indemnify us if the licensed
technology infringes on another party’s intellectual property rights, such indemnification is typically limited
in amount and may be worthless if the licensor becomes insolvent. See “SIGNIFICANT LITIGATION
OVER INTELLECTUAL PROPERTY IN OUR INDUSTRY MAY CAUSE US TO BECOME
INVOLVED IN COSTLY AND LENGTHY LITIGATION WHICH COULD SERIOUSLY HARM
OUR BUSINESS.” Furthermore, any failure of third party technology to perform properly would
adversely affect sales of our products incorporating such technology.
OUR INABILITY TO MANAGE GROWTH COULD MATERIALLY AND ADVERSELY AFFECT OUR
BUSINESS
In recent periods, we have increased the scope of our operations and expanded our workforce from
588 employees at the end of fiscal 2004 to 651 employees at the end of fiscal 2005. This growth has placed,
and any future growth of our operations will continue to place, a significant strain on our management
personnel, systems and resources. We anticipate that we will need to implement a variety of new and
upgraded sales, operational and financial enterprise-wide systems, information technology infrastructure,
procedures and controls, including the improvement of our accounting and other internal management
systems to manage this growth and maintain compliance with regulatory guidelines, including Sarbanes-
Oxley Act requirements. As our business grows our internal management systems and processes will need
to improve to ensure that we remain in compliance. We also expect that we will need to continue to
expand, train, manage and motivate our workforce. All of these endeavors will require substantial
management effort, and we anticipate that we will require additional management personnel and internal
processes to manage these efforts and to plan for the succession from time to time of certain persons who
have been key management and technical personnel. If we are unable to effectively manage our expanding
global operations, including our international headquarters in Singapore, our business could be materially
and adversely affected.
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WE DEPEND ON OUR KEY PERSONNEL TO MANAGE OUR BUSINESS EFFECTIVELY IN A
RAPIDLY CHANGING MARKET, AND IF WE ARE UNABLE TO RETAIN OUR CURRENT
PERSONNEL AND HIRE ADDITIONAL PERSONNEL, OUR ABILITY TO DEVELOP AND
SUCCESSFULLY MARKET OUR PRODUCTS COULD BE HARMED
We believe our future success will depend in large part upon our ability to attract and retain highly
skilled managerial, engineering, sales and marketing personnel. We believe that our future success will be
dependent on retaining the services of our key personnel, developing their successors and certain internal
processes to reduce our reliance on specific individuals, and on properly managing the transition of key
roles when they occur. For example, in September 2005, Navdeep Sooch, our chairman of the board,
departed from his role as interim CEO when Necip Sayiner was appointed as president and CEO. There is
currently a shortage of qualified personnel with significant experience in the design, development,
manufacturing, marketing and sales of analog and mixed-signal ICs. In particular, there is a shortage of
engineers who are familiar with the intricacies of the design and manufacturability of analog elements, and
competition for such personnel is intense. Our key technical personnel represent a significant asset and
serve as the primary source for our technological and product innovations. We may not be successful in
attracting and retaining sufficient numbers of technical personnel to support our anticipated growth. The
loss of any of our key employees or the inability to attract or retain qualified personnel both in the United
States and internationally, including engineers, sales, applications and marketing personnel, could delay
the development and introduction of, and negatively impact our ability to sell, our products.
ANY ACQUISITIONS WE MAKE COULD DISRUPT OUR BUSINESS AND HARM OUR FINANCIAL
CONDITION
As part of our growth and product diversification strategy, we continue to evaluate opportunities to
acquire other businesses, intellectual property or technologies that would complement our current
offerings, expand the breadth of our markets or enhance our technical capabilities. The Cygnal Integrated
Products (Cygnal) and Silicon MAGIKE acquisitions and other acquisitions that we may potentially make
in the future entail a number of risks that could materially and adversely affect our business and operating
results, including:
• problems integrating the acquired operations, technologies or products with our existing business
and products;
• diversion of management’s time and attention from our core business;
• need for financial resources above our planned investment levels;
• difficulties in retaining business relationships with suppliers and customers of the acquired
company;
• risks associated with entering markets in which we lack prior experience;
• risks associated with the transfer of licenses of intellectual property;
• acquisition-related disputes, including disputes over earn-outs and escrows;
• potential loss of key employees of the acquired company; and
• potential impairment of related goodwill and intangible assets.
Future acquisitions also could cause us to incur debt or contingent liabilities or cause us to issue
equity securities that could negatively impact the ownership percentages of existing shareholders.
25
OUR STOCK PRICE MAY BE VOLATILE
The market price of our common stock has been volatile in the past and may be volatile in the future.
The market price of our common stock may be significantly affected by the following factors:
• actual or anticipated fluctuations in our operating results;
• changes in financial estimates by securities analysts or our failure to perform in line with such
estimates;
• changes in market valuations of other technology companies, particularly semiconductor
companies;
• announcements by us or our competitors of significant technical innovations, acquisitions, strategic
partnerships, joint ventures or capital commitments;
• introduction of technologies or product enhancements that reduce the need for our products;
• the loss of, or decrease in sales to, one or more key customers;
• a large sale of stock by a significant shareholder;
• dilution from the issuance of our stock in connection with acquisitions;
• the addition or removal of our stock to or from a stock index fund;
• departures of key personnel; and
• the required expensing of stock options.
The stock market has experienced extreme volatility that often has been unrelated to the performance
of particular companies. These market fluctuations may cause our stock price to fall regardless of our
performance.
MOST OF OUR CURRENT MANUFACTURERS, ASSEMBLERS, TEST SERVICE PROVIDERS, AND
CUSTOMERS ARE CONCENTRATED IN THE SAME GEOGRAPHIC REGION, WHICH INCREASES
THE RISK THAT A NATURAL DISASTER, EPIDEMIC, LABOR STRIKE, WAR OR POLITICAL
UNREST COULD DISRUPT OUR OPERATIONS OR SALES
Most of TSMC’s foundries and one of our assembly and test subcontractor’s sites are primarily located
in the same region within Taiwan and our other assembly and test subcontractors are located in the Pacific
Rim region. In addition, many of our customers, particularly mobile handset manufacturers, are located in
the Pacific Rim region. The risk of earthquakes in Taiwan and the Pacific Rim region is significant due to
the proximity of major earthquake fault lines in the area. We are not currently covered by insurance
against business disruption caused by earthquakes as such insurance is not currently available on terms that
we believe are commercially reasonable. Earthquakes, fire, flooding, lack of water or other natural
disasters in Taiwan or the Pacific Rim region, or an epidemic, political unrest, war, labor strikes or work
stoppages in countries where our semiconductor manufacturer, assemblers and test subcontractors are
located, likely would result in the disruption of our foundry, assembly or test capacity. There can be no
assurance that such alternate capacity could be obtained on favorable terms, if at all.
26
A natural disaster, epidemic, labor strike, war or political unrest where our customers’ facilities are
located would likely reduce our sales to such customers. For example, Samsung, our largest customer, is
based in South Korea and represented 14% of our revenues during fiscal 2005. North Korea’s decision to
withdraw from the nuclear Non-Proliferation Treaty and related geopolitical maneuverings has created
unrest. Such unrest could create economic uncertainty or instability, could escalate to war or otherwise
adversely affect South Korea and our South Korean customers and reduce our sales to such customers,
which would materially and adversely affect our operating results. In addition, a significant portion of the
assembly and testing of our mobile handset products occurs in South Korea. Any disruption resulting from
these events could also cause significant delays in shipments of our products until we are able to shift our
manufacturing, assembling or testing from the affected subcontractor to another third party vendor.
WE MAY BE UNABLE TO PROTECT OUR INTELLECTUAL PROPERTY, WHICH WOULD
NEGATIVELY AFFECT OUR ABILITY TO COMPETE
Our products rely on our proprietary technology, and we expect that future technological advances
made by us will be critical to sustain market acceptance of our products. Therefore, we believe that the
protection of our intellectual property rights is and will continue to be important to the success of our
business. We rely on a combination of patent, copyright, trademark and trade secret laws and restrictions
on disclosure to protect our intellectual property rights. We also enter into confidentiality or license
agreements with our employees, consultants, intellectual property providers and business partners, and
control access to and distribution of our documentation and other proprietary information. Despite these
efforts, unauthorized parties may attempt to copy or otherwise obtain and use our proprietary technology.
Monitoring unauthorized use of our technology is difficult, and we cannot be certain that the steps we have
taken will prevent unauthorized use of our technology, particularly in foreign countries where the laws may
not protect our proprietary rights as fully as in the United States. We cannot be certain that patents will be
issued as a result of our pending applications nor can we be certain that any issued patents would protect
or benefit us or give us adequate protection from competing products. For example, issued patents may be
circumvented or challenged and declared invalid or unenforceable. We also cannot be certain that others
will not develop effective competing technologies on their own.
THE SEMICONDUCTOR MANUFACTURING PROCESS IS HIGHLY COMPLEX AND, FROM TIME
TO TIME, MANUFACTURING YIELDS MAY FALL BELOW OUR EXPECTATIONS, WHICH COULD
RESULT IN OUR INABILITY TO SATISFY DEMAND FOR OUR PRODUCTS IN A TIMELY MANNER
The manufacture of our products is a highly complex and technologically demanding process.
Although we work closely with our foundries to minimize the likelihood of reduced manufacturing yields,
our foundries from time to time have experienced lower than anticipated manufacturing yields. Changes in
manufacturing processes or the inadvertent use of defective or contaminated materials by our foundries
could result in lower than anticipated manufacturing yields or unacceptable performance deficiencies. If
our foundries fail to deliver fabricated silicon wafers of satisfactory quality in a timely manner, we will be
unable to meet our customers’ demand for our products in a timely manner, which would adversely affect
our operating results and damage our customer relationships.
27
WE DEPEND ON OUR CUSTOMERS TO SUPPORT OUR PRODUCTS, AND SOME OF OUR
CUSTOMERS OFFER COMPETING PRODUCTS
Our products are currently used by our customers to produce modems, telephony equipment, mobile
handsets, networking equipment and a broad range of other devices. We rely on our customers to provide
hardware, software, intellectual property indemnification and other technical support for the products
supplied by our customers. If our customers do not provide the required functionality or if our customers
do not provide satisfactory support for their products, the demand for these devices that incorporate our
products may diminish or we may otherwise be materially adversely affected. Any reduction in the demand
for these devices would significantly reduce our revenues.
In certain products such as the DAA, some of our customers (including Agere Systems and Conexant)
offer their own competitive products. These customers may find it advantageous to support their own
offerings in the marketplace in lieu of promoting our products.
SIGNIFICANT LITIGATION OVER INTELLECTUAL PROPERTY IN OUR INDUSTRY MAY CAUSE
US TO BECOME INVOLVED IN COSTLY AND LENGTHY LITIGATION WHICH COULD
SERIOUSLY HARM OUR BUSINESS
In recent years, there has been significant litigation in the United States involving patents and other
intellectual property rights. From time to time, we receive letters from various industry participants
alleging infringement of patents, trademarks or misappropriation of trade secrets or from customers
requesting indemnification for claims brought against them by third parties. The exploratory nature of
these inquiries has become relatively common in the semiconductor industry. We respond when
appropriate and as advised by legal counsel. We have been involved in litigation to protect our intellectual
property rights in the past and may become involved in such litigation again in the future. For example, in
April 2003, we paid $17 million to settle patent infringement claims brought against us by TDK
Semiconductor Corporation. In February 2004, we filed a lawsuit against a former employee and Axiom
Microdevices alleging theft of trade secrets. In September 2004, we added claims for patent infringement
to such suit. In December 2005, Power-One, Inc. filed a lawsuit against us alleging patent infringement
related to our digital power supply products. In the future, we may become involved in additional litigation
to defend allegations of infringement asserted by others, both directly and indirectly as a result of certain
industry-standard indemnities we may offer to our customers. Legal proceedings could subject us to
significant liability for damages or invalidate our proprietary rights. Legal proceedings initiated by us to
protect our intellectual property rights could also result in counterclaims or countersuits against us. Any
litigation, regardless of its outcome, would likely be time-consuming and expensive to resolve and would
divert our management’s time and attention. Most intellectual property litigation also could force us to
take specific actions, including:
• cease selling products that use the challenged intellectual property;
• obtain from the owner of the infringed intellectual property a right to a license to sell or use the
relevant technology, which license may not be available on reasonable terms, or at all;
• redesign those products that use infringing intellectual property; or
• pursue legal remedies with third parties to enforce our indemnification rights, which may not
adequately protect our interests.
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WE COULD SEEK TO RAISE ADDITIONAL CAPITAL IN THE FUTURE THROUGH THE ISSUANCE
OF EQUITY OR DEBT SECURITIES, BUT ADDITIONAL CAPITAL MAY NOT BE AVAILABLE ON
TERMS ACCEPTABLE TO US, OR AT ALL
We believe that our existing cash, cash equivalents and investments will be sufficient to meet our
working capital needs, capital expenditures, investment requirements and commitments for at least the
next 12 months. However, it is possible that we may need to raise additional funds to finance our activities
or to facilitate acquisitions of other businesses, products, intellectual property or technologies. We believe
we could raise these funds, if needed, by selling equity or debt securities to the public or to selected
investors. In addition, even though we may not need additional funds, we may still elect to sell additional
equity or debt securities or obtain credit facilities for other reasons. However, we may not be able to obtain
additional funds on favorable terms, or at all. If we decide to raise additional funds by issuing equity or
convertible debt securities, the ownership percentages of existing shareholders would be reduced.
WE ARE A RELATIVELY SMALL COMPANY WITH LIMITED RESOURCES COMPARED TO SOME
OF OUR CURRENT AND POTENTIAL COMPETITORS AND WE MAY NOT BE ABLE TO COMPETE
EFFECTIVELY AND INCREASE MARKET SHARE
Some of our current and potential competitors have longer operating histories, significantly greater
resources and name recognition and a larger base of customers than we have. As a result, these
competitors may have greater credibility with our existing and potential customers. They also may be able
to adopt more aggressive pricing policies and devote greater resources to the development, promotion and
sale of their products than we can to ours. In addition, some of our current and potential competitors have
already established supplier or joint development relationships with the decision makers at our current or
potential customers. These competitors may be able to leverage their existing relationships to discourage
their customers from purchasing products from us or persuade them to replace our products with their
products. Our competitors may also offer bundled chipset kit arrangements offering a more complete
product despite the technical merits or advantages of our products. These competitors may elect not to
support our products which could complicate our sales efforts. These and other competitive pressures may
prevent us from competing successfully against current or future competitors, and may materially harm our
business. Competition could decrease our prices, reduce our sales, lower our gross profits or decrease our
market share.
PROVISIONS IN OUR CHARTER DOCUMENTS AND DELAWARE LAW COULD PREVENT, DELAY
OR IMPEDE A CHANGE IN CONTROL OF US AND MAY REDUCE THE MARKET PRICE OF OUR
COMMON STOCK
Provisions of our certificate of incorporation and bylaws could have the effect of discouraging,
delaying or preventing a merger or acquisition that a stockholder may consider favorable. For example, our
certificate of incorporation and bylaws provide for:
• the division of our board of directors into three classes to be elected on a staggered basis, one class
each year;
• the ability of our board of directors to issue shares of our preferred stock in one or more series
without further authorization of our stockholders;
• a prohibition on stockholder action by written consent;
• elimination of the right of stockholders to call a special meeting of stockholders;
• a requirement that stockholders provide advance notice of any stockholder nominations of directors
or any proposal of new business to be considered at any meeting of stockholders; and
29
• a requirement that a supermajority vote be obtained to amend or repeal certain provisions of our
certificate of incorporation.
We also are subject to the anti-takeover laws of Delaware which may discourage, delay or prevent
someone from acquiring or merging with us, which may adversely affect the market price of our common
stock.
WE ARE SUBJECT TO CREDIT RISKS RELATED TO OUR ACCOUNTS RECEIVABLE
We do not generally obtain letters of credit or other security for payment from customers, distributors
or contract manufacturers. Accordingly, we are not protected against accounts receivable default or
bankruptcy by these entities. Our ten largest customers or distributors represent a substantial majority of
our accounts receivable. If any such customer or distributor were to become insolvent or otherwise not
satisfy their obligations to us, we could be materially harmed.
THE PERFORMANCE OF OUR PRODUCTS MAY BE ADVERSELY AFFECTED BY SEVERE
ENVIRONMENTAL CONDITIONS THAT MAY REQUIRE MODIFICATIONS, WHICH COULD LEAD
TO AN INCREASE IN OUR COSTS OR A REDUCTION IN OUR REVENUES
For example, although our DSL AFE and modem related products are compliant with published
specifications, these established specifications might not adequately address all conditions that must be
satisfied in order to operate in harsh environments. This includes environments where there are wide
variations in electrical quality, telephone line quality, static electricity and operating temperatures or that
may be affected by lightning or improper handling by customers and end users. These environmental
factors may result in unanticipated returns of our products. Any necessary modifications could cause us to
incur significant re-engineering costs, divert the attention of our engineering personnel from our product
development efforts and cause significant customer relations and business reputation problems.
RISKS RELATED TO OUR INDUSTRY
WE ARE SUBJECT TO THE CYCLICAL NATURE OF THE SEMICONDUCTOR INDUSTRY, WHICH
HAS BEEN SUBJECT TO SIGNIFICANT FLUCTUATIONS
The semiconductor industry is highly cyclical and is characterized by constant and rapid technological
change, rapid product obsolescence and price erosion, evolving standards, short product life cycles and
wide fluctuations in product supply and demand. The industry has experienced significant fluctuations,
often connected with, or in anticipation of, maturing product cycles and new product introductions of both
semiconductor companies’ and their customers’ products and fluctuations in general economic conditions.
Downturns have been characterized by diminished product demand, production overcapacity, high
inventory levels and accelerated erosion of average selling prices. For example, in fiscal 2001, the
semiconductor industry suffered a downturn due to reductions in the actual unit sales of personal
computers and wireless phones as compared to previous robust forecasts. This downturn resulted in a
material adverse effect on our business and operating results in fiscal 2001.
Upturns have been characterized by increased product demand and production capacity constraints
created by increased competition for access to third party foundry, assembly and test capacity. We are
dependent on the availability of such capacity to manufacture, assemble and test our ICs. None of our
third party foundry, assembly or test subcontractors have provided assurances that adequate capacity will
be available to us.
30
THE AVERAGE SELLING PRICES OF OUR PRODUCTS COULD DECREASE RAPIDLY WHICH
MAY NEGATIVELY IMPACT OUR REVENUES AND GROSS PROFITS
We may experience substantial period-to-period fluctuations in future operating results due to the
erosion of our average selling prices, particularly for mobile handset products. We have reduced the
average unit price of our products in anticipation of or in response to competitive pricing pressures, new
product introductions by us or our competitors and other factors. If we are unable to offset any such
reductions in our average selling prices by increasing our sales volumes, increasing our sales content per
application or reducing production costs, our gross profits and revenues will suffer. To maintain our gross
profit percentage, we will need to develop and introduce new products and product enhancements on a
timely basis and continually reduce our costs. Our failure to do so would cause our revenues and gross
profit percentage to decline.
COMPETITION WITHIN THE NUMEROUS MARKETS WE TARGET MAY REDUCE SALES OF OUR
PRODUCTS AND REDUCE MARKET SHARE
The markets for semiconductors in general, and for mixed signal ICs in particular, are intensely
competitive. We expect that the market for our products will continually evolve and will be subject to rapid
technological change. In addition, as we target and supply products to numerous markets and applications,
we face competition from a relatively large number of competitors. Across all of our product areas, we
compete with Agere Systems, Atmel, Analog Devices, Broadcom, Conexant, Cypress, Freescale, Fujitsu,
Infineon Technologies, Legerity, Maxim Integrated Products, MediaTek, Microchip, National
Semiconductor, Philips, Renesas, RF Micro Devices, Semtech, Skyworks Solutions, Texas Instruments and
others. We expect to face competition in the future from our current competitors, other manufacturers and
designers of semiconductors, and start-up semiconductor design companies. Some of our customers, such
as Agere Systems, Intel, and Samsung, are also large, established semiconductor suppliers. Our sales to
and support of these customers may enable them to become a source of competition to us, despite our
efforts to protect our intellectual property rights. As the markets for communications products grow, we
also may face competition from traditional communications device companies. These companies may enter
the mixed signal semiconductor market by introducing their own ICs or by entering into strategic
relationships with or acquiring other existing providers of semiconductor products.
In addition, large companies may restructure their operations to create separate companies or may
acquire new businesses that are focused on providing the types of products we produce or acquire our
customers. For example, in May 2003, Conexant acquired PC-Tel’s modem business. Conexant has sought,
and will likely continue to seek, to supplant our silicon DAA products that have been incorporated in PC-
Tel products with Conexant’s own competing DAA product. In 2004, Motorola separated its
semiconductor operations into Freescale Semiconductor, a publicly traded company focused on
communications and integrated electronic systems. As an additional example, in February 2004, Conexant
and GlobespanVirata merged to form a company focused on communication semiconductors. This
combined entity will focus on all broadband applications and may compete with our DAA, ISOmodem and
asymmetric digital subscriber line (ADSL) product lines.
31
OUR PRODUCTS MUST CONFORM TO INDUSTRY STANDARDS AND TECHNOLOGY IN ORDER
TO BE ACCEPTED BY END USERS IN OUR MARKETS
Generally, our products comprise only a part of a device. All components of such devices must
uniformly comply with industry standards in order to operate efficiently together. We depend on
companies that provide other components of the devices to support prevailing industry standards. Many of
these companies are significantly larger and more influential in affecting industry standards than we are.
Some industry standards may not be widely adopted or implemented uniformly, and competing standards
may emerge that may be preferred by our customers or end users. If larger companies do not support the
same industry standards that we do, or if competing standards emerge, market acceptance of our products
could be adversely affected which would harm our business.
Products for communications applications are based on industry standards that are continually
evolving. For example, GSM mobile handsets now commonly use the GPRS specification for enabling data
communications, but there is an accelerating trend toward the EDGE protocol. Other suppliers, including
us, are now offering mobile handset devices utilizing the EDGE protocol to support higher data
communication rates on GSM networks. In addition, certain suppliers are now offering mobile handset
devices utilizing the WCDMA protocol to support higher data communication rates on WCDMA
networks. We do not currently have a WCDMA mobile handset product. Our ability to compete in the
future will depend on our ability to identify and ensure compliance with these evolving industry standards.
The emergence of new industry standards could render our products incompatible with products
developed by other suppliers. As a result, we could be required to invest significant time and effort and to
incur significant expense to redesign our products to ensure compliance with relevant standards. If our
products are not in compliance with prevailing industry standards for a significant period of time, we could
miss opportunities to achieve crucial design wins.
Our pursuit of necessary technological advances may require substantial time and expense. We may
not be successful in developing or using new technologies or in developing new products or product
enhancements that achieve market acceptance. If our ICs fail to achieve market acceptance, our growth
prospects, operating results and competitive position could be adversely affected.
AVAILABLE INFORMATION
Our Internet website address is http://www.silabs.com. Our annual report on Form 10-K, quarterly
reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished
pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 are available through the
investor relations page of our Internet website as soon as reasonably practicable after we electronically file
such material with, or furnish it to, the Securities and Exchange Commission (SEC). Our Internet website
and the information contained therein or connected thereto are not intended to be incorporated into this
Annual Report on Form 10-K.
Item 1B. Unresolved Staff Comments
None.
Item 2.
Properties
Our primary facilities, housing test operations, sales and marketing, research and development, and
administration, are located in Austin, Texas. These facilities consist of approximately 230,000 square feet
of leased floor space with lease terms expiring at various dates through April 2010. In addition to these
properties, we lease facilities in New Hampshire for engineering activities and various other smaller
locations throughout the United States, China, England, France, Germany, Hong Kong, Japan, South
Korea, Malaysia, Singapore and Taiwan for sales, marketing, administrative, design and manufacturing
support activities.
32
We believe that these facilities are suitable and adequate to meet our current operating needs.
Item 3.
Legal Proceedings
Securities Litigation
On December 6, 2001, a class action complaint for violations of U.S. federal securities laws was filed
in the United States District Court for the Southern District of New York against us, four of our officers
individually and the three investment banking firms who served as representatives of the underwriters in
connection with our initial public offering of common stock. The Consolidated Amended Complaint
alleges that the registration statement and prospectus for our initial public offering did not disclose that
(1) the underwriters solicited and received additional, excessive and undisclosed commissions from certain
investors, and (2) the underwriters had agreed to allocate shares of the offering in exchange for a
commitment from the customers to purchase additional shares in the aftermarket at pre-determined
higher prices. The action seeks damages in an unspecified amount and is being coordinated with
approximately 300 other nearly identical actions filed against other companies. A court order dated
October 9, 2002 dismissed without prejudice our four officers who had been named individually. On
February 19, 2003, the Court denied the motion to dismiss the complaint against us. On October 13, 2004,
the Court certified a class in six of the approximately 300 other nearly identical actions and noted that the
decision is intended to provide strong guidance to all parties regarding class certification in the remaining
cases. Plaintiffs have not yet moved to certify a class in the Silicon Laboratories case. We have approved a
settlement agreement and related agreements which set forth the terms of a settlement between us, the
plaintiff class and the vast majority of the other approximately 300 issuer defendants. Among other
provisions, the settlement provides for a release of us and the individual defendants for the conduct alleged
in the action to be wrongful. We would agree to undertake certain responsibilities, including agreeing to
assign away, not assert, or release certain potential claims we may have against our underwriters. The
settlement agreement also provides a guaranteed recovery of $1 billion to plaintiffs for the cases relating to
all of the approximately 300 issuers. To the extent that the underwriter defendants settle all of the cases for
at least $1 billion, no payment will be required under the issuers’ settlement agreement. To the extent that
the underwriter defendants settle for less than $1 billion, the issuers are required to make up the
difference. We anticipate that our potential financial obligation to plaintiffs pursuant to the terms of the
settlement agreement and related agreements will be covered by existing insurance. We are not aware of
any material limitations on the expected recovery of any potential financial obligation to plaintiffs from our
insurance carriers. Our carriers appear to be solvent, and we are not aware of any uncertainties as to the
legal sufficiency of an insurance claim with respect to any recovery by plaintiffs. Therefore, we do not
expect that the settlement would involve any material payment by us. Furthermore, even if our insurance
were unavailable due to insurer insolvency or otherwise, we expect that our maximum financial obligation
to plaintiffs pursuant to the settlement agreement would be less than $3.4 million. On February 15, 2005,
the Court granted preliminary approval of the settlement agreement, subject to certain modifications
consistent with its opinion. Those modifications have been made. There is no assurance that the Court will
grant final approval to the settlement. If the settlement agreement is not approved and we are found liable,
we are unable to estimate or predict the potential damages that might be awarded, whether such damages
would be greater than our insurance coverage, or whether the outcome would have a material impact on
our results of operations or financial position.
33
Trade Secret and Patent Infringement Litigation
On February 17, 2004, we filed a lawsuit against a former employee and Axiom Microdevices Inc., a
California corporation, in the United States District Court for the Western District of Texas, Austin
Division, alleging theft of trade secrets by the individual and Axiom. The lawsuit also alleges that the
employee breached his ethical, contractual and fiduciary obligations to us by disclosing trade secrets and
confidential information to Axiom and that Axiom tortiously interfered with the employee’s contractual
obligations to us. On September 14, 2004, we added claims for infringement of United States Patents
6,549,071 and 6,788,141 to the pending suit. The patents relate to our proprietary technology for CMOS
RF power amplifiers. At this time, we cannot estimate the outcome of this matter or resulting financial
impact to us, if any.
On December 14, 2005, Power-One, Inc. (Power-One), a Delaware corporation, filed a lawsuit against
us, in the United States District Court for the Eastern District of Texas, Marshall Division, alleging
infringement of United States Patents 6,936,999 and 6,949,916, and of patent applications
Nos. 2004/0123164A1 and 2004/0093533A1. The lawsuit relates to our Si825x family of digital power supply
controllers and alleges that the infringement was and continues to be willful. At this time, we cannot
estimate the outcome of this matter or resulting financial impact to us, if any.
Other Litigation
We are involved in various other legal proceedings that have arisen in the normal course of business.
While the ultimate results of these matters cannot be predicted with certainty, we do not expect them to
have a material adverse effect on the consolidated financial position or results of operations.
Item 4.
Submission of Matters to a Vote of Security Holders
None.
34
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases
of Equity Securities
Our registration statement (Registration No. 333-94853) under the Securities Act of 1933, as
amended, relating to our initial public offering of our common stock became effective on March 23, 2000.
Our common stock is quoted on the Nasdaq National Market (Nasdaq) under the symbol “SLAB”. The
table below shows the high and low per-share sales prices of our common stock for the periods indicated,
as reported by Nasdaq. As of February 1, 2006, there were 230 holders of record of our common stock.
HIGH
LOW
Fiscal Year 2004
First Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Second Quarter. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Third Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fourth Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal Year 2005
First Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Second Quarter. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Third Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fourth Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$59.92
59.45
43.95
37.50
$36.60
31.42
33.98
41.86
$44.00
42.88
29.02
26.89
$26.88
24.62
25.46
26.51
We have never declared or paid any cash dividends on our common stock and we do not intend to pay
cash dividends in the foreseeable future. We currently expect to retain any future earnings to fund the
operation and expansion of our business.
No securities were repurchased during the fourth quarter of fiscal 2005.
35
Item 6. Selected Consolidated Financial Data
The selected consolidated balance sheet data as of fiscal year ended 2005 and 2004 and the selected
consolidated statements of operations data for fiscal 2005, 2004 and 2003 have been derived from the
audited consolidated financial statements included in this Form 10-K. The selected consolidated balance
sheet data as of fiscal year ended 2003, 2002 and 2001 and the selected consolidated statements of
operations data for fiscal 2002 and 2001 have been derived from audited consolidated financial statements
not included in this Form 10-K. You should read this selected consolidated financial data in conjunction
with “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” our
consolidated financial statements and the notes to those statements included in this Form 10-K.
CONSOLIDATED STATEMENTS OF OPERATIONS DATA
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating income (loss). . . . . . . . . . . . . . . . . .
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . .
Net income (loss) per share:
2005
$ 425,689
58,010
47,506
2004
Fiscal Year
2002
2003
(in thousands, except per share data)
$ 325,305
$ 456,225
65,414
106,685
44,716
76,693
$ 182,016
30,989
20,717
2001
$ 74,065
(51,247)
(45,573)
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
0.89
0.86
$
$
1.49
1.39
$
$
0.92
0.86
$
$
0.44
0.41
$
$
(0.99)
(0.99)
Weighted-average common shares
outstanding:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents and short-term
investments. . . . . . . . . . . . . . . . . . . . . . . . . . .
Working capital . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term obligations and other liabilities. .
Total stockholders’ equity . . . . . . . . . . . . . . . .
53,399
55,485
51,471
54,983
48,850
52,288
47,419
50,811
45,914
45,914
$ 363,710
369,304
613,003
7,418
498,048
$ 277,106
294,557
484,402
2,570
399,484
$ 190,313
202,712
378,095
9,962
287,205
$ 115,166
122,354
197,065
949
155,722
$ 101,248
106,556
145,021
3,817
125,407
36
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
THE FOLLOWING DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS SHOULD BE READ IN CONJUNCTION WITH THE
CONSOLIDATED FINANCIAL STATEMENTS AND RELATED NOTES THERETO INCLUDED
ELSEWHERE IN THIS REPORT ON FORM 10-K. THIS DISCUSSION CONTAINS FORWARD-
LOOKING STATEMENTS. PLEASE SEE THE “CAUTIONARY STATEMENT” ABOVE AND
“RISK FACTORS” UNDER ITEM 1A FOR A DISCUSSION OF THE UNCERTAINTIES, RISKS
AND ASSUMPTIONS ASSOCIATED WITH THESE STATEMENTS. OUR FISCAL YEAR-END
FINANCIAL REPORTING PERIODS ARE A 52- OR 53- WEEK YEAR ENDING ON THE
SATURDAY CLOSEST TO DECEMBER 31ST. FISCAL 2005 HAD 52 WEEKS AND ENDED ON
DECEMBER 31, 2005. FISCAL 2004 HAD 52 WEEKS AND ENDED ON JANUARY 1, 2005. FISCAL
2003 HAD 53 WEEKS WITH THE EXTRA WEEK OCCURRING IN THE FOURTH QUARTER OF
THE YEAR AND ENDED ON JANUARY 3, 2004.
OVERVIEW
We design and develop proprietary, analog-intensive, mixed-signal integrated circuits (ICs) for a
broad range of applications. Our innovative ICs can dramatically reduce the cost, size and system power
requirements of the products that our customers sell. We currently offer ICs that can be incorporated into
communications devices, such as wireless phones and modems, as well as cable and satellite set-top boxes,
residential communication gateways for cable or digital subscriber line (DSL), FM broadcast radio tuners
and networking equipment. We also offer a family of 8-bit microcontrollers (MCUs) for use in a broad
array of applications such as industrial automation and control, automotive sensors and controls, medical
instrumentation, and electronic test and measurement equipment. Our major customers include Advanced
Digital Broadcast, Agere Systems, Apple, Conexant, Intel, LG Electronics, Motorola, Sagem, Samsung and
Thomson.
Our company was founded in 1996. Our business has grown since our inception, as reflected by our
employee headcount, which increased to 651 at the end of fiscal 2005, from 588 employees at the end of
fiscal 2004 and 486 employees at the end of fiscal 2003. As a “fabless” semiconductor company, we rely on
third-party semiconductor fabricators in Asia, and to a lesser extent the United States, to manufacture the
silicon wafers that reflect our IC designs. Each wafer contains numerous die, which are cut from the wafer
to create a chip for an IC. We rely on third-parties in Asia to assemble, package, and, in the substantial
majority of cases, test these devices and ship these units to our customers. We also rely on third-party
providers of software to supply a complete AeroFONE mobile handset solution to our customers. We have
increased the portion of testing performed by such third parties, which facilitates faster delivery of
products to our customers (particularly those located in Asia), shorter production cycle times, lower
inventory requirements, lower costs and increased flexibility of test capacity.
37
Our product set has expanded to a broad portfolio targeting mobile handset and broad-based mixed-
signal applications. Our expertise in analog-intensive, high-performance, mixed-signal ICs enables us to
develop highly differentiated solutions that address multiple markets. For example, our silicon direct
access arrangement (DAA) product family is optimized for the personal computer (PC) modem market;
our ISOmodem® family of embedded modems has been widely adopted by satellite set-top box
manufacturers; and our Aero GSM/GPRS transceiver family is being shipped in mobile handsets
worldwide. We continue to introduce next generation ICs with added functionality and further integration.
In April 2005, we introduced a family of FM broadcast radio tuner products and a family of digital power
products. In August 2005, we introduced families of oscillators (XOs) and voltage-controlled oscillators
(VCXOs). In September 2005, we introduced the Aero IIe single-chip EDGE transceiver and the fax
ISOmodem embedded modem. In October 2005, we introduced the AeroFONE single-chip phone and the
Quad ProSLIC. In November 2005, we introduced the SiRX satellite receivers. Through acquisitions and
internal development efforts, we have continued to further diversify our product portfolio. We plan to
continue to diversify our product portfolio by introducing products that increase the content we provide for
existing applications and by introducing ICs for markets we do not currently address, thereby expanding
our total available market opportunity.
We group our products into two categories, mobile handset products and broad-based mixed-signal
products. Mobile handset products include our Aero Transceivers, the AeroFONE single-chip phone,
Power Amplifiers, and to the extent incorporated into handsets, FM broadcast radio tuners. Broad-based
mixed-signal products include our silicon DAA, ISOmodem embedded modems, ProSLIC telephony
interface circuits, microcontroller products, DSL analog front end, SiPHY optical physical layer
transceivers, precision clock & data recovery ICs (CDRs), XM satellite radio tuner, digital power products,
FM broadcast radio tuners for non-handset applications, oscillators (XOs), voltage-controlled oscillators
(VCXOs), general purpose RF Synthesizers and SiRX satellite receivers.
During fiscal 2005, 2004 and 2003, one customer, Samsung, represented 14%, 17% and 21% of our
revenues, respectively. No other single end customer accounted for more than 10% of our revenues in any
of these years. In addition to direct sales to customers, some of our end customers purchase products
indirectly from us through distributors and contract manufacturers. An end customer purchasing through a
contract manufacturer typically instructs such contract manufacturer to obtain our products and
incorporate such products with other components for sale by such contract manufacturer to the end
customer. Although we actually sell the products to, and are paid by, the distributors and contract
manufacturers, we refer to such end customer as our customer. Two of our distributors, Edom Technology
and Uniquest, each selling products to customers in Asia, represented 29% and 11% of our fiscal 2005
revenues, respectively. Edom and Uniquest represented 20% and 12% of our fiscal 2004 revenues,
respectively, and Edom accounted for 13% of our total revenues during fiscal 2003. There were no other
distributors or contract manufacturers that accounted for more than 10% of our revenues in fiscal years
2005, 2004 or 2003.
The percentage of our revenues derived from customers located outside of the United States was 91%
in fiscal 2005, 89% in fiscal 2004 and 80% in fiscal 2003. This percentage increase in the two most recent
years reflects our product and customer diversification and increased market penetration for our products,
as many of our mobile handset, and increasingly, broad-based mixed-signal customers manufacture and
design their products in Asia. All of our revenues to date have been denominated in U.S. dollars. We
believe that a majority of our revenues will continue to be derived from customers outside of the United
States.
38
The sales cycle for the test and evaluation of our ICs can range from one month to 12 months or
more. An additional three to six months or more are usually required before a customer ships a significant
volume of devices that incorporate our ICs. Due to this lengthy sales cycle, we typically experience a
significant delay between incurring expenses for research and development and selling, general and
administrative efforts, and the generation of corresponding sales. Consequently, if sales in any quarter do
not occur when expected, expenses and inventory levels could be disproportionately high, and our
operating results for that quarter and, potentially, future quarters would be adversely affected. Moreover,
the amount of time between initial research and development and commercialization of a product, if ever,
can be substantially longer than the sales cycle for the product. Accordingly, if we incur substantial
research and development costs without developing a commercially successful product, our operating
results, as well as our growth prospects, could be adversely affected.
Because many of our ICs are designed for use in consumer products such as PCs, personal video
recorders, set-top boxes and mobile handsets, we expect that the demand for our products will be typically
subject to some degree of seasonal demand resulting in increased sales in the third and fourth quarters of
each year when customers place orders to meet holiday demand. However, rapid changes in our markets
and across our product areas make it difficult for us to accurately estimate the impact of seasonal factors
on our business.
The following describes the line items set forth in our consolidated statements of income:
REVENUES. Revenues are generated almost exclusively by sales of our ICs. We recognize revenue
on sales when all of the following criteria are met: 1) there is persuasive evidence that an arrangement
exists, 2) delivery of goods has occurred, 3) the sales price is fixed or determinable, and 4) collectibility is
reasonably assured. Generally, we recognize revenue from product sales direct to customers and contract
manufacturers upon shipment. Certain of our sales are made to distributors under agreements allowing
certain rights of return and price protection on products unsold by distributors. Accordingly, we defer the
revenue and cost of revenue on such sales until the distributors sell the product to the end customer. Our
products typically carry a one-year replacement warranty. Replacements have been insignificant to date.
Our revenues are subject to variation from period to period due to the volume of shipments made within a
period and the prices we charge for our products. The vast majority of our revenues were negotiated at
prices that reflect a discount from the list prices for our products. These discounts are made for a variety of
reasons, including: 1) to establish a relationship with a new customer, 2) as an incentive for customers to
purchase products in larger volumes, 3) to provide profit margin to our distributors who resell our products
or 4) in response to competition. In addition, as a product matures, we expect that the average selling price
for such product will decline due to the greater availability of competing products. Our ability to increase
revenues in the future is dependent on increased demand for our established products and our ability to
ship larger volumes of those products in response to such demand, as well as our ability to develop or
acquire new products and subsequently achieve customer acceptance of newly introduced products.
39
COST OF REVENUES. Cost of revenues includes the cost of purchasing finished silicon wafers
processed by independent foundries; costs associated with assembly, test and shipping of those products;
costs of personnel and equipment associated with manufacturing support, logistics and quality assurance;
costs of software royalties and amortization of purchased software, other intellectual property license costs,
and certain acquired intangible assets; an allocated portion of our occupancy costs; allocable depreciation
of testing equipment and leasehold improvements; and impairment charges related to certain
manufacturing equipment held for sale or abandoned; and, for prior periods, a portion of the settlement
costs associated with the TDK patent infringement lawsuit. Generally, we depreciate equipment over four
years on a straight-line basis and leasehold improvements over the shorter of the estimated useful life or
the applicable lease term. Recently introduced products tend to have higher cost of revenues per unit due
to initially low production volumes required by our customers and higher costs associated with new
package variations. Generally, as production volumes for a product increase, unit production costs tend to
decrease as our yields improve and our semiconductor fabricators, assemblers and test suppliers achieve
greater economies of scale for that product. Additionally, the cost of wafer procurement and assembly and
test services, which are significant components of cost of goods sold, vary cyclically with overall demand for
semiconductors and our suppliers’ available capacity of such products and services.
RESEARCH AND DEVELOPMENT. Research and development expense consists primarily of
compensation, including stock compensation, and related costs of employees engaged in research and
development activities, new product mask, wafer, packaging and test costs, external consulting and services
costs, amortization of purchased software, equipment tooling, equipment depreciation, amortization of
acquired intangible assets, acquired research and development, as well as an allocated portion of our
occupancy costs for such operations. We generally depreciate our research and development equipment
over four years and amortize our purchased software from computer-aided design tool vendors over three
to four years. Research and development activities include the design of new products and software,
refinement of existing products and design of test methodologies to ensure compliance with required
specifications.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative expense
consists primarily of personnel-related expenses, including stock compensation, related allocable portion
of our occupancy costs, sales commissions to independent sales representatives, applications engineering
support, professional fees, directors’ and officers’ liability insurance, patent litigation legal fees, other
promotional and marketing expenses, and reserves for bad debt.
WRITE OFF OF IN-PROCESS RESEARCH & DEVELOPMENT. Write off of in-process
research & development reflects the write off of in-process research and development costs which we
acquired in connection with our acquisition of Cygnal in fiscal 2003.
INTEREST INCOME.
Interest income reflects interest earned on average cash, cash equivalents
and investment balances. We generally invest in tax-exempt short-term investments.
INTEREST EXPENSE.
Interest expense consists of interest on our short and long-term obligations.
OTHER INCOME (EXPENSE), NET. Other income (expense), net primarily reflects our share of
income and losses related to our equity investments and the gain on the disposal of fixed assets.
PROVISION FOR INCOME TAXES. We accrue a provision for domestic and foreign income tax at
the applicable statutory rates adjusted for non-deductible expenses, research and development tax credits
and interest income from tax-exempt short-term investments.
40
RESULTS OF OPERATIONS
The following table sets forth our consolidated statements of income data as a percentage of revenues
for the periods indicated:
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating expenses:
Research and development. . . . . . . . . . . . . . . . . . . . . . . . .
Selling, general and administrative . . . . . . . . . . . . . . . . . .
Write-off of in-process research & development . . . . . .
Operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other income (expense):
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other income (expense), net . . . . . . . . . . . . . . . . . . . . . . .
Income before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31,
2005
100.0%
45.6
54.4
Year Ended
January 1,
2005
January 3,
2004
100.0% 100.0%
45.2
54.8
49.9
50.1
23.8
17.0
—
40.8
13.6
2.0
(0.1)
(0.1)
15.4
4.2
11.2%
17.1
14.3
—
31.4
23.4
0.7
(0.1)
0.4
24.4
7.6
16.8%
15.9
13.6
0.5
30.0
20.1
0.4
(0.0)
(0.2)
20.3
6.6
13.7%
COMPARISON OF FISCAL 2005 TO FISCAL 2004
REVENUES
Mobile Handsets . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Broad-Based Mixed-Signal . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 188.6
237.1
$ 425.7
December 31,
2005
January 1,
2005
(in millions)
Change
$ 228.8
227.4
$ 456.2
$ (40.2)
9.7
$ (30.5)
%
Change
(17.6)%
4.3
(6.7)%
Year Ended
Mobile Handsets: The decline in the sales of our mobile handset products in fiscal 2005 was primarily
driven by declining average selling prices of our Aero Transceiver family of products. Average selling
prices in mobile handset products decreased year over year by 20.6%. This decrease was offset in part by a
3.8% year over year increase in unit volumes of our mobile handset products.
Broad-Based Mixed-Signal: The growth in the sales of our broad-based mixed-signal products in
fiscal 2005 was primarily driven by increased revenues from our: (1) ProSLIC products reflecting growth in
demand and market share gains in the VoIP market; and (2) microcontroller products, a business that we
acquired in the fourth quarter of fiscal 2003. Such growth was offset in part by a 10% decline in revenue
from our modem products (consisting of our DAA and ISOmodem products) due to declines in average
selling prices and unit volumes. Unit volumes of broad-based mixed-signal products increased year over
year by 1.6%. In addition, average selling prices in this area increased year over year by 2.6%.
As our products become more mature, we expect to experience decreases in average selling prices in
the future. Our revenues will be dependent on our ability to increase sales volumes and introduce higher
priced, next generation products and product extensions.
41
GROSS PROFIT
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Percent of revenue . . . . . . . . . . . . . . . . . . . . . . . .
Year Ended
December 31,
2005
January 1,
2005
Change
%
Change
(in millions)
$ 231.8
$ 249.9
$ (18.1)
(7.3)%
54.4%
54.8%
The year over year decrease in gross profit dollars in fiscal 2005 was primarily due to the decrease in
revenues from our mobile handset products. We expect to experience declines in the average selling prices
of our mobile handset products and certain of our broad-based mixed-signal products, especially with
respect to our modem products. This downward pressure on gross profit as a percentage of revenues may
be offset to the extent we are able to: 1) introduce higher margin new products and continue to gain
market share with our broad-based mixed-signal ICs; or 2) achieve lower production costs from our wafer
foundries and third-party assembly and test sub-contractors.
RESEARCH AND DEVELOPMENT
Research and development . . . . . . . . . . . . . . . . .
Percent of revenue . . . . . . . . . . . . . . . . . . . . . . . .
$101.2
23.8%
$78.1
17.1%
$23.1
29.7%
Year Ended
December 31,
2005
January 1,
2005
Change
%
Change
(in millions)
The year over year increase in research and development expense in fiscal 2005 was principally due to
a $13.7 million charge for acquired research and development costs in connection with our acquisition of
Silicon MAGIKE, increased staffing and associated occupancy and other costs to pursue new product
development opportunities, and to continue to develop software and new testing methodologies for newly
introduced and existing products. Some of our more significant development projects in the mobile-
handset product area included the AeroFONE single-chip phone, the Aero IIe single-chip EDGE
transceiver and the FM broadcast radio tuners for handsets. Significant development projects in the broad-
based mixed-signal product area included families of oscillators (XOs) and voltage-controlled oscillators
(VCXOs), the fax ISOmodem embedded modem, digital power products and the SiRX satellite receivers.
All of these development projects have either been completed or are scheduled to be completed over the
next twelve months. Additionally, many of these new products are being sampled by certain of our
customers and are in the design-in phase. With the exception of the FM broadcast radio tuners, we don’t
expect the products derived from these projects to begin to contribute to revenues in a meaningful way
before late fiscal 2006. Excluding the $13.7 million charge for acquired research and development costs in
connection with the acquisition of Silicon MAGIKE, we expect that research and development expense
will increase in absolute dollars in future periods as we continue to increase our staffing and associated
costs to pursue additional new product development opportunities, and may fluctuate as a percentage of
revenues due to changes in sales and the timing of certain expensive items related to new product
development initiatives, such as engineering mask and wafer costs. We also expect research and
development expense to increase in future periods due to our adoption of Financial Accounting Standards
Board (FASB) Statement of Financial Accounting Standards (SFAS) 123 (revised 2004), “Share-Based
Payment”, (SFAS 123R).
42
We identified and valued three research and development projects in connection with the acquisition
of Silicon MAGIKE, including Voice, High Voltage and other power-related technologies. At the date of
acquisition, the acquired technology had no alternative future use and did not otherwise qualify for
capitalization. We estimate that these projects ranged from 25% to 60% complete at the time of the
acquisition. The remaining research and development efforts include layout, mask set, integration and
testing the product. The significant risks associated with the successful completion of these projects include
our potential inability to finish the complex designs, produce sample versions of the integrated circuits
which operate at the required technical specifications, and gain customer acceptance of the parts. Failure
to complete these projects in a timely manner could result in lost revenues. Completion costs to date on all
projects have been consistent with estimates made at the time of the acquisition. The estimated cost to
complete these projects was expected to be approximately $6.2 million in the aggregate as of December 31,
2005. The Company doesn’t expect the products derived from these technologies to begin to contribute to
revenues prior to fiscal 2007.
SELLING, GENERAL AND ADMINISTRATIVE
Year Ended
December 31,
2005
January 1,
2005
(in millions)
Change
%
Change
Selling, general and administrative . . . . . . . . . . . . . .
Percent of revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$72.6
17.0%
$65.2
14.3%
$7.4
11.3%
The increase in the dollar amount of selling, general and administrative expense in fiscal 2005 was
principally attributable to: (1) an increase of approximately $2.8 million for increased staffing and
associated costs resulting from the geographical expansion of our sales support organization in Asia and
Europe; (2) $2.7 million in charges related to the separation agreement with our former Chief Executive
Officer; (3) $1.0 million in charges related to the search and hiring costs of our current Chief Executive
Officer; and (4) an increase of approximately $1.0 million for increased staffing and associated costs
related to the expansion of our internal information technology and services support organization. The
increase was offset in part by a $1.9 million decline in sales commissions and bonuses due to a decline in
our sales. We expect that selling, general and administrative expense will increase in absolute dollars in
future periods as we continue to expand our sales channels, marketing applications efforts and
administrative infrastructure. In addition, we expect selling, general and administrative expense to
fluctuate as a percentage of revenues because of (1) potential significant variability in our future revenues;
(2) increased support costs related to new product introduction; and (3) fluctuating legal costs related to
litigation and intellectual property matters. We also expect selling, general and administrative expense to
increase in future periods due to our adoption of SFAS 123R.
INTEREST INCOME
Year Ended
December 31,
2005
January 1,
2005
Change
(in millions)
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$8.3
$3.1
$5.2
The increase in the dollar amount of interest income in fiscal 2005 was due to a greater amount of
cash and short-term investments balances during the year ended December 31, 2005 and due to an
increase in the interest rates of the underlying instruments during fiscal 2005.
43
INTEREST EXPENSE
Interest expense was $0.3 million in both fiscal 2005 and 2004.
OTHER INCOME (EXPENSE), NET
Other income (expense), net. . . . . . . . . . . . . . . . . . . . . .
$ (0.3)
$ 2.1
$ (2.4)
Other income (expense), in fiscal 2004 primarily reflected gains on the sale of test equipment. No
Year Ended
December 31,
2005
January 1,
2005
Change
(in millions)
comparable gains occurred in fiscal 2005.
PROVISION FOR INCOME TAXES
Provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . .
Effective tax rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$18.1
$34.9
$(16.8)
27.6%
31.3%
Year Ended
December 31,
2005
January 1,
2005
Change
(in millions)
The effective tax rate in fiscal 2005 was lower than fiscal 2004, primarily due to the tax savings from
alignment of our financial structure with our international operational structure, as well as an increase in
tax-exempt interest income. The decrease was offset by the fiscal 2005 non-deductible acquired research
and development costs incurred in connection with our acquisition of Silicon MAGIKE. The impact of the
non-deductible acquired research and development costs was 7.3%. Excluding this charge, the tax rate
would have been 20.3%. We don’t currently anticipate a significant change to this adjusted tax rate in fiscal
2006. In addition, the effective tax rates for each of the periods presented differ from the federal statutory
rate of 35% due to the amount of income earned in foreign jurisdictions where the tax rate may be lower
than the federal statutory rate, the impact of research and development tax credits, tax-exempt interest
income and other permanent items.
COMPARISON OF FISCAL 2004 TO FISCAL 2003
REVENUES
Mobile Handsets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Broad-Based Mixed-Signal . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 228.8
227.4
$ 456.2
(in millions)
$ 163.0
162.3
$ 325.3
$ 65.8
65.1
$ 130.9
Year Ended
January 1,
2005
January 3,
2004
Change
%
Change
40.4%
40.1
40.2%
The year over year increase in revenues in fiscal 2004 was primarily attributable to significant growth
in both our mobile handset and broad-based mixed-signal product groups.
Mobile Handsets: Growth in the sales of our mobile handset products in fiscal 2004 were driven by
increased unit volumes of our Aero Transceiver family of products reflecting the increased demand and
market share gains driven largely by Asian mobile handset customers. Unit volumes of our mobile handset
products increased year over year by 38.3%. In addition, average selling prices in this area increased year
over year by 1.5%.
44
Broad-Based Mixed-Signal: Growth in the sales of our broad-based mixed-signal products in fiscal
2004 were primarily driven by increased unit volumes of our: (1) ISOmodems reflecting growth in demand
and market share gains primarily in the set-top box and personal video recorder market;
(2) microcontrollers, a new business that we acquired in the fourth quarter of fiscal 2003 which contributed
revenues of $19.4 million in fiscal 2004; (3) ProSLICs reflecting growth in demand and market share gains
in the voice-over-internet protocol (VoIP) market; and (4) DAAs reflecting growth in demand in voice
applications, such as VoIP, and modems for personal computers. Unit volumes of broad-based mixed-
signal products increased year over year by 18.1%. In addition, average selling prices in this area increased
year over year by 18.7% reflecting the change in mix in this area towards higher priced items.
GROSS PROFIT
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Percent of revenue . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year Ended
January 1,
2005
January 3,
2004
(in millions)
Change
%
Change
$249.9
$163.0
$86.9
53.3%
54.8%
50.1%
The year over year increase in gross profit dollars for fiscal 2004 was primarily due to the substantial
increase in sales volumes in both our mobile handset and broad-based mixed-signal product groups. The
increase in gross profit percentage in fiscal 2004 was primarily due to the absence of any significant one-
time charges such as the $15.3 million charge associated with a patent litigation settlement recorded in
fiscal 2003.
RESEARCH AND DEVELOPMENT
Year Ended
January 1,
2005
January 3,
2004
(in millions)
Change
%
Change
Research and development . . . . . . . . . . . . . . . . . . . .
Percent of revenue . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 78.1
17.1%
$ 51.9
15.9%
$ 26.2
50.5%
The year over year increase in research and development expense for fiscal 2004 was principally due
to increased staffing, including personnel related to our acquisition of Cygnal, and associated occupancy
and other costs to pursue new product development opportunities, and to continue to develop new testing
methodologies for newly introduced and existing products.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative . . . . . . . . . . . . .
Percent of revenue . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 65.2
14.3%
$ 44.1
13.6%
$ 21.1
47.6%
Year Ended
January 1,
2005
January 3,
2004
(in millions)
Change
%
Change
45
The increase in the dollar amount of selling, general and administrative expense in fiscal 2004 was
principally attributable to: (1) an increase of approximately $3.2 million for sales commissions and bonuses
associated with our increased revenue levels; (2) an increase of approximately $3.1 million for personnel
associated with our acquisition of Cygnal; (3) an increase of approximately $2.9 million for increased
staffing and associated costs related to the expansion of our internal information technology and services
support organization; (4) an increase of approximately $2.6 million for increased staffing and associated
costs associated with the geographical expansion of our sales support organization in Asia and Europe;
(5) an increase of approximately $2.4 million in legal, consulting and auditing fees which were primarily
driven by activities related to the establishment of a headquarters for non-U.S. operations in Singapore
and compliance with the requirements of Section 404 of the Sarbanes-Oxley Act; and (6) an increase of
approximately $2.0 million for increased staffing and associated costs related to product marketing and
marketing applications activities associated with our mobile handset products.
WRITE OFF OF IN-PROCESS RESEARCH & DEVELOPMENT
Write off of in-process research & development. . . . . . . . . . . .
$—
January 1,
2005
January 3,
2004
(in millions)
$1.6
Change
$(1.6)
Year Ended
We wrote off in-process research and development in fiscal 2003 related to our acquisition of Cygnal.
We did not have any such write-offs in fiscal 2004.
INTEREST INCOME
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 3.1
January 1,
2005
January 3,
2004
(in millions)
$ 1.4
Change
$ 1.7
Year Ended
The increase in the dollar amount of interest income was due to a greater amount of cash and short-
term investments balances during the year ended January 1, 2005 and due to an increase in the interest
rates of the underlying instruments during fiscal 2004.
INTEREST EXPENSE
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ (0.3)
January 1,
2005
January 3,
2004
(in millions)
$ (0.0)
Change
$ (0.3)
Year Ended
The increase in the dollar amount of interest expense in the most recent period was due to accrued
interest associated with software license agreements.
OTHER INCOME (EXPENSE), NET
Other income (expense), net. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 2.1
January 1,
2005
January 3,
2004
(in millions)
$(0.5)
Change
$ 2.6
Year Ended
46
The increase in the dollar amount of other income for the most recent period was primarily due to
gains on the sale of test equipment.
PROVISION FOR INCOME TAXES
Provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effective tax rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 34.9
31.3%
January 1,
2005
January 3,
2004
(in millions)
$ 21.5
32.4%
Change
$ 13.4
Year Ended
The effective tax rates differ from the federal statutory rate of 35% due to the impact of research and
development tax credits, state taxes, tax-exempt interest income and other permanent items.
BUSINESS OUTLOOK
We expect revenues in the first quarter of fiscal 2006 to be in the range of $110 million to $114
million. Furthermore, we expect our diluted net income per share to be in the range of $0.16 to $0.18.
LIQUIDITY AND CAPITAL RESOURCES
Our principal sources of liquidity as of December 31, 2005 consisted of $363.7 million in cash, cash
equivalents and short-term investments. Our short-term investments consist primarily of corporate and
U.S. Government Agency debt securities.
Net cash provided by operating activities was $104.0 million during fiscal 2005, compared to net cash
provided of $96.3 million during fiscal 2004. Operating cash flows during fiscal 2005 reflect our net income
of $47.5 million, adjustments for depreciation, amortization, acquired research and development, and tax
benefits associated with the exercise of stock options of $46.2 million, and a net decrease in the
components of our working capital of $10.3 million.
Net cash provided by investing activities was $82.6 million during fiscal 2005, compared to net cash
used of $119.1 million during fiscal 2004. The increase was principally due to an increase of $216.7 million
in net sales and maturities of short-term investments, offset by a $15.2 million increase in net purchases of
property, equipment and software and other assets, including a $13.3 million payment related to the
acquisition of Silicon MAGIKE.
We anticipate capital expenditures of approximately $20 to 25 million for fiscal 2006. Additionally, as
part of our growth strategy, we expect to evaluate opportunities to invest in or acquire other businesses,
intellectual property or technologies that would complement or expand our current offerings, expand the
breadth of our markets or enhance our technical capabilities.
Net cash provided by financing activities was $20.2 million during fiscal 2005, compared to net cash
provided of $13.0 million during fiscal 2004. The increase in cash flows from financing activities during
fiscal 2005 was principally due to higher proceeds from the exercise of employee stock options.
47
In our day-to-day business activities, we incur certain commitments to make future payments under
contracts such as leases, purchase orders and other long-term contracts. Maturities under these contracts
are set forth in the following table as of December 31, 2005, (in thousands):
Operating lease obligations(1) . . .
Purchase obligations(2) . . . . . . . . .
Other long-term obligations . . . . .
Total
$13,659
55,045
7,200
2006
$ 3,709
49,350
Payments due by period
2007
$3,270
3,216
— 5,198
2008
$3,196
2,479
2,002
2009
$2,903
—
—
2010
$581
—
—
Thereafter
$ —
—
—
(1) Operating lease obligations include amounts for leased facilities.
(2) Purchase obligations include contractual arrangements in the form of purchase orders with suppliers
where there is a fixed non-cancelable payment schedule or minimum payments due with a reduced
delivery schedule.
Our future capital requirements will depend on many factors, including the rate of sales growth,
market acceptance of our products, the timing and extent of research and development projects, potential
acquisitions of companies or technologies and the expansion of our sales and marketing activities. We
believe our existing cash and short-term investment balances are sufficient to meet our capital
requirements through at least the next 12 months, although we could be required, or could elect, to seek
additional funding prior to that time. We may enter into acquisitions or strategic arrangements in the
future which also could require us to seek additional equity or debt financing.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The preparation of financial statements and accompanying notes in conformity with U.S. generally
accepted accounting principles requires that we make estimates and assumptions that affect the amounts
reported. Changes in facts and circumstances could have a significant impact on the resulting estimated
amounts included in the financial statements. We believe the following critical accounting policies affect
our more complex judgments and estimates. We also have other policies that we consider to be key
accounting policies, such as our policies for revenue recognition, including the deferral of revenues and
cost of revenues on sales to distributors; however, these policies do not meet the definition of critical
accounting estimates because they do not generally require us to make estimates or judgments that are
difficult or subjective.
Allowance for doubtful accounts—We evaluate the collectibility of our accounts receivable based on a
combination of factors. In circumstances where we are aware of a specific customer’s inability to meet its
financial obligations to us, we record a specific allowance to reduce the net receivable to the amount we
reasonably believe will be collected. For all other customers, we recognize allowances for doubtful
accounts based on a variety of factors including the length of time the receivables are past their contractual
due date, the current business environment, and our historical experience. If the financial condition of our
customers were to deteriorate or if economic conditions worsened, additional allowances may be required
in the future.
48
Inventory valuation—We assess the recoverability of inventories through an on-going review of
inventory levels in relation to sales history, backlog and forecasts, product marketing plans and product life
cycles. To address the difficult, subjective and complex area of judgment in determining appropriate
inventory valuation in a consistent manner, we apply a set of methods, assumptions and estimates to arrive
at the net inventory amount by completing the following: First, we identify any inventory that has been
previously written down in prior periods. This inventory remains written down until sold, destroyed or
otherwise disposed of. Second, we write down the inventory line items that may be slow moving or have
some form of obsolescence due to non-conformance with electrical and mechanical standards as identified
by our quality assurance personnel. Third, the remaining inventory not otherwise identified to be written
down is compared to an assessment of product shipment history and forecasted demand, typically over the
last six months and next six months, or actual firm backlog on hand. However, microcontroller product
history and forecasted demand is typically measured over the last twelve months and next twelve months,
respectively, due to the breadth of customers and markets served and longer product life cycles. Finally,
the result of this methodology is compared against the product life cycle and competitive situations in the
marketplace driving the outlook for the consumption of the inventory and the appropriateness of the
resulting inventory levels. Demand for our products may fluctuate significantly over time, and actual
demand and market conditions may be more or less favorable than those that we project. In the event that
actual demand is lower or market conditions are worse than originally projected, additional inventory
write-downs may be required.
Impairment of goodwill and other long-lived assets—We review long-lived assets which are held and
used, including fixed assets and purchased intangible assets, for impairment whenever changes in
circumstances indicate that the carrying amount of the assets may not be recoverable. Such evaluations
compare the carrying amount of an asset to future undiscounted net cash flows expected to be generated
by the asset over its expected useful life and are significantly impacted by estimates of future prices and
volumes for our products, capital needs, economic trends and other factors which are inherently difficult to
forecast. If the asset is considered to be impaired, we record an impairment charge equal to the amount by
which the carrying value of the asset exceeds its fair value determined by either a quoted market price, if
any, or a value determined by utilizing a discounted cash flow technique. Occasionally, we may hold certain
assets for sale. In those cases, the assets are reclassified on our balance sheet from long-term to current,
and the carrying value of such assets are reviewed and adjusted each period thereafter to the fair value less
expected cost to sell.
We test our goodwill for impairment annually as of the first day of our fourth fiscal quarter and in
interim periods if certain events occur indicating that the carrying value of goodwill may be impaired. The
goodwill impairment test is a two-step process. The first step of the impairment analysis compares our fair
value to our net book value. In determining fair value, the accounting guidance allows for the use of
several valuation methodologies, although it states quoted market prices are the best evidence of fair
value. If the fair value is less than the net book value, the second step of the analysis compares the implied
fair value of our goodwill to its carrying amount. If the carrying amount of goodwill exceeds its implied fair
value, we recognize an impairment loss equal to that excess amount.
49
Income taxes—We are required to estimate income taxes in each of the jurisdictions in which we
operate. This process involves estimating the actual current tax liability together with assessing temporary
differences in recognition of income (loss) for tax and accounting purposes. These differences result in
deferred tax assets and liabilities, which are included in our consolidated balance sheet. We then assess the
likelihood that the deferred tax assets will be recovered from future taxable income and, to the extent we
believe that recovery is not likely, we establish a valuation allowance against the deferred tax asset.
Further, we operate within multiple taxing jurisdictions and are subject to audit in these jurisdictions.
These audits can involve complex issues which may require an extended period of time to resolve and
could result in additional assessments of income tax. We believe adequate provisions for income taxes have
been made for all periods.
RECENT ACCOUNTING PRONOUNCEMENTS
In December 2004, the FASB issued SFAS 123R. SFAS 123R addresses the accounting for share-
based payments to employees, including grants of employee stock options. Under the new standard,
companies will no longer be able to account for share-based compensation transactions using the intrinsic
value method in accordance with Accounting Principles Board (APB) Opinion No. 25, “Accounting for
Stock Issued to Employees”. Instead, companies will be required to account for such transactions using a
fair-value method and recognize the expense in the consolidated statement of income. We expect to use
the Black-Scholes option pricing model to determine the fair value of our stock-based awards. SFAS 123R
requires companies to use either the modified-prospective or modified-retrospective transition method.
We intend to use the modified-prospective transition method. Under this method, compensation cost is
recognized for all awards granted, modified or settled after the adoption date as well as for any awards that
were granted prior to the adoption date for which the requisite service has not yet been rendered. SFAS
123R was originally effective for reporting periods that began after June 15, 2005. In April 2005, the SEC
announced the adoption of a new rule allowing companies to implement SFAS 123R at the beginning of
their next fiscal year that begins after June 15, 2005. We intend to adopt SFAS 123R at the beginning of
the first quarter of fiscal 2006. We expect that the adoption of SFAS 123R will have a significant negative
impact on our results of operations, but will not impact our overall financial position. The impact of
adoption of SFAS 123R cannot be predicted at this time because it will depend on levels of share-based
payments granted in the future. However, had we adopted 123R in prior periods, the impact of that
standard would have approximated the impact of SFAS 123 as described in the disclosure of pro forma net
income and net income per share in Note 2 to our consolidated financial statements.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Our financial instruments include cash, cash equivalents and short-term investments. Our main
investment objectives are the preservation of investment capital and the maximization of after-tax returns
on our investment portfolio. Our interest income is sensitive to changes in the general level of U.S. interest
rates. Based on our cash, cash equivalents and short-term investments holdings as of December 31, 2005,
an immediate one-percentage point decline in the yield for such instruments would decrease our annual
interest income by approximately $3.6 million. We believe that our investment policy is conservative, both
in the duration of our investments and the credit quality of the investments we hold.
Item 8. Financial Statements and Supplementary Data
The Financial Statements and supplementary data required by this item are included in Part IV,
Item 15 of this Form 10-K and are presented beginning on page F-1.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
50
Item 9A. Controls and Procedures
We have performed an evaluation under the supervision and with the participation of our
management, including our Chief Executive Officer (CEO) and Chief Financial Officer (CFO), of the
effectiveness of our disclosure controls and procedures, as defined in Rule 13a-15(e) under the Securities
Exchange Act of 1934 (the Exchange Act). Based on that evaluation, our management, including our CEO
and CFO, concluded that our disclosure controls and procedures were effective as of December 31, 2005 to
provide reasonable assurance that information required to be disclosed by us in the reports filed or
submitted by us under the Exchange Act is recorded, processed, summarized and reported within the time
periods specified in the SEC’s rules and forms. There was no change in our internal controls during the
fiscal quarter ended December 31, 2005 that materially affected, or is reasonably likely to materially affect,
our internal controls over financial reporting.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over
financial reporting. Our internal control system was designed to provide reasonable assurance to our
management and board of directors regarding the preparation and fair presentation of published financial
statements.
Our management assessed the effectiveness of our internal control over financial reporting as of
December 31, 2005. In making this assessment, it used the criteria set forth by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control—Integrated
Framework. Based on our assessment we believe that, as of December 31, 2005, our internal control over
financial reporting is effective based on those criteria.
Our independent registered public accounting firm, Ernst & Young LLP, issued an attestation report
on our assessment of our internal control over financial reporting. This report appears on page F-1.
Item 9B. Other Information
None.
51
PART III
Certain information required by Part III is omitted from this report because we intend to file a
definitive Proxy Statement pursuant to Regulation 14A (the “Proxy Statement”) no later than 120 days
after the end of the fiscal year covered by this report, and certain information to be included therein is
incorporated herein by reference.
Item 10. Directors and Executive Officers of the Registrant
Set forth below is information regarding the executive officers and directors of Silicon Laboratories as
of January 27, 2006.
Name
Navdeep S. Sooch . . . . . . . . . . . . . . . . .
Necip Sayiner . . . . . . . . . . . . . . . . . . . . .
Russell J. Brennan . . . . . . . . . . . . . . . .
David R. Welland . . . . . . . . . . . . . . . . .
Jonathan D. Ivester. . . . . . . . . . . . . . . .
Gary R. Gay . . . . . . . . . . . . . . . . . . . . . .
William G. Bock . . . . . . . . . . . . . . . . . .
Harvey B. Cash . . . . . . . . . . . . . . . . . . .
R. Ted Enloe III . . . . . . . . . . . . . . . . . .
Laurence G. Walker . . . . . . . . . . . . . . .
William P. Wood . . . . . . . . . . . . . . . . . .
Age
43
40
51
50
50
55
55
67
67
57
50
Position
Chairman of the Board
Chief Executive Officer, President and Director
Chief Financial Officer
Vice President and Director
Vice President of Worldwide Operations
Vice President of Worldwide Sales
Director
Director
Director
Director
Director
Navdeep S. Sooch co-founded Silicon Laboratories in August 1996 and has served as Chairman of the
Board since our inception. Mr. Sooch served as our Chief Executive Officer from our inception through
the end of fiscal 2003 and served as interim Chief Executive Officer from April 2005 to September 2005.
From March 1985 until founding Silicon Laboratories, Mr. Sooch held various positions at Crystal
Semiconductor/Cirrus Logic, a designer and manufacturer of integrated circuits, including Vice President
of Engineering, as well as Product Planning Manager of Strategic Marketing and Design Engineer. From
May 1982 to March 1985, Mr. Sooch was a Design Engineer with AT&T Bell Labs. Mr. Sooch holds a B.S.
in electrical engineering from the University of Michigan, Dearborn and a M.S. in electrical engineering
from Stanford University.
Necip Sayiner has served as Director, President and Chief Executive Officer since September 2005.
Prior to joining Silicon Laboratories, Mr. Sayiner held various leadership positions at Agere Systems Inc.
From August 2004 to September 2005, Mr. Sayiner served as Vice President and General Manager of
Agere’s Enterprise and Networking Division and from March 2002 to August 2004 he served as Vice
President and General Manager of Agere’s Networking IC Division. Mr. Sayiner holds a B.S. in electrical
engineering and physics from Bosphorus University in Turkey, a MS in electrical engineering from
Southern Illinois University, and a Ph.D. in electrical engineering from the University of Pennsylvania.
Russell J. Brennan has served as our Vice President and Chief Financial Officer since
September 2002. Mr. Brennan worked for Analog Devices, Inc., a designer and manufacturer of integrated
circuits, from January 1988 to September 2002, where he most recently served as Vice President of Finance
and Corporate Controller. From 1984 to 1988, Mr. Brennan served as Controller for the Analog Unit of
Fairchild Semiconductor, a designer and manufacturer of semiconductors for multiple end market
applications prior to its acquisition by National Semiconductor. From 1982 to 1984, Mr. Brennan served as
Controller for Schlumberger Well Services, a supplier for the oil and gas industry. From 1978 to 1982,
Mr. Brennan served in various financial roles at Texas Instruments. Mr. Brennan holds a B.A. in
economics from Boston College and a M.B.A. with a concentration in finance and accounting from
New York University Graduate School of Business.
52
David R. Welland co-founded Silicon Laboratories in August 1996 and has served as a Vice President
and director since our inception and was appointed Fellow in March 2004. From November 1991 until
founding Silicon Laboratories, Mr. Welland held various positions at Crystal Semiconductor/Cirrus Logic,
including Senior Design Engineer. Mr. Welland holds a B.S. in electrical engineering from the
Massachusetts Institute of Technology.
Gary R. Gay joined Silicon Laboratories in October 1997 as Vice President. Previously, Mr. Gay was
with Crystal Semiconductor/Cirrus Logic from 1985 to September 1997 where he most recently served as
Vice President of North American Sales. From 1979 to 1985, Mr. Gay was International Sales Manager
and Asia Pacific Sales Manager with Burr-Brown Corporation, a designer and manufacturer of
semiconductor components. Mr. Gay holds a B.S. in electrical engineering from the Rochester Institute of
Technology.
Jonathan D. Ivester joined Silicon Laboratories in September 1997 as Vice President. From May 1984
to September 1997, Mr. Ivester was with Applied Materials, a supplier of equipment and services to the
semiconductor industry, and served as Director of Manufacturing and Director of U.S. Procurement in
addition to various engineering and manufacturing management positions. Mr. Ivester was a scientist at
Bechtel Corporation, an engineering and construction company, from 1980 to 1982 and at Abcor, Inc., an
ultrafiltration company and subsidiary of Koch Industries, from 1978 to 1980. Mr. Ivester holds a B.S. in
chemistry from the Massachusetts Institute of Technology and a M.B.A. from Stanford University.
William G. Bock has served as a director of Silicon Laboratories since March 2000. Since April 2002,
Mr. Bock has been a partner of CenterPoint Ventures, a venture capital firm. From April 2001 to
March 2002, Mr. Bock served as a partner of Verity Ventures, a venture capital firm. From June 1999 to
March 2001, Mr. Bock served as a Vice President and General Manager at the Hewlett-Packard Company.
Mr. Bock held the position of President and Chief Executive Officer of DAZEL Corporation, a provider of
electronic information delivery systems, from February 1997 until its acquisition by the Hewlett-Packard
Company in June 1999. From October 1994 to February 1997, Mr. Bock served as Chief Operating Officer
of Tivoli Systems, a client server software company, which was acquired by IBM in March 1996. Mr. Bock
holds a B.S. in Computer Science from Iowa State University and a M.S. in industrial administration from
Carnegie Mellon University.
Harvey B. Cash has served as a director of Silicon Laboratories since June 1997. Mr. Cash has served
as general partner of InterWest Partners, a venture capital firm, since 1986. Mr. Cash currently serves on
the Board of Directors of the following public companies: i2 Technologies, a provider of intelligent e-
business and marketplace solutions; Ciena Corporation, a designer and manufacturer of dense wavelength
division multiplexing systems for fiber optic networks; Argonaut Group Inc., a specialty insurance
company; First Acceptance Corp, a provider of low-cost auto insurance; and Staktek, Inc., a semiconductor
assembly company. Mr. Cash holds a B.S. in electrical engineering from Texas A&M University and a
M.B.A. from Western Michigan University.
R. Ted Enloe III has served as a director of Silicon Laboratories since April 2003. Mr. Enloe is
currently managing general partner of Balquita Partners, Ltd., a family investment partnership. Mr. Enloe
formerly served as President and Chief Executive Officer of Optisoft, Inc., a provider of intelligent traffic
signal platforms. He also served as Vice Chairman and member of the office of chief executive of Compaq
Computer Corporation. Mr. Enloe served as President of Lomas Financial Corporation and Liberté
Investors for more than 15 years. Mr. Enloe co-founded a number of other publicly held firms, including
Capstead Mortgage Corp., Tyler Cabot Mortgage Securities Corp., and Seaman’s Corp. Mr. Enloe
currently serves on the Board of Directors of Leggett & Platt, Inc. Mr. Enloe holds a B.S. in engineering
from Louisiana Polytechnic University and a J.D. from Southern Methodist University.
53
Laurence G. Walker has served as a director of Silicon Laboratories since June 2003. Previously,
Mr. Walker co-founded and served as Chief Executive Officer of C-Port Corporation, a pioneer in the
network processor industry, which was acquired by Motorola in 2000. Following the acquisition,
Mr. Walker served as Vice President of Strategy for Motorola’s Network and Computing Systems Group
and then as Vice President and General Manager of the Network and Computing Systems Group until
2002. From August 1996 to May 1997, Mr. Walker served as Chief Executive Officer of CertCo, a digital
certification supplier. Mr. Walker served as Vice President and General Manager, Network Products
Business Unit, of Digital Equipment Corporation, a computer hardware company, from January 1994 to
July 1996. From 1981 to 1994, he held a variety of other management positions at Digital Equipment
Corporation. Mr. Walker currently serves as a director of McDATA Corporation, an expert provider of
multi-capable storage networking solutions. Mr. Walker holds a B.S. in electrical engineering from
Princeton University and a M.S. and Ph.D. in electrical engineering from the Massachusetts Institute of
Technology.
William P. Wood has served as a director of Silicon Laboratories since March 1997 and has served as
Lead Director since December 2005. Since 1996, Mr. Wood has also served as general partner of various
funds associated with Silverton Partners, a venture capital firm. From 1984 to 2003, Mr. Wood was a
general partner, and for certain funds created since 1996, a special limited partner, of various funds
associated with Austin Ventures, a venture capital firm. Mr. Wood holds a B.A. in history from Brown
University and a M.B.A. from Harvard University.
The remaining information required by this Item is incorporated by reference to the Proxy Statement
under the sections captioned “Proposal 1—Election of Directors”, “Executive Compensation”,
“Compliance with Section 16(a) of the Securities Exchange Act of 1934.” and “Code of Ethics.”
Item 11. Executive Compensation
The information under the caption “Executive Compensation,” appearing in the Proxy Statement, is
incorporated herein by reference.
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
The information under the caption “Ownership of Securities” and “Equity Compensation Plan
Information” appearing in the Proxy Statement, is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
The information under the caption “Certain Transactions,” appearing in the Proxy Statement, is
incorporated herein by reference.
Item 14. Principal Accountant Fees and Services
The information related to audit fees and services appearing in the Proxy Statement, is incorporated
herein by reference.
54
Item 15. Exhibits and Financial Statement Schedules
(a) 1. Financial Statements
PART IV
SILICON LABORATORIES INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
Report of independent registered public accounting firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-1
Report of independent registered public accounting firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-2
Consolidated balance sheets at December 31, 2005 and January 1, 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . F-3
Consolidated statements of income for the fiscal years ended December 31, 2005, January 1, 2005
and January 3, 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-4
Consolidated statements of changes in stockholders’ equity for the fiscal years ended December 31,
2005, January 1, 2005 and January 3, 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-5
Consolidated statements of cash flows for the fiscal years ended December 31, 2005, January 1,
2005 and January 3, 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-6
Notes to consolidated financial statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-7
2.
Schedules
All schedules have been omitted since the information required by the schedule is not applicable,
or is not present in amounts sufficient to require submission of the schedule, or because the
information required is included in the consolidated financial statements and notes thereto.
3. Exhibits
The exhibits listed on the accompanying index to exhibits immediately following the consolidated
financial statements are filed as part of, or hereby incorporated by reference into, this Form 10-K.
(b) Exhibits
Exhibit
Number
2.1* Agreement and Plan of Merger, dated August 19, 2005, by and among Silicon
Laboratories Inc., Sabine Merger Sub, Inc., and Silicon MAGIKE, Inc. (filed as
Exhibit 2.1 to the Form 8-K filed August 22, 2005).
3 .1* Form of Fourth Amended and Restated Certificate of Incorporation of Silicon
Laboratories Inc. (filed as Exhibit 3.1 to the Registrant’s Registration Statement on
Form S-1 (Securities and Exchange Commission File No. 333-94853) (the “IPO
Registration Statement”)).
3.2*
Second Amended and Restated Bylaws of Silicon Laboratories Inc (filed as Exhibit 3.2 to
the Registrant’s Annual Report on Form 10-K for the fiscal year ended January 3,
2004).
4 .1*
Specimen certificate for shares of common stock (filed as Exhibit 4.1 to the IPO
Registration Statement).
10.1*
Form of Indemnification Agreement between Silicon Laboratories Inc. and each of its
directors and executive officers (filed as Exhibit 10.1 to the IPO Registration
Statement).
10.2*
Silicon Laboratories Inc. 2000 Stock Incentive Plan (filed as Exhibit 99.1 to the
Registrant’s Registration Statement on Form S-8 (Securities and Exchange
Commission File No. 333-60794) filed on May 11, 2001).
55
Exhibit
Number
10.3*
Form of Stock Option Agreement and Notice of Grant of Stock Option under
Registrant’s 2000 Stock Incentive Plan (filed as Exhibit 10.3 to the Registrant’s Annual
Report on Form 10-K for the year ended January 1, 2005).
10.4*
Form of Addendum to Stock Option Agreement under Registrant’s 2000 Stock Incentive
Plan (filed as Exhibit 10.4 to the Registrant’s Annual Report on Form 10-K for the year
ended January 1, 2005).
10.5*
Form of Stock Issuance Agreement under Registrant’s 2000 Stock Incentive Plan (filed as
Exhibit 10.5 to the Registrant’s Annual Report on Form 10-K for the year ended
January 1, 2005).
10.6*
Form of Addendum to Stock Issuance Agreement under Registrant’s 2000 Stock
Incentive Plan (filed as Exhibit 10.6 to the Registrant’s Annual Report on Form 10-K
for the year ended January 1, 2005).
10.7
10.8*
Silicon Laboratories Inc. Employee Stock Purchase Plan.
Lease Agreement dated June 26, 1998 by and between Silicon Laboratories Inc. and
S.W. Austin Office Building Ltd. (filed as Exhibit 10.5 to the IPO Registration
Statement).
10.9*
Lease Agreement dated October 27, 1999 by and between Silicon Laboratories Inc. and
Stratus 7000 West Joint Venture (filed as Exhibit 10.6 to the IPO Registration
Statement).
10.10*
Lease Agreement dated June 29, 2000 by and between Silicon Laboratories Inc. and
Stratus 7000 West Joint Venture. (filed as Exhibit 10.19 to the Registrant’s Quarterly
Report on Form 10-Q for the quarter ended July 1, 2000).
10.11*
Employment Agreement dated August 30, 2005 between Silicon Laboratories Inc. and
Dr. Necip Sayiner (filed as Exhibit 10.1 to the Form 8-K filed September 12, 2005).
10.12*
Silicon Laboratories Inc. 2006 Bonus Plan (filed as Exhibit 10.1 to the Registrant’s
21
23.1
24
31.1
31.2
Current Report on Form 8-K filed on December 15, 2005).
Subsidiaries of the Registrant.
Consent of Independent Registered Public Accounting Firm.
Power of Attorney (included on signature page to this Form 10-K).
Certification of the Principal Executive Officer, as required by Section 302 of the
Sarbanes-Oxley Act of 2002.
Certification of the Principal Accounting Officer, as required by Section 302 of the
Sarbanes-Oxley Act of 2002.
32.1
Certification as required by Section 906 of the Sarbanes-Oxley Act of 2002.
*
Incorporated herein by reference to the indicated filing.
56
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized, in Austin, Texas, on February 8, 2006.
SIGNATURES
SILICON LABORATORIES INC.
(Registrant)
By: /s/ NECIP SAYINER
Necip Sayiner
President and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Necip Sayiner and Russell J. Brennan, and each of them, acting individually, as
his or her attorney-in-fact, each with full power of substitution and resubstitution, for him or her and in his
or her name, place and stead, in any and all capacities, to sign any and all amendments to this annual
report on Form 10-K and other documents in connection herewith and therewith, and to file the same,
with all exhibits thereto, with the Securities and Exchange Commission, granting unto said attorneys-in-
fact and agents, and each of them, full power and authority to do and perform each and every act and thing
requisite and necessary to be done in connection herewith and therewith and about the premises, as fully
to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents, or any of them, or their or his substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed
below by the following persons on behalf of the registrant and in the capacities and on the dates indicated:
NAME
TITLE
DATE
/s/ Navdeep S. Sooch
Navdeep S. Sooch
/s/ Necip Sayiner
Necip Sayiner
Chairman of the Board
February 8, 2006
President, Chief Executive Officer and Director
February 8, 2006
(principal executive officer)
/s/ Russell J. Brennan
Russell J. Brennan
Vice President and Chief Financial Officer
February 8, 2006
(principal financial and accounting officer)
/s/ David R. Welland
David R. Welland
Vice President and Director
February 9, 2006
/s/ William G. Bock
William G. Bock
Director
February 8, 2006
57
NAME
TITLE
DATE
/s/ Harvey B. Cash
Harvey B. Cash
Director
/s/ Robert Ted Enloe, III
Robert Ted Enloe, III
Director
/s/ Laurence G. Walker
Laurence G. Walker
Director
/s/ William P. Wood
William P. Wood
Director
February 8, 2006
February 8, 2006
February 8, 2006
February 8, 2006
58
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders of Silicon Laboratories Inc.
We have audited management’s assessment, included in the accompanying Management’s Report on
Internal Control over Financial Reporting, that Silicon Laboratories Inc. maintained effective internal
control over financial reporting as of December 31, 2005, based on criteria established in Internal
Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (the COSO criteria). Silicon Laboratories Inc.’s management is responsible for maintaining
effective internal control over financial reporting and for its assessment of the effectiveness of internal
control over financial reporting. Our responsibility is to express an opinion on management’s assessment
and an opinion on the effectiveness of the company’s internal control over financial reporting based on our
audit.
We conducted our audit in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control over financial reporting was maintained in
all material respects. Our audit included obtaining an understanding of internal control over financial
reporting, evaluating management’s assessment, testing and evaluating the design and operating
effectiveness of internal control, and performing such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles. A company’s internal
control over financial reporting includes those policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the
assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted accounting principles,
and that receipts and expenditures of the company are being made only in accordance with authorizations
of management and directors of the company; and (3) provide reasonable assurance regarding prevention
or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have
a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk
that controls may become inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
In our opinion, management’s assessment that Silicon Laboratories Inc. maintained effective internal
control over financial reporting as of December 31, 2005, is fairly stated, in all material respects, based on
the COSO criteria. Also, in our opinion, Silicon Laboratories Inc. maintained, in all material respects,
effective internal control over financial reporting as of December 31, 2005, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the consolidated balance sheets of Silicon Laboratories Inc. as of December 31,
2005 and January 1, 2005, and the related consolidated statements of income, changes in stockholders’
equity, and cash flows for each of the three fiscal years in the period ended December 31, 2005 of Silicon
Laboratories Inc. and our report dated February 6, 2006 expressed an unqualified opinion thereon.
Austin, Texas
February 6, 2006
/s/ ERNST & YOUNG LLP
F-1
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders of Silicon Laboratories Inc.
We have audited the accompanying consolidated balance sheets of Silicon Laboratories Inc. as of
December 31, 2005 and January 1, 2005, and the related consolidated statements of income, changes in
stockholders’ equity, and cash flows for each of the three fiscal years in the period ended December 31,
2005. These financial statements are the responsibility of the Company’s management. Our responsibility is
to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the
consolidated financial position of Silicon Laboratories Inc. at December 31, 2005 and January 1, 2005, and
the consolidated results of its operations and its cash flows for each of the three fiscal years in the period
ended December 31, 2005, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the effectiveness of Silicon Laboratories Inc.’s internal control over financial
reporting as of December 31, 2005, based on criteria established in Internal Control—Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our
report dated February 6, 2006 expressed an unqualified opinion thereon.
/s/ ERNST & YOUNG LLP
Austin, Texas
February 6, 2006
F-2
Silicon Laboratories Inc.
Consolidated Balance Sheets
(in thousands, except per share data)
Current assets:
ASSETS
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Short-term investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts receivable, net of allowance for doubtful accounts of $1,088 at
December 31, 2005 and January 1, 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property, equipment and software, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other intangible assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income on shipments to distributors . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term obligations and other liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commitments and contingencies
Stockholders’ equity:
December 31,
2005
January 1,
2005
$255,369
108,341
$ 48,636
228,470
68,824
23,132
11,505
9,670
476,841
32,584
62,877
14,838
25,863
$ 613,003
$ 43,846
11,307
34,036
18,348
107,537
7,418
114,955
46,272
38,405
9,878
5,244
376,905
34,559
46,766
15,384
10,788
$ 484,402
$ 37,001
11,913
25,227
8,207
82,348
2,570
84,918
Preferred stock—$0.0001 par value; 10,000 shares authorized; no shares
issued and outstanding. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
—
Common stock—$0.0001 par value; 250,000 shares authorized; 54,530 and
52,508 shares issued and outstanding at December 31, 2005 and
January 1, 2005, respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred stock compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities and stockholders’ equity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5
335,284
(1,105)
163,864
498,048
$613,003
5
287,908
(4,787)
116,358
399,484
$484,402
The accompanying notes are an integral part of these consolidated financial statements.
F-3
Silicon Laboratories Inc.
Consolidated Statements of Income
(in thousands, except per share data)
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating expenses:
Research and development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling, general and administrative . . . . . . . . . . . . . . . . . . . . . . . . . .
Write off of in-process research & development. . . . . . . . . . . . . . .
Operating expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other income (expense):
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other income (expense), net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income per share:
December 31,
2005
$ 425,689
193,904
231,785
Year Ended
January 1,
2005
$ 456,225
206,320
249,905
January 3,
2004
$ 325,305
162,296
163,009
101,222
72,553
—
173,775
58,010
8,285
(322)
(332)
65,641
18,135
78,056
65,164
—
143,220
106,685
3,054
(311)
2,148
111,576
34,883
51,856
44,139
1,600
97,595
65,414
1,368
(49)
(537)
66,196
21,480
$ 47,506
$ 76,693
$ 44,716
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
0.89
0.86
$
$
1.49
1.39
$
$
0.92
0.86
Weighted-average common shares outstanding:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
53,399
55,485
51,471
54,983
48,850
52,288
The accompanying notes are an integral part of these consolidated financial statements.
F-4
Silicon Laboratories Inc.
Consolidated Statements of Changes in Stockholders’ Equity
(in thousands)
Common Stock
Additional
Paid-In
Capital
$ 174,088
Stockholder
Notes
Receivable
$ (228)
Deferred
Stock
Compensation
$ (13,092)
Retained
Earnings
(Deficit)
$ (5,051)
Total
Stockholders’
Equity
$ 155,722
Balance as of December 29, 2002 . . . .
Exercises of stock options . . . . . . . .
Income tax benefit from employee
stock-based awards . . . . . . . . . . .
Repurchase and cancellation of
Number
of
Shares
48,904
1,063
—
Par
Value
$ 5
—
—
14,739
6,969
unvested shares . . . . . . . . . . . . . .
(5 ) —
(21)
Repayment of stockholder notes
receivable . . . . . . . . . . . . . . . . . .
Employee Stock Purchase Plan. . . .
Deferred stock compensation . . . . .
Amortization of stock
compensation . . . . . . . . . . . . . . .
Purchase acquisition . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . .
—
85
—
—
1,190
—
Balance as of January 3, 2004 . . . . . . .
51,237
Exercises of stock options . . . . . . . .
Income tax benefit from employee
stock-based awards . . . . . . . . . . .
Repurchase and cancellation of
unvested shares . . . . . . . . . . . . . .
Employee Stock Purchase Plan. . . .
Deferred stock compensation . . . . .
Amortization of stock
compensation . . . . . . . . . . . . . . .
Purchase acquisition . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . .
798
—
(5 )
109
—
—
369
—
Balance as of January 1, 2005 . . . . . . .
Exercises of stock options . . . . . . . .
Income tax benefit from employee
stock-based awards . . . . . . . . . . .
52,508
1,208
—
—
—
—
—
—
—
5
—
—
—
—
—
—
—
—
5
—
—
Repurchase and cancellation of
unvested shares . . . . . . . . . . . . . .
Employee Stock Purchase Plan. . . .
Deferred stock compensation . . . . .
Amortization of stock
compensation . . . . . . . . . . . . . . .
Purchase acquisition . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . .
(31) —
133
—
—
—
—
712
—
—
—
—
—
1,793
1,151
—
58,073
—
256,792
10,268
6,766
—
2,746
(233)
—
11,569
—
287,908
17,339
4,615
(12)
2,862
(697)
4,289
18,980
—
—
—
—
228
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(1,151)
4,986
—
—
(9,257)
—
—
—
—
233
4,237
—
—
(4,787)
—
—
—
—
697
2,985
—
—
—
—
—
—
—
—
—
—
44,716
39,665
—
—
—
—
—
—
—
76,693
116,358
—
—
—
—
—
—
—
47,506
14,739
6,969
(21)
228
1,793
—
4,986
58,073
44,716
287,205
10,268
6,766
—
2,746
—
4,237
11,569
76,693
399,484
17,339
4,615
(12)
2,862
—
7,274
18,980
47,506
Balance as of December 31, 2005 . . . .
54,530
$ 5
$ 335,284
$ —
$ (1,105)
$ 163,864
$ 498,048
The accompanying notes are an integral part of these consolidated financial statements.
F-5
Silicon Laboratories Inc.
Consolidated Statements of Cash Flows
(in thousands)
OPERATING ACTIVITIES
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments to reconcile net income to cash provided by operating
activities:
Depreciation and amortization of property, equipment and software . . . .
Loss (gain) on disposal of property, equipment and software. . . . . . . . . . .
Write off of in-process research & development . . . . . . . . . . . . . . . . . . . . .
Amortization of other intangible assets and other assets. . . . . . . . . . . . . . .
Acquired research and development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock compensation expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity investment loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax benefit from employee stock-based awards. . . . . . . . . . . . . . . .
Changes in operating assets and liabilities:
Accounts receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income on shipments to distributors . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by operating activities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
INVESTING ACTIVITIES
Purchases of short-term investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sales and maturities of short-term investments. . . . . . . . . . . . . . . . . . . . . . . . .
Purchases of property, equipment and software . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from sale of property, equipment and software . . . . . . . . . . . . . . . .
Purchases of other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash acquired (used) in connection with acquisition of business . . . . . . .
Net cash provided by (used in) investing activities . . . . . . . . . . . . . . . . . . . . . .
FINANCING ACTIVITIES
Proceeds from repayment of stockholder notes . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from Employee Stock Purchase Plan . . . . . . . . . . . . . . . . . . . . . . . . .
Repurchase and cancellation of common stock . . . . . . . . . . . . . . . . . . . . . . . .
Net proceeds from exercises of stock options . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Increase (decrease) in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents at beginning of period. . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents at end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31,
2005
Year Ended
January 1,
2005
January 3,
2004
$ 47,506
$ 76,693 $ 44,716
17,712
124
—
2,818
13,687
7,274
—
4,615
(22,552)
15,273
(13,119)
15,829
(606)
8,809
(3,521)
10,141
103,990
(180,532)
300,661
(20,377)
266
(17,458)
(6)
82,554
—
2,862
—
17,327
20,189
16,191
(2,174 )
—
3,315
—
4,237
—
6,766
1,607
(4,341 )
(1,602 )
(10,689 )
662
13,701
(3,645 )
(4,456 )
96,265
15,427
1,087
1,600
3,742
—
4,986
663
6,969
(19,543)
(19,201)
(1,048)
24,681
1,916
1,188
505
4,194
71,882
(638,337 )
541,746
(20,508 )
4,464
(6,328 )
(114 )
(119,077 )
(354,696)
298,954
(11,438)
—
(7,124)
5,367
(68,937)
—
2,746
—
10,268
13,014
228
1,793
(21)
14,739
16,739
206,733
48,636
19,684
38,750
$ 255,369 $ 48,636 $ 58,434
(9,798 )
58,434
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
344
6,622
$
49
254 $
$ 36,350 $ 10,326
SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITY:
Accrued other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock issued for acquisition of business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
8,126
$ 18,980
2,902 $
$
9,514
$ 11,569 $ 58,074
The accompanying notes are an integral part of these consolidated financial statements.
F-6
Silicon Laboratories Inc.
Notes to Consolidated Financial Statements
December 31, 2005
1. ORGANIZATION
Silicon Laboratories Inc. (the Company), a Delaware corporation, develops and markets mixed-signal
analog intensive integrated circuits (ICs) for a broad range of applications for global markets. Within the
semiconductor industry, the Company is known as a “fabless” company meaning that the ICs are
manufactured by third-party foundry semiconductor companies.
2. SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The Company prepares financial statements on a 52-53 week year that ends on the Saturday closest to
December 31. Fiscal 2005 ended on December 31, 2005, fiscal 2004 ended January 1, 2005 and fiscal 2003
ended January 3, 2004. Fiscal 2005 and 2004 each had 52 weeks and fiscal 2003 had 53 weeks. The extra
week in fiscal 2003 occurred in the fourth quarter of the year.
PRINCIPLES OF CONSOLIDATION AND FOREIGN CURRENCY TRANSLATION
The accompanying consolidated financial statements include the accounts of the Company and its
wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated.
The primary functional currency of the Company’s foreign subsidiaries is the U.S. dollar; accordingly, all
translation gains and losses resulting from transactions denominated in currencies other than U.S. dollars
are included in net income.
RECLASSIFICATIONS
Certain reclassifications have been made to prior period financial statements. Previously, the
Company recorded amortization of stock compensation as a separate line item of the consolidated
statements of income. The Securities and Exchange Commission (SEC) released Staff Accounting Bulletin
No. 107, “Share-Based Payment,” (SAB 107) which states that companies should present the expense
related to share-based payment arrangements in the same line or lines as cash compensation paid to the
same employees. Accordingly, the Company has reclassified share-based payments previously recorded as
“amortization of stock compensation” to the appropriate functional categories. The reclassifications had
no impact on the Company’s financial position, operating income or net income. The following table
summarizes amortization of stock compensation that is now recorded within functional categories in the
consolidated statements of income (in thousands):
Cost of revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Research and development . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling, general and administrative . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
98
2,803
1,854
$ 4,755
$
90
3,139
1,008
$ 4,237
December 31,
2005
Year Ended
January 1,
2005
January 3,
2004
$ 123
3,560
1,303
$ 4,986
F-7
2. SIGNIFICANT ACCOUNTING POLICIES (Continued)
An additional $2.5 million was recorded in selling, general and administrative during fiscal 2005 in
connection with certain modifications of non-employee stock compensation. The Company accelerated the
vesting of certain options and stock awards and extended the exercise period of the options pursuant to a
separation agreement between the Company and its former CEO.
Certain other reclassifications have been made to prior year financial statements to conform with
current year presentation.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash deposits and investments with a maturity of ninety days or
less when purchased.
SHORT-TERM INVESTMENTS
The Company’s short-term investments have original maturities greater than ninety days as of the date
of purchase and have been classified as available-for-sale securities in accordance with Financial
Accounting Standards Board (FASB) Statement of Financial Accounting Standards (SFAS) No. 115,
“Accounting for Certain Investments in Debt and Equity Securities”. The Company has the ability and
intent, if necessary, to liquidate any of its investments in order to meet its liquidity needs in the next
12 months. Accordingly, investments with contractual maturities greater than one year from the date of
purchase are classified as short-term investments on the consolidated balance sheets. The carrying value of
all available-for-sale securities approximates their fair value due to their short-term nature. The Company
reviews these investments as of the end of each reporting period for other-than-temporary declines in fair
value based on the specific identification method. When the Company concludes that an
other-than-temporary impairment has resulted, the difference between the fair value and the carrying
value is written off and recorded as an impairment charge in the consolidated statement of income.
Short-term investments at December 31, 2005 and January 1, 2005 consist of the following debt securities
(in thousands):
Municipal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
U.S. Government Agency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Carrying Value
December 31,
2005
$ 107,344
997
—
$ 108,341
January 1,
2005
$ 191,670
—
36,800
$ 228,470
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company’s financial instruments consist principally of cash and cash equivalents, short-term
investments, receivables and accounts payable. The Company believes all of these financial instruments are
recorded at amounts that approximate their current market values.
F-8
2. SIGNIFICANT ACCOUNTING POLICIES (Continued)
INVENTORIES
Inventories are stated at the lower of cost, determined using the first-in, first-out method, or market.
Shipping and handling costs are classified as a component of cost of revenue in the consolidated
statements of income. Inventories consist of the following (in thousands):
Work in progress. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Finished goods. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31,
2005
$15,409
7,723
$23,132
January 1,
2005
$23,149
15,256
$38,405
PROPERTY, EQUIPMENT AND SOFTWARE
Property, equipment, and software are stated at cost, net of accumulated depreciation and
amortization. Depreciation and amortization are computed using the straight-line method over the useful
lives of the assets (generally three to five years). Leasehold improvements are depreciated over the
contractual lease period or their useful life, whichever is shorter. Property, equipment and software consist
of the following (in thousands):
Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Computers and purchased software. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Furniture and fixtures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Leasehold improvements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31,
2005
$ 32,880
31,611
1,941
5,872
72,304
(39,720)
$ 32,584
January 1,
2005
$ 26,920
28,008
1,770
5,513
62,211
(27,652)
$ 34,559
LONG-LIVED ASSETS
The Company evaluates its long-lived assets in accordance with FASB SFAS No. 144, “Accounting for
the Impairment of Long-lived Assets”. Long-lived assets “held and used” by the Company are reviewed for
impairment whenever events or changes in circumstances indicate that their net book value may not be
recoverable. When such factors and circumstances exist, the Company compares the projected
undiscounted future cash flows associated with the related asset or group of assets over their estimated
useful lives, against their respective carrying amounts. Impairment, if any, is based on the excess of the
carrying amount over the fair value of those assets and is recorded in the period in which the
determination was made. Long-lived assets held for sale by the Company are adjusted to fair value less cost
to sell in the period the “held for sale” criteria are met and reclassified to a current asset. The fair value
less cost to sell amount is evaluated each period to determine if it has changed. Changes are recognized as
gains or losses in the period in which they occur.
F-9
2. SIGNIFICANT ACCOUNTING POLICIES (Continued)
Carrying values of goodwill and other intangible assets with indefinite lives are reviewed at least
annually by the Company for possible impairment in accordance with FASB SFAS No. 142, “Goodwill and
Other Intangible Assets”, (SFAS 142). The goodwill impairment test is a two-step process. The first step of
the impairment analysis compares the fair value of the company or reporting unit to the net book value of
the company or reporting unit. In determining fair value, SFAS 142 allows for the use of several valuation
methodologies, although it states quoted market prices are the best evidence of fair value. Step two of the
analysis compares the implied fair value of goodwill to its carrying amount. If the carrying amount of
goodwill exceeds its implied fair value, an impairment loss is recognized equal to that excess. The
Company tests goodwill for impairment annually as of the first day of its fourth fiscal quarter and in
interim periods if events occur that would indicate that the carrying value of goodwill may be impaired.
EQUITY METHOD INVESTMENTS
Where the Company has investments in affiliated companies in which it has the ability to exercise
significant influence over operating and financial policies, but not control, these investments are accounted
for using the equity method. When special conditions warrant, for example when the Company is the sole
funding source for an affiliated company and the affiliated company has not generated sufficient cash flows
to sustain its operations, the Company determines equity income measurement by using the Hypothetical
Liquidation at Book Value (HLBV) method. The HLBV method is a balance-sheet oriented approach to
equity method accounting and is calculated as the amount that the Company would receive if the affiliated
company were to liquidate all of its assets at recorded amounts and distribute the cash to creditors and
investors in accordance with their respective liquidation preferences.
The Company records investment income (loss) under the caption other income (expense), net in its
consolidated statements of income.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting principles generally accepted in
the United States requires management to make estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes. Among the significant estimates affecting
the financial statements are those related to inventories, accounts receivables, long-lived assets, goodwill
and income taxes. Actual results could differ from those estimates, and such differences could be material
to the financial statements.
F-10
2. SIGNIFICANT ACCOUNTING POLICIES (Continued)
RISKS AND UNCERTAINTIES
Financial instruments that potentially subject the Company to significant concentrations of credit risk
consist primarily of cash, cash equivalents, short-term investments and accounts receivable. The Company
places its cash, cash equivalents and short-term investments primarily in market rate accounts.
Concentrations of credit risk with respect to accounts receivable are primarily due to customers with large
outstanding balances. At December 31, 2005, one of the Company’s distributors, Edom Technology,
represented 39% of the Company’s accounts receivable. The Company performs periodic credit
evaluations of its customers’ financial condition and generally requires no collateral from its customers.
The Company provides an allowance for doubtful accounts receivable based upon the expected
collectibility of such receivables. The following table summarizes the changes in the allowance for doubtful
accounts receivable (in thousands):
Balance at December 29, 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance acquired from the Cygnal purchase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additions charged to costs and expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Write-off of uncollectible accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at January 3, 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additions charged to costs and expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Write-off of uncollectible accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at January 1, 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additions charged to costs and expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Write-off of uncollectible accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 945
39
117
(22)
1,079
38
(29)
1,088
225
(225)
Balance at December 31, 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,088
A significant portion of the Company’s products are fabricated by Taiwan Semiconductor
Manufacturing Co. (TSMC). The inability of TSMC to deliver wafers to the Company on a timely basis
could impact the production of the Company’s products for a substantial period of time, which could have
a material adverse effect on the Company’s business, financial condition and results of operations.
The Company sells directly to end customers, distributors and contract manufacturers. Although the
Company actually sells the products to, and is paid by, distributors and contract manufacturers, the
Company refers to the end customer as its customer. The following is a detail of the Company’s end
customers and distributors that accounted for greater than 10% of revenue in the respective fiscal years:
End Customers
Samsung . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Distributors
Edom. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Uniquest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
** Less than 10% of revenue.
December 31,
2005
Year Ended
January 1,
2005
January 3,
2004
14%
17%
21 %
29%
11%
20%
12%
13 %
**
F-11
2. SIGNIFICANT ACCOUNTING POLICIES (Continued)
The Company is particularly dependent on sales of its Aero Transceiver mobile handset product and
its subsequent derivatives, which represented 44%, 48% and 42% of the Company’s total revenues in fiscal
years 2005, 2004 and 2003, respectively.
REVENUE RECOGNITION
Revenues are generated almost exclusively by sales of the Company’s ICs. The Company recognizes
revenue when all of the following criteria are met: 1) there is persuasive evidence that an arrangement
exists, 2) delivery of goods has occurred, 3) the sales price is fixed or determinable, and 4) collectibility is
reasonably assured. Revenue from product sales direct to customers and contract manufacturers is
generally recognized upon shipment. Certain of the Company’s sales are made to distributors under
agreements allowing certain rights of return and price protection on products unsold by distributors.
Accordingly, the Company defers revenue and gross profit on such sales until the distributors sell the
product to the end customer.
ADVERTISING
Advertising costs are expensed as incurred. Advertising expenses were $1.5 million, $1.5 million and
$0.8 million in fiscal years 2005, 2004, and 2003, respectively.
STOCK-BASED COMPENSATION
FASB SFAS No. 123, “Accounting for Stock-Based Compensation” (SFAS 123), prescribes
accounting and reporting standards for all stock-based compensation plans, including employee stock
options. As allowed by SFAS 123, the Company has elected to continue to account for its employee
stock-based compensation using the intrinsic value method in accordance with Accounting Principles
Board (APB) Opinion No. 25, “Accounting for Stock Issued to Employees”. The Company’s basis for
electing accounting treatment under APB Opinion No. 25 is principally due to the satisfactory
incorporation of the dilutive effect of these shares in the reported earnings per share calculation and the
presence of pro forma supplemental disclosure of the estimated fair value methodology prescribed by
SFAS 123 and FASB SFAS No. 148, “Accounting for Stock-Based Compensation—Transition and
Disclosure”.
In fiscal 2005, the Company awarded restricted stock units (RSUs) to its employees under its 2000
Stock Incentive Plan. Shares of the Company’s stock are issued upon the vesting of the RSUs. The majority
of the awards vest over a five year period, with pro rata vesting of the awards on each of the annual
anniversary dates of the initial grant. The intrinsic value of the awards determined on the date of grant is
recognized as compensation cost over the vesting period on a straight-line basis. Such costs are included in
the same functional categories (cost of revenues; research and development; and selling, general and
administrative) as cash compensation paid to the recipients in the consolidated statements of income, with
corresponding credits to additional paid-in capital.
F-12
2. SIGNIFICANT ACCOUNTING POLICIES (Continued)
The following table illustrates the effect on net income and net income per share if the Company had
applied the fair value recognition provisions of SFAS 123 (in thousands, except per share data):
Net income—as reported . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total stock-based compensation cost, net of related tax
effects, included in the determination of net income as
reported . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
The stock-based employee compensation cost, net of
related tax effects, that would have been included in the
determination of net income if the fair value based
method had been applied to all awards. . . . . . . . . . . . . . .
Pro forma net income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income per share
December 31,
2005
$ 47,506
Year Ended
January 1,
2005
$ 76,693
January 3,
2004
$ 44,716
4,648
2,354
3,345
(30,693)
$ 21,461
(29,998)
$ 49,049
(23,027)
$ 25,034
Basic—as reported . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Basic—pro forma . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted—as reported . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted—pro forma . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
$
$
0.89
0.40
0.86
0.39
$
$
$
$
1.49
0.95
1.39
0.90
$
$
$
$
0.92
0.51
0.86
0.49
In December 2004, the FASB issued SFAS 123 (revised 2004), “Share-Based Payment”. See
RECENT ACCOUNTING PRONOUNCEMENTS below for additional information.
OTHER COMPREHENSIVE INCOME
FASB SFAS No. 130, “Reporting Comprehensive Income”, establishes standards for reporting and
display of comprehensive income and its components in the financial statements. There were no significant
differences between net income and comprehensive income during any of the periods presented.
INCOME TAXES
The Company accounts for income taxes in accordance with FASB SFAS No. 109, “Accounting for
Income Taxes”. This statement requires the use of the asset and liability method whereby deferred tax
asset and liability account balances are determined based on differences between financial reporting and
the tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in
effect when the differences are expected to reverse. These differences result in deferred tax assets and
liabilities, which are included in the Company’s consolidated balance sheet. The Company then assesses
the likelihood that the deferred tax assets will be recovered from future taxable income. A valuation
allowance is established against deferred tax assets to the extent the Company believes that recovery is not
likely based on the level of historical taxable income and projections for future taxable income over the
periods in which the temporary differences are deductible.
SEGMENT REPORTING
The Company has one operating segment, mixed-signal analog intensive ICs, consisting of numerous
product areas. The Company’s chief operating decision maker is considered to be the Chief Executive
Officer. The chief operating decision maker allocates resources and assesses performance of the business
and other activities at the operating segment level.
F-13
2. SIGNIFICANT ACCOUNTING POLICIES (Continued)
Revenue is attributed to a geographic area based on the end customer’s shipped-to location.
Approximately $385.9 million, $404.6 million and $260.2 million of the Company’s revenues were from
export sales for fiscal years 2005, 2004 and 2003, respectively. In fiscal 2005, South Korea, Taiwan and
China accounted for $71.7 million, $71.4 million and $56.1 million of revenues, respectively. In fiscal 2004,
South Korea, Taiwan and China accounted for $129.2 million, $70.8 million and $46.6 million of revenues,
respectively. During fiscal 2005, sales of the Company’s mobile handset products and broad-based
mixed-signal products accounted for approximately 44% and 56% of the Company’s revenues, respectively.
During fiscal 2004 and 2003, sales of the Company’s mobile handset products and broad-based
mixed-signal products each accounted for approximately 50% of the Company’s revenues.
The long-lived assets of the Company’s wholly owned foreign subsidiaries were not material in all
periods presented.
EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted net income per share (in
thousands, except per share data):
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Basic:
Weighted-average shares of common stock outstanding . . . . . . .
Weighted-average shares of common stock subject to
repurchase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Shares used in computing basic net income per share . . . . . . . . .
Effect of dilutive securities:
Weighted-average shares of common stock subject to
repurchase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Contingent shares, acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock options and awards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Shares used in computing diluted net income per share . . . . . . .
December 31,
2005
$47,506
Year Ended
January 1,
2005
$ 76,693
January 3,
2004
$ 44,716
53,527
51,811
49,484
(128)
53,399
(340)
51,471
(634)
48,850
98
267
1,721
55,485
274
139
3,099
54,983
511
—
2,927
52,288
Basic net income per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted net income per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
0.89
0.86
$
$
1.49
1.39
$
$
0.92
0.86
Approximately 3.7 million, 1.6 million and 1.0 million weighted-average dilutive potential shares of
common stock have been excluded from the diluted net income per share calculation for the fiscal years
ended December 31, 2005, January 1, 2005 and January 3, 2004, respectively, as the exercise price of the
underlying stock options exceeded the average market price of the stock during the respective periods. The
Company has issued 2.0 million shares of common stock during the fiscal year ended December 31, 2005,
net of repurchases.
F-14
2. SIGNIFICANT ACCOUNTING POLICIES (Continued)
RECENT ACCOUNTING PRONOUNCEMENTS
In December 2004, the FASB issued SFAS 123 (revised 2004), “Share-Based Payment”, (SFAS
123R). SFAS 123R addresses the accounting for share-based payments to employees, including grants of
employee stock options. Under the new standard, companies will no longer be able to account for
share-based compensation transactions using the intrinsic value method in accordance with APB Opinion
No. 25. Instead, companies will be required to account for such transactions using a fair-value method and
recognize the expense in the consolidated statement of income. The Company expects to use the
Black-Scholes option pricing model to determine the fair value of the Company’s stock-based awards.
SFAS 123R requires companies to use either the modified-prospective or modified-retrospective transition
method. The Company intends to use the modified-prospective transition method. Under this method,
compensation cost is recognized for all awards granted, modified or settled after the adoption date as well
as for any awards that were granted prior to the adoption date for which the requisite service has not yet
been rendered. SFAS 123R was originally effective for reporting periods that began after June 15, 2005. In
April 2005, the SEC announced the adoption of a new rule allowing companies to implement SFAS 123R
at the beginning of their next fiscal year that begins after June 15, 2005. The Company intends to adopt
SFAS 123R at the beginning of the first quarter of fiscal 2006. The Company expects that the adoption of
SFAS 123R will have a significant negative impact on its results of operations, but will not impact its
overall financial position. The impact of adoption of SFAS 123R cannot be predicted at this time because
it will depend on levels of share-based payments granted in the future. However, had the Company
adopted 123R in prior periods, the impact of that standard would have approximated the impact of SFAS
123 as described in the disclosure of pro forma net income and net income per share above in Note 2 to the
Company’s consolidated financial statements.
3. ACQUISITIONS
Cygnal Integrated Products, Inc.
On December 10, 2003, the Company completed its acquisition of Cygnal Integrated Products, Inc.
(Cygnal), an innovator in analog-intensive, highly integrated 8-bit microcontrollers (MCUs). The following
presents the unaudited pro forma combined results of operations of the Company with Cygnal, after giving
effect to certain pro forma adjustments (amortization of acquired intangibles and stock compensation,
accrued retention bonuses and income tax benefit), as if Cygnal had been acquired as of the beginning of
the fiscal year. The unaudited pro forma financial information for the fiscal year ended January 3, 2004
gives effect to the merger as if it had occurred at the beginning of the period presented, and combines the
audited historical statement of operations of the Company for the fiscal year ended January 3, 2004 and
the unaudited historical statement of operations of Cygnal for the year ended December 31, 2003 (in
thousands, except per share data):
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted net income per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal Year Ended
January 3, 2004
(Unaudited)
$331,997
39,098
0.73
The pro forma information is presented for illustrative purposes only and is not necessarily indicative
of the operating results or financial position that would have occurred if the merger and the acquisition
had been consummated as of the dates indicated, nor is it necessarily indicative of future operating results
or financial position.
F-15
3. ACQUISITIONS (Continued)
Approximately $1.6 million of the purchase price related to the fair-value of in-process research and
development (IPR&D) and was charged to operations during fiscal 2003. The IPR&D was made up of two
micro-controller projects which were estimated to be 75% complete as of the date of the acquisition. The
fair value of the IPR&D was determined using the income approach. Under the income approach, the fair
value reflected the present value of the projected cash flows that were expected to be generated by the
products incorporating the IPR&D, if successful. The projected cash flows were discounted to approximate
fair value. The discount rate applicable to the cash flows of each project reflected the stage of completion
and other risks inherent in each project. The weighted average discount rate used in the valuation of
IPR&D was approximately 15%. As of December 31, 2005, the Company had completed both of these
projects. The Company estimates that it spent an aggregate of $0.9 million to complete these projects.
The Company was obligated to potentially issue up to a maximum of 1,290,963 additional shares of
common stock to shareholders of Cygnal based on the achievement of certain revenue milestones during
the twelve-month earn out period commencing on April 4, 2004 and ending on April 2, 2005. Based upon
the revenue achievement, the Company issued an aggregate of approximately 1,081,000 additional shares.
The Company issued approximately 712,000 of these shares during the second quarter of fiscal 2005. In
accordance with Emerging Issues Task Force (EITF) Issue No. 99-12, “Determination of the
Measurement Date for the Market Price of Acquirer Securities Issued in a Purchase Business
Combination”, the Company used $26.67 per share to value the earn-out shares issued to former Cygnal
shareholders in this final distribution. This price per share represented the average of the closing prices of
Silicon Laboratories common stock for the three days before and after the date of the final distribution
which occurred on May 18, 2005. The value of such additional consideration was $19.0 million, which
increased the amount of the purchase price allocable to goodwill.
Silicon MAGIKE, Inc.
On August 19, 2005, the Company completed its acquisition of Silicon MAGIKE, Inc. (Silicon
MAGIKE), a mixed-signal development-stage enterprise that develops high-voltage, high-performance,
mixed-signal ICs. The Company acquired all of the outstanding capital stock of Silicon MAGIKE for initial
consideration of $15.9 million. Of such initial consideration, the Company withheld $1.0 million to be paid
in quarterly installments over two years based upon the satisfaction of certain continued employment
obligations and the Company withheld $1.6 million for approximately two years as security for potential
indemnification obligations. The Company is also obligated to pay between $0 and $24.0 million to the
shareholders of Silicon MAGIKE based on the achievement of certain business performance metrics
during the eighteen-month period ending on June 30, 2007. The performance metrics are tied to revenue
milestones, gross margins and customer diversity requirements.
F-16
3. ACQUISITIONS (Continued)
Through the acquisition, the Company acquired engineering expertise and significant development
progress on high-voltage products. In accordance with EITF Issue No. 98-3, “Determining Whether a
Nonmonetary Transaction Involves Receipt of Productive Assets or of a Business”, this transaction was
accounted for as a purchase of assets. The purchase price was allocated as follows (in thousands):
Intangible assets:
Employment contract. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Employees with skills, knowledge, and relationships . . . . . . . . . . . . . . . . . .
Assembled workforce. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquired research and development. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net fair value of tangible assets acquired and liabilities assumed . . . . . . . . .
Total purchase price. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization
Period
2 years
5 years
5 years
$ 1,000
635
508
2,143
13,687
48
$15,878
The acquired research and development had not achieved technological feasibility and had no
alternative future use, therefore, the costs were expensed in the “research and development” line of the
consolidated statements of income on the date of acquisition. Significant research and development
technologies acquired from Silicon MAGIKE include Voice, High Voltage and other power-related
technologies. Voice technologies serve the voice over internet protocol (VoIP) market. High voltage
technologies serve a variety of markets including device protection and multimode switching regulation.
The other power-related technologies provide the capability to deliver both power and data over standard
network cabling, reducing costs and required space. The fair value of the acquired technologies was
determined using discounted cash flow analysis. The discount rate applicable to the cash flows of the
technologies acquired reflects the relative risk under consideration. The Company doesn’t expect the
products derived from these technologies to begin to contribute to revenues prior fiscal 2007. Acquired
research and development consists of the following (in thousands):
Technology
Voice. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
High Voltage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other power-related. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fair
Value
Assigned
$ 5,785
5,644
2,258
$ 13,687
Projected
Costs to
Complete
$1,739
2,007
2,494
$ 6,240
Risk
Adjusted
Discount
Rate
30%
33%
27%
F-17
4. GOODWILL AND OTHER INTANGIBLE ASSETS
The following information details the gross carrying amount and accumulated amortization of
goodwill and other intangible assets (in thousands):
Weighted-
Average
Amortization
Period
(Years)
Amortized intangible assets:
Core & developed technology . .
Customer relationships . . . . . . . .
Internal use software . . . . . . . . . .
Patents . . . . . . . . . . . . . . . . . . . . . .
Employment-related(1) . . . . . . . .
9.0
6.0
5.7
6.7
3.6
Unamortized intangible assets:
Goodwill(2) . . . . . . . . . . . . . . . . . .
December 31, 2005
Gross
Amount
Accumulated
Amortization
January 1, 2005
Gross
Amount
Accumulated
Amortization
$ 9,250
2,100
1,300
5,193
2,448
$ 20,291
$(2,112)
(719)
(488)
(1,708)
(426)
$ (5,453)
$ 9,250
2,100
1,300
5,168
305
$ 18,123
$(1,084)
(369)
(251)
(938)
(97)
$(2,739)
$ 62,877
$ — $ 46,766
$ —
(1) During fiscal 2005, the Company acquired employment-related intangibles associated with the
acquisition of Silicon MAGIKE for $2.1 million.
(2) During fiscal 2005, goodwill associated with the acquisition of Cygnal increased by $19.0 million due
to contingent earn-out shares issued to former Cygnal shareholders, offset by a decrease of $2.9
million in connection with acquired tax attribute carryovers.
Amortization expense related to other intangible assets for fiscal years 2005, 2004, and 2003 was
$2.7 million, $2.2 million, and $0.4 million, respectively. The following table details the estimated aggregate
amortization expense for other intangible assets for each of the 5 succeeding fiscal years (in thousands):
For fiscal year 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
For fiscal year 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
For fiscal year 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
For fiscal year 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
For fiscal year 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$3,152
2,923
2,448
2,338
1,737
5. STOCKHOLDERS’ EQUITY
COMMON STOCK
The Company had 54,530,425 shares of common stock outstanding as of December 31, 2005. Of these
shares, 40,503 shares were unvested and subject to rights of repurchase that lapse according to a time
based vesting schedule.
As of December 31, 2005, the Company had reserved shares of common stock for future issuance as
follows:
Employee Stock Option Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Employee Stock Purchase Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total shares reserved . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
13,885,810
1,126,016
15,011,826
F-18
5. STOCKHOLDERS’ EQUITY (Continued)
The shares issuable under the 2000 Stock Incentive Plan and Employee Stock Purchase Plan
automatically increase on the first stock market trading day of each calendar year. On January 3, 2005 the
amount of shares reserved for the 2000 Stock Incentive Plan and the Employee Stock Purchase Plan
increased by 2,625,405 and 250,000, respectively.
EMPLOYEE STOCK PURCHASE PLAN
The Employee Stock Purchase Plan (the Purchase Plan) was adopted by the Company’s board of
directors on January 5, 2000. Eligible employees may purchase a limited number of shares of the
Company’s common stock at 85% of the market value during a series of offering periods. Each offering
period is divided into semi-annual purchase intervals and has a maximum term of 24 months. As of
December 31, 2005, a total of 1,628,306 shares of the Company’s common stock were authorized for
issuance under the Purchase Plan. There were 132,579, 109,268 and 85,661 shares issued under the
Purchase Plan in fiscal 2005, 2004 and 2003, respectively.
STOCK OPTION/STOCK ISSUANCE PLANS
In fiscal 2000, the Company’s board of directors and stockholders approved the 2000 Stock Incentive
Plan (the 2000 Plan). The 2000 Plan contains programs for (i) the discretionary granting of stock options to
employees, non-employee board members and consultants for the purchase of shares of the Company’s
common stock, (ii) the discretionary issuance of common stock directly to employees (as granted under
direct issuance shares and RSUs), (iii) the granting of special below-market stock options to executive
officers and other highly compensated employees of the Company for which the exercise price can be paid
using payroll deductions and (iv) the automatic issuance of stock options to non-employee board members.
The discretionary issuance of common stock and the stock options contain vesting provisions generally
ranging from three to eight years. If permitted by the Company, stock options can be exercised
immediately and, similar to the direct issuance shares, are subject to repurchase rights which generally
lapse in accordance with the vesting schedule. The repurchase rights provide that upon certain defined
events, the Company can repurchase unvested shares at the price paid per share. The term of each stock
option is no more than ten years from the date of grant. At December 31, 2005, 23,088,622 shares were
authorized for issuance under the 2000 Plan.
Deferred stock compensation represents the difference between the exercise price of the options or
the purchase price of the direct issuance shares, and the market price on the date of grant. Amortization of
stock compensation consists primarily of amortization of deferred stock compensation and compensation
expense related to RSUs. The deferred stock compensation is amortized using the straight-line method
over the service period of the applicable options or shares, generally five to eight years. In connection with
grants of RSUs, the fair market value of our common stock on the date of the grant is recognized over the
service period of the applicable grant, which is typically three to eight years.
F-19
5. STOCKHOLDERS’ EQUITY (Continued)
A summary of the Company’s stock compensation activities and related information follows:
Balance at December 29, 2002 . . . . . . . . .
Additional shares reserved . . . . . . . . . . . .
Granted. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cancelled . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repurchase and cancellation of
Shares
Available
For Grant
930,957
5,007,057
(2,090,550)
Outstanding
Options
and Awards
8,350,534
—
2,090,550
— (1,063,218)
(387,452)
387,452
unvested shares . . . . . . . . . . . . . . . . . . . .
5,234
—
Balance at January 3, 2004. . . . . . . . . . . . .
Additional shares reserved . . . . . . . . . . . .
Granted. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cancelled . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repurchase and cancellation of
4,240,150
—
(1,949,300)
—
161,469
8,990,414
—
1,949,300
(797,103)
(161,469)
unvested shares . . . . . . . . . . . . . . . . . . . .
5,000
—
Balance at January 1, 2005. . . . . . . . . . . . .
Additional shares reserved . . . . . . . . . . . .
Options granted. . . . . . . . . . . . . . . . . . . . . .
Awards granted . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . .
Options cancelled . . . . . . . . . . . . . . . . . . . .
Awards cancelled. . . . . . . . . . . . . . . . . . . . .
Repurchase and cancellation of
2,457,319
2,625,405
(1,629,874)
(1,154,246)
9,981,142
—
1,629,874
1,154,246
— (1,208,885)
(1,027,788)
(3,066)
1,027,788
3,066
Exercise
Prices
-
$ 0.00
Weighted-Average
Exercise
Price
$19.91
—
35.46
13.87
30.92
$74.75
—
52.18
38.50
62.50
0.00
0.00
0.00
0.00
0.00
30.12
0.00
2.00
0.00
0.00
25.07
0.00
0.00
0.00
0.00
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
10.00
74.75
—
58.83
55.38
55.38
0.00
74.75
—
39.16
0.00
38.50
74.75
0.00
1.75
4.08
23.77
—
39.50
12.90
33.95
0.00
27.54
—
31.09
0.00
14.35
33.25
0.00
0.40
$66.00
$29.23
unvested shares . . . . . . . . . . . . . . . . . . . .
30,829
—
0.00
Balance at December 31, 2005 . . . . . . . . .
3,360,287
10,525,523
$ 0.00
The following table summarizes information about stock options that were outstanding and
exercisable at December 31, 2005.
Range of
Exercise Prices
$ 0.00 - $15.10
15.44 - 24.30
24.60 - 30.63
30.75 - 33.17
33.54 - 43.58
43.73 - 58.83
62.50 - 66.00
$ 0.00 - $66.00
Outstanding
Weighted-
Average
Remaining
Contractual
Life in Years
4.87
6.24
8.34
7.73
8.25
7.11
4.46
7.05
Exercisable
Weighted-
Average
Exercise Price
$10.90
21.42
27.86
32.13
37.50
49.22
63.08
$29.23
Number of
Options
1,269,461
1,088,651
501,031
650,953
445,821
755,831
24,000
4,735,748
Weighted-
Average
Exercise
Price
$10.22
20.64
27.48
31.62
38.02
49.73
63.08
$26.57
Number of
Options
1,481,769
1,913,067
1,438,746
1,816,268
1,360,155
1,340,338
24,000
9,374,343
F-20
5. STOCKHOLDERS’ EQUITY (Continued)
In addition, the following table summarizes information about RSUs granted that were outstanding
and exercisable at December 31, 2005.
Range of
Exercise Prices
$0.00 - $0.00 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Number of
Awards
Outstanding
1,151,180
Weighted-
Average
Remaining
Period in Years
4.39
Weighted-
Average
Exercise Price
$0.00
Pro forma information regarding net income (loss) is required by SFAS 123, and has been determined
as if the Company had accounted for its stock-based awards to employees under the fair value method of
that Statement. The fair value of these stock-based awards was estimated at the date of grant using the
Black-Scholes option pricing model with the following assumptions:
Employee Stock Option Plans:
Expected stock price volatility . . . . . . . . . . . . . . . . . . . . . . .
Risk-free interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected life (in years) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividend yield . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Employee Stock Purchase Plan:
Expected stock price volatility . . . . . . . . . . . . . . . . . . . . . . .
Risk-free interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected life (in months) . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividend yield . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31,
2005
Year Ended
January 1,
2005
January 3,
2004
53%
3.9%
4.8
—
55%
3.5%
15
—
60%
3.5%
5.7
—
73%
1.4%
17
—
70%
2.9%
5.2
—
77%
1.1%
16
—
The weighted-average exercise price and fair value for options granted and discretionary issuance of
common stock during fiscal 2005 is as follows:
Exercise price equal to price of stock on date of
grant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,629,874
$ 31.09
$ 15.15
Exercise price less than price of stock on date of
grant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,154,246
$ —
$32.17
Number of
Options/Shares
Weighted-
Average
Exercise Price
Weighted-
Average Fair
Value
The weighted-average fair value for purchase rights granted under the Purchase Plan for fiscal 2005
was $10.12.
Option valuation models require the input of highly subjective assumptions, including the expected
stock price volatility. Because changes in the subjective assumptions can materially affect the fair value
estimate, in the opinion of management, the existing models do not necessarily provide a reliable single
measure of the fair value of the Company’s stock-based awards to employees.
F-21
6. COMMITMENTS AND CONTINGENCIES
The Company leases its facilities under operating lease agreements that expire at various dates
through 2010. Some of these arrangements contain renewal options, and require the Company to pay
taxes, insurance and maintenance costs.
Rent expense under operating leases was $3.4 million, $3.0 million and $2.5 million for fiscal 2005,
2004 and 2003, respectively.
The minimum annual future rentals under the terms of these leases at December 31, 2005 are as
follows (in thousands):
FISCAL YEAR
2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total minimum lease payments. . . . . . . . . . . . . . . . . . . . . .
Minimum sublease rental income . . . . . . . . . . . . . . . . . . . .
Total net minimum lease payments . . . . . . . . . . . . . . . . . .
$ 4,044
3,639
3,480
2,903
581
—
14,647
(988)
$13,659
F-22
6. COMMITMENTS AND CONTINGENCIES (Continued)
Securities Litigation
On December 6, 2001, a class action complaint for violations of U.S. federal securities laws was filed
in the United States District Court for the Southern District of New York against the Company, four
officers individually and the three investment banking firms who served as representatives of the
underwriters in connection with the Company’s initial public offering of common stock. The Consolidated
Amended Complaint alleges that the registration statement and prospectus for the Company’s initial
public offering did not disclose that (1) the underwriters solicited and received additional, excessive and
undisclosed commissions from certain investors, and (2) the underwriters had agreed to allocate shares of
the offering in exchange for a commitment from the customers to purchase additional shares in the
aftermarket at pre-determined higher prices. The action seeks damages in an unspecified amount and is
being coordinated with approximately 300 other nearly identical actions filed against other companies. A
court order dated October 9, 2002 dismissed without prejudice the four officers of the Company who had
been named individually. On February 19, 2003, the Court denied the motion to dismiss the complaint
against the Company. On October 13, 2004, the Court certified a class in six of the approximately 300 other
nearly identical actions and noted that the decision is intended to provide strong guidance to all parties
regarding class certification in the remaining cases. Plaintiffs have not yet moved to certify a class in the
Silicon Laboratories case. The Company has approved a settlement agreement and related agreements
which set forth the terms of a settlement between the Company, the plaintiff class and the vast majority of
the other approximately 300 issuer defendants. Among other provisions, the settlement provides for a
release of the Company and the individual defendants for the conduct alleged in the action to be wrongful.
The Company would agree to undertake certain responsibilities, including agreeing to assign away, not
assert, or release certain potential claims the Company may have against its underwriters. The settlement
agreement also provides a guaranteed recovery of $1 billion to plaintiffs for the cases relating to all of the
approximately 300 issuers. To the extent that the underwriter defendants settle all of the cases for at least
$1 billion, no payment will be required under the issuers’ settlement agreement. To the extent that the
underwriter defendants settle for less than $1 billion, the issuers are required to make up the difference.
The Company anticipates that its potential financial obligation to plaintiffs pursuant to the terms of the
settlement agreement and related agreements will be covered by existing insurance. The Company is not
aware of any material limitations on the expected recovery of any potential financial obligation to plaintiffs
from its insurance carriers. Its carriers appear to be solvent, and the Company is not aware of any
uncertainties as to the legal sufficiency of an insurance claim with respect to any recovery by plaintiffs.
Therefore, the Company does not expect that the settlement would involve any material payment by it.
Furthermore, even if the Company’s insurance were unavailable due to insurer insolvency or otherwise, the
Company expects that its maximum financial obligation to plaintiffs pursuant to the settlement agreement
would be less than $3.4 million. On February 15, 2005, the Court granted preliminary approval of the
settlement agreement, subject to certain modifications consistent with its opinion. Those modifications
have been made. There is no assurance that the Court will grant final approval to the settlement. If the
settlement agreement is not approved and the Company is found liable, the Company is unable to estimate
or predict the potential damages that might be awarded, whether such damages would be greater than the
Company’s insurance coverage, or whether the outcome would have a material impact on the Company’s
results of operations or financial position.
F-23
6. COMMITMENTS AND CONTINGENCIES (Continued)
Trade Secret and Patent Infringement Litigation
On February 17, 2004, the Company filed a lawsuit against a former employee and Axiom
Microdevices Inc., a California corporation, in the United States District Court for the Western District of
Texas, Austin Division, alleging theft of trade secrets by the individual and Axiom. The lawsuit also alleges
that the employee breached his ethical, contractual and fiduciary obligations to the Company by disclosing
trade secrets and confidential information to Axiom and that Axiom tortiously interfered with the
employee’s contractual obligations to the Company. On September 14, 2004, the Company added claims
for infringement of United States Patents 6,549,071 and 6,788,141 to the pending suit. The patents relate
to the Company’s proprietary technology for complementary metal oxide semiconductor (CMOS) RF
power amplifiers. At this time, the Company cannot estimate the outcome of this matter or resulting
financial impact to it, if any.
On December 14, 2005, Power-One, Inc. (Power-One), a Delaware corporation, filed a lawsuit against
the Company, in the United States District Court for the Eastern District of Texas, Marshall Division,
alleging infringement of United States Patents 6,936,999 and 6,949,916, and of patent applications Nos.
2004/0123164A1 and 2004/0093533A1. The lawsuit relates to the Company’s Si825x family of digital power
supply controllers and alleges that the infringement was and continues to be willful. At this time, the
Company cannot estimate the outcome of this matter or resulting financial impact to it, if any.
Other Litigation
The Company is involved in various other legal proceedings that have arisen in the normal course of
business. While the ultimate results of these matters cannot be predicted with certainty, the Company does
not expect them to have a material adverse effect on the consolidated financial position or results of
operations.
7.
INCOME TAXES
Significant components of the provision for income taxes attributable to continuing operations are as
follows (in thousands):
Current:
Domestic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
International . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Current. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred:
Domestic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
International . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Deferred . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31,
2005
Year Ended
January 1,
2005
January 3,
2004
$ 21,110
820
21,930
(4,132)
337
(3,795)
$ 18,135
$ 38,925
917
39,842
(4,449)
(510)
(4,959)
$ 34,883
$ 19,805
—
19,805
1,675
—
1,675
$ 21,480
F-24
7. INCOME TAXES (Continued)
The Company’s provision for income taxes differs from the expected tax expense amount computed by
applying the statutory federal income tax rate to income before income taxes as a result of the following:
Federal statutory rate . . . . . . . . . . . . . . . . . . . . . . . .
Foreign tax rate benefit . . . . . . . . . . . . . . . . . . . . . . .
Write-off of acquired research and development .
Research and development tax credits . . . . . . . . . .
Tax-exempt interest income . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31,
2005
35.0%
(5.7)
7.3
(4.6)
(3.3)
(1.1)
27.6%
Year Ended
January 1,
2005
35.0%
—
—
(3.0)
(0.8)
0.1
31.3 %
January 3,
2004
35.0%
—
—
(3.6)
(0.7)
1.7
32.4 %
Income before income taxes included approximately $19.0 million, $1.9 million, and $(0.1) million
related to foreign operations in fiscal 2005, 2004, and 2003, respectively.
At the end of fiscal 2005, undistributed earnings of the Company’s foreign subsidiaries of
approximately $14.5 million are considered permanently reinvested. Accordingly, no provision for U.S.
federal and state income taxes has been made. Determination of the amount of the unrecognized deferred
tax liability on these unremitted earnings is not practicable.
Significant components of the Company’s deferred taxes as of December 31, 2005 and January 1, 2005
are as follows (in thousands):
Deferred tax assets:
Net operating loss carryforward . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Research and development tax credit carryforwards . . . . . . . . . . . . . . . . . . . . .
Reserves and allowances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income on shipments to distributors . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued liabilities & other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax liabilities:
Acquired intangibles. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciable assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses & other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31,
2005
January 1,
2005
$ 6,559
2,062
1,193
8,063
2,903
20,780
(517)
20,263
3,973
621
615
5,209
$15,054
$ 8,020
1,607
1,490
6,912
2,316
20,345
(3,629)
16,716
3,904
3,382
773
8,059
$ 8,657
F-25
7.
INCOME TAXES (Continued)
As of December 31, 2005, the Company had federal net operating loss and research and development
credit carryforwards of approximately $17.3 million and $0.6 million respectively, as a result of the Cygnal
and Silicon MAGIKE acquisitions. These carryforwards expire in fiscal years 2019 through 2025.
Recognition of these loss and credit carryforwards is subject to an annual limit, which may cause them to
expire before they are used. Based on the 2004 utilization of the Cygnal net operating loss carryforward, as
well as an updated study of the future allowable utilization, the Company adjusted the valuation allowance
downward by $4.4 million in fiscal 2004. In fiscal 2005, the Company eliminated $3.1 million of the
remaining valuation allowance based on its expectations of the future realizability of the net operating loss
carryforwards. The elimination of this valuation allowance plus other adjustments reduced goodwill by
$2.9 million.
The Company also had state research and development credit carryforwards of approximately $2.3
million which expire in fiscal years 2023 through 2025 and are projected to be utilized against state income
taxes.
Deferred income taxes reflect the net tax effects of temporary differences between the carrying values
of assets and liabilities for financial reporting purposes and the values used for income tax purposes. Upon
the acquisition of Silicon MAGIKE in August 2005, the Company recorded a net deferred tax liability of
approximately $0.7 million due to differences between book and tax bases of acquired assets and assumed
liabilities.
The Company’s operations in Singapore are subject to reduced tax rates through 2019, as long as
certain conditions are met. The income tax benefit reflected in earnings was approximately $3.2 million,
representing $0.06 per diluted share, in fiscal 2005.
The American Jobs Creation Act created a one-time incentive for U.S. multinationals to repatriate
accumulated income earned outside the U.S. at a tax rate of 5.25%. The Company did not use such
one-time incentive.
The Company’s 2002 and 2003 federal income tax returns are currently under examination by the U.S.
Internal Revenue Service. The Company’s provision for income taxes includes amounts intended to satisfy
income tax assessments that may result from the examination of the Company’s corporate tax returns that
have been filed with federal, state or foreign taxing authorities. The Company establishes tax reserves
when it determines that the related tax contingency meets the probable and estimable criteria of FASB
SFAS No. 5, “Accounting for Contingencies.” The amounts ultimately paid upon resolution of these
contingencies could be materially different from the amounts included in the provision for income taxes
and result in additional tax benefit or expense depending on the ultimate outcome.
8. EMPLOYEE BENEFIT PLAN
The Company maintains a defined contribution or 401(k) Plan for its qualified U.S. employees.
Participants may contribute a percentage of their compensation on a pre-tax basis, subject to a maximum
annual contribution imposed by the Internal Revenue Code. The Company may make discretionary
matching contributions as well as discretionary profit-sharing contributions to the 401(k) Plan. The
Company’s contributions to the 401(k) Plan vest over four years at a rate of 25% per year. The Company
contributed $0.7 million, $0.7 million and $0.4 million to the 401(k) Plan during fiscal 2005, 2004 and 2003,
respectively.
F-26
SUPPLEMENTARY FINANCIAL INFORMATION (UNAUDITED)
Quarterly financial information for fiscal 2005 and 2004 is as follows. All quarterly periods reported
here had thirteen weeks (in thousands of dollars except per share amounts):
Fiscal 2005
Fiscal 2004
Fourth
Quarter
Third
Quarter
First
Quarter
Revenues . . . . . . . . . . $109,856 $103,913 $107,156 $104,764 $95,462 $121,010 $126,130 $113,623
51,895
Cost of revenues . . . .
Gross profit . . . . . . . .
61,728
Operating expenses:
Research and
48,576
58,580
43,121
52,341
47,269
56,644
49,499
60,357
57,571
68,559
53,733
67,277
48,560
56,204
First
Quarter
Third
Quarter
Second
Quarter
Second
Quarter
Fourth
Quarter
development . . .
23,692
36,604
21,374
19,553
20,711
19,579
18,739
19,027
Selling, general &
administrative . .
Operating expenses. .
Operating income . . .
Other income
(expense):
Interest income . . .
Interest expense . .
Other income
18,898
42,590
17,767
17,480
54,084
2,560
19,297
40,671
17,909
16,878
36,431
19,773
15,426
36,137
16,204
17,297
36,876
30,401
16,914
35,653
32,906
15,527
34,554
27,174
2,743
(191 )
2,138
(30)
1,992
(45)
1,412
(56)
1,194
(68)
790
(78 )
591
(115 )
479
(50)
(expense), net . .
(91 )
(48)
(178)
(15)
169
(29 )
193
1,815
Income before
income taxes. . . . . .
20,228
4,620
19,678
21,114
17,499
31,084
33,575
29,418
Provision for income
taxes. . . . . . . . . . . . .
4,965
5,365
4,064
3,741
4,570
10,041
10,769
9,503
Net income (loss) . . . $ 15,263 $
(745) $ 15,614 $ 17,373 $ 12,929 $ 21,043 $ 22,806 $ 19,915
Net income (loss) per
share:
Basic . . . . . . . . . . . . $
Diluted . . . . . . . . . . $
Weighted-average
common shares
outstanding:
Basic . . . . . . . . . . . .
Diluted . . . . . . . . . .
0.28 $
0.27 $
(0.01) $
(0.01) $
0.29 $
0.28 $
0.33 $
0.31 $
0.25 $
0.24 $
0.41 $
0.39 $
0.44 $
0.41 $
0.39
0.36
54,210
56,206
53,770
53,770
53,149
55,027
52,468
55,365
52,008
54,632
51,389
54,547
51,328
55,294
50,992
55,290
The Company has reclassified share-based payment arrangements previously recorded as
“amortization of stock compensation” to the same line or lines as cash compensation paid to the same
employees in accordance with SAB 107. The following table summarizes amortization of stock
compensation that is now recorded within the appropriate functional categories in the consolidated
statements of income (in thousands):
Fiscal 2005
Fiscal 2004
Fourth
Quarter
Third
Quarter
Second
Quarter
First
Quarter
Fourth
Quarter
Third
Quarter
Second
Quarter
58 $
20 $
10 $
10 $
13 $
21 $
27 $
First
Quarter
29
Cost of revenues . . . . $
Research and
development. . . . . .
1,081
657
479
586
659
723
872
885
Selling, general &
administrative . . . .
Total . . . . . . . . . . . . . . $
1,274
2,413 $
263
940 $
160
649 $
157
753 $
182
854 $
239
983 $
264
1,163 $
323
1,237
AS A PERCENTAGE OF REVENUES
Fiscal 2005
Fiscal 2004
Third
Quarter
Second
Quarter
First
Fourth
Quarter
Quarter
100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
45.1
54.9
Second
Quarter
Fourth
Quarter
Third
Quarter
First
Quarter
45.7
54.3
45.5
54.5
45.3
54.7
45.2
54.8
46.3
53.7
44.4
55.6
45.6
54.4
Revenues . . . . . . . . . . .
Cost of revenues . . . . .
Gross profit . . . . . . . . .
Operating expenses:
Research and
development . . . .
21.5
35.3
19.9
18.7
21.7
16.2
14.9
16.7
Selling, general &
administrative . . .
Operating expenses. . .
Operating income . . . .
Other income
(expense):
Interest income . . . .
Interest expense . . .
Other income
(expense), net . . .
Income before income
taxes. . . . . . . . . . . . . .
Provision for
17.2
38.7
16.2
16.8
52.1
2.4
18.1
38.0
16.7
16.1
34.8
18.9
16.2
37.9
16.9
14.3
30.5
25.1
13.4
28.3
26.1
2.5
(0.2 )
2.1
(0.0)
1.9
(0.0)
1.4
(0.1)
1.3
(0.1)
0.7
(0.1 )
0.5
(0.1 )
(0.1 )
(0.0)
(0.2)
(0.0)
0.2
0.0
0.1
13.7
30.4
23.9
0.4
0.0
1.6
income taxes. . . . . . .
4.5
18.4
4.5
5.2
18.4
20.2
18.3
25.7
26.6
25.9
3.8
3.6
4.8
8.3
8.5
8.4
Net income (loss) . . . .
13.9% (0.7)%
14.6%
16.6%
13.5%
17.4% 18.1%
17.5%
Supplementary Financial Information
to the Annual Report
Appendix I. Reconciliation of GAAP
to Non-GAAP Financial Measures
Appendix I: SUPPLEMENTAL FINANCIAL INFORMATION (UNAUDITED)
The non-GAAP financial measurements provided below do not replace the presentation of
Silicon Laboratories’ GAAP financial results. These measurements merely provide
supplemental information to assist investors in analyzing Silicon Laboratories’ financial
position and results of operations; however, these measures are not in accordance with, or an
alternative to, GAAP and may be different from non-GAAP measures used by other
companies. We are providing this information because it may enable investors to perform
meaningful comparisons of operating results, and more clearly highlight the results of core
ongoing operations.
Reconciliation of GAAP to Non-GAAP Financial Measures (in thousands)
Net income (loss)
Adjustments:
Research and development grant
Separation agreement charge,
net of taxes
Acquired research and
development costs
Taxes
Stock compensation expense
Adjustments
Fiscal 2004
Fiscal 2005
First
Quarter
$19,915
Second
Quarter
$22,806
Third
Quarter
$21,043
Fourth
Quarter
$12,929
First
Quarter
$17,373
Second
Quarter
$15,614
Third
Quarter
$ (745)
Fourth
Quarter
$15,263
--
--
--
--
(1,439)
--
--
--
--
--
--
--
--
1,486
--
--
--
--
1,237
1,237
--
--
1,163
1,163
--
--
983
983
--
--
854
854
--
--
753
(686)
--
--
649
2,135
13,687
588
940
15,215
--
--
2,413
2,413
Adjusted net income
$21,152
$23,969 $22,026
$13,783
$16,687
$17,749
$14,470
$17,676
D i rec to rs
co rp o r ate i n fo r m ati o n
Vice President and Fellow,
American Stock Exchange.
Stock Listing
Stock Data
Common stock traded on NASDAQ ®
As of February 1, 2006, there were
Symbol
SLAB
Options
The Company’s options are traded on the
Chicago Board Option Exchange and the
Legal Counsel
DLA Piper Rudnick Gray Cary US LLP
1221 South MoPac Expressway, Suite 400
Austin, TX 78746-6875
Independent Registered
Public Accounting Firm
Ernst & Young LLP
700 Lavaca Street, Suite 1400
Austin, TX 78701
230 holders of record of the Company’s
Common Stock.
The following tables set forth for the periods
indicated, the record of high and low per
share prices of the Company’s Common Stock
as reported by the NASDAQ.
Q1 2004
$59.92
$44.00
H i g H
l o w
Q2 2004
Q3 2004
Q4 2004
Q1 2005
Q2 2005
Q3 2005
Q4 2005
59.45
43.95
37.50
36.60
31.42
33.98
41.86
42.88
29.02
26.89
26.88
24.62
25.46
26.51
Transfer Agent and Registrar
American Stock Transfer & Trust Company
Annual Meeting
59 Maiden Lane
Plaza Level
New York, NY 10038
800-937-5449
The Silicon Laboratories Inc. annual meeting
will be held on Wednesday, April 19, 2006
at 9:30 a.m. Central Time at the Lady Bird
Johnson Wildflower Center, 4801 La Crosse
Avenue, Austin, Texas.
Investor Relations
For more information about
Silicon Laboratories, please visit our
website at www.silabs.com, or contact:
Investor Relations
Silicon Laboratories Inc.
4635 Boston Lane
Austin, TX 78735
512-464-9254
investor.relations@silabs.com
Design by Cartis Group, Austin, TX.
Photography by Lesley Nowlin, Austin, TX.
Navdeep Sooch
Chairman of the Board,
Silicon Laboratories
Necip Sayiner, PhD
President and Chief Executive Officer,
Silicon Laboratories
David Welland
Silicon Laboratories
William Bock
CenterPoint Ventures,
Partner
Harvey B. Cash
InterWest Partners,
General Partner
Robert Ted Enloe, III
Balquita Partners, Ltd.,
Managing General Partner
Laurence G. Walker, PhD
William Wood
Silverton Partners,
General Partner
e xecutive o ffi cers
Necip Sayiner, PhD
President and Chief Executive Officer
Russell Brennan
Chief Financial Officer
Gary Gay
Vice President of Worldwide Sales
Jonathan Ivester
Vice President of Worldwide Operations
en g i n eeri n g fellows
Timothy Dupuis
Fellow
Donald Kerth
Fellow Emeritus
Jeffrey Scott
Fellow
David Welland
Vice President and Fellow
Silicon Laboratories Inc.
4635 Boston Lane Austin, TX 78735
512-416-8500
www.silabs.com
©2006 Silicon Laboratories Inc. Aero, AeroFONE, ISOmodem, ProSLIC, SiPHY, SiRX, Silicon Laboratories Inc. and the Silicon Laboratories logo are
trademarks of Silicon Laboratories Inc. All other products or brand names mentioned herein may be trademarks of their respective holders.